Frédéric Messein is head of SIX Corporate Bonds.
1. Assess the state of your corporate bond trading platform – what were the primary milestones/accomplishments over the past year?Over the past 12 months, we have rolled out our member test and production platforms and secured the provisioning of three user interfaces to SIX Corporate Bonds, from Algomi Synchronicity, ION Trading and MACD. The project was closed late November 2015, and for the last three to four months, we are on-boarding dealers and will be ready to launch in 2016 when our members believe we have a diversified enough set of banks.
2. What end-user/buy-side challenges are you addressing, and how?
In a time of balance-sheet reduction, cost cutting and asset class and geographic specialization, we are aiming at providing the sell-side dealers the ability to expand their network, and find the other side of the trade for the benefit of their own clients. We still see the dealers as an integral part of the equation for finding liquidity.
3. What are your key current initiatives?
Frédéric Messein, SIX Swiss Exchange
SIX Swiss Exchange will launch an electronic trading platform for corporate bonds – as soon as the market is ready for it. The launch date will be announced in time. The new platform is focused on large ticket corporate & financial bonds, both IG and HY, (at least two million EUR, GBP or USD) addressing a key market need neglected by other platforms. It improves the liquidity by offering an innovative logic to match Indications of Interests (IOIs). It enables interdealer liquidity to unwind both their own and their clients’ positions. Therefore we allow a proven market structure & practices to be more efficient. Additionally, as a totally anonymous platform, it eliminates information leakage before and during price and size negotiation. It offers participants the opportunity to trade additional volume at the negotiated price in work-ups. The trading model of the new platform has been developed with experienced market participants.
4. How would you characterize the future of the corporate bond trading platform business (broadly), and your business specifically?
Electronic trading accounted for 37% of the total volume traded in Corporate Bonds in Europe in 2015 (Celent, 2015 European Fixed Income Market Sizing). However, a large part of that traffic is currently happening on Dealer-to-Client (D2C) platforms. This means that the balance sheet restrictions of banks bear their full weight and D2C trading (whether voice or electronic) is negatively impacted. For large block trades, the percentage of trading on electronic platforms is even smaller.
Most of the new platforms are trying to circumvent this problem by attempting to create a new market structure: All-to-All (A2A) or Client-to-client (C2C).
At SIX we believe that instead of trying to disintermediate the dealers, a better “fix” to the market is to improve and facilitate the netting of risk between dealers.