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Tuesday, 21 November 2017

Financial Exchanges 2005 - Bleak future for Asian debt trading platforms

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Since 2000 there have been three Asian-incorporated electronic trading platforms. Two have long ceased trading and a third, Debtdomain, faces serious financial difficulties. With such a turbulent past and present, what are the prospects for trading platforms in the region? Albert Ross reports.

In March this year, Debtdomain, a Singapore-based syndicated loan trading platform, was declared insolvent by the Singapore High Court and placed under judicial management. As a result, it became the third Asian “exempt exchange alias Recognized Trading System” to be made bankrupt.

The first two, asiabondportal (ABP) and BondsInAsia (BIA), had failed to turn over a profit from offering trade execution and bank analysis for Asia’s fixed income market, despite the involvement of many of the biggest investment banks around. Even when BIA took over ABP in 2002, the life of the merged unit was short lived and BIA ceased trading in late 2003.

A person involved in the ventures said bad management was largely to blame for the failure, with costs never properly brought under control and fee income never even close to meeting BIA’s obligations.

Two years on, and allegations of financial mismanagement are also at the heart of the Debtdomain story. The company has switched IT providers twice, with Digital Island believed to be owed US$700,000 and LA-based Snowbirds US$500,000. It was the latter that petitioned the Singapore courts to place the company under judicial management, after pulling the plug on a US$1m corporate restructuring it planned for Debtdomain.

Debtdomain continues trading, despite the fact it has not been able to meet the Monetary Authority of Singapore’s minimum paid-up capital requirement for several months. Even so, Debtdomain’s CEO Sean Tai said: “We are facilitating primary and secondary deals on a global basis and that business is good.”

Geoff Slater, a founding owner of Snowbirds, strongly disputes Tai’s take on how business is. When the company went into judicial management, Slater went on record saying he believed it could still be rehabilitated. His opinion has changed, however.

“Debtdomain will be liquidated, but even if they do manage to sell it [an announcement on that is expected shortly], the new company will be buried under a wave of new legal claims,” said Slater.

Debtdomain faces an uncertain future, but regardless of the outcome, what does its own and the two bond portals’ experience say about the future of Asian-based trading platforms? Are their problems a function of management, or is it more the case that there is not the demand for such services in Asia?

John Corrin, head of Asia-Pacific loan syndication at Calyon, offers one view. “I think the idea for online trading platforms is a good one. In a favourable trading environment, being able to access 400 to 500 investors in anonymity would be a good way to secure regular business,” Corrin said. “However, there just is not the business to support it in the Asian marketplace, or even Europe at the moment, where the primary market is four to five times bigger than Asia.

“We were a regular user of this facility in 2002 and 2003 but the secondary market has all but totally dried up in Asia. Banks are currently so liquid that they are not prepared to sell assets, and consequently there is very little trading.

“I can see why the idea has worked in FX and bond markets where the volumes of business are greater and the products more standardised, but I think if loan trading were something that was to take off, one of the global information providers would be doing something."

Debtdomain's Tai agrees with Corrin on the current secondary market situation in Asia, but says this represents a small fraction of Debtdomain’s revenues. “DD does not rely on Asian secondary business. European primary and secondary business is currently where most of DD's revenues come from – and that business is much larger and growing strongly,” he said.

When BIA went under, many doubted whether there would ever be the volume of business to sustain a region specific trading platform in Asia. Debtdomain did not set out to concentrate its efforts solely in the region, but even with European and Middle Eastern loans added to the mix, it has struggled.

Online debt trading seems to be following the evolutionary process experienced in the FX electronic market place. That also saw niche providers come and go, with a few dominant platforms surviving, providing global market execution capabilities for globally minded investors.

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