Banks hold fewer securities on their balance sheets than before the financial crisis, with one measure from the New York Federal Reserve suggesting that primary dealers’ holdings of corporate debt has plunged by more than 90% since 2007. Others put the decline around 50%.
ETFs have eased some of these pressures, offering an alternative source of bond inventory and a tool to hedge debt exposure. Bank of America Corp., Goldman Sachs Group Inc. and Jane Street have even used these ETF features to fuel new businesses trading credit portfolios.
However, ETFs also allow asset managers to trade with one another, at the expense of dealers, the traditional middlemen. A record amount of bond ETF trades hit the tape last year, up 40% from 2017, data compiled by Bloomberg Intelligence show.
“This looks like it’s being put in place to protect the largest of the large,” said Matt Toms, chief investment officer of fixed income at Voya Investment Management. “Any product tied as close as possible to real-time trade data would have a headwind.”
--With assistance from Molly Smith and Emily Barrett.
This article was provided by Bloomberg News.