Citigroup Inc., the third-biggest U.S. bank by assets, has started an electronic bond-trading service as Wall Street firms seek to help clients buy and sell debts among themselves.
Clients of the Citi Credit Cross trading system have been able to enter transactions themselves since this week, said Scott Helfman, a spokesman for New York-based Citigroup. The service will be phased in during the next few weeks, he said.
Citigroup, Goldman Sachs Group Inc. and Morgan Stanley are among Wall Street firms that traditionally acted as middlemen by warehousing bonds until customers sought to buy them. That model is changing as U.S. and international rules meant to make the banking system safer have prompted dealers to cut the amount of debt they hold.
The firms now seek to match bond investors with each other to ease trading. Holdings of company debt at the 21 primary dealers that trade with the Federal Reserve shrank 75 percent to $54.6 billion earlier this month from the end of 2007, according to the central bank.
Other firms such as MarketAxess Holdings Inc., the owner of an electronic bond and derivatives-trading system, also seek to allow debt investors to trade with each other. BlackRock Inc., the world’s biggest money manager, said it plans to introduce internalized bond trading among thousands of clients.
Moving to electronic bond-trading systems may reduce costs by as much as five times, according to research by Terrence Hendershott, an associate professor at the University of California-Berkeley’s Haas School of Business, and Ananth Madhavan, global head of trading research at New York-based BlackRock.
A study of comparable trades from January 2010 to April 2011 executed on New York-based MarketAxess’s electronic system versus others reported to the Financial Industry Regulatory Authority’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 paper last year.
Dow Jones newswires reported on Citigroup’s plans yesterday.