Veteran Goldman Sachs banker Ravi Singh has joined a new electronic bond trading platform in a move that underscores the rush to establish new ways for large investors to exchange debt as banks retreat from trading fixed income.
It is one of a number of debt trading platforms that are emerging as investors, traders and analysts warn that ease of trading in the vast US credit market has declined at the same time that investors have poured more than $1.5tn into bonds since 2009.
Corporate bond transactions have long been dominated by traders at big Wall Street banks but tougher regulatory standards and a market that has encouraged investors to pile in to credit has eroded the traditional dealer role. Banks’ holdings of fixed income securities have subsequently slumped 77 per cent from their pre-financial crisis high of $235bn.
The lack of liquidity in the market has sparked a modern day gold rush as start-ups and incumbent trading firms rush to create new ways of transacting corporate debt and other credit products.
In addition to new independent corporate bond trading venues such as TruMid, Electronifie and Bondcube, established trading juggernauts including MarketAxess, Tradeweb and Bloomberg are also increasing their presence in the space.
“We are all reading the same tea leaves, which clearly say that the credit markets are hurting for greater liquidity,” Mr Singh told the Financial Times in an interview. “So in that sense it would be shocking not to have many people attempting to solve this problem.”
TruMid has been hiring senior bankers and traders in the hope of using their web of contacts to encourage both “buyside” investors and “sellside” dealer-banks to use its platform. “The number one thing here is they [trading counterparties] want to know that other people are at the party,” Mr Singh said. “Nobody wants to go to an empty restaurant.”
“The fact is that a variety of firms have essentially retrenched their efforts in market-making meaning that inventory is shrinking, so there’s a variety of platforms that are now emerging,” said a senior executive at a big credit hedge fund.
“Illiquidity is significant. It’s not a binding factor in terms of being able to get into or out of positions but occasionally it takes a while to get that done.”
Before joining TruMid, Mr Singh ran Credit Suisse’s alternative assets group, a division that includes hedge funds and private equity. He spent almost two decades at Goldman, including six years as co-head of prime brokerage, before retiring from the bank in 2008 for personal reasons.
Emmanuel “Manny” Roman, chief executive of the hedge fund Man Group. said: “He [Ravi] understands the issue at hand which essentially is that liquidity in the credit markets is not there.”