160 Firms Sign Up For Bondlink System: A High-Yield Bond Trading Platform

NEW YORK--In preparation for its April 15 live date, fixed-income securities broker Trading Edge has signed up approximately 10 sellside clients and more than 150 buyside firms for its Bondlink fixed-income transaction extranet.

The system is an anonymous, IP-based, real-time trading service for high-yield bonds that provides full price transparency, say Trading Edge officials. Development of the system began in October 1997.

The Bondlink system is an extranet that uses the Internet to help Bondlink clients connect to the service; the bond trading transactions are executed within the extranet. Bondlink is directed at the principal participants in the high-yield sector of the bond market. Trading Edge is focusing mainly on building a client base on the buyside first and later on the sellside, say company officials.

Traders have been testing Bondlink for more than four months, says Bradley Levie, president and COO of Trading Edge. He declines to name the beta sites, but the company expects to have some 300 installed users when the system goes live in mid-April.

With Bondlink, Trading Edge wants to create a virtual marketplace where any number of buyers and sellers can see what is being bought and sold, says Levie. Trading Edge will remain a neutral player in the process, and will not trade on its own account. To avoid any conflicts of interest, Levie says that Trading Edge employees are not allowed to own high-yield bonds.

The front end of Bondlink is an all-Java application that doesn't require huge volumes of graphics; it mainly receives data. Trading Edge loads a Java Virtual Machine (JVM) on a user's PC, in part, because many firms won't allow Java applets to populate their environments. This translates into low bandwidth requirements, he says. The Bondlink front end, for instance, does not use a browser because of the large bandwidth requirements of HTML page displays.

The minimum system requirements are an Intel Pentium 133MHz PC running Windows 95, 98 or NT and dedicated high speed Internet access. With Windows 95 and 98, Bondlink requires a PC with a minimum of 32Megabytes (MB) of RAM. With NT, the system functions optimally on a PC with at least 64MB RAM.

Trading Edge expects not to have any security problems, even though it makes use of the Internet; Bondlink has employed digital authentication, 128-bit encryption and password-protected transactions. The service uses digital certificates licensed from RSA.

The system displays every order and executed trade in real-time, says Levie. "We're the counterparty in every trade," he says. Bondlink discloses the markup and the markdown before firms enter the trades--something Levie calls "total transparency". Trades executed on Bondlink are cleared through Schroders on a T+3 basis, says Levie. Trading Edge charges a "commission equivalent" fee for its services, he says.

Trading Edge joins the small crowd of companies that are pitching electronic fixed-income transaction systems, including Tradeweb, Bloomberg's recently launched Bondtrader, the Cantor Exchange, the Chicago Board Brokerage (CBB), Limitrader, State Street's Bondconnect and Bank of New York's Bondnet. Limitrader is preparing for an April launch of its Internet-based US corporate bond and medium term note trading system (TTW, February 8).

Bloomberg kicked off its Bondtrader system for US Treasuries some two weeks ago with a limited user group of 15 firms, says Andrew Hausman, who manages electronic trading for government bonds at Bloomberg. What distinguishes Bondtrader from its competition is that it does not force a user to send inquiries and wait for those to be processed. Rather, the system shows prices "all day long", allowing customers to click and make trades, instead of continually making inquiries, he adds. Participating sellside dealers include Chase Manhattan, JP Morgan, Morgan Stanley Dean Witter, as well as PaineWebber, which signed on to the platform near the service's launch date.