Institutional investors are experiencing difficulty executing corporate bond trades of more than $15 million, reflecting a decline in market liquidity caused by the pullback of fixed-income dealers in the wake of new and more stringent capital reserve requirements, according to Greenwich Associates.

With dealer inventories shrinking, investors’ search for new liquidity providers is proving a boon to the fast-developing ranks of electronic trading platforms. All-to-all trading, previously unheard of in corporate bond markets, accounted for an estimated 6% of electronically executed U.S. trades in 2014 as a sign that market dynamics are evolving, Greenwich said.

“The biggest issue continues to be access to liquidity,” Lee Olesky, CEO of Tradeweb Markets, told Markets Media. “This involves volatility in the market, constraints on banks in terms of their balance sheet and capital, and the overall concentration that’s occurred in the market. With the massive amount of debt that has been issued, liquidity is at a premium like it has never been before.”

In a report based on input from 358 buy-side traders released, Greenwich Associates identifies 18 emerging electronic platforms competing for the corporate bond trading business of U.S. institutional investors and provides a description of their platforms with an analysis of the competitive dynamics and current levels of trading in the still-emerging market.

“In an over-the-counter market that averages only 25,000 trades a day, there is only room for two or three platforms per product segment,” said Kevin McPartland, head of market structure research at Greenwich Associates, in a release. “Expect the larger established firms to move the most quickly, and smaller names to grow within their chosen niche until the time comes for them to get wrapped in with a bigger marketplace in an effort to consolidate liquidity.”

MarketAxess’ Open Trading and Tradeweb’s U.S. Corporate Bond Marketplace were the top platforms cited by investors who have already traded on them. “It should come as little surprise that these two fixed-income veterans are gaining so much attention in the corporate-bond liquidity discussion,” said McPartland.

A goal to improve investor access to corporate bond liquidity remains the common thread.

“Electronic trading doesn’t solve the liquidity problem, because that is a much bigger issue,” Olesky said. “But it does make it easier to find the other side of trades, which is what liquidity is about. The advantages of e-trading have never been more obvious, and more necessary, to market participants.”

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