New Role for Buy Side in Corporate Bond Market: Liquidity Providers

New Role for Buy Side in Corporate Bond Market: Liquidity Providers

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New Role for Buy Side in Corporate Bond Market: Liquidity Providers?
With the shift in the corporate bond market from voice to electronic trading, and from capital facilitation by dealers to agency facilitation, will the largest institutional investors commit their own capital to replace that which has been withdrawn by dealers?
Corporate bond markets are being radically changed by a confluence of factors: new Basel III capital and liquidity rules, the MiFID requirements on transparency in bond markets, and the availability of innovative new platforms based on equity and FX market technology. These factors have already led to a reduction in capital commitment by dealers, even prior to the regulatory implementation of Basel III.

[Related: “In Search of Liquidity: The Transformation of the Corporate Bond Market”]

The shift from voice to electronic trading and from capital facilitation by dealers to agency facilitation are well established trends, but RFQ mechanisms are likely to continue to be necessary due to the clear differences between equities and FX on the one hand and most corporate bonds on the other. A key question is whether the largest institutional investors themselves might now choose to commit capital to replace that which has been withdrawn by dealers and to do this by making prices through order-driven and RFQ platforms. This would enable them to buy at the bid and sell at the offer, thereby taking out the spread. An increasing number of platforms are now All-to-All, thus enabling the buy side to act as capital providers.

For more on the technological innovation in and transformation of the corporate bond market, see Professor Scott-Quinn’s complete research paper, “European Corporate Bond Trading – the role of the buy side in pricing and liquidity provision,” below.

Institutional large-in-scale (LIS) crossing networks for bonds, such as Liquidnet provides for equities, and the use of reference pricing should enable investment institutions to transact with each other without broker-dealer, MDP or SDP intermediation. However, under recent draft proposals for MiFIR, European regulators have introduced a volume cap mechanism that may have a dramatic effect on dark trading in Europe – whether in equities or, in the future, in bonds. Regulatory control will be based on a (low) cap on the percentage of trading that can go through mechanisms using a reference price. This would seem to be only the most recent of a number of retrograde steps taken by the EU in terms of its implications for market liquidity.

The combination of Basel and EU regulation certainly has the potential to counter all the efforts of individual governments and the G30 to encourage corporations to raise finance for economic expansion through bond markets rather than through fragile banking systems in order to reduce systemic risk. At this stage it is too early to say if higher costs and reduced position taking by broker- dealers in response to regulatory change will result in higher funding costs for issuers of corporate bonds in Europe or if the innovations we discuss in the paper below may be able to offset at least some of these additional regulatory costs. Certainly at the moment, there is little sign on this side of the Atlantic that regulators are heeding the sentiment of SEC Commissioner Daniel Gallagher, who hoped that “the Commission … will understand the differences and interplay amongst the equities, debt and credit markets so that we can be a more sophisticated regulator of those markets.”

Professor Brian Scott-Quinn is Chairman and Director of Banking Programmes at the ICMA Centre, Henley Business School, and a former practitioner in the eurobond secondary market. Deyber Cano, a research assistant to Professor Scott-Quinn at the ICMA Centre, contributed to the paper.

Moscow Exchange: New List Of Securities For Calculation Of The Zero-Coupon Yield Curve In Government Bonds Takes Effect

Effective June 17, 2013 a new constituent list of the zero-coupon yield curve for Government bonds will take effect. The new list includes 21 Russian Federation government bonds (OFZ).

via Pocket June 17, 2013 at 04:09PM

Saxo Bank announces new trading tool – Trade Navigator

Saxo Bank announces new trading tool – Trade Navigator

Saxo Bank provides trading insight through Trade Navigator

Ole Sloth Hansen, vice president, Saxo Bank

Ole Sloth Hansen, vice president, Saxo Bank

“This new tool is another example of our focus at Saxo Bank on developing usefull tools to facilitate precision trading.”

