Preparing to enter the market as the next in a slew of online bond trading systems, Bond Book has been touting its sell-side equity owners and buy-side advisory board. As the online system for the anonymous trading of secondary U.S. high-grade and high-yield corporate bonds and municipal bonds readies to go live, John Kim was recently appointed president and CEO of the company. Kim previously served as president, CEO and CIO of Aeltus Investment Management. Bond Book is looking to distinguish itself from other systems with its anonymous, exchange-like system. Kim talks with WS&T associate editor Cristina McEachern about what to expect when Bond Book hits screens around the Street.
WS&T:What prompted your decision to leave the asset management field and move to Bond Book?
Kim: After nearly 18 years of being on the buy side of the fixed-income and equity-investment business, I felt that it was a good move for me to go from a large old-economy type of organization to something very exciting like Bond Book. Coming into the role as CEO of Bond Book I plan to leverage my buy-side experience. I also hope to send a signal to the investment community that Bond Book is a very serious organization that is going to not only be successful, but also seeks to manage the needs of both the sell side and the buy side.
WS&T: Tell me a little bit about some of the Bond Book basics.
Kim: It is an anonymous price-transparent system. Bond Book is real time and seeks to bring together the institutional community in an exchange like environment where on an anonymous, price transparent real-time system they will be able to buy and sell corporate bond securities very similar to how stocks are transacted today. We define the institutional community as both the dealer community, such as Wall Street houses and we're going to branch out to regional brokers and the like, and the institutional money management community
WS&T: Why was Bond Book developed?
Kim: The five founding equity owners of Bond Book felt that this was an eventual need within the marketplace. They obviously make extensive markets in the traditional sense in corporate bond securities, but felt that an e-commerce, electronic real-time platform was something that was necessary to bring about greater price efficiency into the system and to bring more liquidity into the system. Because the firms were so big and this is such a core part of their business, they saw the fixed-income market evolving and they knew this would be the future of secondary bond trading. They wanted to take a position that would allow them to be dominant players and serve the needs of the buy side investment community.
WS&T: What benefits do you expect Bond Book to provide for its participants?
Kim: We expect that there will be greater price efficiency. And just as important, Bond Book is going to increase liquidity so investment firms can expect to buy and sell in greater volumes.
WS&T: How did the five major sell-side dealers come on board and why is it important to have such big names involved?
Kim: They were the initial creators of the Bond Book concept and they provided the financial support and other resources for us to be in a position where we expect to launch this sometime this quarter. In addition to the financial support, they are going to be providing much of the liquidity--offerings of funds--on a real-time basis for the foreseeable future. We believe that the commitment of trading by the five dealers will be sufficient to provide adequate liquidity for the Bond Book platform.
WS&T: How will the dealers be providing the liquidity and are they required to maintain a certain level of activity on Bond Book?
Kim: I can't tell you exactly how much liquidity that each of the dealers has committed to. But I can say that each of the dealers has agreed to daily, monthly and annual trading commitments that they are contractually obligated to perform.
WS&T: Is this something that the dealers have been receptive to?
Kim: Not only are they receptive, they have agreed to it and that's a real statement. From my perspective coming from the buy side, the dealers have said that this is the right platform. They have said this is the future of secondary corporate bond trading and not only are we willing to commit capital to start this company, we are going to put forth financial resources and penalize ourselves if we don't come through with those liquidity requirements.
WS&T: So they are under contract and there are monetary penalties for not meeting this?
Kim: Yes, they have agreed to a monetary penalty for not meeting those commitments.
WS&T: I understand that several of the equity owners are also involved in other fixed-income trading systems. Do you see this a conflict of interest in any way?
Kim: No, not at all, these are business strategies and we believe that Bond Book is very unique in that it is going to change the market structure of how corporate bonds are traded in the secondary market. Individually the equity owner dealers are involved in other bond trading systems, but those are quite different than Bond Book. This is nothing more than large financial services organizations having several different investments in different aspects of the bond market. We don't think that there's much overlap because the Bond Book platform is so unique.
WS&T: How did you go about getting the buy side involved with Bond Book?
Kim: Very early on we invited a number of large buy-side firms like Putnam and Fidelity to join a buy side advisory group. There are nine firms in the group, which was formed to provide input as to how the platform should look. Not from the end perspective, but right as we were developing the infrastructure and the actual platform. While the advisory group doesn't have any financial commitments, they have been very resourceful in providing that sort of information. As we do the initial launch we anticipate that all of the advisory board member firms will be actively participating in the trading.