Morgan Stanley (MS) is retooling an electronic bond-brokering system as the Wall Street bank with the biggest drop in fixed-income revenue last quarter seeks to increase its share in a market moving toward automated trades.
The Morgan Stanley Bond Pool network picks a group of securities and matches buyers and sellers who express interest through the system, offering lower transaction costs than what investors typically get in privately negotiated trades, the bank said in marketing documents dated last month and obtained by Bloomberg News.
Created last year, the system was revamped and the bank introduced the new version to clients within the past month, according to a person familiar with the matter who asked not to be identified because the program hasn’t been made public.
Morgan Stanley joins Goldman Sachs Group Inc. (GS) and UBS AG (UBSN) in starting automated systems to exchange bonds in an effort to maintain their grip on transaction fees as investors from Fidelity Investments to BlackRock Inc. (BLK) push for cheaper and faster ways to trade debt. Networks run by firms from Bonds.com Group Inc. (BDCG) to MarketAxess Holdings Inc. (MKTX) threaten to siphon off the revenue Wall Street makes from the difference between offers to buy and sell the securities.
Mary Claire Delaney, a spokeswoman for the New York-based bank, declined to comment on the marketing documents.
In Bond Pool, which is part of the global credit sales and trading unit, Morgan Stanley traders submit market mid-prices and conditional bids and offers for a set of bonds, according to the marketing documents.
Customers are invited to bid, and the bank matches buyers with sellers at the close of a specified time window. Market- makers can fill any leftover interest. Sales teams at the bank then approach participants with proposed trades, which the parties have to agree to before the transaction is completed, according to the presentation.
Sessions take place “as frequently as client and trader interest dictate, and as quickly as” the system allows, according to the documents.
The platform, which is offered through the firm’s Matrix application, is the latest attempt by Morgan Stanley to use technology to improve its fixed-income trading performance. The firm started Matrix in 2009, which provided clients with research, analytics, live prices and trading capability for some fixed-income products.
The firm has expanded its Morgan Stanley Electronic Trading technology, which was developed for equities and foreign exchange, into fixed-income, Chief Financial Officer Ruth Porat said last year. In 2010, it hired Dexter Senft from Barclays Plc as head of e-commerce for the fixed-income unit.
The efforts support Chief Executive Officer James Gorman’s goal of increasing market share while reducing so-called risk- weighted assets in the fixed-income business, which the bank has cut by 15 percent since the 2011’s third quarter. That reduction will rise to 30 percent by the end of 2014, Gorman said last month.
Morgan Stanley’s second-quarter fixed-income trading revenue dropped 60 percent from a year earlier, excluding accounting adjustments. That was the largest decline among the five largest Wall Street banks.
Investment banks will bring down compensation costs by dismissing trading staff as automated transactions become more prevalent, Boston Consulting Group Inc. said in an April report. The industry will see little to no growth in the total revenue pool over the next few years, BCG said.
The biggest dealers have cut company-debt holdings by 84 percent since 2007, according to Federal Reserve data, even as the size of the U.S. corporate bond market expanded 40 percent in the past three years, average daily trading volumes dropped about 1 percent, data from Bank of America Merrill Lynch and the Financial Industry Regulatory Authority show.
New York-based Goldman Sachs also has an initiative, GSessions, which debuted in June.