The evolution of Internet-based securities trading has advanced one more step recently with the creation of Visible Markets Inc.'s new platform, which allows market players to trade MBS and ABS pools, rather than simply to-be-announced (TBA) or whole-loan products.
However, the innovative platform has produced mixed feelings and reviews from market observers.
Those that trade on the site can expect to see an increase in liquidity and a reduction of spreads, said Brian Robertson, chief executive officer and co-founder at the company.
Another perk to the site, Robertson noted, is that with traditional asset-backed, mortgage-backed and commercial mortgage-backed trading, a dealer may have a maximum of 40 clients, but the Visible Markets site expects to have hundreds of clients.
"So if you're going to show bonds out, you're showing it out to a much bigger audience than the typical dealer would," he said. "The other thing is that it's an auction-made system for spread products. Auctions, I think, are the truest form of discovering the true price."
Robertson said that the company has had interest from banks and dealers to partner with the company, but doesn't see such a business venture happening in the immediate future, though it is considering a options.
"Right now we're focused on doing the best job that we can on mortgage-backed, asset-backed and CMBS," he said.
However, the benefits that the site seems to offer has industry players wondering if this is just a preliminary step toward eliminating the role of a human trader.
One ABS analyst feels the site may be effective when dealing with assets that are commoditized, such as credit card-backed bonds, because they are easier to understand, but the site may never be able to handle the trading of more esoteric assets.
"My point is that with the more commoditized frequently traded names, you might actually see secondary market dealers get a little bit cut out of the business," the source said. "Where I don't think you can have an online trading-type system for asset-backed securities is the more funkier esoteric asset classes. Today, an institutional investor can't simply call up and say, I want to buy an equipment lease deal or aircraft transaction.'"
This, the source says, can't be done, because the investor wouldn't know any of the necessary dynamics, which is usually handled by research teams.
"Even still today, there is a need for the research community and the structuring bankers, because certainly the deals are still complex and there are still structuring bells and whistles and tweaks that the investor needs to know," he said.
One MBS trader was in opposition to the site, saying that he feels it is a "bad business model" because it seems to follow the same structure as stock trading.
"I just don't see that as being very effective," said the trader. "In an ideal world - or in an efficient world - there wouldn't be the need for voice brokers, when you can just tap into a screen. I think that's the future of it, but we're just scratching the surface."
Efficiency, or lack thereof, is the trader's main argument against online MBS trading platforms.
"I have my own idea of what a site should have, and I haven't seen anything yet that simulates my plans," the trader said. "Trying to transfer the technology and methodology of stock trading into bonds is just not going anywhere. They're on to something, but that's not it."