London Stock Exchange Group and buy-side institutions have led fundraising in BondCliQ, which provides a consolidated quote system in the opaque and fragmented market for corporate bonds.
BondCliQ said in a statement it held an initial close of its Series A funding, led by LSEG, Aflac Ventures and SEI. In addition, Vanguard has engaged as a strategic partner to support improvements to corporate bond market structure.
Jon George, global head of FICC trading solutions at LSEG, told Markets Media: “From a client's perspective, the fixed income space is an incredibly opaque and fragmented market. It is a huge problem for clients when they're looking for specific risk or pre-trade information."
As a result clients are looking for an industry-wide solution given that problem set and the challenge of measuring transaction cost analysis.
George continued that BondCliQ are centralising pre-trade liquidity and aggregating bids and offers to offer investors higher quality of pre-trade data. He said: “The governance model includes the dealers and that partnership is important for us to build on.”
LSEG and BondCliQ have also signed heads of terms to collaborate on new product opportunities, including making BondCliQ proprietary data available through LSEG to improve pre-trade pricing for corporate bonds.
BondCliQ offers buy-side users access to centralised corporate bond quote data sourced from the 50,000+ quotes which BondCliQ receives on a daily basis from 40+ dealers. This quote data, in combination with spread-enriched pricing data, helps credit traders to better analyse the market and optimise their trading strategies.
Chris White, chief executive of BondCliQ, told Markets Media that a big differentiating factor for the firm is that it gets data directly from dealers who provided it voluntarily in exchange for incentives including access to pricing data. “No other initiative in the corporate bond market gives dealers access to the pricing data that they collectively generate,” he said.
One incentive for dealers is a revenue share on BondCliQ’s sales of pricing data.
“When we sell the pricing data to the vendors or the buy side, a large percentage of revenue is allocated back to the dealers based on the quality and scope of their data contributions,” White added. “Think of us as the iTunes for the dealers.”
Other incentives are distribution of pricing and business intelligence. BondCliQ has built proprietary technology to integrate with any order and execution management system and created an algorithm that comparatively ranks dealers on their ability to maintain share relative to the other dealers making a market in that bond.
“For the first time dealers are able to understand how well they are performing from a consistency, competitiveness and liquidity standpoint relative to everyone else at an individual bond level,” White said. “Dealers constantly need to turn over their inventory, but without a without a deeper understanding of how to improve their chances of getting order flow that becomes very difficult.”
Data is critical
BondCliQ was founded on the premise that a key piece of architecture required for the modernisation of any market is a centralised pricing solution. The consolidated quote platform does not allow market makers to tier pricing for different clients based on their name or size. However, dealers can control whether their identity or size is presented to certain clients.
“Our objective market-determined pricing means customers are seeing the same pricing information in the same bond at the same time,” added White. “The data has existed for a long time, but nobody has ever organised it.”
Once a pricing data source is readily available, reliable, and consistently improving in quality then market makers automate more pricing and the buy side is able to automate more order flow which allows electronic trading to take off according to White.
“Our consolidated quote architecture is specifically designed to centralise pricing in such a way that customer order flow will be based on a dealer's pricing proficiency which directly leads to better business performance,” he said.
For example, over the last 12 months BondCliQ has provided over 1.9 million active quotes in bonds that have not traded for a day.
“I think we've positioned electronic trading as solving the problem of liquidity, but that problem can only be solved using data which allows a large and healthy group of market makers to feel they can make informed decisions in a market,” White added. “You don't address the liquidity issue just by making markets trade faster.”
White continued that BondCliQ is not currently receiving from the top five credit dealers but the fundraising starts to address this issue.
“The top five dealers have said they need to see definitive commitment from key clients before they participate and the fundraising includes Aflac, Vanguard, SEI investments,” he added. “I think that buy-side institutions in fixed income markets have never before invested in a platform or a solution at this stage of its development. So we're quite proud of the uniqueness of this deal.”
BondCliQ aims to provide pricing data for credit securities globally and LSEG and Refinitiv have established relationships and sales teams in continental Europe and Asia.
“One of the big benefits of working with a lead investor like LSEG and Refinitiv is their geographical positioning,” said White. “Our strategy is to establish a beachhead using US corporate bonds and then expand.”
LSEG has extensive relationships with the sellside, buyside and electronically through its desktop variants and API network according to George.
“In our Data and Analytics division we have at least 40,000 customers and 400,000 end users so we'll be looking to work with BondCliQ on distribution and new product capabilities," added George. “We are very interested in solving client problems as a solutions delivery infrastructure player.”
George described the drive towards electronic trading in fixed income as becoming “turbocharged” since Covid 19.
“The key for clients within fragmented fixed income markets is reducing friction for trade execution, reducing manual workflows so that the process is as automated as possible, having data where your execution traders live and having interoperability,” he added.
In 2022 BondCliQ aims to have full saturation across dealers and ensure that all contributors have access to real-time pricing information on screen to help them avoid mistakes, make accurate markets and properly price liquidity. Another aim is to be integrated into all major order management systems that the buy side uses in fixed income.
White said: “Entire liquidity in the marketplace will be uplifted because there is a community of informed market makers in the institutional market.”
©Markets Media Europe, 2021
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