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By Spencer Anderson
LONDON, Oct 10 (IFR) - Banks' plans for a bond network toimprove liquidity in the corporate debt market face significanthurdles beyond the technological challenges, including thevested interests of the market's long-established players anddealers.
The so-called Neptune project envisions a kind of virtualmall where buyers, sellers and even bond trading platforms cangather to improve their chances at making trades.
A feasibility study for the non-profit project, which hasseen 12 banks contribute a first round of funding so far, is dueto be completed by December.
But while market participants have become increasingly vocalabout liquidity shortages in the debt markets, other recentinitiatives have failed to solve the problem - and indeed havearguably increased the market's fragmentation.
"How will people disseminate and receive information? Whatinformation will be available?" said Sotiris Manderis, directorof electronic trading at HSBC.
"There are a host of issues and details to be worked out."
With dealers reducing inventories in the face of stringentnew regulations imposed after the financial crisis, liquidityhas become a regular problem in the market.
A dozen banks including Goldman Sachs, HSBC, SocieteGenerale, BNP Paribas and Credit Suisse have signed up toNeptune so far in hopes it can improve the situation.
Instead of executing trades, however, Neptune will be acentre where banks send axes and price information. The hope isthat clients and trading venues alike will subscribe to it.
Many bankers say dealers would still be able to controltheir outgoing information on such a platform, though othersworry they could end up revealing too much to a rival bank.
"I think it only works if the platforms sign up, and at themoment the barrier to entry is connectivity," one said. "So Icannot see them giving away that advantage."
HOOKING UP
Another difficulty facing Neptune is the enormous challengeof getting the different technologies - both infrastructure andsoftware - integrated into a single platform.
Etrading Software has been brought in as a consultant on theproject, though those involved say it will take at least a yearto figure out.
"It's an interesting development and could be a goodsolution," said Paul Reynolds, the CEO of Bondcube, a newmulti-participant bond trading platform involved in the Neptunetalks.
"The challenge for Neptune is to get all the technology toseamlessly appear in one place," he told IFR. "To somehow complyto all the business models of all those platforms is a hugetechnical and business challenge."
For all its ambitions to function almost like a one-stopsite, though, Neptune is joining a crowded and highly fragmentedfield that already has some 40 bond-trading venues in it.
And not one of the large established venues in the market -including Bloomberg's ALLQ, Tradeweb (part-owned by ThomsonReuters) and MarketAxess - have signed up to the project.
THINKING BIG
The plethora of venues has long frustrated the market, andthe idea for Neptune comes at a time when investors appear to betruly hungry for a change to the trading structure.
But it and others - like Deutsche Bank's Oasis project - arefor the moment long on theory and somewhat short on concretedetails.
If it works, however, many in the market will have reason tocheer.
"On the sell-side you can show your inventory to a number ofclients in a standardised manner, and from the buy-side it's anefficient way to receive this information," said Manderis atHSBC.
"People on the buy and sell side will have differentopinions, and we need to agree on how to address them," he said."But it's win-win." (reporting by Spencer Anderson; editing by Alex Chambers, MarcCarnegie,) ))
