Neptune Eyes Data Expansion
Neptune Networks could provide data across asset classes after expanding its network which allows institutional investors to access real-time bond pricing from banks in a standard format.
Grant Wilson, chief executive of Neptune, told Markets Media that banks used to send inventory information in multiple formats. In 2014 a group of buy-side and sell-side institutions began discussing how best to distribute real-time axes in a standard open source format, which has since been approved by the FIX Trading Community’s fixed income sub-committee.
Last week Nomura and Jefferies were added to the Neptune network which takes the number of sell-side members to 21, with 18 streaming data. Neptune said that once live, the 21 banks will cover approximately 90% of the European credit market. The firm’s website said it carries data across 20 currencies, with euros, US dollars and sterling as the top three.
There are currently more than 19,500 real-time axe indications in the system, updating around seven million times per day. There has been a 15% growth in bond indications of interest since the end last year according to Neptune, which the firm said has been driven by dealers using the platform as their preferred channel to distribute this data to their clients.
Wilson said: “The process has been proven so it would be possible to collect other data points across the network outside fixed income. Other products that have a similar need for data include foreign exchange and exchange-traded funds.”
He continued that the IOIs are used by multiple execution platforms. “We are venue-agnostic,” added Wilson. “The issue in the bond market that we wanted to address was not execution but sourcing liquidity.”
The International Organization of Securities Commissions said in a report this month that there are concerns that it will be difficult for technology to achieve rapid increases in efficiencies for locating and pricing securities because of small number of corporate bonds available to trade, the lack of a centralized liquidity pool and the many different execution preferences.
Iosco said: “To address this, there are a number of current industry initiatives, such as Project Neptune, now Neptune Networks, which initially began in Europe as a means to standardize data and offer cross-platform market pricing representation, and has since expanded to a number of global institutions.”
The Desk’s Trading Intentions Survey 2016 said that many of the most successful fixed income models are not those which aggregate actionable liquidity. The survey said: “The services provided by Algomi, Neptune and B2SCAN all focus on the use of information to support where to trade rather than offering a venue to introduce the platforms as with request for quote systems, or any auction or order book.”
Last year the survey found that the three most popular platforms that traders planned to use were Liquidnet, the institutional block trading service at 55%; followed by Algomi, the bond information network at 42% and then Neptune at 37%. The survey said: “Algomi, Liquidnet and Neptune had had pipelines of 54%, 58% and 50% of respondents in 2015, which by 2016 has converted to user bases of 38%, 29% and 21% respectively, with several respondents reporting themselves as major users of Liquidnet (6%) and Neptune (3%).”
Wilson said Neptune benefits from its utility model, so it operates at cost, and adhering to FIX messaging standards. This reduces the cost of connectivity for market participants and allows IOIs to be sent from the sellside directly into buyside order management systems.
Iosco said: “For market participants, trading venue compliance with the FIX protocol makes the structure of corporate bond market data and messaging more consistent and thereby predictable across venues thereby lowering the cost of integrating with a new platform. The proliferation of trading venues exposing FIX compliant APIs [application programming interfaces] has made access to corporate bond market data and liquidity more available to market participants with a lower technical hurdle to access these venues programmatically.”
Last November Neptune released a new Watch List functionality to the in-house Neptune desktop, allowing users to search for their instruments of interest. Wilson said that a focus for Neptune this year it to allow asset managers to use their preferred method of visualizing pre-trade data – which could be an in-house OMS, third-party OMS/EMS vendors or a direct FIX connection.
MiFID II, the new regulations in the European Union from 2018, will introduce new pre-trade transparency requirements in certain asset classes for the first time, including fixed income.
Wilson continued that Neptune will also focus on increasing its buyside membership, from the present 35. “About 25% of our liquidity is in US dollars so we could look to add more buyside in the States,” he added.
Neptune’s website said that in addition to further integration with OMS/EMSs, the firm is focused on broadening its network to connect with North American, Latin American and Asian sources of liquidity as well as illiquid government bonds and covered bonds.
Major innovation is two to four years away.
Only 157 corporate bonds out of 39,000 were deemed liquid.
The figures show how many instruments are classified as liquid.
Challenges include illiquidity and fragmentation across borders.
Tradeweb reports a fivefold increase ahead of MiFID II.