Bondcube couldn’t square the circle, and has filed for liquidation three months after its launch
Fixed income startup Bondcube has filed for liquidation. Its CEO, Paul Reynolds, told the press that technology had been delivered late, over budget and lacking in functionality, and that sufficient business failed to materialise. Instead of using the traditional fixed income RFQ model, Bondcube, 30% owned by Deutsche Boerse, took indications of interests, and matched buyers with sellers. Reynolds said liquidity was now with the buy-side which needs somewhere to put it and connect, like eBay did for e-commerce in 1995.
Banks Bondcube files for liquidation

Bondcube, the electronic fixed income trading system which last year received an investment from German exchange operator Deutsche Börse, has filed for liquidation.

Deutsche Börse announced the purchase of 30% stake in Bondcube for a single digit millions of sterling in February 2014. The platform was due to go live in the third quarter of last year but eventually launched in April this year.

Paul Reynolds, chief executive of Bondcube, told Markets Media: “Deutsche Börse was amazingly supportive, brave and persevering with their investment. However our delivery of technology was late, over budget and lacking in functionality.”

A Deutsche Börse spokesman said in an email to Markets Media: “The corporate bond market is a large market with an issued volume of multiple trillions in US$, Euros and other currencies. However, many of these corporate bond instruments are illiquid. Bondcube’s solution addresses the issue of illiquidity by building a dedicated platform and offering a new way of trading illiquid corporate bonds electronically. Although Bondcube succeeded to launch its platform, over recent months sufficient business prospects failed to materialize and as a result the long term financial viability of the business deteriorated. In these circumstances, the shareholders decided not to provide further funding to Bondcube.”

Reynolds said that since going live Bondcube had $43bn in volume on its busiest day. “Liquidity was not a problem, and we had more than 500 matches so getting clients was not a problem. We could not follow through from converting matches into trades and missed our revenue targets,” he added.

Instead of using the traditional fixed income model of request for quotes (RFQs), Bondcube took indications of interest from both buy-side and sell-side firms. Buy-side to buy-side matches were made anonymously and crossed through an intermediary while buy-side to sell-side traded on a fully disclosed identity basis. Clients could load their lists of securities and receive email alerts when the platform had an indication of interest. The indications of interest stayed anonymous and invisible on the platform, either on an active or historic basis, until a match was found.

In December Bondcube received regulatory approval to trade in 31 European countries and in January became a Finra broker/dealer member in the US.

The first successful trades in Bondcube were executed in June. Marcel Schnellman at UBS Wealth Management, Zurich, said in a statement at the time that an order had been with the firm for almost two weeks before they found a buyer on Bondcube. In May ITG, the independent execution broker, was appointed as a US trading intermediary for Bondcube’s buy-side to buy-side trades. Last week Geneva-based bridport & cie sa, joined as an intermediary.

In March consultancy GreySpark predicted that the majority of the 40-plus new electronic bond trading platforms that have been launched will have failed in three years time.

Reynolds said: “The problem of fixed income liquidity had not been solved. Our customers loved the system and saw it as a way of growing their fixed income business without having a huge balance sheet and the costs of running a trading operation. We were like an Uber of fixed income.”

BlackRock said in viewpoint piece published in September 2014 that new fixed income platforms need to provide multiple electronic trading protocols. “While broader e-trading is certainly an important component (to improve market liquidity), without a concurrent change in the underlying trading protocols, this will likely result simply in a transfer of RFQ (Request for Quote) voice activity into the electronic execution environment — rather than truly broaden liquidity in a meaningful manner,” BlackRock added.

Reynolds said: “My take away is that the buyside has now got the liquidity – they just need somewhere to put it and connect together. eBay invented connectivity in 1995 and I am pretty sure fixed income will find it in 2015. I honestly wish all my competitors the best as I know how difficult it is to succeed.”

Featured image by erllre/Dollar Photo Club