Electronifie's trading platform aims to address the problems of liquidity and a lack of transparency that the corporate bond market has grappled with. Jane Cooper talks to its chief executive.

Amar Kuchinad, chief executive of Electronifie, is hoping to bring some magic to the world of corporate bonds by providing a trading platform that matches buyers and sellers. The service is much like the taxi-sharing firm Uber, which brings together taxis and passengers while bypassing the call centre.

Traditionally corporate bonds have been traded over the phone but Electronifie cuts out the middleman. This is not only more efficient but also means investors do not reveal their intentions and open themselves up to a predatory attack, or ‘front running’.

“When an investor asks for a price they are giving up information of what they want to do,” says Mr Kuchinad. With an electronic platform such as Electronifie, buyers and sellers can communicate at the same time about what they want to buy or sell without their information being revealed.

If, for example, the best bid is 98.25 and the best offer is 98.75, Electronifie matches the price in the middle and connects the hidden orders. As well as the matching system, Electronifie brings a smart search function to bond trading, enabling participants to see what is available on the market, much in the same way that online retailer Amazon condenses millions of results in a shortlist of the most relevant items.

Addressing problems

The platform, which is due to launch by the end of the first quarter of 2015, addresses problems in the corporate bond market that many have grappled with. For example, illiquidity has been a problem and, according to Mr Kuchinad, “large institutions cannot find willing counterparties as they used to”. Also, he notes, there has been a lack of transparency about what is a fair price.

Since the financial crisis, a combination of increased regulation and risk aversion has meant that large banks have been cutting back their bond inventories. Previously, these dealers could use their balance sheets to support trading, but now they cannot provide liquidity for institutional investors.

Meanwhile investors are holding onto bonds they are willing to sell, but have no way of finding buyers and vice versa. The situation could be compared with a taxi company that is no longer able to fund its taxicabs and leaves drivers and passengers trying to connect with each other on their own. There may be a lack of journeys, but that does not mean that the supply or demand is not there.

In the bond market, the range of coupons, maturities and prices means that finding a match over the phone is as difficult as a hitch-hiker on the side of the road getting a ride to where they want to go.

Bringing choice

Electronifie is one of many answers to the problems in the corporate bond market. “There is a host of different solutions to different visions of the same problem,” says Mr Kuchinad.

In recent months, a number of ventures have got under way to bring liquidity and choice to corporate bonds. MarketAxess currently has the lion’s share of electronic bond trading in the US. Tradeweb Markets launched its US corporate bond marketplace, with funding and support from a group of banks, in 2014 to challenge venues such as MarketAxess. Bondcube, MTS Bonds.com, Liquidnet, TruMid are some of the other names competing in this space, all providing their vision of a more efficient corporate bond market. Meanwhile, Algomi offers more of a social network solution so that banks are better able to manage their inventory and use the network to facilitate trades.

The proliferation of choice and new electronic trading venues does not mean the voice market will disappear, but rather that more choice will be available. “This is a market that has been lacking in choice and innovation in the past 25 years,” says Mr Kuchinad. “The corporate bond market has no choice.”

That is changing now, however, and soon there will be the choice and number of trading venues that is available in the equities markets.

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