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Goldman Sachs has quietly retreated from its electronic bond trading platform, in a move that highlights the challenges investment banks face in revamping their struggling fixed-income trading businesses.
Banks including Goldman, Morgan Stanley and UBS had developed their own electronic corporate bond trading platforms in an effort to more efficiently match buyers with sellers of debt, and make money from facilitating the transactions.
But data from 4,000 investment firms compiled by Greenwich Associates show that these alternative platforms – which include Bonds.com, BlackRock’s Aladdin, UBS PIN, Morgan Stanley’s BondPool and Goldman’s GSessions– account for only 1 per cent of market share.
People familiar with Goldman’s plans now say that further development of its GSessions platform has been put on hold, after a last-ditch revamp late last year failed to bring in significantly more business from investors.
Bond trading has for years been one of Wall Street’s biggest profit generators but new financial regulation and fundamental shifts in the way investors buy and sell debt have forced banks to reconsider how they make trades on behalf of clients.
However, big investors have given these bank-run “single-dealer” platforms a collective thumbs-down, forcing banks to consider creating “multi-dealer” platform that would involve most of their rivals.
According to the research, the MarketAxess electronic platform continues to dominate trading in corporate bonds, followed by Bloomberg.
Market participants say that many components of the GSessions platform were innovative, but the bank failed to reassure investors sufficiently that it was not using data from the trading venue to inform its own team of traders and market-makers.
“Clients are very concerned about sharing information, especially giving up information to people who can use that information to their disadvantage,” said a banker at a competing institution.
A spokesperson for Goldman declined to comment.
Goldman has a long history of developing technology and delaying its implementation – making it possible that GSessions could be revived or adapted for a new multi-dealer platform.
Despite efforts to “electronify” the market for big bond trades in a similar way to the stock market, large trades of bonds remain dominated by “voice-brokered” transactions, where an investor calls up a dealer at a bank to make the trade.
Bonds come in many maturities and types making them more difficult to trade electronically. Compounding matters is the fact that banks hold far fewer bonds on their balance sheets than they used to, and big investors have developed a tendency to hold debt in their portfolios for longer periods of time.
“Single-dealer platforms will evolve from being focused on the execution of the trades to hubs of information,” said Stu Taylor, a former UBS trader who has founded Algomi, a start-up focused on new bond trading technology. “Execution will remain voice-based for the foreseeable future.”
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