The Danish bank announced on September 12 that it was setting up a fixed-income trading platform that will include 40 of the largest bond liquidity providers. Poised to launch in October, it will aim to capture business from both retail and institutional investors, big and small.
FN spoke with Simon Fasdal, head of fixed-income trading at Saxo Bank, about the initiative.
Why are you launching a fixed-income platform?
It’s very natural that our SaxoTraderGo platform and our other platforms be completed with all the asset classes. Up till now it has been focused on FX, all kinds of derivatives, equities, and commodities. Now we add the final asset class and we do that in a new way so that other investor classes can have a more efficient trading experience.
What is this ‘new way’?
The major difference between what we have built and what I see out there – if we look in the retail space, but also the institutional space for Tier 2 and Tier 3 institutions –is that we have a full digital value chain. So there is no human involved from when the client makes the order until the client gets the confirmation. All of that is robotics taking over the value chain. That of course opens up for scalability and also brings costs down dramatically, mostly the transactional costs but also the prices the client will get. The only aim for the robotics is to go and find whatever in our connectivity has the best offer in that specific bond.
We’ve seen many platform launches aimed at tackling the liquidity crunch in fixed-income markets. How is Saxo’s different?
When we see the discussions regarding liquidity in the media at the moment we should be clear that for a very huge investor, a big pension fund, liquidity can be critical because they might want to buy an extremely large order in a corporate bond issue and that is very hard to do. But the liquidity for smaller investors – like high-net-worth individuals and small asset managers, wealth managers, money managers, stock brokers – there should be no issue having the sizes they request.
What institutions are you targeting?
The [institutions] that we have good relationships with today [in other asset classes] are the ones that will also become our preferred liquidity providers in this market. On the client side we focus on targeting high-net-worth individuals and active investors with a large portfolio. In the institutional segment we are targeting asset managers, money managers, treasuries, corporates that have a need for bonds, smaller banks, regional and local banks.
Why would this be a good offering for asset managers?
Let’s say I am an asset manager and I have connectivity to five banks. Then I lose a connection to one of the banks, so I am connected to only four. Of course if you are connected to 40 you get much more access, especially if you are a global asset manager [and] you focus on different regions of the world. [For] asset managers who are dependent on regional and local banks, this is the way forward to get out of that.
I am also quite convinced that [in the current system] the pricing is not efficient enough for these types of asset managers. In this world we are in we still have extremely low yields, so saving extra basis points on bid-offer spreads is crucial for your long-term performance.
What role are Tier 1 institutions going to play on the platform?
What we have done is purely to give access to the big global banks that we have nice relationships with today and which we know have constantly been in the fixed-income markets and are really the base line for liquidity. We have seen a couple of platforms trying to enter the market only targeting buyside liquidity – I think that is a mistake to do.
What we do here is we recognise and realise that the major part of bond liquidity is among the top tier banks. I know that there is lower liquidity due to balance sheet restrictions, but these banks will still focus on two or three markets instead of focusing everywhere and this is what we will begin to see.