LSE Expands U.S. Bond Trading Platform03.07.2014
The London Stock Exchange has become the latest exchange to acquire an electronic bond trading platform after German rival Deutsche Börse made a similar investment last month.
MTS, a subsidiary of the London Stock Exchange, has agreed to acquire Bonds.com, a US based platform for trading US corporate and emerging market bonds.
George O’Krepkie, president of Bonds.com, told Markets Media that the firm has operated for a number of years, has more than 600 clients and its average deal size is $200,000.
“We have at least 12,000 bonds with prices on them,” he added. “When Dell announced its buyout and had to tender it’s bonds we had 20% of the total volume on the street.”
Last year MTS Markets International, a US subsidiary, was approved as a broker-dealer to allow US institutions to trade electronically with European dealers via its BondVision platform.
Mark Monahan, chief executive of MTS Markets International told Markets Media that since creating the broker-dealer the business has been talking to sell-side and buyside clients and should start trading before the Bonds.com deal closes. He said the eventual aim is to combine the two businesses but MTS will first invest in Bonds.com’s technology.
For example, last December MTS launched request-for-quote trading for exchange-traded funds on BondVision and this could be introduced to Bonds.com.
Monahan told Markets Media: “We will talk to clients about enhancements they would like but we could now add electronic trading of ETFs.”
O’Krepkie said: “Fixed income ETFs have introduced a lot of new participants to the market such as quant shops in Chicago who previously had a background in equities. We have seen a whole new set of users in the last year and a half.”
Monahan said the deal is a strategic move in line with trends in fixed income such as more electronic trading and globalisation with European investors wanting better access to the US market and vice versa. “The deal gives MTS a comprehensive offering in credit and rates in Europe and the US which in unique,” he added.
O’Krepkie said: “In the last 24 hours our clients have given us the thumbs up as we have a partner with a global footprint and capital.”
Jonty Field, head of EMEA at Quantitative Brokers, a provider of best execution fixed income algorithms to the buy-side, said in an email to Markets Media: “Market forces as well as regulatory pressure are driving trading to electronic platforms. This is not just going to improve operational efficiency and regulatory compliance. It will quickly open the door to better execution.”
Last month Deutsche Börse acquired a minority stake in Bondcube, a London and Boston-based electronic fixed income trading system.
Paul Reynolds, chief executive of Bondcube, told Markets Media in an email that the MTS deal shows the broad range of serious initiatives trying to solve the liquidity problem in fixed income as regulations have resulted in dealers butting their bind inventories.
“In the last month three different stock exchanges have announced new plans, NYSE Bondmatch auctions, Deutsche Börse’s minority investment in Bondcube and now LSE and Bonds.com. Furthermore Liquidnet are reported to be considering a tie-up with Vega-chi and a couple of months ago of course Tradeweb acquired Bonddesk,” added Reynolds. “On the other hand single dealer platforms seemed to have declined as a possible solution. It is not clear who will succeed, but there are plenty of possibilities.”
NSYE BondMatch’s request for auction service for large orders concentrates liquidity at two defined points in the trading day, and allows investors, via Bloomberg, to be kept informed of trading opportunities in real time through automated alerts.
This week Euronext, now a subsidiary of IntercontinentalExchange, announced that APG, the €344bn pension fund, has become the first Dutch institutional investor to operate as an intermediated participant on BondMatch.
The exchange launched BondMatch in 2011 to allow institutions to trade euro-denominated corporate, financial and property bonds and currently includes over 2,000 securities from more than 500 different European issuers.
Thijs Aaten, managing director treasury and trading, APG, said in a statement: “The current regulatory environment where trading and finding liquidity in fixed income instruments is increasingly difficult, makes us look for innovative alternatives. We think the BondMatch platform is such an alternative, because it offers a new market infrastructure that allows trading with a broad set of investors.”
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