Saxo Bank has launched Trade Navigator on, a new trading tool that provides daily technical insight into around 200 instruments.

By amalgamating several known and widely used technical indicators into one overview Saxo Bank aims to provide the tools that enable traders a quick look up and guide to where to buy and sell assets but also enable informed decisions and manage risk.

Through the use of pivot points traders can use Trade Navigator to set stops, take profits and make entry points for daily trading on over 200 instruments within Forex, Commodities, Bonds and Equities. The new tool is built around daily pivot points to indicate when to trade but it also uses the relative strength index (RSI), break outs and Bollinger bands:

  • The relative strength index is used together with other technical indicators to signal when a security is overbought or oversold – thresholds that can be set as desired
  • Break outs are based on the Donchian channels that indicate a multi-period trading range – if the price breaks through the multi-period high or low this may confirm that a new trend is in place
  • Bollinger bands are used as a tool for both confirming momentum or a reversion towards the mean
  • Using Average True Range (ATR) which is a measure of volatility the Navigator gives the user the ability to determine what would be an appropriate exposure when initiating a trade.

Ole Sloth Hansen, Vice President at Saxo Bank, comments “Trade Navigator is a vital aid to help our clients refine their trading strategy. With this new tool we now not only provide our clients with the best tools to execute trades but complement these with the best tools to inform their trading activities. This new tool is another example of our focus at Saxo Bank on developing usefull tools to facilitate precision trading.”

E-Trading Finally Takes Over Fixed Income

Five years ago, while electronic trading was already the norm in the equities market, old-fashioned phone and voice trading still dominated the fixed income space.

via Pocket May 08, 2013 at 07:55PM

Transact chooses Calastone’s re-registration solution

First Published Monday, 15th April 2013 from Automated Trader : Automated Trading News

Integrated Financial Arrangement, operator of Transact wrap service, selects Calastone for electronic, interoperable re-registration solution


London – Calastone, the transaction network, has been selected by Transact to provide it with a fully interoperable, electronic re-registration solution.

Transact, along with a number of other organisations, took part in the original working group to develop the Calastone re-registration service, and has now chosen the solution to automate its own re-registration process.

Under FSA regulations it is compulsory for platforms to offer re-registration of assets. Whilst these regulations do not stipulate that this process must be automated, it is widely acknowledged that an electronic straight through processing (STP) solution is preferable. Calastone’s solution gives the market the ability to move towards same day re-registration.

The service, based on the requirements of a wide range of market participants as identified in the working group, enables the transfer of legal title in fund units between nominees. It enables STP for “in specie” transfer of assets and provides full visibility to all parties during the lifecycle of the transfer.

Calastone’s re-registration solution allows distributors, platforms and fund managers to automate the transfer of assets. Additionally, Calastone will be able to communicate client re-registration instructions to other market participants not on the Calastone Network thus enabling Calastone clients to obtain full market coverage via an interoperable model.

Ian Taylor, CEO of Integrated Financial Arrangements, said: “Calastone has a strong track-record of delivering flexible and scalable solutions that help to reduce risk and costs without requiring additional software spend. It has worked with different sectors of the market in order to deliver a product that is effective, easy to use and enables market participants to communicate with each other in order to automate the processes of re-registration. We welcome the fact that someone has delivered a cost effective system that can transfer legal title in seconds. This can only be a good thing for the end investor.”

Dan Llewellyn, Managing Director for Product at Calastone, said: “We are very grateful for the support of Transact which is one of our key customers, and are fortunate to have such a proactive client base that is always pressing us to deliver new services to help automate business processes. Electronic re-registration has been proven and we are keen to expand the service to other customers in the UK and other domiciles. Phase two of the Calastone re-registration service is to enable our clients the ability to transfer other asset classes including equities, pensions, bonds and SIPPS .”

