Liquidnet poised for fixed income trading platform launch

Liquidnet plans to go live with its fixed income trading platform as soon as next month, the latest equity market operator to make the move into electronic bond trading.

Liquidnet’s intentions were made clear in March this year when it bought credit trading platform Vega-Chi.

It has spent the past few months signing up as many of its roughly 750 clients as possible, which the company says are crucial to making the platform a success after a string of previous failures by others.

The company, which specialises in transactions of large blocks of shares, plans to launch the alternative market venue for corporate bonds in the US next month, before rolling it out in Europe in early 2015. Asia will follow later on, though most likely as a way for Asia-based clients to trade US and European markets.

Seth Merrin, chief executive of Liquidnet, described the need for new bond trading venues as a “problem of historic proportions” as the prospect of rate rises in the US increases, potentially sending shockwaves through credit markets.

Meanwhile, traditional broker-dealers – usually big investment banks – have reduced their inventories of bonds as part of the regulatory response to the financial crisis. Some worry that thinner liquidity could prove damaging should market sentiment take a sharp turn.

“You could see $1tn leave fixed income funds. You don’t have the same exits any more – some of those doors are closed,” said Mr Merrin. “The market needs new sources of liquidity. It’s a problem in search of an answer.”

Liquidnet is not the only market operator looking to add bond trading to its platforms. The London Stock Exchange spent $15m on Bonds.com earlier this year, while brokerage Investment Technology Group is planning to launch a fixed income dark pool by the end of this year.

Deutsche Börse and Nasdaq OMX are both also making forays into electronic bond trading, while Goldman Sachs and JPMorgan are joining forces on another new corporate credit platform.