BondEvalue aims to help retail investors access bond market

Singapore

EQUITIES have been trading electronically and in openly quoted markets for close to 30 years ago.

But most bonds still trade over-the-counter (OTC), leaving a narrow selection for retail investors even as the appetite for bonds among retail investors continues to increase.

While some bonds do trade on exchanges today, most are still sold wholesale to institutional and accredited investors for a minimum investment of US$200,000.

According to Rahul Banerjee, founder of Singapore-based fintech firm BondEvalue, one reason why bonds remain so out of reach is that the OTC market makes bond prices opaque and the process inefficient.

Over the years, there had been ongoing discussions about deepening the bond market and improving access for investors, but Mr Banerjee said the complex nature of bonds had hindered any progress.

He also pointed to the "mathematically-oriented and computationally-intensive" nature of the bond market, and the sheer size of it.

There are around eight million bonds compared with 630,000 equities. A single company may have multiple bond issuances, said Mr Banerjee.

But he is hoping to change things. BondEvalue recently launched BondbloX Bond Exchange via the Monetary Authority of Singapore's (MAS) Sandbox Express.

It is the first blockchain-based exchange that makes fractional ownership of bonds possible by allowing them to be traded in smaller denominations of US$1,000 electronically.

The platform also enables transparency in bond prices and instantaneous trade settlement, compared with the traditional two-day trade settlement cycle.

It will connect banks, wealth managers and robo-advisers globally, allowing their customers to trade in the bond market. In Singapore, it is currently limited to accredited investors.

BondbloX counts UOB Kay Hian as an initial launch partner while United States-based financial services company Northern Trust is its designated custodian.

As the technology becomes available to facilitate trading in retail bonds, BondbloX is likely to face more competition.

Boostry, a unit of Japan's Nomura Holdings, this year launched its first bond offering using blockchain technology.

Mr Banerjee said he would welcome the competition if it means greater financial inclusion for investors. "Most people focus on the institutional side of the market," he said. "I want the not-so-wealthy to invest like the wealthy. To me, it's unfair if you have US$100,000 and you can't buy a bond."

The bond market has grown substantially over the years, Mr Banerjee said.

"When I started in the bond market in the early 2000s, the total hard currency issuance volume in Asia was around US$7-8 billion. This grew (around) 50-fold to US$350 billion last year."

The exchange will, for a start, list 100 of the most liquid bonds. Mr Banerjee said that there is still a lot of work to be done to scale up.

At the same time, he sees an opportunity to fix some of the issues that have plagued OTC bond markets.

The nature of OTC trading is such that investors have to take on counterparty risks.

OTC trades also lack price transparency and the OTC market is fragmented and difficult to regulate.

Mr Banerjee is hoping to expand operations to other countries.

Some markets in the region including China, the Philippines, Thailand and Malaysia have already shown interest in BondEvalue's technology.

Most recently, BondEvalue, which also has offices in India, expanded to Mexico to create a similar business model for the Mexican peso market.