Why dating apps and institutional fixed income trading are heading in the same direction
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3 August 2013David Easthope
Yes I am serious. There is a new mobile app called Tinder which people can use to find people close by using Facebook. Here is how it works according to Tinder: 1) Tinder shows you someone nearby it thinks you should know 2) You can anonymously like this person or skip to the next suggestion 3) If someone you like happens to like you back, then Tinder makes an introduction and lets you chat within the app Fixed income traders may recognize this dynamic. While, for example, finding liquidity for (odd lot or small size orders) in corporate bonds is an exercise that has been largely automated and made electronic, round lots or institutional size orders are still locked in the old, voice-driven method. Trading large size over the phone is like the old way of dating. The new way of dating recognizes that people want to find each other when it is convenient...and most importantly...without sharing too much information or else information that could be used against them. In other words, institutional buyside traders, like Tinder users, want to know that there is a potential match before they proceed further in broadcasting their interests. Sociologists are better positioned to explain why this is the case, but I imagine it has something to do with being rejected or socially shamed (is this the equivalent of market impact?) If Tinder is the anonymous, electronic matching system for dating (a dark pool perhaps?) then the old, voice-driven request-for-quote (RFQ) market is the equivalent of the bar or even the wanted ads/message boards. The most important thing that Tinder does is it allows users to decide who to share information with and how much. This is the exact opposite of the RFQ, which is intended to provide limited transparency to multiple participants. With Tinder, only once there is a match do users then negotiate a deal or no deal (equities traders may recognize this looks a lot like the Liquidnet model). Tinder matches based first on proximity and then based on subjective, qualitative factors such as attractiveness. Do you like this person? The newer electronic bond trading platforms, which are focusing on larger size trades, match instead based on objective, quantitative characteristics including CUSIP/ISIN, order size, sector, duration...etc...really any characteristic of the bond could be used as long as it is logged into some trading system like a portfolio management system or order/execution management system. Other trading apps are looking to do "fuzzy matching" or pairing which allows users to find liquidity or even alternative liquidity based on features of bonds. GSessions, MS Bond Pool, Bondcube, Codestreet, Algomi, Sungard, Delphx, DealVector, TradingScreen, MarketAxess, IDT, and others are all in the matching segment (venue, technology or hybrid) of the market in one way or another. For more information, see our report on Innovation in Focus in US corporate bonds along with other fixed income reports: http://www.celent.com/reports/innovation-focus-electronic-trading-platforms-us-corporate-bonds Not convinced? Less you think this analogy is a stretch, DealVector, a new matching system for illiquid fixed income securities (CDOs, CLOS, etc), calls itself a "linkedin for alternative assets", but could just as easily say it is the Match.com of illiquid securities as well.