A journeyman Wall Street technologist believes he has cracked the code to loosening banks' grip on a hugely profitable corner of financial markets.
Miles Kumaresan left his job as global head of trading and fintech at Nordea Asset Management in October because he thinks he's found a better way to enable buying and selling in the $8 trillion market for corporate bonds. It's one of the last major holdouts of the old-school way of trading, where individuals at big banks including J.P. Morgan and Goldman Sachs use phones or chat programs to find bonds for clients on the so-called buyside, including major asset managers like BlackRock and Pimco.
Kumaresan's London-based start-up Wave Labs aims to cut out middlemen who last year pocketed about $9 billion in fees and allow financial firms to trade directly with one another using software.
"I realized how awkward and backwards bond-trading worked" while at Nordea, Kumaresan said. "You always have to go to a guy who has to find it from someone else. If 99.9 percent of the liquidity is with BlackRock and others on the buyside, well we should be able to trade with ourselves. Why pay the middle guy?"
Success by Wave Labs, which launched last month and has three employees, would be an unprecedented coup. Electronic trading is faster and cheaper than so-called voice trading and has taken over everything from stocks to currencies, but the market for big corporate bonds has remained stubbornly human. Some firms have made inroads, but electronic bond trading is still very small scale. About 80 percent of U.S. corporate bond deals by volume are done by phone or chat, according to Greenwich Associates.