Eighty percent of the institutional investors participating in a new Greenwich Associates study report difficulties executing corporate bond trades of more than $15 million.
These troubles reflect a decline in market liquidity caused in large part by the pullback of fixed-income dealers in the wake of new and more stringent capital reserve requirements. With dealer inventories shrinking, investors’ search for new liquidity providers is proving a boon to the fast-developing ranks of electronic trading platforms. All-to-all trading, previously unheard of in corporate bond markets, accounted for an estimated 6% of electronically executed U.S. trades in 2014 as a sign that market dynamics are evolving.
These are among the key results of a new Greenwich Associates study of 358 buy-side traders released today in a new Greenwich Report, U.S. Corporate Bond Trading: A Multitude of Platforms Give Investors Options. The report identifies 18 emerging electronic platforms competing for the corporate bond trading business of U.S. institutional investors and provides a description of their platforms with an analysis of the competitive dynamics and current levels of trading in the still-emerging market.
“In an over-the-counter market that averages only 25,000 trades a day, there is only room for two or three platforms per product segment,” says Kevin McPartland, Head of Market Structure Research at Greenwich Associates. “Expect the larger established firms to move the most quickly, and smaller names to grow within their chosen niche until the time comes for them to get wrapped in with a bigger marketplace in an effort to consolidate liquidity.”
MarketAxess Remains Dominant, New Venues Build Liquidity
MarketAxess’ Open Trading and Tradeweb’s new U.S. Corporate Bond Marketplace were the Top 2 platforms cited by investors who have already traded on them, with MarketAxess the volume leader. “It should come as little surprise that these two fixed-income veterans are gaining so much attention in the corporate-bond liquidity discussion,” says McPartland.
Liquidnet Vega-Chi, MTS Bonds.com and UBS PIN round out the Top 5 platforms mentioned by study participants. A deep understanding of the individual offering make a direct comparison difficult if not impossible, however a goal to improve investor access to corporate bond liquidity remains the common thread.