Wall Street banks teamed up to launch a corporate bond trading platform, a part of the rising popularity of electronic bond trading.
Major banks are set to launch DirectBooks, with its holding company to be named Primary Markets LLC. Members of the consortium include JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc., Morgan Stanley, Barclays PLC, BNP Paribas SA and Deutsche Bank AG. BlackRock Inc. and unit Aladdin agreed to provide efficiencies for buy-side participants of the trading platform.
DirectBooks will initially focus on providing a trading platform for investment-grade debt, targeting primary markets. Notable electronic bond trading platforms such as MarketAxess Holdings Inc. and Tradeweb Markets Inc. focus on the secondary markets.
Richard Kerschner, who was previously with the New York Mercantile Exchange, CLS and ICAP/NEX Group, was named CEO of Primary Markets.
Despite the recent rise in electronic bond trading, corporate bond trades are still primarily conducted through calls, emails or messages. A study conducted by consulting firm Greenwich Associates in May found that while more than 90% of corporate bond trades valued at $100,000 or less are made in electronic trading platforms, these trades made up only 3% to 4% of the total value traded on an average day. The report also said while bond trades worth $1 million or more make up more than 80% of notional volume traded daily, they only make up 8% of trade tickets.
"And while our data shows that average trade sizes for electronically executed investment-grade corporate bond trades are now approaching $2 million, the level of e-trading quickly drops off as trade size increases," Greenwich said, noting their earlier study that said 82% of corporate bond investors find trades more than $15 million "very difficult" to execute.
