BNY Mellon Plans Online Market to Trade European Asset-Backed Securities

Bank of New York Mellon Corp., the biggest custodian of other firms’ assets, is planning what it says is the first online market in Europe to make it easier to trade hard-to-value asset-backed securities.

The Internet-based market, known as Structured Credit Connect, will allow banks, asset managers, hedge funds and dealers to buy and sell asset-backed bonds anonymously, according to John Spedding, a London-based managing director at the bank and part of the system’s development team. The service will start in the first quarter of 2011, he said.

The system is “like the EBay of illiquid securities,” Spedding said, referring to e-commerce site operator EBay Inc. “People won’t know who the bidders are but they will be able to see how many people are actively watching the security or how many bidders have put in a price.”

Trading in the $2.3 trillion market for European asset- backed securities stalled in 2007 after the U.S. subprime crisis caused investors to shun illiquid assets. Sales also slowed, with almost 52 billion euros ($59 billion) of European asset- backed bonds issued this year, down from a peak of 304 billion euros in the same period in 2006, JPMorgan Chase & Co. data show.

Under BNY’s market, buyers will have 24 hours to post bids for assets the bank puts up for sale on behalf of clients. The New York-based bank will charge a fixed commission for successful trades regardless of the size and complexity of the deals, Spedding said, without specifying the level. Structured Credit Connect will initially handle residential mortgage-backed securities and then expand to other assets, he said.

More Transparent

Banks create asset-backed securities by packaging property loans, consumer debt and corporate borrowings into notes of varying risk and returns.

BNY started a similar service for U.S. mortgage-backed securities in June. The U.S. securitized credit market is recovering more quickly than Europe’s, benefiting from the Federal Reserve’s Term Asset-Backed Securities Loan Facility, or TALF, which provided low-cost financing to investors buying the bonds.

Traders of the securities may not favor increased transparency, which can hurt their profit by reducing the difference between bid and offer prices, according to Attilio Di Mattia, a money manager at Aurelius Capital Management in Vienna, who helps oversee 4.5 billion euros of assets including European and U.S. securitized debt.

“Investment banks make money from the margins that come with the price volatility and they won’t easily give that up,” Di Mattia said.

BNY Mellon has $21.8 trillion in assets under custody and administration and assets under management of $1 trillion, according to its website.

To contact the reporter on this story: Kate Haywood in London at khaywood@bloomberg.net Esteban Duarte in Madrid at eduarterubia@bloomberg.net

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