TMC Bonds, a leading fixed income electronic marketplace, and Codestreet, a widely-deployed provider of fixed income sales and trading matching software, today announced the launch of the first dealer-only dark pool for corporate bonds. The innovative trading platform addresses the issue of constrained dealer liquidity by anonymously matching positions and indications of interest (IOIs) for sell-side participants across the full spectrum of investment grade, high-yield and distressed debt.
The Codestreet Dealer Pool works by unlocking the liquidity already available on Codestreet’s existing matching platform, which is widely used by banks and broker-dealers to identify internal trading opportunities across their positions, orders and client IOIs. The ability to now mine a combined pool of thousands of institutional-sized trading opportunities by linking these existing natural pools of liquidity will create significant capital efficiencies for the dealer community.
Unlike the existing inter-dealer market, the Codestreet Dealer Pool fully protects traders from information leakage and provides a secure and fully-executable electronic platform for negotiating round lot orders ($1m or greater) in the credit market. The absence of information leakage provides the protection that allows a far broader range of less liquid bonds to be traded.
Once participants agree to trade terms, TMC Bonds executes the trade and acts as the counter-party for settlement. TMC Bonds has extensive back office connectivity having played a major role in the development of electronic fixed income trading over the past decade.
The Codestreet Dealer Pool is now live and more than 15 dealers will have joined the platform within the next few weeks, with over half of them already activated. By this summer, TMC Bonds and Codestreet expect to have at least 10 of the top 25 ranked corporate bond (investment grade and high-yield) underwriters participating.
“We are delighted to partner with Codestreet on this dealer-friendly initiative,” said Tom Vales, chief executive of TMC Bonds. “The Codestreet Dealer Pool is a genuine game-changer for the corporate bond market, with substantial initial liquidity and the elimination of information leakage likely to be the cornerstones of its success.”
“The challenge of reduced sell-side inventory is widely understood, but the fundamental need for dealers to serve as liquidity providers remains unchanged,” said Howard Pein, chief executive of Codestreet. “The Codestreet Dealer Pool provides a way for the dealer community to use their data to collectively address the issue of balance sheet reduction while strengthening their traditional position in the marketplace.”
The Codestreet Dealer Pool incorporates proprietary algorithms that seek out a likely trade match by mining the entire database of participating dealer liquidity, and fits seamlessly within the existing trading workflow. Because Codestreet is already installed on many dealer desktops, it avoids the arduous task of attempting to introduce new software to a brand-new dealer client base, one of the reasons why several start-up credit platforms are struggling to gain traction.
While TMC Bonds acts as the executing broker it does not trade for its own account and information security is fully protected. Client services will be supported by TMC Bonds’ brokerage desk that has been augmented with recent hires of experienced institutional credit professionals.