Start-up alternative trading system operator OpenBondX looks to launch its all-to-all high yield corporate bond platform sometime during late second quarter or in the third quarter. In the meantime, the platform operator is working to bring the proper balance of clients on to the system before it commences trading operations.
“We’re trying to get enough eyeballs on the platform, which requires getting people on-boarded,” said Alistair Brown, CEO of OpenBondX. “You just have to go through the process, which is slow.”
OBX has signed up one Bulge Bracket dealer, which Brown declined to name. The fledgling platform has gained considerable traction with small and regional dealers as well as with some quantitative-trading firms, Brown added.
Alistair Brown, OpenBondX
Brown expects the platform’s sweet spot will be in institutional-sized odd lots of less than $1 million.
“The trades likely will be more in the range of $400,000 to $600,000,” said Brown. “It’s not necessary that you would need the largest dealers to do trades of that size.”
The platform uses a tweaked version of request for quote to match trades between counterparties. Dubbed Request for Firm Quote, users can only enter in firm quotes to participate in potential trades.
The party that initiates the trade enters a limit price, which no one else can see. The platform then notifies prospective counterparties of a possible trade. After the counterparties each enter their own quotes, which no one can see, the platform locks the trade, reports it to the Financial Industry Regulatory Authority’s Trace database, and clears each side of the trade through its clearing partner, Société Générale.
If users are not part of a completed trade, they will not see at what price the trade was matched, said Brown.
“You’ll know the trade was yours when you see the Trace print go up and receive a confirmation,” he added. “Users will get the bonds they paid for or the cash that they sold for via our clearing firm, but you will never know who was on the other side of the trade.”
OBX is considering adding support for regular RFQ-based trading in the future as well as adding a central limit order book for other types of fixed-income trading, according to Brown, “But for right now, it’s going to remain ‘RFFQ’.”
Once the platform goes live, users will be able to connect to the ATS through a secure internet connection using OBX’s browser-based front end, a dedicated FIX-based connection via BT Radianz, or via an internally develop add-in for Microsoft Excel.
