In technology, this year’s Apple can quickly become next year’s Nokia. When Project Neptune was launched in the autumn of 2014, it was backed by a number of important sell- and buy-side firms.
Euromoney hears rumours that initial fervour around the project – dealers and asset managers crowding the table at initial meetings last year – might be wavering now that early backers consider the cost of building a shared utility to disseminate pre-trade data using the newly agreed messaging protocols. “The buy side have suddenly lost some of their enthusiasm,” says one source, “as the second-round funding is a much bigger cheque than the first round. The buy-side firms may manage vast amounts of other peoples’ money but their own development IT budgets are modest.”
Another source says: “Project Neptune has declared that it will be a utility open to all, and that has made some banks ask: ‘Why do we need to fund building it, then?’”
And among the banks, as with any shared venture, there’s also the hidden complication of big egos in the room and different banks quietly preferring their own favourite solutions. One source tells Euromoney: “Banks get suspicious. If they see that, say, Goldman Sachs is really pushing Neptune while maybe Deutsche Bank is strongly backing Algomi, they start to wonder: ‘What do they have to gain, is there something we’ve not spotted?’ And sometimes banks take against a venture for no better reason than because a rival they personally dislike supports it.”
Neptune is an initiative by Etrading Software to create a standard, agreed language and series of flags around pre-trade messaging for bond trades and axes so as to ease connectivity between all market participants. This first phase was completed in January, pretty much on schedule, with common messaging code now agreed. The second phase of the project now comes into focus: building a network for dissemination of that data.
| The plan is to build a proof of concept network in the first half of this year, connecting some buy-side and sell-side firms, so they can test the quality of production data|
Sassan Danesh, Etrading Software
Neptune should yet get the second-phase utility built, however. “The plan is to build a proof of concept network in the first half of this year, connecting some buy-side and sell-side firms, so they can test the quality of production data,” says Sassan Danesh, partner at Etrading Software. “The sell side will test links to their risk-management systems and the speed of updates as inventory changes, while the buy side will test algorithms for sifting all the data on potential inventory and trades and also test links to their own order-management systems.”
Danesh says: “The philosophy is that Neptune should not favour one OMS vendor over another but rather be quite neutral. Though we have had discussions with trading platforms that have asked how they could get involved, we should also be neutral as to trading venues. The buy-side order-management systems should be the bridge to final venues for execution.”
Danesh tells Euromoney that, after 15 dealers and 17 investors had supported the first phase of project Neptune, he had hoped seven sell-side firms and seven from the buy side would sign up for this second phase. In fact 13 out of the original 15 dealer banks, along with one that was not in phase 1, are willing to support it financially. By late February all 14 banks had given firm financial commitments and several have now signed contracts, with the rest due to follow through and sign in the next few weeks.
|Here comes the great bond|
Danesh says: “One of the curious aspects of this is that we have always said Project Neptune should be a non-profit making utility that benefits all market participants by making the market bigger and better-connected. It provides an underlying infrastructure that then allows commercial operators to layer value-added services on top. That’s not a paradigm that fits easily with the strategic investment teams at the banks who want to know how they will make money from investing in a new tech venture. But the trading desks see the importance of it and of being on the cutting edge of market structure change.”
Buy-side participants are devoting time and effort, rather than financial investment, to support and integrate the second phase of the venture.
“It [Neptune] should be seen more as core market infrastructure, not as a trading platform,” says Niall Cameron, head of EMEA markets at HSBC. “Ultimately it’s open, non-exclusive and pro-competitive.”