Institutional buy-side equities crossing network Liquidnet will offer trading in corporate bonds after agreeing to acquire bond-trading platform Vega-Chi.
The deal is the first of its kind for Liquidnet and comes after years of speculation that the firm would move into bond trading from its equities base, in line with buy-side demand.
The London-based Vega-Chi platform facilitates trades in high-yield and convertible bonds and, following its acquisition, would considerably extend its current 150 participants through access to the crossing network’s 740 buy-side clients.
Seth Merrin, CEO of Liquidnet, said the deal would merge the technology of Vega-Chi with Liquidnet’s extensive buy-side member base.
He said the combination of rising interest rates and a decline in dealer capital had resulted in a drying up of the market for corporate debt.
“Traditionally this has been a dealer-facilitated market and the capital the dealers have has gone down by something like 90%,” he said. “This is a classic example of where innovation has to come in to solve a massive problem.
“The bonds market needs multiple electronic trading solutions, and this is just one, but one that will serve the buy-side’s block trading needs for corporate bonds.”
Vega-Chi operates a central limit order book (CLOB) for the US high-yield market that it launched in 2012, in addition to its multilateral trading facility in Europe dedicated to convertible bonds trading, which launched in 2010. It also has a European high-yield CLOB it has operated since 2012.
Constantinos Antoniades, founder and CEO of Vega-Chi, will stay on in his role running the platform within Liquidnet. He said Vega-Chi would launch new platforms for investment grade products in the US and Europe later this year and look to extend into other products in coming years.
“The buy-side community is very clearly looking for an institutional-size, electronic trading facility that lets everyone trade with each other to find liquidity,” he said, speaking to theTRADEnews.com.
In a statement announcing the Vega-Chi deal, Liquidnet cited a recent report from consultancy TABB Group that highlighted increasing buy-side demand for more electronic trading offerings in the corporate bond market.
“The current market structure for corporate bonds is facing a number of significant hurdles, primarily due to the current dealer-focused business model,” said Larry Tabb, founder and CEO of TABB Group. “The time may be ripe for a new corporate bond trading platform or protocol to emerge that will challenge the status quo.”