Primary Bond Markets Need Electronification

Shanny Basar

Bond issuance would benefit from technology that increases efficiency according to the latest quarterly report from the International Capital Market Association.

Gabriel Callsen, associate, market practice and regulatory policy at ICMA, said in the report that investment grade primary bond markets offer potential for electronification.

He said: “This is reflected by a growing number of fintech initiatives in relation to the investment grade bond issuance process and life cycle, whether leveraging existing technology or early experiments building on distributed ledger technology.”

Callsen said investors want technology  in primary bond markets that increase efficiencies and offer straight-through processing by reducing manual processes, especially for deals that involve multiple syndicate desks.

“For example, from communicating with syndicates throughout the book building process; to providing feedback before deal completion; to exchanging information on and disclosing final pricing,” he added.

The issuance process would also benefit from standardising term sheets and deal documentation, enhancing access to prospectuses, improving the allocation process and standardising timeframes for communication, in particular for investors with global operations.

“To enable greater technology uptake, an open-source infrastructure utility would be desirable to allow connectivity to multiple technology providers and across multiple asset classes,” said Callsen.


Issuers also find bond issuance a manual and time-consuming process according to the report. They would benefit from direct connectivity and communication with investors but there are currently no common industry standards for electronic book building, which would be helpful for increasing the use of technology.

Gabriel Callsen, ICMA

“Technology has the potential to streamline both pre-book and book-building processes, improve pricing efficiency, and create greater transparency,” added Classen. “Clearing and settlement, as well as liability management processes also lend themselves to greater electronification.”

ICMA said bank syndicates are supportive of electronification and straight-through processing. The report noted: “Nonetheless, from an organisational perspective, it is worth bearing in mind that many banks are siloed across products, while investors often have a single desk both for primary and secondary bond markets”


In addition costs are an important consideration, as the industry has spent hundreds of millions of dollars implementing MiFID II, which went live in European Union this year, and more investment will be required for the Securities Financing Transactions Regulation, which is likely to be implemented next year.

Callsen continued that electronification in secondary bond markets was enabled by banks’ shrinking profit margins, reduced balance sheets, and liquidity concerns and the standardisation of trading protocols such as the request for quote. He suggested the most cost effective solution would be a one-stop infrastructure utility across asset classes that is based on open-source standards that allow connectivity to multiple technology providers.

“The development of rules and common standards would be critical to facilitate electronification of investment grade primary bond markets,” he added. “Also, primary markets may follow the trend towards differentiation between high touch (eg for illiquid, large sizes) and low touch business (eg liquid, small sizes) and automation of the latter.”

ICMA noted that a number of proofs of concept for the issuance of bonds based on distributed ledger technology have been developed in recent months.


This month the Financial Conduct Authority announced the fourth phase of firms accepted on its regulatory sandbox, which allows them to test innovative products, services or business models in a live market environment with the UK regulator.

Christopher Woolard, FCA

Christopher Woolard, executive director of strategy and competition at the FCA, said in a statement: “Cohort 4 has seen a large increase in the number of firms testing wholesale propositions including firms that are aiming to increase the efficiency of the capital-raising process. Alongside these we can see significant use of DLT, some experimentation with cryptoassets which will help inform our policy work and propositions aimed at helping lower income consumers.”

Eight firms, 27%, in cohort 4 operate in the wholesale sector, compared to three firms in the previous phase. The FCA said: “Over 40% of companies accepted to cohort four are using DLT. Of these, six are using DLT to automate the issuance of debt or equity.”

Firms looking to automate debt issuance include BlockEx, a platform that facilitates the issuance and manages the lifecycle of regulated bonds using DLT; and Globacap, a capital raising platform for small and medium-sized enterprises and institutional investors which facilitates the issuance process of debt and equity securities using DLT. In addition 20|30 is a DLT-based platform that allows companies to raise capital more efficiently who is working with the London Stock Exchange Group and Nivaura.

ICMA noted that although technology will make issuance more efficient, there is a common view that banks will still remain crucial for investment grade bond issuance.

“That is because banks perform regulated activities and play a key function by providing balance sheet, undertaking risk transformation, ensuring compliance for know your customer or anti-money laundering purposes, and acting as an intermediary and trusted party,” said the report.

Mandy De Filippo, ICMA

Mandy De Filippo, chair of ICMA, head of risk management (EMEA), fixed income & commodities Division, Morgan Stanley International, said in the report that technological developments are creating opportunities to adapt, shape and refine existing operating practices in the capital markets, including in response to new regulation.

She added: “For example, in the first six months of implementation, MIFID II has been instrumental in driving trading on to exchanges, and we expect this trend to continue as the market continues to adjust.”

In addition as more transaction data becomes publicly available this should start to generate greater levels of transparency and improve secondary market liquidity.

“As this matures, so electronification will offer solutions for those liquid markets to perfect flow business and create additional efficiencies,” she said. “Over the longer term, this trend should continue as more products are brought into scope of MiFID II.”

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