(Bloomberg) — As technology startups seek to solve shortcomings in corporate bond trading, a debt market majority owned by London Stock Exchange Group Plc is taking steps to match them.
LSEs bond platform, MTS Group, is adding technology developed by B2SCAN that helps European investors find banks willing to trade the corporate debt they want to buy or sell, according to a statement released today. If a match is found, the transactions would be executed on the MTS Group system.
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BlackRock Inc., the worlds largest money manager, has led the way in criticizing how corporate bonds trade, saying as recently as September that the market has been hobbled by regulatory restrictions on banks that traditionally facilitated transactions. MTS is trying to solve the same problem that several startups want to address: finding debt to buy and sell.
Our initiative with B2SCAN will offer a genuine solution to the lack of liquidity in the credit markets, said Simon Linwood, head of credit at MTS.
Upstart technology companies with a fixed-income focus include Bondcube, Electronifie Inc. and Algomi. A group of banks and investors is also working on a plan known as Neptune to create a standardized language and messaging system for trading corporate debt.
Thats happening even as incumbent companies like MarketAxess Holdings Inc. are competing to retain and increase their share of the market thats being reshaped by regulations. Bloomberg LP, the parent of Bloomberg News, also has a bond platform.
Lethargic Volume
While the primary market where companies sell debt to investors had record volume last year, trading after issuance has been lethargic. Thats in part because the rules meant to safeguard the financial system put in place after the 2008 crisis have prompted banks to reduce their bond holdings, curbing their ability to facilitate trades.
Trading in European non-government bonds, measured by average daily volume, fell about 8.6 percent to 13 billion euros ($15.5 billion) last year, according to a report by research and consulting firm Celent. Investors and broker-dealers have heavily focused their attention on solving the liquidity issue the non-government bond market is facing, Celent said.
Shifting transactions to electronic markets would help repair the damage, BlackRock said. The asset manager also suggests reducing the complexity of the securities by encouraging companies to issue more standardized debt.
