12 April 2012
Blackrock Solutions recently announced it had set up a bond crossing network with the working title “Aladdin Trading Network”. The idea is that the buy-side would be able to anonymously cross corporate bonds, mortgage securities, or other fixed income instruments, bypassing dealers for some portion of their trading lists. The announcement has attracted a lot of US press, but market participants should understand that neither the theory nor application of the crossing concept is in any way new. Of course, buyside to buyside crossing is not a new concept- it exists in equities for example via ATSs, broker crossing networks and even exchange crossing. However, anonymous, buyside to buyside crossing of fixed income is not even new. State Street FICross has been in existence since 2008 for example. Many questions remain, such as whether dealers would be willing and interested to stream prices into Aladdin when the market already has Bloomberg, MarketAxess, Tradeweb, etc. And if the answer is no, buyside to buyside crossing is typically hamstrung by the ships passing in the night problem where firms have difficulty finding a match with another party at precisely the time when the trade needs to occur. This is not to entirely discount the idea. Blackrock has deep relationships and if they can increase crossing rates by even a small amount it could save the buyside significant money and improve performance.