Minority-Owned Bond Traders Get a Way to Be Seen on Wall Street

Bond traders at firms owned by minorities, women and veterans have for years yearned to operate on a level playing field with Wall Street giants. A market-data startup just rolled out something that could help.

BondCliQ, a New York-based firm that offers a centralized feed of real-time bond quotes, in the past two months got added to trading software developed by firms including State Street Corp.’s Charles River. This significantly increases the pool of money managers that can trade against quotes posted by dealers on BondCliQ by connecting them to products used by investors with trillions in assets.

While that will benefit all the dealers on BondCliQ, those with diverse ownership stand to gain the most, founder Chris White said. That’s because they lack the technology and widespread connections across the industry, and BondCliQ is working to promote their bids and offers in particular, White said.

“We’re delivering a piece of architecture that’s missing from the market,” White, a former Goldman Sachs Group Inc. technology executive, said in an interview. “It’s much easier for customers to find the dealer that deserves their order because it’s delivered right into their workflow.”

The deal with Charles River, which caters to investors with more than $30 trillion in assets, could massively increase BondCliQ’s reach since it makes one of the most popular order-management systems for bonds. The connection will help BondCliQ’s nine emerging dealers — or those with diverse ownership — access those investors directly, giving them an opportunity to win more business in a market dominated by the biggest Wall Street banks. Currently, BondCliQ has 14 buyside clients with a combined $750 billion of assets using its data.

The bond market is one of the most notoriously opaque corners of finance, where relationships between the buyside and sellside still dictate much of the activity for new debt sales and trading. Technological advancements in the primary and secondary markets are slowly democratizing the business, but the likes of JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. still dominate with their vast operations and distribution networks, making it difficult for smaller banks to break through.

“Extracting information in the marketplace is the hardest thing for us to do,” said Carmine Urciuoli, head of fixed-income sales and trading at AmeriVet Securities, which was founded by a Black, disabled veteran. “Having high-quality secondary information is critical to defining a narrative to a client,” whether that’s an investor or an issuer, he said.

(Bloomberg LP, the parent of Bloomberg News, also offers fixed-income trading, data and information to the financial-services industry.)

Improving Distribution

Similar to the early days of Nasdaq, which started out in the 1970s as just a bulletin board for stock quotes posted by dealers before evolving into an exchange giant, BondCliQ aggregates bids and offers for corporate bonds from 41 dealers all in one place. Once the counterparties are connected, they can turn to electronic venues like MarketAxess Holdings Inc. or Tradeweb Markets Inc. or message each other directly to execute the transaction.

BondCliQ’s new tech partners will help simplify how dealers communicate pre-trade data to investors. Buyside participants globally can access BondCliQ quotes via Charles River, which largely caters to U.S. clients, as well as order management systems like Tora, which mostly serves Asia, and IHS Markit Ltd.’s thinkFolio with a European focus, White said.

While they’re starting to gain more traction in the primary market amid record bond sales and renewed attention on social-justice issues after George Floyd’s killing, diverse banks lag behind major Wall Street firms in the secondary market — or trading bonds after their initial issuance. The upstarts have smaller balance sheets, less sophisticated technology and a shorter roster of traders.

Unlike the primary market, where companies sometimes factor in diversity when hiring banks to sell their debt, dealers are on their own in the secondary market, where investors are largely driven by the desire to achieve best execution, no matter who’s on the other side of the trade.

“Maybe before I was the best level, but people didn’t see me,” said Jared Kurtzer, managing partner at American Veterans Group. “Now that I’m on BondCliQ, we can compete with each other and let the best level win.”

Perhaps the biggest achievement in the primary market so far was Allstate Corp.’s $1.2 billion bond sale in November, the largest corporate deal ever managed only by diverse firms, including Urciuoli’s AmeriVet. While the transaction was a huge milestone in promoting such underwriters to lead roles, minority-led firms still largely act as co-managers on new deals, responsible for fewer allocations and therefore earn less fees.

Though allocations for diverse firms are still low compared to those of the largest underwriters, they are trending higher as the banks take on more meaningful roles. That’s a good sign for them in secondary trading, as investors tend to reach out to the underwriting banks to trade those bonds, as well as debt in similar industries after they’re sold.

“As a lead manager, you know who’s playing in those issues, so in the after market, you can get involved more actively,” said Patrick de Catalogne, senior managing director and head of fixed-income sales and trading at CastleOak Securities, one of the largest Black-owned investment banks. “It allows you to get into the flow a bit more.”