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A trader at the CBOE.
- BondCliQ, a startup focused on pricing data for US corporate bonds, will launch its pre-trade data platform for dealers on Wednesday December 19.
- So far, 29 dealers have agreed to contribute quotes, including six of the 10 largest dealers.
- The platform will give dealers much-needed transparency into the markets they are making, White said.
A market long shrouded in secrecy may be about to get some illumination.
A pre-trade pricing data feed of quotes contributed by a group of US corporate bond dealers will go on Wednesday, December 19.
BondCliQ, a startup created by Chris White, a former Goldman Sachs executive and creator of GSessions, the bank's defunct corporate bond trading platform, will launch its platform displaying corporate bond quotes shared directly by the dealers themselves.
White said BondCliQ has agreements from 29 dealers, including six of the 10 largest, although he expects about 27 to be participating at the time of the launch. He declined to name specific dealers.
At launch, White said the platform will display pre-trade pricing data on 500 to 750 bonds a day in the bank and financial sectors that have been quoted by at least three dealers, a requirement of the platform. In total, BondCliq sees roughly 3,500 bonds quotes daily, he added.
Banks dealing in corporate bonds are notorious for their unwillingness to share quotes with each other, White said.
"Culturally, dealers have always told themselves, never show your pricing information to another dealer," he says. "If all dealers are behaving that way, after a while they have created an environment where their data can be weaponized against them."
Meanwhile, thanks to advancements in technology, the buy side can get quotes directly from dealers and aggregate prices themselves, or via a vendor, to get a semblance of the market. As a result, dealers are at a disadvantage as they're forced to sell to a client base that knows the market value of the product better than they do.
"The market maker themself doesn't know what the prices are for other market makers. It would be very difficult for you to run a business in an optimal way," White said.
Kevin McPartland, head of market structure and technology at advisory Greenwich Associates, said there is recognition among those in the space the information advantage has shifted from those dealing the bonds to the people buying them.
However, that doesn't mean everyone, particularly the biggest players in the space, is willing to change, McPartland added. Getting buy-in from the top is critical, as the US corporate bond space is a top-heavy market where market share is dominated by a handful of dealers. According to data from Greenwich Associates, 54% of notional trading volume by US-based corporate bond investors in investment grade and high yield is handled by the top-five dealers.
So while price sharing might be an attractive option for smaller players in the space, those who control a majority of the trading might find it less appealing.
"It makes a lot of sense on paper," he said. "Getting the largest primary dealers on the Street to cooperate to that level, I think that is still a tall order."
No one knows that struggle better than White, who said BondCliQ has been a three-year journey. White's campaign to bring a more transparent pricing process to dealers has had its setbacks. When he spoke to Business Insider in June 2017, he had plans to launch the platform by the end of the year.
The delays have been largely around wanting to ensure the platform has critical mass, White said. The initial data set needs to be valuable enough to maintain dealer participation, he added.
White said he feels BondCliQ has reached that point, but admits the platform now needs to prove it. He compared Wednesday's go-live day to moving from the practice field to a real game.
"We have been claiming that what we can do can improve overall market conditions for everyone, but after we put our system out into the marketplace it can be truly be tested," White said. "There is a big difference between talking about and being about it."
While the goal of BondCliQ is to give dealers better insight into the market, White says he's cognizant of protecting dealers' proprietary information. Dealers' quotes are anonymized and only displayed until three firms have contributed pricing information, thereby avoiding dealer's being identifiable if they are the only ones quoting a bond.
Another key factor in melting dealers' iciness towards sharing data has been market conditions, White said. The corporate bond market has proved difficult to manage recently, he said.
According to data from the Securities Industry and Financial Markets Association, there is over $9.1 trillion in outstanding corporate debt as of the end of Q3, an all-time high for the industry.
"This bigger market is riskier than ever before and there has been very little volatility, which means your ability to turn it over is hampered," White said. "From a conditional standpoint, there has never been a time in the history of the market where it was more important for dealers to have better data."
Eventually - White predicts by the middle of Q1 - BondCliQ's pre-trade data will be available to the buy side. The initial goal is get dealers comfortable with the platform, he said.
Offering pre-trade data to the buy-side can serve as an additional selling point to dealers, White said. Clients won't be able to trade through the platform, but the data won't be anonymized, thereby serving as a way for dealers to demonstrate to clients their willingness to trade. BondCliQ will also share revenue from selling the pre-trade data with dealers based on how well they provide quote data.
The buy side's willingness to buy into BondCliQ's platform remains to be seen, though, as customers aren't at the same information disadvantage as dealers currently. Still, White believes there are efficiencies to be had from using the platform. BondCliQ will offer quality assurance metrics to show how accurate dealers have been at quoting individual bonds.
Using the platform also ensures everyone is on the same page.
"The conversation, now, in terms of doing a trade, starts with, 'Hey this is where the market is.' It doesn't start with the market maker finding out for the first time that they are the best bid in the market, or that they are the best offer, and trying to figure out, 'Have I not moved my market properly?'" White said.
"Therefore the efficiency of the block trading processes, the institutional trading process, should improve because we are both working off the same Kelley Blue Book."