Nasdaq OMX agrees eSpeed acquisition

Nasdaq OMX will also issue around 15 million common shares over 15 years, increasing the total potential value of the deal up to $1.23 billion. The transaction is expected to be accretive to earnings within the first twelve months after closing, excluding deal-related costs.

via Pocket April 02, 2013 at 11:28AM

Natixis Global Asset Management Launches Aurora Horizons Fund

Natixis Global Asset Management (NGAM) announced today the launch of the Aurora Horizons Fund (AHFAX), which is a multi-strategy mutual fund dynamically allocated across multiple hedge fund managers.

via Pocket March 29, 2013 at 10:45AM

FTSE Group and Investec Bank introduce ORB Index series

Published on   Jan 31, 2013

FTSE Group (“FTSE”), the award winning global index provider, today announces the launch of the FTSE ORB Index Series which has been developed in conjunction with Investec Bank plc (‘Investec’).

The indices are the first performance benchmarks for bonds trading on ORB – London Stock Exchange’s Order book for Retail Bonds. The indices offer investors and product issuers transparency, measurability and new access opportunities in UK retail bonds. The launch of the indices reflects surging investor interest in the UK retail bond market, which has raised ?3 billion through new issues since its launch in 2010.

The FTSE ORB Index Series is a transparent, rules-based index developed and managed in accordance to FTSE’s world class standards of index design. The indices include retail bonds, covering a range of industry sectors and will show the yield, maturity date and trading performance of these bonds. Investec helped to established the feasibility of the index, define the index’s methodology and, alongside FTSE, determined the selection criteria.

Sudir Raju, FTSE’s Managing Director of ETP Relationships, said: “We are delighted to announce the launch of the FTSE ORB Index Series. We started work on this index earlier last year alongside the Analytics team at Investec and with the input from London Stock Exchange’s ORB platform. For the first time, we can now offer a set of measurable performance metrics for retail fixed income investment portfolios based on corporate bonds listed on ORB. As the market continues to grow, it will also enable the development of new investible access products which provide greater investor choice.”

Pietro Poletto, Head of Fixed Income Markets at London Stock Exchange Group, said: “The launch of the FTSE ORB Index Series reflects the growing interest from retail investors for access to fixed income products. The new indices will provide the UK’s first benchmarking tools for bonds listed on London Stock Exchange’s Order book for Retail Bonds and signifies the next step in the development of this growing market, since it was launched three years ago.”

Michael Smith of Investec’s Debt Capitapital Markets team, who worked with his Analytics team on the development of the index methodology, said: “Every market should have an index and the need to launch a retail bond index that investors, issuers and arrangers can track has become increasingly apparent. Investec has been a firm supporter of ORB since its inception and the FTSE ORB Index Series will respond to the need from the marketplace for aggregated, easily comparable data. We believe that the FTSE ORB Index Series will be extremely helpful to retail investors, distributors and potential issuers. The index will offer investors an opportunity to benchmark their retail bond portfolios against a transparent and rules-based index- this is a really great market development.”

Eligibility screening is applied to constituents to ensure the accuracy, replicability and representativeness of the index:

• Constituent is traded on ORB

• It is sterling denominated

• It is a corporate bond

• It is a fixed coupon bond

• It has more than a year until maturity left

• It is not a perpetual bond (i.e. it has a maturity date)

• It is not contingent convertible

Media Centre

LCH.Clearnet Ltd, the multi-national clearing house’s UK-based CCP, has put in place best-in-class systemic risk mitigation for bonds and repo cleared through its RepoClear service by implementing formal loss allocation arrangements. LCH.

via Pocket January 14, 2013 at 09:50PM

New Kids On The Block: Phillip Futures

When Phillip Futures Inc. started accepting U.S. business from an office at the Chicago Board of Trade building in 2012, the company expanded its reach, which had already included Singapore, Malaysia, Hong Kong, Japan, Indonesia, Thailand, the United Kingdom, Australia, France and China.

via Pocket January 11, 2013 at 03:16PM

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