Vega-Chi preps US launch of dealerless junk bond exchange
19 September 2012 | 1226 views | 0
Vega-Chi US Limited ("Vega-Chi") is pleased to announce October 24 as the launch date for its U.S. high-yield bond electronic trading platform for institutional investors.
The Vega-Chi trading platform will be the first of its kind, offering institutional investors the ability to trade directly with each other in an "exchange-like" electronic setting without the need for intermediation by a broker-dealer and therefore enabling institutional investors to achieve better pricing for their trades. Vega-Chi will launch with more than 45 institutional users and expects the number of participants to exceed 80 within the first three months of trading.
Demand from institutional investors for more efficient trading comes at a time when dealers are facing unprecedented changes to their traditional business model, and as a result are less able to provide the levels of liquidity and capital commitment that buy-side firms require.
According to data from the New York Federal Reserve, less than 1% of outstanding corporate bonds are now held by sell-side institutions, traditionally the providers of pricing and execution for institutional investors. By extension, over 99% of bonds are held by buy-side investors, who until now did not have a mechanism to trade with each other directly without enlisting a bank or broker as middle-man. Vega-Chi is responding to these issues facing the market by offering a trading platform focused exclusively on the buy-side. The Vega-Chi platform offers transparency, full anonymity, efficiency and a highly functional user interface designed with input from more than 30 institutional investors.
"Most Wall Street firms no longer have the appetite or capital efficiency to rent out their balance sheets for clients in this corner of the market," said Constantinos Antoniades, CEO of Vega-Chi. "This presents a liquidity vacuum for institutional investors, which can only be adequately addressed with a marketplace that links the true buyers and sellers of high-yield bonds. While sell-side institutions still have a role to play, the balance of power has clearly shifted to the institutional community."
The Vega-Chi tra-Chi trading system is available to institutional investors only, and has no upfront or on-going costs for use. Participants are charged a fee ranging from 3 cents to 6.25 bond cents each time they execute a trade on the platform, considerably less than the typical bid/offer spread in the over-the-counter market. The system uses the same highly successful and market-proven technology used by the company's European high yield and convertible bond platforms for almost three years.
Vega-Chi is regulated by the Securities and Exchange Commission as an alternative trading system (ATS) operator and by FINRA as a broker-dealer.