S’pore bourse challenges old rules with new bond trading system

SINGAPORE / HONG KONG – Singapore Exchange Ltd’s new corporate bond trading platform is expected to travel a difficult road, with some traders fearing that longstanding problems in Asia’s debt market will see the bourse struggle to make headway just like others before it.

The platform, due to launch early next year, is the first of its kind in Asia to attempt to consolidate a range of regional corporate debt, providing an electronic matching system that will allow buyers and sellers to anonymously put in orders.

“For issuers to continue to come to the market, they need to have price discovery,” SGX CEO Loh Boon Chye said in an interview for the Reuters Global Investment Outlook Summit this week.

“They need to know where their bonds are traded, who owns their bonds, how frequently it’s being traded. This is what we are trying to do with the bond trading system.”

Debt trading platforms managed by exchanges are seen by some in the industry as the way of the future amid increased regulatory pressure to improve transparency and as banks no longer want to hold too much inventory under post-financial crisis capital rules.

SGX’s initiative also comes at a time when corporate issuance in Asia’s emerging markets is booming as firms seek out low-cost debt to finance business operations.

But others list a slew of potential problems, especially the relatively small amount of corporate bonds that trade in Asia and problems with encouraging sufficient liquidity.

“Some common problems are the buy-and-hold nature of the investors here, fragmented markets, lack of liquidity, and those are the very issues some of the other platforms tried to solve but failed,” said the head of fixed income trading at an Asian bank in Hong Kong.

“SGX is not offering anything radically new here,” he said, declining to be identified as he was not authorized to speak to the media.

Corporate bond issuance in dollars, euro and yen for Asia, excluding the more developed markets of Japan and Australia, has notched up three straight record years, climbing to $210 billion in 2014, Thomson Reuters data shows. But at the same time, that amount is still only 5 percent of European international corporate bond issuance.

The bond world is also littered with failed corporate debt trading networks. Goldman Sachs shuttered its GSessionsplatform in 2014 while BlackRock , the world’s biggest asset manager, closed its Aladdin network in 2013 after less than a year. Both projects were global in nature.