Last week, asset management firm BlackRock unveiled a new trading platform to launch later this year year that sent a chill through much of Wall Street.
The new platform would allow firms to trade bonds peer-to-peer—without the aid of Wall Street traders. That would mean a smaller revenue stream for Wall Street firms that derive revenues from acting as the middleman between bond trades.
Yesterday, Moody’s Investor Service chimed in on the trading initiative, saying it means “credit negative” for banks with global capital markets operations (h/t WSJ)—
A new trading venue allowing investors to bypass traditional market makers would be particularly detrimental to firms that derive a significant proportion of the total revenues from fixed income, currencies and commodities (FICC), which, as the exhibit shows, include The Goldman Sachs Group Inc. (A1 review for downgrade), Deutsche Bank AG (Aa3 review for downgrade) and Barclays Bank plc (Aa3 review for downgrade).
Moody’s included the following chart on the top banks that derive a majority of their revenue from FICC.
The report also noted that the BlackRock platform could run into obstacles because it would be difficult to match buyers and sellers in relatively illiquid markets, so the firm must attract more parties to the platform to provide liquidity. But due to the cost-saving nature of the platform, it could be very easy for BlackRock to attract those new parties to participate in and use the trading platform.
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