Washington, D.C.-based Pedestal has signed up Donaldson Lufkin & Jenrette to provide liquidity for pedestal.com, the online asset-backed and mortgage-backed securities platform. DLJ is the second market-maker to use the platform, joining initial sponsor Deutsche Bank.
DLJ will first funnel only TBA-MBS (to-be-announced mortgage-backed securities) trades to the system, but will eventually provide liquidity in all structured mortgage products. TBA-MBS is similar to a forward security, where cash flows aren't triggered until the bond actually settles. Pedestal has traded more than $40 billion in TBA-MBS over its site since it debuted in March.
DLJ is ranked among the top 10 TBA-MBS market-makers, according to the Mortgage Backed Securities Clearing Corp. The firm ranked 19th in public ABS underwriting for the first six months of 2000, according to Thomson Financial Securities Data. Deutsche Bank ranked 13th in that same survey.
Pedestal joins competitors: Boston-based Visible Markets, and a yet-to-be named consortium of Wall Street underwriters that includes Bear Stearns, Credit Suisse First Boston, Lehman Brothers and Salomon Smith Barney, in the race to capture a share of the $3 trillion securitization market, the latest sector of growth for online trading.
The firm is currently in talks to add more Wall Street underwriters to the platform, which is being developed as a multidealer system, said Dennis Rhee, managing director of TBA-MBS at Pedestal. Originally, competitors viewed the site as a single-dealer vehicle for Deutsche Bank.
"We're building a multidealer electronic trading system," Rhee said. "We'll bring in firm markets from our participating dealers, as well as having an inquiry-based system built-in as well."
Pedestal will use a "push technology" trading format in addition to a "pull technology" capability that other online ABS-MBS systems use, Rhee said. "With push technology, dealers put out prices for customers to hit or lift. Pull technology means a customer will see a price, they'll ask them if they can trade on it, the dealer will say yes, and the customer can either accept that price or negotiate it.
"Pull technology is more of an inquiry-based system, which is fine for a lot of different products, but I think people have to be careful on which products they use this for," he added.