Brokers are set to face a new challenge to their dominance of fixed income trade trading from Tuesday with the launch of a new high-yield electronic platform that aims to cut out the banking middleman.
The venue, owned by a small independent company called Vega-Chi, marks the first attempt to provide a facility for block trades – or large trades – in the high-yield and subordinated bond market.
It also represents a further attempt by newcomer Vega-Chi to shake up trading in fixed income markets. The new platform is intended to allow institutional investors to trade high-yield and subordinated bonds directly with each other anonymously.
In doing so it would cut out the brokers and dealer-banks that control the market by connecting buyers and sellers. At the same time it is looking to modernise and centralise a market that remains fragmented and largely telephone-based.
Some institutional investors have been concerned that tighter regulations – via legislation such as the Dodd-Frank act in the US and Basel III in Europe – could mean banks and brokers have less capital available for use as collateral, or insurance, for trading.
Vega-Chi is looking to repeat the move it made in the convertible bond market two years ago. Constantinos Antoniades, chief executive and founder, told FT Trading Room that the aim was to provide buy-side institutions with better prices and more transparency than they would get from the over-the-counter market.
“We were also surprised by how much they value anonymity in this market,” he added. If they trade with a market maker, they give out a lot of information. That’s something we heard from this market and the convertible bond market,” he said.
Vega-Chi was founded in 2009 by Mr Antoniades, a former Goldman Sachs bond trader. In the two years since the launch of the convertible bond platform, more than 60 users have signed up and last month the venue set a new daily record of $270m of orders. The new high-yield platform will be based on the same trading engine used in the convertible bond market.
“The market response has been very strong. We have already signed a lot of clients and we expect participation to increase further shortly after our launch,” said Nick Ashby, head of high yield at Vega-Chi.
The launch comes amid uncertainty for the European high-yield bond market. Worries over the eurozone debt crisis sent yields soaring and crimped fresh issuance in the closing months of 2011 but some are hopeful that asset managers looking to reinvest maturing collateralised loan obligations this year will consider high yield bonds.
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