Bondcube, an electronic fixed income trading platform designed to help asset managers execute large orders, is hoping to launch next month with about 100 buyside clients.

Deutsche Börse, the German exchange operator, acquired a minority stake in Bondcube in February and this month the platform was authorised by the Financial Conduct Authority, the UK regulator. Bondcube also needs approval from US regulators before launching.

Paul Reynolds, chief executive of Bondcube, told Markets Media: “We aim to launch in November subject to regulatory approval and hope to have 100 buyside clients. I would be ecstatic if investment banks join the platform but that is not necessary for the launch.”

Paul Reynolds and co-founder Mark Germain came up with idea for the system in October 2012 as new regulations forced banks to reduce their balance sheets and cut their bond portfolios making it difficult for buyside firms to execute large trades.

Ruth Porat, chief financial officer of Morgan Stanley, said on an earnings call last week that regulatory change has resulted in a structural change in fixed income as banks hold less paper for trading.

Reynolds said: “There is lots of liquidity in the corporate bond market but no platform to bring buyers and sellers together without market risk.”

Bondcube differs from traditional fixed income trading platforms as it does not operate on a request-for-quote basis but on genuine intentions to trade.

If two buyside firms negotiate a match their identities remain anonymous, but if a fund manager and bank agree a trade their identities become known to each other. They negotiate encrypted through chat forums in Bondcube.

On Bondcube participants can see historical traded volume for each bond and old orders that have not been filled for illiquid bonds which only trade a few times a year.

“Bondcube acknowledges the value in old orders,” added Reynolds. “Technology can remember every single trade from every client and brings incredible benefits while all the existing platforms throw this order flow information away.”

Consultancy Greyspark Partners said in its Trends in Fixed Income Trading report in June that the liquidity imbalance has become acute for the 3,000 to 4,000 corporate bonds that make up tail end of the market.

Greyspark forecast that between 20% to 25% of corporate bonds will be traded electronically this year, the same as last year, and a voice element for dealing will remain for the foreseeable future as independent bond platforms try to gain share.

Fabrizio Testa, chief executive of MTS, the London Stock Exchange’s fixed income business told Markets Media last week that the firm is working on making more pre-trade information available so that the buyside and sellside can find each other to trade and it has started a number of initiatives with vendors.

Another solution to increase liquidity is to make it easier for fund managers to use their bond portfolios.

“We are working with the industry to provide the buy-side with tools to make more of their inventory available to trade on electronic platforms for deals in smaller sizes” added Testa.

The sudden move in markets last week has highlighted the need for a platform like Bondcube, according to Reynolds.

“Last week investors wanted to sell bonds but it was easier to find a Hermes bag on eBay,” he said. “On eBay you can find something and pay someone you have never met though PayPal so why can we not do that in fixed income ?”

Featured image via Bitter/Dollar Photo Club