Vega-Chi US Limited said today that it plans to launch its U.S. high-yield bond electronic trading platform for institutional investors, offering the buy side the opportunity to trade directly with each other in an "exchange-like" setting without broker-dealer intermediaries.
Available to buy-side participants only, the new high-yield corporate bond platform will offer live, executable pricing for U.S. high-yield bonds and is available to buy-side participants only and is less costly and more efficient than using the telephone in the traditional manner, the company said.
Vega-Chi will launch with more than 45 institutional users and expects the number of participants to reach more than 90 within three months of trading, according to the company. Without the need for intermediaries, the buy side will achieve better pricing for their trades, the company asserts.
Citing demand for more efficient trading from institutional investors, Vega-Chi is introducing the high-yield platform at a time when dealers are facing "unprecedented changes to their business model, and are less able to provides the levels of liquidity and capital commitment that buy side firms require.
Based on from the New York Federal Reserve, less than 1% of outstanding corporate bonds are now held by sell-side institutions, traditionally the providers of pricing and execution for institutional investors, the company noted. By extension, the company noted, over 99% of bonds are held by buy side investors, who until now did not have a mechanism to trade directly with each other without hiring a bank or broker as a middleman.
"Most Wall Street firms no longer have the appetite or capital efficiency to rent out their balance sheets for clients in this corner of the market," commented Constantinos Antoniades, CEO of Vega-Chi, in today's release. "This presents a liquidity vacuum for institutional investors, which can only be adequately addressed with a marketplace that links the true buyers and sellers of high-yield bonds. While sell-side institutions still have a role to play, the balance of power has clearly shifted to the institutional community."
In terms of usage fees, the Vega-Chi platform has no upfront or ongoing costs for use. Participants are charged a fee ranging from 3 cents to 6.25 bond cents each time they execute a trade on the platform, which the company says is considerably less than the typical bid/offer spread in the over-the-counter market. The U.S. high-yield system is based upon the same market-proven technology used by the company's European high yield and convertible bond platforms operating for almost three years.
Vega-Chi is an alternative trading system (ATS) operator regulated by the Securities and Exchange Commission, as well as a broker dealer regulated by FINRA.