Singapore embraces bond trading platform

The new bond trading platform from Singapore Exchange Ltd (SGX) will have to face a turbulent road ahead to make headway as it offers an electronic matching system allowing buyers and sellers to anonymously place orders.

SGX's new debt trading platform is taking off at a time when corporate issuance in emerging economies in Asia is gaining momentum as industry and business firms prefer to raise low-cost debt to fund their expansion and business operations.

In the existing debt trading system, banks don't prefer to hold too much inventory. The new bond trading platform is expected to resolve problems such as liquidity, small amounts of bonds, attracting institutional investors and low turnover ratios.

Market analysts list out the problems that would pose hurdles for the new debt trading platform. Some major concerns include a small amount of corporate bonds that trade in Asia and ensuring sufficient liquidity level.

In an interview with Reuters, SGX CEO Loh Boon Chye explains how the new platform will promote transparency.

"For issuers to continue to come to the market, they need to have price discovery. 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", he said.

To consolidate a range of regional corporate debt, the new bond trading platform is poised for launch early 2016. T

he new trading platform is first-of-its-kind in the Asian market. The debt trading platform, as some industrialists consider, would play a key role in the future in the wake of increasing regulatory pressure on transparency.

Because, banks are not willing to keep heavy inventory under capital rules post-financial crisis.

Yet challenges remain. Some investors prefer to buy and hold, and it begs an answer if the new platform can address this.

It's not clear how the new trading platform is going to address the issue of fragmented markets and lack of liquidity.

All these issues were tried by other initiatives, but couldn't succeed. "SGX is not offering anything radically new here," an investor said on condition of anonymity.

Corporate bond issuance in dollars, euro and Yen has been growing for the past three years in a row and touched $210 billion in 2014. This excludes developed markets of Japan and Australia. Still this amount accounts for five percent of European International corporate bond issuance.

There several instances that corporate debt trading networks failed to deliver the desired results. Goldman Sachs closed its GSessionsplatform in 2014. BlackRock, the world's biggest asset manager, shut its Aladdin network in 2013.

As narrated by Bloomberg, the Singapore Stock Exchange has planned bond trading platform to initially trade Asian corporate bonds in G-3 currencies.It will expand later to include local currencies.

Singapore Stock Exchange has floated an exclusive unit called SGX Bond Trading to take care of new bond trading platform. It has teamed up with Trading Screen, an electronic trading solutions provider.

Another major problem is liquidity in Asian bond market as majority of traders don't trade frequently.

Moreover, business firms issue bonds in small amounts and this may not be attractive for institutional investors. The turnover ratios in Asian corporate debt market are at lowest since 2004, according to Asian Development Bank (ADB).