The Promised Land02.03.2023
Primary bond market technology has delivered a steady stream of notable enhancements in recent years, with a small number of platforms and niche service providers making strides and playing their part in the ultimate goal – to fully electronify primary markets and the debt issuance process.
Each of these initiatives are of course looking to solve for the ongoing fragmented, labour- and time-intensive issues associated with the existing primary market workflows — burdensome for both the buy side and the syndicate banks. To fully realize the potential of each company’s contribution in the value chain and for the greater good of the industry, it is essential for the platforms and providers to partner, integrate and bring out the best in each other. This is what will finally bring the aged processes into the 21st century.
After more than four years of active discussions on this topic and accounting for unanticipated delays — the Covid era, the merging of some firms with a vested interest and so on — 2023 could represent the turning point for the long-needed modernization of the bond issuance process.
A renewed vigour
The issuance market continues to boom — European borrowers raised €170bn from euro and sterling bond sales in the first two weeks of 2023— the highest amount sold over this period, according to Refinitiv. These numbers alone are driving the renewed demand for automation.
Paul Tregidgo, senior advisor to Liquidnet, described January as a bonanza for bond issuance which underscored that the investors have to bear a heavy workflow burden , as they need to process and analyze the data for multiple deals on a daily basis. He said: “Large investors may need to review numerous deals, credits, structures and tranches on any one day, which highlights the need for the process to be faster, better and quicker.”
In Europe, Liquidnet Primary Markets covers more than 80% of investment grade, high-yield, sovereign, supranational and agency (SSA) and emerging markets new issue announcements. The platform launched in September 2021 with an original working group of 12 banks, which now exceeds 30.
The confluence of the sheer volume of issuance and sharp focus on cost and efficiency has led to a broader recognition of the imperative of functional interoperability.
Jonathan Gray, head of primary markets at Liquidnet, said: “Our market share and partnerships continues to grow and the system is flourishing in this busy period which is really pleasing.”
Tregidgo commented that different participants are trying to automate different aspects of the bond issuance value chain but we are also seeing consolidation.
Among the new wave of participants, Now CM ‘s acquisition of NoWCP in March 2022 and in January this year of Nivaura, illustrates the consolidation of emerging technologies, while Bond Auction’s collaboration with NowCM and most recently Liquidnet point the collaborative way forward for different parts of the transaction process.
Collaboration and interoperability
Robert Koller, chief executive of NowCM, said in a statement that the platform remains open for further collaboration.
Tregidgo said: “It is unlikely that one entity or protocol will dominate end-to-end so only interoperability, cooperation and collaboration will provide both banks and investors with a smooth and coherent experience.”
Gray added: “At Liquidnet, we firmly believe that only an open utility approach can deliver maximum efficiencies to the industry and will be key to further electronify primary markets. Different systems, some new and some established, need to connect for a truly seamless experience. Each time a new solution comes along it has to integrate with multiple systems and clients. It can take time.”
Liquidnet continues to focus on open architecture with standard messaging.
Tregidgo commented: “The real benefits from electronic workflows for issuance will not be realized if asset managers and syndicate banks are asked to adopt a plethora of stand-alone systems and front-end interfaces.”
What’s next for the primary bond markets?
With the important progress made in the last 12 months, 2023 will likely unveil yet more advancements in the development of primary market technology. As different contributors seize the opportunity to work together and bring to the table their competitive advantages, anticipation remains high to reach the promised land of full electronification.
Tregidgo added: “Success would be a “one task, one click” experience for banks and investors.”
Participants cannot settle trades that were agreed prior to issue of the write down notice.
The bonds contractually provide that they will be completely written down in a “Viability Event.”
The tender offer follows the acquisition of Credit Suisse.
Municipal bonds have traditionally been owned by US retail investors.
The agreed language promotes automation and reduces the risk of fragmentation across the issuance process.