Liquidity in the vast corporate bond market is dispersed across scores of buy-side and sell-side trading desks and electronic trading platforms, in time zones from Los Angeles to New York to London.
While there is no silver bullet to make the market fully liquid, a plethora of firms have sprung up to try to provide liquidity in pockets of the market, via electronic platforms.
One idea is to concentrate trading at certain times, rather than continuously throughout the trading day. To that end, TruMid Financial LLC plans to offer ‘Swarm’ trading to corral liquidity in certain names and at certain times via well-publicized trading sessions that are focused on a specific set of related or topical securities.
“Our answer is to have session-based trading where you get everyone to focus on a given number of securities at the same time,” said TruMid Producer Chris Ruggiero. “Buy side can transact directly and anonymously with other buy-side and sell-side market participants in our ‘all-to-all’ marketplace.”
In his previous position as bond trader at Goldman Sachs, Ruggiero experienced first-hand the market that BlackRock notably called “broken” in a whitepaper published five months ago. “It was pretty obvious to me sitting in a sell-side trading seat that the market was dysfunctional,” Ruggiero told Markets Media. “Liquidity is greatly diminished -- even in spurts of volatility when you expect liquidity to increase, it didn’t.”
The biggest structural impediment is that Wall Street banks are no longer able to commit capital to take the other side of buy-side trades the way they did before the 2008-2009 global financial crisis and the ensuing waves of regulation. The situation is especially acute given the recently robust new-issue calendar.
“You have more product coming out, and less ability to take risk,” Ruggiero said. “99% of inventory is held in the hands of buy-side accounts, and dealers are 1%. So you’re trying to squeeze this enormous inventory of bonds through this bottleneck, skinny channel of dealer inventory. Why not open up the canal so that firms can trade with each other.”
At least conceptually, TruMid should find some buy-side support, as BlackRock’s first recommendation in its Sept. 2014 viewpoint piece was for more all-to-all trading venues, as opposed to just dealer-to-customer or dealer-to-dealer.
Swarms of TruMid -- whose corporate tagline is ‘Be There’ -- are anonymous, eight-minute trading sessions aimed at providing midpoint execution. A swarm can be Sectoral, for example investment grade energy; Topical, which would be around bonds or sectors that are relevant that day; or Priority Axe, for less liquid securities.
For a startup platform, TruMid has some heavy hitters on staff. Ronnie Mateo, founder and chief executive, ran the credit group at Trinity Brokers and was a managing director at Salomon Brothers/Citibank; Ravi Singh, president, was a managing director and head of global alternative investments at Credit Suisse and a partner at Goldman Sachs; and three of the firm’s producers each have about 15 years’ experience trading credit at large Wall Street firms.
“Experience is our biggest differentiator,” said Ruggiero, who has seven years of trading and investment banking experience. “We like to say that TruMid was designed by market experts for market experts.”
“Our experience provides two big advantages,” he continued. “First, we leverage our relationships to attract a critical mass of the right market participants to trade. Second, we’ve developed the right protocols for robust and efficient execution.”
“The market is very excited about our platform and the promise of increased liquidity,” Ruggiero said.” Given our momentum of already having over 100 top-tier clients onboarded, we will definitely have a critical mass of active accounts when we go live in the coming weeks.”
Featured image via Dollar Photo Club