(Bloomberg) -- Intercontinental Exchange Inc., the market operator and parent of the New York Stock Exchange, said it has relaunched a system that aims to help broker-dealers transact, boosting liquidity in the credit market.
The ICE risk matching auction, which matches buyers and sellers of the same corporate bond or list of bonds to determine the best price for the transaction, was reworked and went live in recent months after years of being dormant, according to a statement. The system conducts auctions with more than 50 firms and 400 users on the updated system, with plans to reach at least 600 broker-dealers in the next month and a half.
“We invested in technology to bring what we had from 2015 up to a modernized state,” Peter Borstelmann, President of ICE Bonds said in an interview Monday. The firm took in feedback from users and added certain constraints to reduce risk exposure that gives traders more control over their transactions, he said.
ICE Bonds, the firm’s fixed-income platform, offers click-to-trade, request-for-quote, so called “sweeps” and portfolio auctions for U.S. municipal, corporate, treasury, agency, emerging market and sovereign debt and certificates of deposit, according to the company.
Electronic trading in corporate bond markets is on the rise. Close to 40% of the notional volume of investment-grade bond trading happens electronically, compared with 8% a decade ago, according to research firm Coalition Greenwich. For high yield that number stood at 31% last year, compared with just 2% in 2013.
Bloomberg LP, the parent company of Bloomberg News, competes with electronic platforms to offer fixed-income trading, data and information to the financial services industry.
“Market activity suggests that dealers are increasingly looking to e-trading tools to manage their risk, where only a few years ago that activity was handled over the phone,” said Kevin McPartland, head of research for market structure and technology at Coalition Greenwich.
The rise of passive investing through exchange-trade funds, meanwhile, is helping to increase the online trading of corporate debt, fueling higher trading volumes, specifically at month end when money managers rework portfolios. So-called portfolio trades allow money managers to swap a basket of corporate bonds of at least 10 securities for a single agreed price for the entire batch, according to JPMorgan Chase & Co.
That’s helping to prompt other market makers to jump into asset class. Citadel Securities LLC, for example, began offering blue-chip bond trading to clients in June. Jane Street, a quantitative trading firm, is already trading corporate bonds, on electronic trading platforms such as Tradeweb Markets Inc. and MarketAxess Holdings Inc.
As credit becomes more “electronic, and with the growth of ETFs, the dealer community needs outlets to be able to manage their liquidity, and the sweeps protocol has been pivotal to that,” Borstelmann said. “We saw an opportunity to relaunch our offering and bring a competitor to the market that exists today.”