Vega-Chi Preps Buy-Side Corporate Bond Market

After successfully launching two successful European multilateral trading facilities (MTF) for convertible bonds and high-yield/subordinated bank debt, Vega-Chi aims for a hat trick with the pending launch of its  US high-yield bond electronic trading platform for institutional investors slated for October 2012.

Although the new alternative trading system (ATS) is the latest rolled out by Vega-Chi, the company began developing it in 2010 and had worked with US Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) to gain regulatory approval since then.

The platform will link institutional investor together and give them a venue to trade large blocks of high-yield corporate bonds without the dealer community taking its cut.

Vega-Chi CEO Constantinos Antoniades explains that ATS differs from existing electronic request-for-quote (RFQ) and odd-lot trading platforms since all of the quotes on the new system will be executable and each order will be minimum of $500,000.

“Based on the transactions on our European convertible and high-yield platforms [that launched in 2010 and February 2012 respectively], we expect the average order size to be around $2.5 million,” he says.

Antoniades declines to comment on how much liquidity he expects to see on they system during the first few months of trading, but Vega-Chi officials already signed up 45 financial institutions and expect to have 80 firm on the system by the end of the first quarter of operation.

User can view all the available liquidity on the platform or create a watch list to track specific issues.

When a user enters an order, it alerts potential counter-parties who are following the bond on their watch lists. Trades can happen as a natural match between counter-parties or they can enter a negotiation window where both parties can adjust the price and size of their offers. Once participants agree on the trade, Vega-Chi will report the trade to FINRA’s Trade Reporting and Compliance Engine (TRACE) and Pershing will clear the trade.