Exchanging Bonds - a call for a public bond market

While stock exchanges have existed for hundreds of years, there is still no real active bond exchange. Jonathan Shapiro reports.

The New York Stock Exchange recently announced plans for a live platform for anonymous trading in corporate bonds.

It is something the NYSE has tried to get off the ground for a number of years, but will this time be different?

And should there be a bond exchange in Australia?

Exchanges for all securities increase liquidity and transparency and corporate bonds are no different. “An exchange will increase the options to buy and sell stock,” says Rob Camillieri, fund manager at Portfolio Partners and advocate of a domestic bond exchange.

To transact in all fixed income securities in the secondary market, an asset manager’s only option is to seek out the best bid/offer from banks.

“There are a limited amount of banks and in many cases if you are dealing in a line of credit, you are really only limited to the lead and possibly co-managers unless it’s a deep liquid line,” says Camillieri.

Dealer banks in the credit area face the same issues as asset managers. “These securities (credit) are not risk free, so there are limits and restrictions on what and how much banks can hold,” adds Camillieri.

“Available transactional options are very limited. An exchange will provide no such limitation as it is open to the whole market, and any bank is able to bid for stock without the pressure of being the lead and providing support.”

(remainder of article not available)