Boom in Fintech Bond Sale Platforms Risks Fragmenting Market

Bond buyers and sellers are warning that a recent proliferation of fintech platforms seeking to modernize debt sales around the world risks backfiring, making it more difficult to price deals.

The concerns follow a flurry of new technologies from New York to Hong Kong trying to drag the process of placing bonds into the 21st century. There are now at least 35 different systems for new bond deals across the globe, up from 22 in 2018, according to data from the International Capital Market Association.

Technology firms are setting their sights on digitizing bond sales in a year when issuance hit a record $3.3 trillion globally as companies shore up their finances against the coronavirus pandemic. The concern is that too much competition will divide borrowers, arrangers and investors and complicate the process of placing deals.

“The biggest risk for me is fragmentation,” said Jean-Marc Mercier, vice chairman of capital markets at HSBC Holdings Plc in London, speaking at an ICMA conference last week. “We cannot afford systems that do not speak to each other, especially the book-building platforms. The risks are errors, delayed pricing, exposing issuers and investors to market risks.”

Boom in Fintech Bond Sale Platforms Risks Fragmenting Market

The market for new-issue debt still relies on phone calls, instant messaging and emails to handle billions of dollars in orders and is one of the last corners of finance to experience a digital makeover. Platforms are seeking to modernize in a variety of ways, including allowing investors to place orders for deals electronically.

The developments may revolutionize the market and reduce the role of banks that arrange the deals, though that is yet to be seen.

Bloomberg LP, the parent of Bloomberg News, provides services that facilitate bond ordering and distributes information on new debt offerings.

New Systems

Among the recent developments, a group of lenders including Wall Street’s biggest banks launched bond ordering platform DirectBooks last month in the U.S.

In October, Chinese firm Bond Connect started a system operating out of Hong Kong called ePrime, which aims to be a “one-stop solution” for building bond orders as well as pricing and allocating deals. In Europe, electronic trading platform Liquidnet is also seeking to start a system, potentially competing with an existing effort from IHS Markit Ltd.

The platforms themselves say they’re willing to collaborate. Bond Connect would consider working with others “to meet the evolving needs of the market,” according to a spokesperson. Liquidnet’s system will be “open and interoperable,” a company spokesperson said, adding that the launch date for the platform has been pushed back to next year.

IHS Markit’s system is open and the firm has invited third-party vendors to integrate with it, according to Ted Douglas, co-head of fixed income for the company’s Global Markets Group. It would benefit the market if DirectBooks connected to IHS Markit’s network, he said.

“It is not our goal to add to fragmentation, rather to optimize workflow and improve efficiency,” said DirectBooks Chief Executive Officer Richard Kerschner, declining to comment on the suggestion from competitor IHS Markit.

The push to digitize new deals is coming years after fintech firms launched a plethora of platforms to trade bonds in the secondary market. Competition among the systems meant that not all of them survived and some failed to take off altogether.

The same may ultimately happen in primary markets, according to Chris White, Chief Executive Officer of BondCliQ, a market data system for U.S. corporate bonds.

“This is a very natural part of the process of innovation,” said White, based in New York. “A lot of options show up but only a few survive.”

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.