Bond syndication moves into the 21st century

IFR 2248 25 August to 31 August 2018
8 min read
Americas, EMEA
Davide Scigliuzzo, Eleanor Duncan

Try as it might, Wall Street has not been able to get it right when it comes to creating a sophisticated and technically savvy system to distribute new corporate bond issues.

Over the past few years, banks and investors have tinkered with a handful of ideas on how to improve the archaic and inefficient process for selling and distributing new issues.

One platform, run by financial software provider Ipreo, is thriving in Europe. But reticence to work with rivals and power struggles have so far stifled change in the US.

Faced with the prospect of inevitable disruption, three of the largest US banks - Bank of America Merrill Lynch, Citigroup and JP Morgan - are giving the idea another go.


At first sight, the new platform the three banks are working on seems little more than a simple messaging system.

Expected to launch later this year or early in 2019, it would allow banks to communicate terms of new bond issues to investors and collect orders in a centralised fashion.

Bankers and investors generally agree the current set up - which relies on a hodgepodge of Excel spreadsheets, phone calls and emails - is due for a drastic make over.

“There are inefficiencies in the current process for all parties,” Andrew Karp, head of global investment-grade capital markets at Bank of America Merrill Lynch, told IFR.

Agreeing on a fix, however, has proved challenging.

The same three banks leading the latest effort, for example, have refused to sign up to Ipreo’s Investor Access, an existing solution that has been widely successful in Europe but was - until recently - partly owned by rival Goldman Sachs.


The call for modernisation resonates well with the buyside, given that traders at some of the larger firms are inundated with a flurry of calls and messages from each of the bookrunners on every bond deal that hits the market.

“When a deal is announced usually you end up getting a chat message, an email and a call from the same bank,” said one trader.

If they decide to put in an order for the bonds, investors respond separately to each of the banks running the trade in a multi-dimensional ping-pong that continues until investors receive their allocations and the deal is priced.

Until the very end, the system is frustratingly error-prone.

“The number of times two banks have given us two different allocations - I would say it’s a dozen times every year,” one portfolio manager said.


The most successful attempt to shake things around has so far come from Europe, where at the start of 2017 Ipreo and 11 partnering banks launched Investor Access.

In less than two years, the service has brought on board 37 banks and 236 investors. Last year, 90% of euro and sterling-denominated bond deals were syndicated using Investor Access.

Goldman Sachs - whose merchant banking division partnered with private equity giant Blackstone in 2014 to acquire Ipreo - is the only US bank that took part in the initiative.

Bankers say Ipreo’s ownership was one of the main reasons that discouraged other US banks to join Investor Access.

“There was a concern of mission creep from Ipreo,” one London-based syndicate banker told IFR.

“There was a fear that Blackstone and Goldman would try and displace the current syndication model with a product distribution model where they would try and squeeze out the banks and become an exclusive provider at the top end - a single, monopolistic vendor.”

The decision by Blackstone and Goldman to sell Ipreo to data provider IHS Markit in May for US$1.86bn helped soothe some of those fears.

“Markit is a better place for them than being owned by two vampire squids,” the banker said.

Blackstone declined to address the concerns about its ownership of Ipreo. In a statement provided to IFR, its senior managing director Martin Brand said Ipreo’s Investor Access has garnered “significant participation” within the market.

Sources familiar with the matter told IFR that Ipreo is still planning to launch Investor Access into the US later this year.

But it remains to be seen whether the product could gain meaningful traction now that top US banks are pursuing their own initiative.


Even in Europe, some bankers have complaints with Ipreo as the sole vendor in the market, citing high fees and jams on busy deal days.

They argue that a consortium model where all banks invest into the development of a platform might be preferable to relying on a third-party provider.

About two years ago, for example, Swiss bank UBS assigned an internal team to study the creation of a utility-type platform for new issues with diffused ownership, a person familiar with the matter told IFR.

UBS discussed the initiative, known as Project Mars, with Etrading Software, a UK financial technology firm that had already rolled out a system that facilitates secondary trading called Neptune, the same person and another source familiar with the discussions said.

After some initial talks, however, the initiative stalled.

Etrading Software is now working with the three US banks on the development of their platform, which is still known informally by the same nickname, the two people said.

BAML, Citigroup and JP Morgan declined to comment on their relationship with Etrading Software and the name of the initiative. Etrading Software also declined to comment.

“The platform was born out of significant feedback that each of us had received from the buyside at various points in time,” Peter Aherne, head of North America capital markets, syndicate and new products at Citi, told IFR.

Over the past few months, BNP Paribas, Deutsche Bank, Goldman Sachs and Wells Fargo have all joined the initiative. They all declined to comment for this story.

A number of other banks with a major presence in the market, however, have felt the process has left them out in the cold.

Bankers from firms including Morgan Stanley, MUFG, UBS and HSBC said as recently as a month ago that they had yet to be invited to join the group.

“We’ve been kept in the dark and a lot of other banks have - with whatever they’re doing,” one of the bankers said.

BAML’s Karp said the platform will be open to any and all banks who want to use it.

“Our focus is improving workflow and solving communication issues between banks and investors by creating an inclusive platform for the benefit of the industry, available to all who wish to use it,” he told IFR.

A source familiar with the platform declined to comment on its potential fee structure but said that the seven initial members will not have a competitive advantage over banks who might join later.

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