Four Months In, TruMid Discusses Credit Trading Platform

On April 29, TruMid went live with its electronic corporate bond trading venue. The new entrant in the space is interesting because it features elements of a dark pool but also provides session-based trading.

The platform went live with 63 clients fully on-boarded, according to Mike Sobel, managing partner at TruMid, and since then has almost tripled that number to 160 institutions, which consist of hedge funds, sell-sides and "real money", meaning pension and mutual funds. Of that 160, about two-thirds consist of the Top 300 largest institutions in credit. Sobel says that TruMid has another 300 firms somewhere in the on-boarding process and hopes that by the end of the year the platform will have 225 to 300 firms fully live and operational.

Sobel says that the on-boarding process has been slower than expected, but adds that the platform's results are "consistent" with their initial expectations.

"For us, in the first four months we've answered 'yes' to the important questions: Will the buy side provide liquidity? Will it be two-sided? Will people put orders in?" Sobel tells Waters.

"It will take time. We've already seen a winnowing of this large block of electronic platforms that have come to the market. It will certainly take time; this is not going to be a situation where you snap your fingers and the world is a different place. From a trading volume perspective, though, we're pretty happy with our results on an absolute basis, and thrilled with them on a relative basis."

It will certainly take time; this is not going to be a situation where you snap your fingers and the world is a different place. From a trading volume perspective, though, we're pretty happy with our results on an absolute basis, and thrilled with them on a relative basis.

As Trading Volumes Grow, Investment-Grade Next

Right now, the platform offers high-yield and distressed bonds and has seen trading volume "north of two billion bonds," Sobel says, adding that the company will launch investment-grade bonds "just after Labor Day", which is a US holiday that will be celebrated on Monday, Sept. 7, this year.

TruMid has order flow "north of $30 billion" in executable orders within context of the market ─ as opposed to orders that are outside the context of the market/unrealistic, Sobel says. The average trade size is roughly 2.5 million shares.

Several entrants have entered the electronic credit trading space since 2012, including offerings from MarketAxess, Liquidnet, Tradeweb and, most recently, Electronifie. But it hasn't exactly been an easy market to navigate, as dark-pool provider Bondcube filed for liquidation in July.

"There were lots of people [using Bondcube] but it's difficult to consummate a trade and find the right price," Sobel says. "Our protocols are designed to really encourage the placing of orders; to encourage participants to put their best-foot-forward in a quasi-dark pool format, without risk of their information being communicated to the market and working against them in the absence of execution."

Multiple Steps to Trade

In the August and September issues of Waters, Kris Devasabai covered credit trading, with Part 1 looking at the market as a whole, and Part 2 focusing on TruMid and Electronifie.

From that report, here's an example of how the TruMid quasi-dark pool works:

Price and Interval Set

TruMid sets an initial price and certainty interval for each security-a particular bond might have a starting price of 98 cents on the dollar, with orders accepted between 97.5 and 98.5; whereas a more volatile bond might have an initial price of 70 with a certainty interval of 68 and 72.

Initial Cross

For the first 3.5 minutes of a session, all participants see the initial price and enter buy and sell orders within the prescribed range. Minimum order sizes are set at $3 million for high-grade and $2 million for high-yield and distressed bonds. Crossable interest is automatically executed by the matching algorithm, with the highest available bids getting matched off with the lowest offers at the mid-points.

Final Phases

Trading then moves to a second 2.25-minute phase where participants who entered an order in the first phase see a two-sided market of the best bids and offers that were not crossable. Firms that were unable to fill their orders initially can improve their bids and offers to make a trade in this phase. This leads to a final 2.25-minute phase when all firms can participate regardless of whether they placed an order at the outset. The only price shown in the final phase is the so-called TruMid price-which reflects all activity in the prior phases.