Tradeweb plans online US covered bond marketplace

Source: Tradeweb

Tradeweb, a leading over-the-counter multi-asset class online marketplace owned jointly by Thomson Reuters and 10 leading global dealers, announced today that it is planning to introduce an online marketplace for "covered" bonds backed by pools of U.S. residential mortgages.

The decision by Tradeweb to provide the new marketplace was made at the encouragement of the U.S. Treasury, as well as Tradeweb's dealers and institutional clients.

The creation of an online covered bond marketplace in the U.S. on Tradeweb will enable institutional clients to access the same level of price transparency that can be found on Tradeweb's other marketplaces, as well as the ability to electronically execute and process trades.

Covered bonds enable mortgage providers - typically banks - to enhance their liquidity and funding positions. The market provides an effective means of funding diversification, as well as the opportunity to reduce the cost of funding through the issuance of higher-rated covered bonds.

"Liquidity is the lifeblood of the financial markets. By creating this new marketplace, Tradeweb is pooling the demand from banks and institutional investors for a more effective way to trade mortgage assets," said Billy Hult, Managing Director and Head of U.S. Markets at Tradeweb. "We have proven in the European market that the online markets provide an efficient venue for trading covered bonds. We look forward to achieving the same success in the U.S. market."

Tradeweb has been providing online markets for institutional investors since 1998. More than $300 billion is now traded daily, on average, across 18 marketplaces. Covered bond trading on Tradeweb was introduced in 2001, and now supports trading from 107 issuers in 16 countries in Europe. In Q3 2007, Tradeweb introduced online trading of U.S. dollar-denominated covered bonds for European issuers.

Covered bonds are debt securities backed by cash flows from mortgages or other loans. Unlike asset-backed securities created in securitization, covered bond assets remain on the issuer's consolidated balance sheet and investors have recourse to a pool of assets that secures or "covers" the bond if the originator (usually a financial institution) becomes insolvent.

Covered bonds originated in Europe, where they are subject to extensive statutory and supervisory regulation designed to protect the interests of covered bond investors from the risks of insolvency of the issuing bank.

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