Creators of electronic trading venues for fixed-income securities are hoping that, by matching buyers and sellers, more choices in trading will result in more liquidity in the secondary market.
Investment Technology Group Inc. and Liquidnet Inc. announced in the past month they will introduce fixed-income automated trading systems in late 2014 or early 2015 that will anonymously pair trading partners.
ITG also will provide recommended trading prices and execution services; Liquidnet will match participants and leave them to execute the trades themselves. They join other electronic trading operators like Electronifie Inc. and Bondcube Ltd., which plan to start operations later this year.
Those firms — as with other established ATS like Tradeweb Markets LLC, MarketAxess Holdings Inc., Bloomberg LP and MTS Bonds.com — aren't expected to replace the traditional method of calling dealers. Instead, they will serve as an alternative that, ATS providers say, will create more avenues for liquidity in a fragmented market of more than 60,000 different corporate issues.
“Liquidity affects us,” said Wayne Kozun, senior vice president, fixed-income and alternative investments at the C$140.8 billion (US$125.8 billion) Ontario Teachers' Pension Plan, Toronto, which holds more than C$18.5 billion in corporate debt. “The inventory dealers hold 75% less” than before the 2008-'09 financial crisis, he said. “It can be hard to find bonds and it's harder to block-trade than before. That's where electronic trading can be useful.”
ITG's new venue is part of a general move to electronic market-making in fixed income, said Frank DiMarco, director of fixed-income electronic brokerage at ITG, New York. “Everything we do is evolutionary, not revolutionary. We're providing an extension of liquidity. We're not replacing anything. Money managers want liquidity and price improvement. We try to provide both.”