Investors Seeking Liquidity Get Craigslist for MBS From Vendor

Investors in bonds backed by assets such as mortgages are joining others across fixed-income markets in getting new ways to trade.

Empirasign Strategies LLC this month started testing a service in which investors can anonymously post securities they want to buy or sell and potential prices, and then chat online without divulging their names to seal the deals, President Adam Murphy said. The “Axes” platform will be available to the more than 300 people at about 75 firms that use the New York-based company for securitization-trading data culled from sources including widely distributed auction lists and dealers’ communications about their inventories.

The new offering, which is similar to Craigslist’s online classified ads, is the latest initiative to combat the reduced liquidity in debt markets that resulted from changes at Wall Street banks after the 2008 financial crisis.

“The Street is shrinking and so it’s impossible for the dealers to perfectly cover all the customers, especially in mortgage-backed securities,” said Zach Cooper, a money manager at investment firm Treesdale Partners LLC, who said that he’s planning to try the new Empirasign platform.

In other debt markets, money managers including BlackRock Inc. are also seeking fixes to dealers scaling back inventories and cutting staff in response to new capital rules that make it more expensive to hold riskier assets. Regulators such as the Securities and Exchange Commission and Federal Reserve are studying the potential risks from the trend.

Signaling Intentions

MarketAxess Holdings Inc.’s computerized-trading system already allows corporate-bond investors to deal directly with each other. In the securitization market, DealVector allows holders of pieces of specific deals to communicate anonymously. Bloomberg LP, the parent company of Bloomberg News, competes with MarketAxess and others in facilitating bond trades between investors and banks.

Bond brokers will still be part of the process for investors using the Empirasign platform. They will need to take their agreed-upon transactions to brokers to execute them, giving the dealers an opportunity to win “follow-on” business, Murphy said.

Because investors are often reluctant to signal their intentions too widely, they should value the initial anonymity, he said. At the same time, many investors are looking to step in to provide liquidity as Wall Street once did more frequently, he said.

“A good portion of the buy side would welcome an opportunity to function in that role,” said Murphy, who traded MBS at Lehman Brothers Holdings Inc., Deutsche Bank AG and Washington Mutual Inc. before founding Empirasign in 2009.