January 27, 2017 / 12:32 PM / 2 years ago

Neptune trains crosshairs on buyside as MiFID II looms

LONDON, Jan 27 (IFR) - Corporate bond utility Neptune anticipates that looming best execution requirements under MiFID II will help it increase the number of buyside participants on its fixed income pricing platform in 2017.

Neptune, which enables banks to provide pre-trade axes and inventory data to investors, has 17 dealers live on the network and expects to have upped that to 21 by the end of the first quarter.

The banks already committed account for some 85%-90% of European credit volume, according to Byron Cooper-Fogarty, who joined the firm this year to head up sales for Neptune Networks.

But alongside a push into the US and emerging markets Neptune’s big focus this year will be on increasing its buyside membership, which should be helped by the impending arrival of the European Union’s MiFID II regulation in a year’s time.

“Buyside traders will have to prove best execution under MiFID II,” Cooper-Fogarty told IFR.

“The best way to do that is by gaining higher quality data and aggregating all the relevant pricing data they have available at the time of the trade.”


Neptune now serves around 30 investment firms, who receive information on over 19,000 line items daily, around 85% of which are axes and 15% inventory.

MiFID II will require them to be transparent when trading bonds for clients, recording why they chose to buy from a certain dealer at a certain time.

Fixed income trades are often influenced by non-price factors such as timing and liquidity, but being able to show the available options at the time will be valuable to firms in proving to regulators they get the best deal for their clients.

“Pre-crisis the big asset managers used around 10 dealers, but as banks reduced liquidity provision during and after the crisis, that has grown to 50-plus in some cases,” said Cooper-Fogarty.

“Whilst the top 10 still accounts for the bulk of trading for these asset managers, a price aggregator takes a lot of the heavy lifting off buyside traders in these more fragmented markets.”


Information leakage has been one of the biggest barriers to the adoption of new technologies in secondary fixed income markets - dealers and investors are reluctant to post information to platforms that could reveal their strategies or move the prices of securities they are looking to trade.

As a platform that promotes transparency, Neptune drew early scepticism from some dealers wary of its impact on their ability to make markets, though this was addressed by allowing providers to control the amount of information seen by each subscriber.

Nowadays Neptune pitches itself as a utility - a sort of bulletin board for bond prices. It has no ambitions to acquire “desktop real estate”, or to be a trade execution venue, said Cooper-Fogarty.

“We are about connecting the buyside to the sellside,” he said, adding that this is still done primarily via order management systems rather than execution management systems.

“Use of an EMS will take off in fixed income eventually, but at the moment trading venues are reluctant to connect to EMS because it diminishes their role, whilst promoting the bank to investor relationship.” (Reporting by Tom Porter)

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