BNP Paribas has joined Citigroup, HSBC, Deutsche Bank and Bridge eMarkets as an equal shareholder in BondsInAsia, a regional electronic trading platform for Asian fixed income securities.
The platform is due to go live later this year and will initially cover Hong Kong, Singapore and G3 currency denominated Asian credit markets, before expanding into Korea, Taiwan, Thailand, Malaysia, the Philippines and India, subject to appropriate approvals.
BondsInAsia was established last year and individual franchises have been created in each local market throughout Asia. Local dealers will participate in the ownership and governance of the BondsInAsia franchise in their local market. BondsInAsia provides the infrastructure, security and operational services for the trading platform to the various franchises.
The different phases of testing the trading platform are now beginning among the four shareholder banks, and BondsInAsia CEO Albert Cobetto says it will be a six- to 10-week process.
“The BondsInSingapore and BondsInHongKong franchises will probably be launched at around the same time,” he says, followed closely by G3BondsInAsia.
Cobetto says talks aimed at getting local dealers to participate are going well. As part of the process of bringing them in as part owners of a particular franchise, BondsInAsia is requiring dealers to sign non-disclosure agreements (NDAs) once negotiations get to a certain stage. In Singapore, BondsInAsia has signed NDAs with around 80% of primary dealers, and in Hong Kong with between 80%-90% of the key dealers.
Liquidity support
All four banks that have an equity stake in BondsInAsia have committed to participating in each Asian franchise on an equal basis with the other local dealer participants in each market. BondsInAsia itself will also maintain a stake in each franchise, with 25% being the figure currently under consideration.
On the crucial subject of liquidity support, Cobetto says that the banks’ equity stake will provide incentive enough for them to trade using the BondsInAsia platform.
Although there is no agreement on the banks’ behalf to commit a minimum volume of trading to the system, Cobetto says that the legal agreements do specify that the four banks with an equity stake in BondsInAsia will commit to dealing with a minimum number of clients over the platform.
Discussions are taking place about implementing an incentive system whereby banks are rewarded for providing more liquidity to the system, but this is something that has to be decided at a franchise level, says Cobetto.
Head of Fixed Income and Treasury for BNP Paribas in Asia Pacific, Eric Raynaud, says BNP Paribas is confident that BondsInAsia's business model will be embraced by Asian markets.
"Our participation in BondsInAsia is perfectly in line with BNP Paribas' fixed income strategy in Asia Pacific, which is to provide integrated solutions for debt, interest rate and forex risks for our government, institutional and corporate clients.”
The bank describes Hong Kong and Singapore as the twin pillars of its operations in Asia ex-Japan. But other than these two pillars, Raynaud says BNP Paribas is particularly interested in the establishment of a Korean franchise because they are a primary dealer in that market. Ranking markets after that, Raynaud lists Taiwan, Thailand and India as being of interest to their business, but he stresses that the roll-out of franchises depends mainly on BondsInAsia getting regulatory approval in the various countries.
This process is continuing, with Cobetto and his management team meeting regularly with local regulators to educate them about the trading system and business model. Gaining regulatory approval is made easier, Cobetto says, by the fact that each franchise is owned by the local dealers who are already under the regulator’s jurisdiction.
