Electronic bond trading not clicking with users

LONDON/ NEW YORK • Goldman Sachs shuttered its GSessions electronic bond trading platform in 2014. BlackRock, the world's biggest asset manager, closed its Aladdin bond trading network after less than a year in 2013.

Bloomberg LP, Thomson Reuters and about 30 other firms operate corporate bond e-trading businesses, but most have struggled to gain traction with users.

In an era when stocks are almost exclusively traded electronically, commodity trading pits have closed and currency traders increasingly conduct their business on computers, corporate bond trading is primarily done by people over the telephone.

"There is something beneficial from trusting the person, and the way that you phrase something and the way that they phrase something over the phone - it's an old-fashioned skill, but it is a skill," said Mr Paul Squires, the head of trading at AXA Investment Managers in London.

"It is a relationship thing that is unlikely to ever disappear, however many hubs and platforms crop up," he added.

The relationship between bank dealers and investors has persisted despite post-financial crisis curbs on banks' ability to buy and sell corporate debt that make it more costly and time-consuming for fund managers to trade.

E-trading platforms say they can cut costs and add liquidity to the market by connecting investors and unlocking bond inventories that would not otherwise be available.

However, platforms that have tried to bypass the broker-dealers and connect buyers and sellers directly have so far struggled to catch on, partly because of concerns over how confidential information would be handled.

"The only electronic platforms that have succeeded are those with a dealer on the other side who is willing to commit capital and facilitate the transaction," said Mr Rick Rezek, a senior portfolio manager at Schroders.

"I wouldn't want to put something on a platform at BlackRock and let them see what I am doing, and they wouldn't do that either."

The reliance on voice trading in company debt has meant ordinary investors end up paying more. Corporate bond market transaction costs for the year ended March 31 were at least US$26 billion (S$37 billion), several times higher than for similar-sized trades in the stock market, said Professor Lawrence Harris of the USC Marshall School of Business, in a recent paper.

REUTERS

A version of this article appeared in the print edition of The Straits Times on November 11, 2015, with the headline 'Electronic bond trading not clicking with users'. Print Edition | Subscribe