The SEC is exploring the need for better price transparency in the trading of corporate bonds
BondClick provides real-time price information to help traders calculate bond values. Unlike stocks, which trade on centralized exchanges, bonds trade over the counter, making it difficult to determine the clearing price of debt securities on the fly.
Asset-management giant Vanguard Group said its bond traders and data scientists have begun using BondClick data in their models in partnership with the startup.
Still, the market for digital bond pricing is crowded with smaller players such as behemoths, including BondClick and IHS Markit. Ltd.
, which was recently purchased by S&P Global Inc.
Most electronic trading platforms already provide users with algorithms to calculate corporate bond prices.
Corporate bond markets have accelerated their transition to digital trading amid the rise of electronic marketplaces run by firms such as Businesshala LP, Intercontinental Exchange. Inc.,
MarketAccess Holdings Inc.
and tradeweb market Inc.
The investment also comes ahead of industry potential new regulation that could require financial services companies to provide more bond pricing information.
The current system gives large fund managers and broker dealers an advantage over smaller investors as larger firms tend to see more and more large trades. US Securities and Exchange Commission Chairman Gary Gensler told employees to consider possible improvements to price transparency in corporate, mortgage and municipal bonds to level the playing field.
“Many professionals have some amount of pretraded price information in the corporate bond market,” Gensler said during a speech at the November Securities Industry Conference. “I wonder if broadening the dissemination of that type of information could make this market more accessible, competitive and liquid.”
In times of market volatility, such as March 2020, the fragmented nature of the bond market can cause investment funds to outperform the value of the assets they own. The mismatch exposes institutions and retirees who actively invest in exchange-traded bond funds to potential losses.
The startup’s CEO Chris White said the potential for increased regulation could boost the adoption of BondClick. “What we are saying to the market is that either you will develop transparency in the structure of the market through us, or that transparency will be imperative.”
BondClick is marketing its price information on the trading platform as data that can be incorporated into their algorithms, Mr. White said. He said the firm’s feed includes live pricing from 40 dealers, but that five of Wall Street’s biggest dealers have yet to sign on.
Write Matt Wirz at [email protected]