The NYSE Is Releasing NYSE Bonds
"We are going to bring an exchange model to corporate bond trading that in essence will mirror the equity model, which will create depth of book in all orders where each order is fully executable," Holman says. "It introduces the ability to do algorithms on our platform and create a more-efficient and transparent fixed-income market." Still, NYSE is, and may continue to be, a small player in the fixed-income world. The ABS' current trading level of $10 million to $20 million in notional value represents about 1 percent of the overall bond market, Holman concedes. By comparison, corporate bond e-trading platform MarketAxess has 70,000 tradable CUSIPs and had an average daily volume of $790 million in U.S. high-grade corporate debt in the third quarter of 2006.
And while it makes sense to exploit the capabilities of the Arca platform, NYSE may find itself facing a cool response from a bond market that can be illiquid and heavily reliant upon personal relationships. "I don't necessarily like the consolidator platforms," says Calvin Spranger, a portfolio manager and trader at Seattle-based money manager Badgley, Phelps and Bell. "I like maintaining my relationships with the individual dealers. When you lose some of that contact, you don't get the first phone calls on offerings and special situations."
Spranger notes that on many e-trading platforms, securities with indicative prices are sometimes not available when the trader hits the execution button. "That is going to be the problem" the NYSE will face - it is difficult to make two-sided markets in bonds," he says. "The difficulty of hedging bonds, with their complexity in maturities and call dates, makes e-trading platforms more difficult to manage."
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