The Bank of New York has acquired the assets and trading system of Greenwich, CT-based BondNet, an electronic bond trading system that allows trading execution for corporate debt. Similar to the Reuters Instinet system, BondNet also trades other products at a spread over the U.S. Treasury curve, according to Thomas Price, Bank of New York svp in charge of the division.
Most of the corporate bond market is conducted via telephone, much like the foreign exchange market, says Price. "Almost the entire market for corporate bonds is an over-the-counter market, which is certainly not the most efficient way to get trades done." Some bonds trade on the NYSE exchange, he concedes, "but many of them trade over the counter too." Price says his division is the only live, on-line execution system for bonds.
Part of Bank of New York's idea, says Price, is to take substantial market share in the corporate bond trading market, adding: "It gives us real prices in terms of where corporate bonds are trading, which is useful both for our own account, and for distribution to our clients," among the bank's $11 trillion global custody business.
"Most clients today that own bonds get their information from pricing services based on an implied price for that bond, based on its duration, coupon and credit quality," he says. "That doesn't mean the bond has ever traded at that price. We'll have live market information that we can capture."
Bank of New York closed on BondNet in late August; volume has been low, says Price-in part because stock market volume has been so high-but is growing about 20 percent per year. Price says that the service has crossed about 70,000 trades since 1995. He declined to say what form of business growth BoNY expects. "The only number that's meaningful is to compare BondNet and the New York Stock Exchange," he says. "They do about 13 million bonds a day, and BondNet does a multiple of that."
Presently, BondNet's distribution is "one hundred-odd clients," and strictly U.S.-based, which means mainly New York based, since most all the broker-dealers are in New York. "But there's a live page to Bloomberg, and anyone in the world can see that, and be authorized to execute over Bloomberg," says Price, who headed Bank of New York's securities lending business before taking over BondNet.
Bank of New York is a New York-state chartered bank and didn't need OCC approval, says Price. It collects fees on BondNet trades as a riskless principle.