A new trading platform focused on hard-to-trade segments of the one of the most important markets in the world just opened for business.
OpenDoor Securities launched Tuesday, April 24, with more than 30 firms representing more than $US5 trillion in assets already onboarded. Companies representing another $US16 trillion are preparing to join before the end of June. There are six sponsor-dealer investment banks on the system too, with another five set to join by the end of the second quarter.
The platform is auction based and is what’s called an all-to-all marketplace for off-the-run Treasurys and Treasury Inflation Protected Securities (TIPS). In plain English, that means the platform hosts auctions for instruments at a particular time where anyone can transact with anyone.
The startup is trying to tackle challenging trading conditions in what is arguably the world’s most important market. The US government bond market makes up around 30% of the fixed-income market, according to t
he Securities Industry and Financial Markets Association and American Bankers Association. In a letter to the Securities and Exchange Commission last year, they said the Treasury market is
“the most important global benchmark for pricing and hedging spread asset classes and is a key transmission mechanism for US monetary policy.”
However, liquidity in the Treasurys market is divided between on-the-run Treasurys, or the most recently issued bonds and therefore the most liquid, and off-the-run bonds. Off-the-run bonds represent 98% of the total outstanding issuance in the US Treasury market, according to OpenDoor, but account for less than a third of average daily trading volume.
“This is a watershed moment for the US Treasury market,” Susan Estes, CEO of OpenDoor, said in a statement. Estes is a Wall Street veteran, having previously worked at Morgan Stanley and Deutsche Bank. “The Treasury market remains bifurcated between the six benchmark issues and the remaining three-hundred plus off-the-runs.”
The first auction will take place at 11 a.m. EST on April 24. OpenDoor offers free access to its platform, and is available through OpenFin, a startup that helps electronic-trading firms build their desktop applications. The sponsor-dealers will act as clearing counterparties on all trades for buyside participants.
“We absolutely believe that the OpenDoor platform represents an innovative way to utilise technology to achieve added liquidity in the off-the-run and less liquid corners of the Treasuries market,” Barry Cohen, head of rates sales Americas at Société Générale, said in a statement.
“OpenDoor’s platform increases the pool of liquidity for the entire market,” Charlie Comiskey, head of US rates trading at Bank of Nova Scotia, said in a statement. “Scotia acts as a riskless principal, allowing our customers to leverage our clearing infrastructure in an anonymous marketplace. We in turn, also transact anonymously for our principal business. It is a win-win.”
OpenDoor said it plans to expand its client base further outside of the US into other products and markets across Europe and Asia.