An “unprecedented wave of innovation” is reshaping the market structure of corporate bonds trading, according to GreySpark Partners.
In a 36-page report, the capital markets consulting firm argues that electronic trading will continue to be critical in facilitating market trades in the wake of the financial crisis.
According to GreySpark, the regulatory environment that has stifled capital markets in recent years will continue to impact the availability of credit.
Consequently, most market participants now describe the secondary markets for corporate debt securities as ‘broken.’
Research conducted by the consultancy reveals that during 2007-2014, the size of the global secondary market for corporate debt grew by 47% to $48 trillion, but the daily rate of turnover of those securities in the US fell by 48%.
In response, 23 new electronic corporate bond-trading platforms were launched between 2010 and 2015 in an effort to increase the rate of turnover.
Russell Dinnage, senior consultant for GreySpark and co-author of the report, conducted detailed analysis of the 40-plus corporate bond-trading facilities covered in the research.
He said: “The most radical new electronic corporate bonds trading platform initiatives seek to remove the market’s dependency on broker-dealer balance sheets by either cutting banks out of the loop altogether or by reducing them to a pure agency role.
“In practice, however, these platforms still rely on broker-dealers to assist with the formation of tradable prices, or they are requiring their members to forsake anonymity.”