Global institutional trading network Liquidnet is planning to enter the fixed income market with its acquisition of bond trading platform Vega-Chi.
The partnership, subject to regulatory approval, will combine Liquidnet’s experience, scale and global reach within the institutional investment community with Vega-Chi’s corporate bond trading platform and sector expertise to accelerate efficiencies within the corporate bond market.
“There has been a massive increase in corporate bond issuance and at the same time a depletion of capital that dealers can use to facilitate trading. The result has been increasing difficulty among investment managers and dealers in accessing liquidity. To fix this liquidity drought over the long term, it’s important for market participants to come together and establish new systems and processes and an open platform that will facilitate the flow of liquidity within the corporate bond market more efficiently,” says Seth Merrin, founder and CEO of Liquidnet. “Vega-Chi has already built an efficient way to trade high yield and convertible bonds. By combining this platform with Liquidnet’s institutional network and our track record for making institutional markets more efficient, we can create trading opportunities worldwide while building out the largest institutional sized liquidity pool dedicated to corporate bonds.”
Initially, Vega-Chi’s trading platform will continue to operate separately from Liquidnet’s core equities business. The platform is currently available to all approved market participants who trade US and European high yield bonds as well as European convertible bonds. Through a single platform, market participants are able to source liquidity in one place to execute their institutional, large-scale bond orders.
Liquidnet will leverage its network – which includes more than 740 asset managers and relationships with many exchanges and broker dealers around the globe – to create a critical mass of liquidity focused on the corporate bond market. In addition, Liquidnet and Vega-Chi expect to introduce the trading of US investment grade corporate bonds during 2014.
“We launched Vega-Chi to enable our clients to access better liquidity and achieve best price execution in an anonymous, secure and conflict-of-interest-free marketplace. By partnering with Liquidnet, we will be able to bring to the market an industry-wide solution with the aim of building a large pool of institutional sized corporate bond liquidity. We strongly believe that the market will benefit immensely from a neutral ‘all-to-all’ electronic order book which combines the distribution, relationships, technology and expertise of Liquidnet and Vega-Chi,” says Constantinos Antoniades, founder and CEO, Vega-Chi.
According to a recent research report issued by the TABB Group, there is high demand for a corporate bond market structure that allows diverse sources of liquidity to connect more easily. More than three-quarters of the buy side firms TABB spoke with said that now is the time for an alternative trading system to emerge to help provide greater transparency and support for the liquidity-strained corporate bond market.
“We have heard from both the sell side and buy side communities about the need to evolve the way bonds are traded. The current market structure for corporate bonds is facing a number of significant hurdles, primarily due to the current dealer-focused business model. The market is crying out for new alternatives to source liquidity. The time may be ripe for a new corporate bond trading platform or protocol to emerge that will challenge the status quo,” says Larry Tabb, founder and CEO, TABB Group.