Investment Technology Group, operator of one of the oldest U.S. equity dark pools, is expanding into corporate bonds.
ITG plans to start Posit FI by the end of the year, according to Frank DiMarco, director of fixed income electronic brokerage at the firm. The trading venue will price about 14,000 securities a minute, Mr. DiMarco said. As with dark pools in the stock market, the new platform will keep orders to buy and sell hidden from public view until trades are completed.
Stricter capital requirements from the Basel Committee on Banking Supervision have made holding bond inventories more expensive. Dealers also curtailed their trading out of concern that the Dodd-Frank Act adds regulatory risk due to the treatment of credit instruments under the Volcker rule.
“Given the current state of fixed-income market and concerns around liquidity in certain cash bond securities, clients have asked us to consider entering the fixed-income space,” Mr. DiMarco said by e-mail.
Investors have been slow to embrace electronic trading for fixed income out of concern that bids and offers becoming public will sway the value of underlying securities before the trade is done, Bloomberg News reported in June.
While three out of four money managers trade investment-grade bonds electronically, that still equals only 15% of their total volume, Kevin McPartland, head of market structure and research at Greenwich Associates in Stamford, Conn., said at the time.
As well as being one of the oldest private stock trading venues, Posit is among the largest. It saw 105 million shares change hands in the week of Aug. 11, according to data from the Financial Industry Regulatory Authority. FINRA's numbers only count stocks in the Standard & Poor's 500 index, Russell 1000 index and some exchange-traded products.
In May, the ITG became one of the first dark-pool operators to make public the regulatory filing that explains how its venue operates, helping to set a trend that much of the industry has followed.