DirectBooks, the sell-side consortium founded to increase efficiency in the bond issuance process, has launched its core service to try and simplify communication of new corporate bond deal terms.
“Users will get one set of structured data fields, which they can access via a user interface either via our graphical user interface, or via FIX into their own interface, which some are already doing, or into an order management system (OMS) and we plan to integrate with all of the relevant OMSs over time,” said DirectBooks CEO, Rich Kerschner.
The volume of new bonds being issued has broken records in 2020, as companies take advantage of low borrowing costs reflecting low to negative central bank interest rates; US debt markets had issued US$1.92 trillion of bonds by September 2020 according to Refinitiv data.
Efficient access to the primary market is essential to bond investors. It allows them to replace bonds that have reached maturity, and as bonds are often held to maturity, liquidity in secondary market trading is sporadic rather than continual.
Managing the high volume of newly issued bonds creates pressure on the buy-side trading desk, which has to collate information on any one deal from multiple banks involved, communicated in non-standard formats. The desk must then manage the flow of that information back and forth between portfolio managers and sell-side syndicate desks to the point that bonds are allocated to the firm. When multiple deals occur on the same say as they often have in 2020, this significantly increases operational risk.
DirectBooks was formed and is supported by nine global banks: Bank of America; Barclays; BNP Paribas; Citi; Deutsche Bank; Goldman Sachs; JP Morgan; Morgan Stanley; and Wells Fargo.
The consortium is planning to simplify the primary issuance process using a common set of structured data and streamlined communications. The new platform should increase workflow efficiency and accuracy of deal information among market participants, distributed through a robust communications infrastructure that can be integrated into underwriter and investor systems.
“They are getting a set of term sheet fields, 130 + set of data points, that our user community has agreed will be the same set of structured data every time; which is an improvement to what they have today,” says Kerschner. “They will also see any updates to the deal throughout the day via the platform notifications.”
More information on which fields are being provided is not being made publicly available but potential users can get access to that information via direct contact with Direct Book’s global head of platform engagement, Chris Rodriguez.
In August, the Credit Roundtable, a buy-side lobby group, set out a set of standard information that it believed sell-side firms ought to supply during any new bond issue; the data provided by DirectBooks does not exactly correlate with that guidance, but could help to support it going forward say Kerschner.
“The Credit Roundtable requests reflect the discussions between buy and sell side and we believe we can be a facilitator to evolve the market, and we have been involved in those discussions and believe DirectBooks will make it easier to move in that direction,” he says.
The DirectBooks platform launched initially with deal announcement functionality for globally distributed US Dollar Investment Grade issuances, offering a common set of structured deal data and document access for institutional investors.
Orders and allocations functionality will be added next, and the product set will continue to expand globally with Euro deals in the first half of 2021. Onboarding of additional dealers and institutional investors will continue to be phased in throughout this quarter and into 2021.
Communication between the banks and trading desks outside of the deal terms can still be managed independently, notes Kerschner, through current methods including messaging technology and telephone calls.
“This does not replace the sales process – that is not the goal here,” he says. “There might be additional communications sent back and forth, and by phone, so they maintain their sales relationship.”
DirectBooks developed the platform in partnership with Axoni, a New York-based technology firm that specialises in multiparty financial workflows and distributed ledger technology. The DirectBooks primary issuance platform is designed to be scalable across asset classes and regions.
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