Competition in the all-to-all electronic fix-income trading space is set to heat up as new trading venue OpenBondX is slated to start trading high-yield corporate bonds on February 23, says company officials.
OpenBondX also plans launching a second matching engine in the subsequent months that is tailored for investment-grade bond trading, according to OpenBondX co-founder and CEO Alistair Brown, who also founded electronic agency broker Lime Brokerage before selling it to Wedbush in 2011.
Brown and a few others founded the startup in 2012 and began developing their platforms in the following year to address the fixed-income markets inefficiency and lack of transparency. Equities have spreads in pennies, whereas people would be gobsmacked if they could see the actual spreads in fixed income. There is no way to know the spread because there is no consolidated tape or consolidated quote,” said Brown. “Its a very dysfunctional market.
Unlike many new electronic fixed-income trading venues that are secondary businesses to their operators, OpenBondX with its seven employees is self-financed and is backed by the full faith and credit of his wallet, Brown joked.
An unnamed private equity firms owns approximately 2 percent of the business, but that was in exchange for access to the firms industry contacts and rolodex, according to Brown.
Brown expects such independence from the largest dealers and buyside firms as well as the anti-gaming features that OpenBondX has included in its platform will improve the level of trust potential users will have for the new trading venues.
The New RFQ on the Block
Knowing that approximately 97 percent of corporate bonds trade on a “request for quote” basis, OpenBondX designers put their own proprietary spin on RFQs and developed and trademarked Request for Firm Quotes orders for its high-yield bond platform.
Similar to typical RFQs, RFFQ traders enter the corporate bonds which they want to trade along with their desired order size and how long display the request. However, traders also enter a non-displayed limit price for their order. Other OpenBondX traders may respond to the displayed RFFQ before it expires with their own quotes, with each having their own non-displayed limit price. Once the quote expires, OpenBondX runs a price-size-time priority match to resolve the trade.
Although the use of RFFQs may have people believing that the OpenBondX platform is yet another quote-driven electronic fixed-income market, but Brown is firm that is the exact opposite.
It is an order-driven market because someone puts out a RFFQ and people on the platform will get a message and can respond to it, Brown told Traders.
OpenBondXs second order-driven platform, which is already for launch, will operated as a central limit order book (CLOB) for those users wanting to post their orders for investment-grade corporate bonds in terms of a spread to a benchmark.
It is like the equity market where all of the quotes are there to see, Brown said.
Users of the new platforms will be able to access directly via a secure browser connection over the Internet or through a FIX trading protocol connection.
Third-party access to OpenBondx CLOB-based platform should be available in the future as OpenBondX is working with Bloomberg to include the CLOBs market-data feed into Bloombergs ALLQ fixed-income market-data offering, according to Brown.
