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Categorized | Capital Markets, Financial

BGC Partners eyes new platform to trade US Treasuries

Posted on November 30, 2016

BGC Partners plans to launch a new platform to trade US Treasuries early next year, in a bid to return to a market in the middle of evolution, according to people familiar with the plans. 

The company, spun out of Howard Lutnick’s Cantor Fitzgerald in 2004, sold eSpeed, the second-largest interdealer platform for trading Treasuries, to Nasdaq in April 2013. The deal prohibited BGC from competing in the space for three years. With the non-compete period over, people familiar with the venture say the company is planning to launch a platform in the first quarter of 2017. BGC declined to comment. 

It comes at a time when both start-ups and established venues are seeking to position themselves for the future structure of the Treasury market. A flood of offerings have come to market seeking to shake up the traditional divide between banks trading with each other and banks trading with their clients. But so far the platforms have only made minor inroads.

The flurry of activity has been spurred in part by a rise in prominence of high frequency, principal trading firms that have muscled their way on to interbank trading venues as some established dealers have pulled back. 

Some of the new solutions, including BGC’s offering, will seek to create a market which mixes up the trading activity of PTFs, banks and buyside firms such as asset managers and hedge funds. Mr Lutnick’s new venue is likely to also have anonymous trading and lean on the settlement capabilities of Cantor Fitzgerald — settlement has been a stumbling block for smaller start-up venues.

“Why would he want to get back in to a business he has already got out of?” asked Kevin McPartland, head of market structure at Greenwich Associates. “The players, the position in the economic cycle and what is coming out of Washington suggests maybe things have changed.”

When Mr Lutnick, the entrepreneurial head of both BGC and Cantor Fitzgerald, sold eSpeed it accounted for close to 36 per cent of interdealer Treasury trading, according to Nasdaq, but that market share has dwindled to about 23 per cent, the firm added.

Nasdaq recently hired John Shay from the high-frequency trading shop Virtu to head up fixed income and commodities as part of a renewed effort to reinvigorate the platform. Shortly after Mr Shay’s arrival, the firm ended a joint venture for a new, separate start-up Treasury venue called CrossRate, after the partner firm failed to generate enough client interest, according to a Nasdaq spokesperson. 

“Hopefully first quarter next year we will come out with some interesting new ideas,” said Mr Shay. He added that the dominance of ICAP’s BrokerTec, which accounts for almost all of the rest of the market, is “unhealthy”. 

“It is weighted in one camp right now,” said Mr Shay. “From a pure market structure point of view it is unhealthy. It would be better to see it back closer to 50-50.” 

David Rutter, the former head of ICAP’s BrokerTec, has also returned to the market with a new venture called LiquidityEdge. Established venues BrokerTec and Tradeweb have also launched new platforms. Other start-ups include OpenDoor, focused on less liquid, older Treasury securities, and Direct Match, which having announced it was shutting down in August is said to be attempting to make a comeback, according to people familiar with the plans.

“The two folks who built the leading platforms are now both setting up new ones,” said Mr McPartland. “It suggests they see opportunity here.”