Electronic bond-trading platform Trumid has launched a continuous pricing service for corporate bonds, which aims to ease a liquidity crunch by extending reliable bid/offer information to a broader range of fixed income securities.
The Fair Value Model Price dynamically weights inputs from bond specific factors and external markets to calculate intraday values for all 22,000 corporate bonds that can be traded on Trumid Market Center – the firm’s flagship all-to-all electronic platform. Prices are updated every five minutes and publicly available on the firm’s website.
During August, for example, around 5,000 bonds on the Trumid platform traded in sizes of 1m or more, leaving as many as 17,000 with limited pricing visibility.
In an effort to build trust in the model, a three-month performance back-test allows FVMP scores to be compared against TRACE transaction data. Investment-grade bonds scored by FVMP were within 0.55 point of the actual print for 95% of the time. High-yield scores were within 0.82 point, while distressed bonds were within 1.36 points at the 95th percentile.
“We’re showing how we measure it and how it’s performed,” said Quinn. “That’s not readily available for all products that exist in the marketplace.”
In the first instance, continuous price data is expected to eliminate erroneous pricing inputs and assist with transaction cost analysis that is increasingly required by regulators. Ultimately, the firm plans to deliver bespoke market intelligence to its clients.
“It’s helpful to put your finger on the pulse of the market and know what’s going on. Participants in this market place like colour and as an executing venue and technology company, we have to do that in a quantitative way,” said Quinn. “As our system learns about what people care about, we’ll be able to deliver a more customised market intelligence.”
Trumid is one of a range of start-up platforms aiming to restore ailing bond market liquidity by linking buyside and sellside players in an electronic venue.
Liquidity has been a cause of concern since Basel III capital requirements increased the cost of warehousing debt securities, spelling the end of the principal trading model. Net holdings of corporate bonds by US primary dealers stands at US$25bn, according to data from the Federal Reserve Bank of New York, down from a 2007 peak of US$286bn.
Trading on all-to-all platforms has surged since. Trumid, which has more than 370 buyside and sellside clients, traded a record US$1.25bn on its platform in August. Weekly volume recently hit US$500m for the first time.
“We’re seeing organic growth driven by changes we’ve made to the platform and as a technology start-up, we move very fast,” said Quinn.
The firm acquired rival Electronifie in May as part of a wave of consolidation among more than 30 start-ups that are vying with incumbent players like MarketAxess, which traded US$114bn of fixed income securities on its electronic platform in August.
Trumid is also eyeing expansion into Europe after receiving a US$10m investment from Deutsche Boerse to develop fixed income products and services in the region.