He faces skepticism from across the industry. According to a former head of global credit trading at a major Wall Street firm, Kumarasen would probably struggle to dislodge other electronic providers, including Tradeweb, MarketAxess and Bloomberg.
“What this guy will have a hard time getting is desktop space,” the trader said. “And if it doesn’t have critical mass, it won’t matter.”
Yet electronic trading is likely to succeed eventually in credit markets, even if it is banks that hold onto the market. Firms including Goldman Sachs and Morgan Stanley have said they are working on it. Marty Chavez, Goldman’s co-head of trading, has said that steep gains in computing power will ultimately be able to handle the complexity of the corporate bond market.
When that happens, the users of the instruments – big institutional investors including pensions, asset managers, and endowments, and the ordinary investors who are their clients – should benefit from lower transaction costs and greater returns.
“Clients are paying intermediaries huge amounts of money in what is effectively a monopoly,” Kumarasen said. “It’s ultimately moms and dads and old people who are actually paying those trading costs.”
Whether he’s a visionary or merely a gifted pitchman – or something in between – it won’t take long to find out. By April, Kumarasen will conduct live testing with two or three early clients. He said the service will be live by June, when Wave Labs should have seven employees.
“The moment one or two people are out there showing this works, it will skew the edge in their favor,” Kumarasen said. “Others will have no choice but to use this technology. Full stop.”