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Wall Street to test new bond-ordering system in 2020

Pedestrians stroll past the Wall Street street sign in front of the New York Stock Exchange (NYSE) in New York, in February 2011. (Photo: Scott Eells, Bloomberg)

The joint venture between Wall Street’s biggest banks to revolutionise the way new corporate bonds are marketed and sold plans to start testing its platform with select buy-side clients in the first quarter of 2020.

The newly named DirectBooks, backed by the likes of JPMorgan Chase, Bank of America and Citigroup, will initially focus on US dollar-denominated investment-grade corporate bond offerings.

DirectBooks is expected to further expand into other fixed-income assets, according to a statement released Friday.

Richard Kerschner, a former Nymex, CLS and ICAP/NEX Group executive, has been named chief executive officer of Primary Markets, the holding company for DirectBooks.

Wall Street is looking to modernise the process of buying new corporate bonds while retaining control of a lucrative business that’s being eyed by various technology start-ups.

Chief Executive Officer of Primary Markets Richard Kerschner. Primary Markets is the holding company for DirectBooks (Photo: LinkedIn)

DirectBooks‘ platform will allow dealers and investors to correspond directly and share pricing data, term sheets and allocation information — a step forward for a market that still relies on phone calls, instant messaging and e-mails to handle billions of dollars in orders.

“This will alleviate challenges for both underwriters and investors,” Kerschner said in an interview. “We’re improving the communications process for primary issuances.”

Bond-market shake-up

Other banks involved include Barclays, BNP Paribas, Deutsche Bank, Goldman Sachs Group, Morgan Stanley, and Wells Fargo. All nine shareholders are either on the DirectBooks board or have observer status.

Kerschner, who is also a board member of Cloud9 Technologies, a voice communications fintech company, started working with DirectBooks in June. He said that the company is engaging with interested investor clients, but declined to name any beyond BlackRock that are involved at this stage.

Different vantage point of New York’s iconic Wall Street corridor (Photo: NYCgo.com)

Bloomberg reported in April that BlackRock, as well as Invesco and AllianceBernstein, were among the initial buy-side firms involved.

Kerschner further explained that DirectBooks, which has been over a year in the making, is actively hiring and plans to have a global footprint, starting with an office in New York.

He declined to say how much headcount the company plans to add, or how much fund-raising it’s done or plans to do in the future.

DirectBooks join an array of fintech start-ups developing products to modernise the market for newly issued bonds, one of the last corners of finance to experience a digital makeover.

DirectBooks‘ platform will allow dealers and investors to correspond directly and share pricing data, term sheets and allocation information…”

— Plans to moderinse Wall Street trading already underfoot.

IHS Markit’s Investor Access system allows traders in Europe and Asia to order bonds electronically. While the platform is growing with more than 300 asset managers signed up, plans to expand into the US have fallen short due to the launch of DirectBooks.

London-based Nivaura is seeking to automate parts of the new-issue process like producing detailed bond prospectuses. The firm, which raised US$20 million in seed funding earlier this year and has made some high-profile hires from Citigroup and HSBC Holdings, is seeking to cut the cost of issuance and reduce settlement times.

Bloomberg, the parent of Bloomberg News, provides services that facilitate bond ordering and distribute information on new debt offerings.