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Fixed Income Capital Markets Technology: The Future of Primary New Issuance

Fintech firms are actively working to electronify and digitalize fixed-income primary markets

Global fixed-income primary markets continue to develop away from voice-driven communications and manual operational processes to more streamlined interoperable platforms. Firms that once struggled through paper document-driven offerings with no transparency, insights, compliance or regulatory audit trails are now embracing the electronification and digitization offered by firms such as IHS Markit.

Global markets have historically traded fixed income products with a specific set of information and data, allowing for technology firms to standardize and electronify the process; identifying, mapping and modeling the necessary data into digital workflows. Many sectors (investment grade, high yield, emerging markets, structured and securitized) carry unique structures, pricing mechanisms and optional provisions – most of which are specific to each asset class – however, often times this data does remain consistent within each sector and is capable of being identified and tagged for digital standardization.

For example, IHS Markit offers sophisticated technologies and products that seamlessly connect global market participants including issuer entities needing to raise capital, sell side banks which are advising and bringing new issue bonds to market, and buy side investors who seek new fixed income issues for investment. The fixed income technology, software and network solutions from IHS Markit allow these participants to fully embrace the present day electronification and digitization transformation. Ted Douglas, Co-Head of Fixed Income at IHS Markit states, “The IHS Markit fixed income product suite provides markets with automated, real-time workflow efficiencies, enhanced liquidity and reduced risk for the global primary debt capital markets.”

The IHS Markit fixed income issuance product suite includes: IssueNet, a web-based portal that synchronizes deal and orderbook information between syndicate desks; IssueLaunch, a deal terms communication tool that ensures banks and all other parties involved can work together in real-time to set up deals and communicate the terms to sales leads, other banks and investors in an organized and compliant format; IssueBook, which streamlines and centralizes bookbuilding from origination, through marketing to bookbuild, allocation, and settlement; InvestorAccess, which connects everything by facilitating communication between banks and investors; IssueView, which enables a live view and direct access to the issuer of the demand for their offering, amongst other products and services.  Through these offerings, capital markets participants are now equipped with the tools and information needed to move off of spreadsheets and into more efficient workflows and effective decision making. IHS Markit has connected market makers in Europe, where 97% of euro-denominated issuance is run through the firm’s platforms – there is also an effort underway to bring the same benefits to the US market, as IHS Markit is actively investing in its products and teams to maintain its position as the industry standard.

In the U.S. market, further electronification has been delayed due to the largest U.S. banks being hesitant to use technology and solutions that have the potential to touch their clients in the primary market. Instead of leveraging the existing technology, these banks have created a consortium and are ready to launch an alternative platform at the end of the year called DirectBooks. DirectBooks and other start-up systems newly entering the market highlight the increased focus on the primary issuance space in 2020 and beyond.  

On how the new entrants will affect the primary issuance landscape, Douglas states, “We are open and encourage market participants to join us and connect through the IHS Markit product suite for issuer, sell side and buy side engagement. The global capital markets community has certainly enjoyed the benefits that they get from our solutions.” IHS Markit currently has almost 200 banks and more than 460 buy side firms using their platform.

Douglas goes on to add, “The marketplace must acknowledge that restricting information data flow is not a benefit for anyone and limiting integration across participants will only create gaps. Technology and processes can easily provide solutions for this: our networks and systems, such as IssueNet and InvestorAccess, provide a standardized model for the market. We remain flexible and interoperable for all participants, delivering ease of execution between the sell side (IssueNet) and the buy side (InvestorAccess), which ultimately benefits each issuer throughout the process.”

As fixed income markets continue to mature from voice-driven communications and manual operational processes to more streamlined, interoperable platforms, issuers, banks and investors will all benefit from automated, real-time workflow efficiencies, enhanced liquidity and reduced risk. Although there is plenty of work to do, especially in the U.S. where new entrants and systems are joining the landscape, the expectation is that these new entrants will plug into the existing infrastructure put in place by IHS Markit. Indeed, 2021 will be an influential and exciting year in fixed-income primary markets.

For any current NYU students looking to discuss this article and/or any new developments in the Fintech space; feel free to join the NYU Stern Fintech Association through Campus Groups.

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