The battle for leadership in the $20-billion-a-day Canadian bond market heats up today with CIBC World Markets Inc. becoming the first bank-owned dealer to sign on to an upstart fixed-income trading system run by CollectiveBid Systems Inc.
Since it was launched almost two years ago, Toronto-based CollectiveBid has been in a dogfight with a larger rival, CanDeal.ca Inc., for the patronage of bond buyers big and small. Both companies use electronic networks to supply investors with prices and the ability to trade bonds. CanDeal has always enjoyed an enormous advantage in this contest because of its exclusive relationship with the six big banks, the country's biggest bond houses, which each own part of the company.
CIBC has now broken ranks, agreeing to supply bond prices from its inventory of debt to CollectiveBid's CBID Markets Inc. subsidiary, and use CBID software to provide bond coverage to individual retail clients, along with smaller brokerage houses and financial planners that use the investment dealer's systems.
"Connecting to CBID provides us with a cost-effective and innovative method of distributing our fixed-income products to Canadian retail clients," said Phipps Lounsery, head of debt capital markets at CIBC.
CollectiveBid already supplies investors with prices and trading on Canadian bonds held by HSBC Bank Canada, JP Morgan Securities Canada, Laurentian Bank Securities and Merrill Lynch.
"This will triple the amount of fixed-income securities that we have in the CBID market," said Laurence Rose, president and chief executive officer of privately owned CollectiveBid. He said adding this new inventory "ensures that our participants can provide the best execution for fixed income."
CollectiveBid plans to try to attract the other banks onto its system, although Mr. Rose said servicing its newest client, CIBC, is the first priority.
The CIBC deal will make CollectiveBid the leading player in electronic retail bond trading, according to Mr. Rose. In addition to retail investors, more than 30 small brokerage firms are already signed onto CollectiveBid's network and will use it to access CIBC's bonds.
Individual investors and second-tier financial firms make up arelatively small slice of an extremely large fixed-income pie. Industry experts peg retail trading at about 5 per cent of a market that sees an average of almost $20-billion in bonds change hands each day. That total consists of $17.6-billion worth of government of Canada debt, $1.3-billion of provincial bonds and $531-million of corporate debentures.
CanDeal officials were in meetings Friday and declined to comment on the CIBC move. However, financial executives familiar with CanDeal's plans said the company is focused on the institutional bond crowd -- pension and mutual funds and insurers --and may end up effectively conceding the retail end of the market.
CollectiveBid began work on its bond trading network in October, 2001, and was approved by regulators as the first Canadian fixed-income alternative trading system in the spring of 2002, with trading kicking off in the summer of that year. Last March, the company received regulatory blessing for plans to offer electronic access to the futures market.