Bond Buyers Hanging Up Phones in Europe as Debt Sales Go Digital

  • BlackRock, L&G said among 20 firms testing electronic orders
  • Software owner Ipreo says will simplify the bond sale process

Corporate bond buyers in Europe are preparing to lay down their telephones and retire their fax machines.

BlackRock Inc., Amundi SA and Legal & General Investment Management are among more than 20 investors testing a system that allows them to place orders and receive allotments electronically for the first time, according to people with knowledge of the matter, who asked not to be identified because discussions are private. The software is being offered by Ipreo, which says it will simplify the bond sale process.

The stakes have multiplied during a debt binge in which non-financial companies worldwide have issued an unprecedented $13 trillion of bonds since 2008. That’s drawn the attention of regulators, who are trying to reduce conflicts of interest in the allocation process, and some investors say that the modernization efforts won’t address more important concerns about fairness and transparency.

“This would be a significant step in the right direction to make the market more efficient,” said Roger Webb, a London-based investment director at Aberdeen Asset Management Plc, which manages $424 billion. “It won’t necessarily be a silver bullet which solves the controversial issue of fair allocations.” A spokesman for Aberdeen declined to comment on whether the firm is considering using Ipreo’s software.

Ipreo’s system, called Investor Access, addresses some concerns about the way banks sell corporate notes in Europe. It will alert investors to new-issue announcements, allow them to submit indications of interest and receive notification of allocation and pricing details electronically.

Electronic ordering was among requests made by the Investment Association in a statement last month. The group, whose members oversee more than 5.5 trillion pounds ($8.2 trillion) of assets, also called for banks to publish more detail on how deals are allocated.

“It’s one of the steps to make the market suitable for the 21st century,” said Yann Couellan, the Paris-based head of fixed-income execution at AXA Investment Managers, which manages $726 billion and is taking part in Ipreo’s pilot. “I expect we will have much more information on the exact allocation given by region and by investment type. That should boost transparency.”

European regulators are planning to tighten rules on issuance of securities to remove conflicts of interest between underwriters and their clients. They’re trying to prevent banks that have been underwriting record amounts of corporate bonds from distributing them to customers willing to pay higher fees or put extra business their way in return.

Allocation Fairness

Ipreo’s system doesn’t address the real problem with allocations, said Bill Blain, a strategist at brokerage Mint Partners in London.

“A system where communication happens electronically doesn’t change the way the market works,” Blain said. “Investors still need to play nice with salesmen because if they don’t, they don’t get an allocation in the deal. That’s an abuse that hasn’t been solved, even with electronic software.”

Ipreo is testing its software and planning to introduce it next year, according to Bill Sherman, a managing director at the financial-services technology provider in New York. Ipreo is jointly owned by a unit of Goldman Sachs Group Inc. and Blackstone Group LP.

BNP Paribas SA, HSBC Holdings Plc, Societe Generale SA, Banco Santander SA and Commerzbank AG are among 11 lenders sponsoring the plan, Sherman said. Credit Agricole SA and ING Groep NV have also joined the initiative, spokesmen at those banks said.

Representatives for BlackRock and Amundi declined to comment on the companies’ involvement with Ipreo’s system while a Legal & General spokeswoman confirmed the firm’s role.

“There are a lot of conversations about trying to improve the efficiency of the market and this initiative is at the heart of that,” Sherman said. “The way information moves back and forth today isn’t efficient.”

For more than half a century, bond buyers and bank underwriters have matched orders by phone, fax and e-mail. That means requests can get missed and instructions mis-typed, according to Adam Conn, the London-based head of dealing at Baring Asset Management, which manages $36 billion and may use Ipreo’s system. An electronic process reduces the risk of human error, he said.

While the technology will make the process less cumbersome, investors say it won’t necessarily replace traditional communication.

“Even if I could put in my order on an electronic system I would still want to be in touch by phone or instant message with the banks,” said Gregory Turnbull Schwartz, an Edinburgh-based fixed-income manager at Kames Capital, which manages $83 billion and is considering using Ipreo’s software. “It’s necessary to keep up relationships.”

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