'The boom in new corporate bond trading platforms is over': There could be a wave of M&A in the bond trading business

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• Corporate bond trading platforms are going to face consolidation over the next 18 months, according to a recent report from research firm Greenwich Associates.
• Kevin McPartland, the head of research for market structure and technology at Greenwich Associates and the author of the report, said mergers and acquisitions among the platforms should be expected.

The herd is about to be thinned.

A new report by financial research firm Greenwich Associates predicts a consolidation of US corporate bond platforms over the next 18 months.

The prediction comes at a time when electronic trading in US corporate bonds continues to rise. In Q3 2018, 26% of trading volume in the market was done electronically. That's a 7% increase from Q1 of the same year.

"The boom in new corporate bond trading platforms is over," said Kevin McPartland, head of research for market structure and technology at Greenwich Associates and author of the report, Corporate Bond Trading in 2019: Competition is Good, Complexity is Not.

In the report, McPartland said while US corporate bonds might seem like a market that would foster a wide range of platforms, customers aren't interested in having to integrate with multiple platforms, potentially thinning liquidity and creating multiple data sources.

"All of this points to more mergers and acquisitions among the platforms over the next 18 months," said McPartland in the report.

MarketAxess holds the largest market share for electronic trading in US corporate bonds. In the third quarter of 2018, the platform handled 85% of electronic trading done on US high-grade and high-yield bond. Tradeweb, Bloomberg and Trumid also compete for market share in the corporate bond space. In the beginning of 2018, exchange operator Intercontinental Exchange acquired BondPoint from market maker Virtu.

Despite the influx of new platforms in the last several years, traders are not diversifying their dealers. The top five dealers still control 56% of institutional investors trade execution, according to the report. However, middle-market and regional dealers have gained market share on bulge-bracket dealers, the report states. Non-bulge-bracket dealers execute 25% of trading volume, an 11% uptick from 2013.

On Monday, Chris Concannon, the former president and COO at Cboe Global Markets, announced he'd be joining MarketAxess starting January 22. The electronic trading veteran will serve as president and COO the platform.

Speaking to Business Insider after the announcement, Concannon said a top priority of his would be to analyze the deals occurring in the space.

"Obviously there is M&A activity in the sector. Understanding and thinking strategically around the M&A activity in the sector both here in the US, but more importantly globally," Concannon said. "Knowing and understanding the strategic relationships globally, both from an inorganic to an organic strategic relationship."