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Does Bloomberg Have What It Takes?

Portfolio managers say Bloomberg should be a bigger force in electronic bond trading. But can it compete against the dealer-owned systems?

Awkward Workflow?

Though Bloomberg launched electronic bond trading a year or two after TradeWeb, it has yet to develop a killer app. According to several buy-side sources, it's not for lack of trying. "Bloomberg has tried, and they've not been successful" at making the information system work smoothly as a trading system, says the East Coast portfolio manager. The problem is that the system is "great for data, but it's not that great for transactions. People gravitate to a system that's smoother and easier to use. It's a matter of coming up with the right interface, and people haven't gotten it [from Bloomberg]," he says. Since launching The Bloomberg BondTrader(BBT) in 1999, Bloomberg has revamped its treasury-bond system, closed down a corporate-bond system (SPEX) and begun talking about launching a new corporate-bond trading platform, he adds.

Sources attribute Bloomberg's past failures to an awkward workflow, noting that the existing Bloomberg system is more cumbersome then either TradeWeb or MarketAxess. "It's somewhat of a clumsy system. The workflow is not as easy," says a buy-side technology consultant, who adds that Bloomberg's "legacy systems may have inhibited it in some way."

But Bloomberg is developing a new version of BBT and, the consultant says, has initiatives underway to solve the workflow issue. The concept behind the new development would allow a portfolio manager to view a worksheet of all his positions. He then could click on a specific position and ask for multiple bids from dealers. After completing the trade electronically, the buy-side firm could use Bloomberg's order-management system to integrate the trade data directly to the user's internal systems and achieve straight-through processing.

According to Robert Auwaerter, head of fixed-income portfolio management at Vanguard, Bloomberg is trying to expand its government-bond trading and recently visited his offices to discuss the new feature. Bloomberg is seeking to show the bids and offers of dealers that are below the best price, he explains. This way the buy side could see the total liquidity that the dealers are offering away from the best price. Auwaerter says the depth-of-market feature that Bloomberg demonstrated "has advantages over TradeWeb, where you currently don't see that."

When a portfolio manager tries to move substantial size in Treasury bonds, knowing how the market makers are operating is an advantage. For example, if Auwaerter were selling $100 million in off-the-run Treasury bonds and could see that market makers' bids totaled $25 million, he would know to move slower. "If I try to jam the market and dealers are only willing to buy $25 million, I'll knock the price down," he says.

Though Vanguard hasn't used Bloomberg much until now for government trading and hasn't paid much attention to what Bloomberg has done previously, "We're going to give it a look and probably start to do some trading [with the Bloomberg system]," Auwaerter says.

Bloomberg should have an edge over other bond-trading platforms since portfolio managers like Auwaerter already use the Bloomberg message system intensely. "This is the primary way the Street communicates with one another now, particularly in the corporate [bond] market," Auwaerter says. "It has advantages because traders will send you bid/offer side-runs [a list of prices showing how a corporate bond is priced against a benchmark U.S. Treasury bond] by different market sectors. One can search for a particular ticker, if you're trying to determine where a particular bond has been trading," he says.

Auwaerter cites cost as another Bloomberg advantage. "There is one big advantage to Bloomberg BondTrader - the incremental cost is zero," says Vanguard's head of fixed-income portfolio-management. Since Vanguard is already a subscriber to Bloomberg's high-end market data and analytics system - which costs more than $1,300 a month per user - the trading service is free, whereas if Auwaerter trades on TradeWeb, he has to pay for it. "Their system is not cheap," he says of TradeWeb, though he declines to cite specific fees.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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