Making odd-lot bonds easier to trade

New service will offer price ranges for smaller trades.
JUL 31, 2013
BondDesk Group LLC and S&P Capital IQ are teaming up to launch Odd-Lot Valuations, a new service to increase pricing transparency in the fixed-income space that deals in odd lots worth less than $1 million. BondDesk, an alternative trading platform primarily for retail fixed-income investors, will pair its bond data with S&P IQ's pricing methodologies for the trading of bond odd lots. Odd-Lot Valuations initially will cover U.S. corporate and municipal bonds — fixed-income categories that make up approximately 90% of trades in the less-than-$1 million space. “With rates going up, there's a significant benefit to holding an individual bond rather than a bond mutual fund,” said Steven Shaw, managing director at BondDesk. “But there are correspondingly greater worries about the quality of execution when you buy a single bond.” The new service aims to mitigate the problem of using sell-side evaluative pricing, which is based on the round-lot market, to judge the execution quality of odd-lot trades under $1 million. Odd-Lot Valuations will provide a price range for the smaller trades, which differ from larger, round-lot ones due to any number of factors, from the size of the issuance to the credit quality of the issuer, Mr. Shaw said. “The market range takes all those factors into account to give clients a guide to what is a fair and reasonable price,” he said. “We try to take into account all of the relevant metrics, rather than using a single evaluative price.” Mr. Shaw cited significant input from clients as the basis for BondDesk's interest in bringing greater clarity to odd-lot fixed-income pricing, and more efficiency to the trading process. Market conditions also played a role. Rollout of Odd-Lot Valuations is expected in the late fourth quarter.

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