LedgerEdge is a trading ecosystem initially supporting trading of investment grade and high yield bonds in the UK and US. Its distributed ledger model is designed to allow traders to control the amount of pre-trade data they release, while still helping them to find the other side of the trade. By tackling liquidity fragmentation and information leakage, the firm believes it will also increase certainty of price discovery, hitting three structural bond market problems in one.
David Nicol, CEO of LedgerEdge and Michelle Neal, CEO of US operations, explain what traders will be able to do from day one of LedgerEdge going live, and how the system will expand to other asset classes and markets.
Dan Barnes: Welcome to Trader TV – your insight into trading for professional investors. I’m Dan Barnes. I’m here at FILS Europe Event, the first live event since 2019. Joining me today from LegdgerEdge are David Nicol and Michelle Neal.
Guys, welcome to the show.
David Nicol: Thanks for having us.
Michelle Neal: Thanks, Dan. Great to be here.
Dan Barnes: We’re very excited about the launch of LedgerEdge this year. Can you tell us what will traders be able to do via LedgerEdge and with who?
David Nicol: LegerEdge is a new trading ecosystem. We use distributed ledger technology to give users ownership and control of their data with really nuanced workflows and connectivity between points in an ecosystem. LedgerEdge is a regulated market and will be an MTF in the UK and an ATS and broker-dealer in the US.
Dan Barnes: Michelle, what will people be able to trade in terms of instruments?
Michelle Neal: Well, to build a market, you have to be focused and we are focused on the IG and the high yield segments of the spread market. But if you think about the core functionality of LedgerEdge, the platform itself is asset class agnostic. So over time, we’ll be adding new products and capabilities. We’ve worked with over 21 buy-side firms in 18 sell-side firms through a series of working group and advisory committees to really kind of hone the functionality of the platform, and all of those clients actually continue to be key supporters inside their organizations in anticipation of our upcoming launch.
Dan Barnes: So which risks will traders be able to mitigate by trading via LedgerEdge?
David Nicol: We heard from our customers that data leakage is a core problem in the market. We know that they spend lots of time and effort today on finding the right pockets of liquidity for them to get the very best trade done. We think that in 2021, the time is right for technology to do much of this work. We primarily deliver that through protection of data throughout the pre-trade and trade life cycles. Traders can bring their orders and their data into the market, whether those are axes, holdings or resting orders that they’re looking to get done in that day. They’ll be able to wrap those orders with some smart logic, which limits who those orders are revealed to.
Dan Barnes: Very good. Michelle, in terms of managing information leakage, could you describe perhaps how that works?
Michelle Neal: The platform is built on distributed ledger technology, whereby every user on the platform has a node. Those nodes are encrypted so that clients can feel more comfortable about loading more data into the system that they can then set reveal conditions around in terms of what gets shared with who, how it gets shared, and what parameters that’s based on.
David Nicol: Those reveal conditions can be based on the identity of the counterparty or based on what the counterparty is sharing into the ecosystem. This order then searches the entire ecosystem for the best match, saving the trader time and effort and in the end, getting a fundamentally better execution.
Dan Barnes: It doesn’t necessarily therefore create a huge amount of new technology that they have to have on the trading desk as that’s within LedgerEdge itself.
David Nicol: That’s right, it’s delivered from the cloud. And the beautiful thing about the architecture is that it’s very flexible in that it can support different types of nuanced workflows, new types of trading protocols, and critically new bilateral connections can be made with zero marginal cost, which is something that market’s been looking for, we think, since the beginning.
Dan Barnes: So, Michelle, if I’m a trader, what is the workflow I’m going to actually engage with?
Michelle Neal: Well, it’s important to know that in addition to our unique, premium capabilities, all of the trade workflows that traders have come to know and trust to get business done are all available inside of the system. So click-to-trade, requests for quote, and negotiate protocols are all available.
David Nicol: What we’ve heard from customers is that it’s important to start the trade lifecycle at the very best place. Sometimes this is far back in the trade lifecycle at the point of defining the liquidity of holdings. With our technology, all traders are able to add much more sensitive data into the market. So for the buy-side, that means sharing holdings, maybe the segment of holdings that they’re looking to move in the next day, week or month. And on the sell-side maybe doing a little bit more intelligent searches to find new opportunities to form new relationships.
Dan Barnes: We saw the issuance of digital bonds via the European Investment Bank this year. What does that potentially tell us about the future of digital bond issuance?
David Nicol: We’re very excited about the innovations in a few segments of the market, including digital asset issuance as well as digital assets settlement, which could save time, cost and risk in the settlement cycle.
As a distributed ledger technology enabled ecosystem, we are ready to support trading of those digital instruments. In fact, we see LedgerEdge as the very best place for any asset to encounter the market, to see or exchange pricing information, or indeed move to any other party in the market. With settlement our bilateral transaction, core workflow does allow us to incorporate all of these new, digital asset, settlement methods, and we’re very excited about the future of this market.
Michelle Neal: Introducing distributed, ledger-powered technology capabilities to our clients, but in a safe and controlled ecosystem, over time, they can start to actually change the way they interact with the platform within their wider platform architecture. And we stand ready to do that without having to change or modify our systems.
Getting the benefit of protocol integration techniques that everybody is familiar with and knows how to manage, while being able to actually roll those things back and have more digitally enabled, integration points with some of these key market, evolutionary capabilities that are coming down the pike.
Dan Barnes: That’s really exciting, I gotta say. Guys, thank you both so much.
Michelle Neal: Thank you so much for having us.
David Nicol: Thanks, Dan.
