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Follow Us Said in Talks With Western Asset, Janus for Trades

Updated on

Western Asset Management Co. and Janus Capital Group Inc. are in preliminary discussions with Group Inc. to use the electronic trading service as they seek alternatives to dealers with shrinking inventories.

The interest comes after New York-based appointed former Jefferies Group Inc. fixed-income co-head Thomas Thees as its chief executive officer in June. The asset managers, which oversee a combined $599 billion, haven’t made a decision to use the company’s trading system, according to three people familiar with the matter.

Investors from Fidelity Investments to BlackRock Inc. are searching for ways to lower costs and speed up the brokering of debt trades after the biggest dealers cut company-debt holdings by 84 percent since 2007, according to Federal Reserve data. While 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.

“Buying things on the Internet is so efficient, it would be nice if you could do the same thing with bonds,” said Ashish Shah, the head of global credit investments at AllianceBernstein LP, which oversees $407 billion. He declined to comment about “We definitely intend on being active in electronic execution. We expect to use multiple models to lower our clients’ costs.”

Boston Meeting

John Ryan,’s chief financial officer, declined to comment, as did Mary Athridge, a spokeswoman for Western Asset and Robin Beery for Janus.

Executives at Fidelity and State Street Corp. arranged a meeting in May with representatives of Deutsche Bank AG, Barclays Plc, JPMorgan Chase & Co. and Goldman Sachs Group Inc., pushing the dealers to develop a multi-bank electronic-trading system for bonds, according to people who attended the Boston event who asked not to be named because they weren’t authorized to speak publicly.

While in its early stages, the group plans to continue meeting to manage the evolution of bond trading in the next 12 to 18 months, the people said. Representatives of the asset managers and banks involved in the May meeting declined to comment.

BlackRock, Goldman

BlackRock, the world’s largest money manager, has said it plans to introduce bond trading among its thousands of clients using its own system. Goldman Sachs has begun a similar internal trading system for its customers, called GSessions. MarketAxess Holdings Inc., the owner of an electronic bond and derivative trading system, said July 24 it planned to take additional steps to enable bank customers to trade debt among themselves. The company has traditionally focused on dealer-to-client trades., founded in 2005, is an electronic marketplace where investors can buy and sell U.S. corporate securities and emerging-market debt in so-called odd lots, or trades of fewer than 100 bonds. It has lost money for 12 straight quarters and traded at 5 cents a share yesterday, down from a split-adjusted high of $39.29 in 2005.

UBS AG’s broker-dealer in the U.S., which uses a version of’s software, was the source of about 13 percent of the company’s revenue last year, according to regulatory filings.

Dealer Banks

Bloomberg LP, the parent company of Bloomberg News, competes with and MarketAxess to provide electronic trading systems for fixed-income markets.

Investors for decades have relied on dealer banks to hold corporate bonds in order to have them available for sale at any given time. Banks were compensated for committing their capital to the debt inventory by charging their customers wide spreads in the difference to buy and sell the bonds.

A shift to electronic bond-trading systems such as the one owned by MarketAxess can reduce those costs by as much as 5 times, according to research by Terrence Hendershott, an associate professor at the University of California at Berkeley’s Haas School of Business, and Ananth Madhavan, the global head of trading research at BlackRock.

A study of comparable trades from January 2010 to April 2011 that were executed on MarketAxess’s electronic system versus others reported to Finra’s Trace bond-price reporting system showed a cost of 6.09 basis points on MarketAxess and 30.43 basis points in over-the-counter transactions reported on Trace, Hendershott and Madhavan wrote in a Jan. 13 paper.

Cheaper Trades

Trades under $100,000 cost 14.05 basis points on MarketAxess compared with 48.6 basis points when done on the phone, while $1 million to $5 million trades were 6.22 basis points on MarketAxess versus 7.43 basis points as reported on Trace.

GFI Group Inc., the financial data and technology company that owns an electronic bond-trading system, started hosting sessions for brokering U.S. corporate debt this year.

Michael Gooch, GFI’s chief executive officer, joined the board of directors of in January. He said money managers are looking “out of necessity” at any way possible to buy and sell the debt they want to hold in their portfolios.

“They need to get their business done,” he said. “If they can’t rely on the banks they need to find the other side of the trade.” received investments totaling $16.6 million last year from Michel Daher, chairman of Daher Bonds Investment Co., Mida Holdings, Oak Investment Partners and GFINet Inc., the company said in December.

“This is a unique time,” Gooch said. “The banks are not committing as much capital and are downsizing their books and looking to be intermediaries or agents, and not market makers.” Large asset managers such as BlackRock and Pacific Investment Management Co. will need to take on larger roles in offering bonds to buy and sell to others in the market in the future, Gooch said.

“That’s where this business is going,” he said.

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