Equity block trading venue Liquidnet is expanding its reach and moving into the corporate bond market and looking to bring the block trade to bonds.
Liquidnet announced today that it has purchased Vega Chi, a corporate bond trading platform and will use the trading system to bring equity-like trading efficiency into the fixed-income realm.
The acquisition, still subject to regulatory approval, will combine Liquidnet’s equity market experience, scale and global reach within the institutional investment community to another asset class. Corporate bonds, part of the fixed-income universe, have traditionally been traded via telephony and non-electronically via brokers but recently new broker-neutral platforms have sprung up to change that. Vega Chi’s platform supports trading in corporate, high yield and convertible bonds.
By combining Vega Chi into Liquidnet’s equity offering, the hope is offer institutional clients a single broker-neutral multi-asset class trading platform, where the buyside can execute block trades.
“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,” said Constantinos Antoniades, founder and CEO of Vega-Chi. “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.”
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 U.S. and European high yield bonds as well as European convertible bonds.
“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,” said Seth Merrin, Liquidnet’s CEO. “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.”
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.
In addition, Liquidnet and Vega-Chi expect to introduce the trading of U.S. investment grade corporate bonds during 2014.
