LONDON/NEW YORK (Reuters/IFR) - Goldman Sachs, the biggest standalone U.S. investment bank, shuttered its GSessions electronic bond-trading platform in 2014. BlackRock, the world's biggest asset manager, closed its Aladdin bond trading network after less than a year in 2013. Last spring, Deutsche Boerse, owner of the Frankfurt Stock Exchange, pulled its funding for a platform called Bondcube.
Bloomberg LP, Thomson Reuters, parent of Reuters News, and about 30 other companies operate corporate bond e-trading businesses, most of which have struggled to gain traction with users. In an era when stocks are almost exclusively traded electronically, commodity trading pits have closed and currency traders increasingly conduct their business on computers, corporate bontrad trading is primarily done by people over the telephone. "There is something beneficial from trusting the person, and the way that you phrase something and the way that they phrase something over the phone – it's an old fashioned skill but it is a skill," said Paul Squires, head of trading at AXA Investment Managers in London, one of Europe's largest fund firms, with more than 690 billion euros ($741 billion) of assets under management. "It is a relationship thing that is unlikely to ever disappear, however many hubs and platforms crop up." Paul Reynolds, former CEO of Bondcube, is trying again with his latest venture, Bondchain, a messaging service that connects asset managers who want to buy and sell company debt with their brokers. "It doesn't bypass that relationship, it enhances it," said Reynolds, who is in talks with potential partners for Bondchain and is aiming to launch it in the first half of next year. "What they need, and I think this is unique to fixed income, is someone in the middle to nurse them into a transaction." The relationship between bank dealers and investors has persisted despite post-financial crisis curbs on banks' ability to buy and sell corporate debt that make it more expensive and time-consuming for fund managers to trade. And even amid warnings of a liquidity crisis should a market shock spook investors and force them to sell en masse, fund managers are wary of hanging up the phone to their broker-dealer and moving entirely to electronic platforms. The big banks control new bond issuance and the more an investor trades with a bank, the better the chance they have of getting a big allocation of new bond sales, which typically offer higher yields and larger sizes than those available in the secondary market. "Having access to the allocation of new bond issues is one of the best ways for investors to source liquidity," said Zack Ellison, a U.S. fixed-income trader at Sun Life Investment Management. CRITICAL MASS E-trading platforms say they can cut costs and add liquidity to the market by connecting investors and unlocking bond inventories that would not otherwise be available. "It's been the realm of the big bulge brackets and they've made so much money that they've crowded everybody else out of the market," said Seth Merrin, chief executive officer of brokerage Liquidnet. His firm has opened a "dark pool" for corporate debt, where investors can post their available bonds without others seeing them unless they have the opposite side of the trade and the two sides are matched. Liquidnet runs one of more than 30 corporate bond e-trading platforms, with 23 having been started since 2010, according to financial consultancy GreySpark. MarketAxess