J. W. Korth & Co. yesterday launched a Web site that allows users to sell bonds through what it calls an eBay-style auction process.
The new site, which can be found at www.bonds4sale.com, allows anyone with an account at the Miami-based broker-dealer to sell bonds through an auction. Accounts can be opened with the firm at no cost.
Once the lot of bonds is posted for sale, an announcement is immediately e-mailed to over 500 financial advisers and institutions, ranging in size from small municipal bond boutiques to Merrill Lynch & Co., which are able to respond by offering a price.
The seller — who can customize individual sales to last between 30 minutes and 24 hours — is then able to monitor bids and execute transactions at any time, or not at all, with a complete record of their activities.
By automatically tracking every bid submitted, Bonds4Sale.com can help users comply with best-execution rules laid out in the Financial Advisors Act and NASD Rule 2320, which require financial professionals to generally execute transactions for the best available price, according to the firm.
Sellers pay a transaction fee of $7.50 per bond, although larger-sized blocks can be sold at lower prices.
“Bonds4Sale.com provides individual investors, institutional portfolio managers, and financial advisors an easy and transparent way to sell bonds in real-time at optimal market prices,” a news release about the new Web site stated.
J. W. Korth is a securities broker-dealer founded in 1982. It launched an online bond trading site about three years ago. That site, which can be found at www.shop4bonds.com, carries an inventory of 45,000 bonds, which currently includes roughly 30,500 line-item municipal bond offerings.
Company founder James W. Korth yesterday said that the firm had first tested the new auction site with a group of clients, who have already been using the auction procedure.
In one auction that was executed yesterday, a seller put up a $15,000 block of callable New York Triborough Bridge and Tunnel Authority general purpose revenue bonds with a 4.7% coupon, escrowed to maturity on Jan. 1, 2007.
The seller received five bids at dollar prices ranging from 99.02 to 99.60. However the top bidder cancelled, and the seller then executed the trade at the next highest price of 99.39 at around 3 p.m., Eastern Daylight Time.
“Bonds4Sale.com was initiated to alleviate the difficulty of selling bonds,” the release stated. “Most investors believe that once they owned a bond, they were locked in until its maturity. However, the new site enables trading of bonds just like stocks.”
“The current ‘do-it-yourself’ generation of individual investors wants to take investing into their own hands and Bonds4Sale.com makes that possible,” Korth said.
BondDesk Group chief executive officer Rob Slaymaker voiced his support for the new online platform yesterday. Despite being a potential competitor of Bonds4Sale.com, Slaymaker said any effort to increase transparency in the retail fixed-income market would be mutually beneficial.
“Anything — any new application, any new entrant into the retail fixed-income marketplace — is ultimately good for all of us because we’re in the business of trying to get investors to do more fixed income,” he said.
His criticism of an eBay-like model was that it might not provide sellers with enough information to judge where their bonds should be priced in a trade.
“It all depends on who is monitoring it,” Slaymaker said. “So who will become the liquidity provider in their model? That remains a question.”
How much confidence will a potential seller put or place in the bids and offers that they are getting? They have no other context other than the number of bids and offers that they are getting in the auction process, which may not be very many,” Slaymaker added.
By contrast, BondDesk — which is used by retail representatives at a vast majority of the nation’s largest broker-dealer firms — lists tens of thousands of specific items out for bids, he said.
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