An industry initiative to create an electronic bond trading platform led by Deutsche Bank and supported by key buy and sell-side firms may take shape as early as October, the executive behind the plan has said.
Dominic Holland, director of credit and e-commerce sales at Deutsche Bank, said the platform has continued to gain support from tier one and two banks in the US and Europe, alongside keen interest from asset managers. Holland ruled out a 2013 launch, but said final details of the platform could emerge by October.
“Discussions around the platform are continuing to advance and recently have focused on the governance and protocols that will underpin its functionality,” Holland told theTRADEnews.com. He confirmed the platform would begin in Europe, but will aim to become a global fixed income trading platform.
“We have support from tier one banks and asset managers who both see great value in the hub-and-spoke model we anticipate the platform will have, which will involve IOIs being sent to a central matching engine,” he said.
“We believe this model will suit trading in the less liquid fixed income instruments and also large trades in highly liquid bonds.”
The choice of an order book to execute trades was driven in part by concerns that information leakage had restricted the willingness of asset managers to trade fixed income products. Currently, buy-side firms typically call a number of brokers to request a quote in the bonds they want to trade, increasing the risk of market impact.
In March, the initiative had gained the backing of 10 brokers, including some of the largest investment banks, in addition to more than 10 large asset managers. Holland said on-going conversations with buy-side firms were “very positive”, and all were keen to keep abreast of developments.
The initiative was sparked by Basel III rules that will force banks to hold greater capital to support their bond inventories and therefore reduce the ability to trade on principal for buy-side clients.
“As Basel III requirements take hold in Europe and US firms ready themselves for implementation, we have seen renewed interest from sell-side counterparts in Q2 to create an industry-wide platform to facilitate the expected shift from single-dealer platforms,” Holland said.
In July, the US Federal Reserve approved the Basel III rules that were formed in the wake of the 2008 financial crisis. Holland added that this had prompted greater interest from US banks looking for a multi-dealer trading platform for fixed income instruments.