(Bloomberg) -- Some of Wall Street’s biggest banks are teaming up with BlackRock Inc.’s Aladdin technology system to provide real-time pricing data for trading US corporate bonds – still one of the most opaque areas in financial markets.
It’s another step toward transparency in a market where hyper-competitive banks have historically hoarded pricing information. The banks will contribute data to Aladdin via BondCliQ Inc., which describes itself as “creator and operator of the first and only consolidated quote system for US corporate bonds.”
Dealers including Bank of America Corp., Morgan Stanley and JPMorgan Chase & Co. are among those participating, according to people familiar with the deal. Representatives for the banks did not immediately respond to a request for comment.
Corporate bonds have historically traded over-the-counter, with investors having to call up or ping broker-dealer banks for individual prices. Since the financial crisis, the market has become more electronified, with trading activity shifting to digital platforms like MarketAxess and Tradeweb.
Big names including Citadel Securities and Jane Street have also thrown their hats in the corporate bond trading ring, muscling in on an area once the preserve of Wall Street banks.
Users of Aladdin’s platform will get direct access to licensed and attributed quotes from more than three dozen dealers, according to a press statement. The data includes price quotes for trading both investment-grade and junk-rated US debt. (Bloomberg LP, the owner of Bloomberg News, also provides pricing data for corporate bonds).
“This partnership presents pricing data uniformly to all buy-side clients, just like the US equity market, so there is equal access to information,” Chris White, BondCliQ founder, said in an interview. “According to history, adoption of centralized pricing data will lead to improved secondary market liquidity and greater market integrity for both retail and institutional investors.”
Digital Laggard
The corporate bond market has long been seen as a laggard when it comes to modernizing, with the vast majority of the equity and currency market moving to electronic exchanges decades ago. Anachronistic bond trading has also caught the attention of regulators, with the US securities watchdog recommending “tighter reporting and public dissemination requirements for bonds” in the aftermath of market volatility in March 2020.
Still, a hurdle to more transparency in the bond market has historically been the dealers themselves, who earn money from arranging trades on behalf of clients. That attitude has begun to change as fixed-income trading volumes boom.
“For dealers, contributing to BondCliQ will attract order flow and for buy-side institutions, leveraging BondCliQ pricing within Aladdin will improve their workflow and dealer selection process when block trading,” said White, who prior to creating BondCliQ helped spearhead previous electronic trading projects in credit at Goldman Sachs Group Inc. and Barclays Capital.
US trading volume for high-grade notes rose nearly 20% in the first half of the year, and 13% for junk, according to a report by Barclays. A jump in portfolio trading — which allows investors to buy and sell large lots of different bonds at once — has contributed to increased volumes.
“US portfolio trading is booming, with a new trade every seven minutes,” Barclays strategists including Zornitsa Todorova wrote last week in a separate report. That’s 10 times faster than in 2018. The note cited better technology as a key source of growth for portfolio trading.
More electronic trading has also helped boost volume. Research firm Coalition Greenwich said last year that about 40% of corporate bond trades are now online, up from less than a tenth a decade earlier.
“Increased transparency will make this market more electronic and more efficient,” said Larry Tabb, head of market structure research at Bloomberg Intelligence. “We’ve seen that in the equities world, the FX world, in some of the asset classes that are more transparent and liquid. And this is starting to happen in the corporate bond market.”
(Updates with detail from Barclays report in paragraph 12)