Electronic trading of corporate bonds remains an activity difficult to access for many asset management players. Invivoo and Kepler Cheuvreux are now ready to offer them a highly cost-effective e-commerce platform, by combining their respective areas of expertise: excellence in credit research, direct access to listed markets and IT development capacity specifically in market finance.
“We want to democratise electronic bond trading, as for many clients there are fairly significant barriers to market access,” declares Stéphane Rio, Global Head of Debt & Derivatives at Kepler Cheuvreux.
There are some 600 asset management companies in France, but the vast majority do not have access to electronic marketplaces dedicated to corporate bonds, such as Euronext Bondmatch, Euronext Bonds or EuroTLX to name a few.
“The tools for connecting to these platforms remain too costly and interfaces are not particularly user-friendly”, points out Guillaume Morel, CEO of IT systems company Invivoo, specialises in the financial sector.
Breaking the vicious circle of under-liquidity on listed markets
Basel III regulations and lower returns are forcing investment banks to cut back on their market-making activities, and this has had an impact on bond market liquidity. The October 2015 edition of the IMF financial stability report also pointed to a much more significant reduction in liquidity on corporate bonds than was seen during the 2013 “taper tantrum” crisis (due to the anticipated slowing of purchases by the US Federal Reserve).
According to the EFAMA (European Fund and Asset Management Association), in order for liquidity to increase, there must be electronic platforms on which different types of bond holders and investors can come together.
“The electronic bond trading platform we are developing in partnership with Invivoo will enable small-scale buy-side players to meet up with more traditional, larger-scale players in the marketplace and contribute to diversifying and increasing liquidity, thus setting a virtuous circle in motion”, explains Rio.
The electronic platform is already operational
Initiated over a year ago, the electronic platform project is now entering its operational phase. It will officially be launched in the second quarter of 2016. On a single screen, it will offer functions including research, analysis, viewing of prices and execution capacities.
“It is a highly cost-effective platform, despite the complexity of the different functions offered, with a user interface that is worthy of the 21st century and in compliance with the regulatory security standards,” says Morel. It is thus both an alternative and supplement to the famous RFQ (Request for Quotation).
“It will also offer a response to regulatory changes, especially in terms of MiFID II, which will require more transparency in pre-trade and best execution,” adds Rio.
A blend of complementary expertise
Kepler Cheuvreux provides access to its diversified institutional client base, offering its expertise in credit analysis, its membership of electronic marketplaces and its SOR (Smart Order Routing) technology. A SOR is a software layer used to intelligently route orders to different listing places, considering execution cost and liquidity sought, and thus meeting MiFID’s best execution requirements.
Invivoo, meanwhile, designs and develops the platform, then operates it in production. Creating such a platform entails developing a whole host of functions, such as order placement and market access, some of which are quite complex, e.g. construction of order books, not to mention security issues. This calls for in-depth business expertise in the field of finance.
In addition to this expertise, Invivoo has drawn upon XComponent, its agile business software development technology.
“Normally, such a platform would require two years of work for a team of five people,” says Morel. “We developed it in ten months, using four full-time equivalents, thanks to XComponent.”
This also explains why the resulting offer is so cost-effective. “With XComponent, we were able to produce a rich client user interface, installed in client workstations using their graphics capabilities,” explains Morel. “This in turn enables more user-friendliness, unlike thin client models, limited by web browser and HTML language capabilities.”
XComponent’s development flexibility will make it possible to easily add new functions later down the line, such as information flows, reporting tools, etc.