5 questions for the startup backed by Peter Thiel and George Soros that lets you trade in 'swarms'

TruMid, a bond-trading startup, said Tuesday that it is raising capital from venture capitalist Peter Thiel.

Thiel is participating in a $US27 million round alongside a private investment fund managed by Soros Fund Management and Shumway Capital.

TruMid started out trading high-yield and distressed bonds, and it added investment-grade bonds to its service earlier this month. It plans to launch credit default swap trading in the fourth quarter.

Trading on TruMid is focused on 10-minute periods called “swarms,” with the idea being that having small windows of time to trade focuses liquidity in specific periods of time.

Mike Sobel, a former head of high yield bond trading at Lehman Brothers and Barclays who now works at TruMid, spoke to Business Insider after the fundraising announcement. Here is an edited transcript of the conversation:

Business Insider: What will this investment allow you to do?

Mike Sobel: This is early stages for the evolution of the market and Trumid in particular. We along with other participants are learning a lot as we go, and we’re getting qualitative and quantitative feedback and analysis, and we are committed to continuing to innovate and improving the product. This capital lets us do that.

We are looking to create a network effect amongst all the participants on the platform – we have a developing vision on how to do that, and we can now implement that vision.

BI: Can you describe that vision?

MS: Swarms are a very effective way to allow buyers and sellers to put their best foot forward and give themselves a chance to get a transaction done without compromising any of their own information.

We think we stand out in terms of the amount of volume we’ve traded. We are also confident that our execution protocols are appealing and effective. That said it is important to leverage the critical mass on the platform and deliver a more seamless workflow to our users to integrate it into their day and create a more user specific experience for each one of the users.

It is that area that frankly there is a lot of opportunity for us to improve. We are well into the investments in those things, but certainly this capital infusion allows us to speed that up and dream a little bit bigger.

BI: How many users does the platform have signed up?

MS: The numbers are 192 institutional clients that are fully onboarded and ready to trade. We have nearly 400 more in the process of onboarding. We had 63 at launch. We expect to have 250 by year end and to add several hundred more by next year. it is an increasingly diverse mix of hedge funds, real money and sell side institutions.
Based on our understanding of market landscape, by the end of the year we’ll have two thirds of the secondary trading pool onboarded.

BI: The swarm model requires users to build the TruMid trading window into their weekly routines. How have clients responded to that?

MS: Changing behaviour is certainly a challenge. It doesn’t happen overnight, and it doesnt happen at a continual pace. It happens in spurts and in pockets. We have positive surprises every day where dyed-in-the wool corporate bond traders have embraced the platform. Each week someone new uses it for the first time and starts to integrate it into their day. As that happens, we get lots of feedback about what works and what doesn’t.

We get comments to the effect of ‘I love what you are allowing me to do, but in order for me to integrate this into my work day I would like to do those things a little bit different.’ Some of that means integration. Some of that means tweaks to platform access.

BI: What can we expect next from TruMid?

MS: The number of swarms we run each day will continue to grow. The make up of the swarm will continue to evolve. We may have more swarms concentrated on particular securities or sectors, or potentially directed at smaller subsets of the market, as our understanding of what people want to trade and when evolves.

We have been taking feedback in and aggregating and trying to distill it into a number of lessons, and we can now apply that. It will be more nuanced around different subsectors on the market, and different subsectors of customers.

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