Moving into the electronic bond trading world, Jefferies & Company has purchased a 25% stake in LIMITrader Securities, the operating subsidiary of Automated Trading Systems. Under the agreement, Jefferies will leverage LIMITrader's online bond trading facility for high-yield instruments and roll out the system in support of its four high-yield traders during the first quarter of 2000. The partnership comes at a time when LIMITrader is expecting to extend its electronic trading capability from secondary issues to incorporate a platform for primary issuers to bring medium term and high-yield notes to the market electronically.
"Jefferies has had a long history of using technology to help with trading on the equity side," says Eric Macy, head trader of high yield for Jefferies. "We chose LIMITrader because of its platform and ease of use. The system mimics the day-to-day operations of how bond traders trade much better than any other system."
After looking at "all the alternatives," Jefferies chose to go with the LIMITrader platform specifically for its online negotiation capability and anonymity, says Macy. "They have a unique online negotiation feature that none of the other systems had and it really protects the buy-side customers," he adds. "You can go into a negotiation room, you can size people, you can protect how much you really want to sell before you find the right buyer."
The LIMITrader platform is currently in use on a limited client basis and will be rolled out completely during the first part of next year, when Jefferies will also make it available to its traders.
"In the secondary market we trade $10 billion in securities a year and we think this will be incremental in adding to our business," says Rich Handler, head of high yield at Jefferies. He adds that while LIMITrader currently accommodates only secondary high-yield instruments, it plans to add investment grade corporate bonds, convertible bonds and emerging market securities, which was also a key factor in the decision.
Macy adds that LIMITrader also expects to move into the primary issuing market in the future. "From LIMITrader's perspective, this is also a platform to go beyond corporate bonds to first issues in the medium-term market, which is a significant market," says Macy. "LIMITrader would sign up an issuer who wants to issue medium-term notes and would put them up on the bulletin board," explains Macy, adding the LIMITrader is also hoping to expand the platform for new issues of high-yield bonds as well.
"People would come in (to LIMITrader) and the issuer would say I'm looking for 35 off treasuries, and the extent to which people want to buy it, they would start taking the pieces that they want," says Macy. Jefferies would not be involved in the underwriting of the issues at this point, notes Macy. "The underwriting would be between LIMITrader and the issuers. That's completely separate from our operation."