NYX Nyse Euronext

NYSE Euronext is planning a new push into trading U.S. corporate bonds that will see the exchange operator bring in electronic trading firms and retail investors.

The parent of the Big Board seeks to offer trading in the debt of companies listed on NYSE Euronext's markets, with a new pilot program expected to launch in the first quarter of next year.

The venture, called NYSE Bonds, marks a new effort in debt-trading for NYSE Euronext, which has for years listed bonds, but with little trading activity. The move is part of a sweeping revamp of the company that has seen it developing new ventures in futures, technology and trade-clearing alongside its core business of trading and listing equities and derivatives.

"We looked at the marketplace and saw that it was evolving into a situation in fixed income where exchange trading can become more prevalent," said Kevin Molloy, managing director of fixed income for NYSE Euronext, who is heading the NYSE Bonds project.

Molloy said that NYSE Euronext isn't setting out to reshape the market in U.S. corporate bonds, which is dominated by dealer banks and large financial institutions, but to open the market up to more participation by electronic trading firms and retail investors.

Trading in debt securities on the NYSE Bonds platform will be facilitated with technology from Arca, NYSE Euronext's electronic market for stocks and options. Underpinning the effort is a proposal to launch a new "liquidity provider" program for bond-trading that will mirror a designation for firms trading in NYSE Euronext's stock markets.

Such bond liquidity providers will operate under obligations to trade on the platform, ensuring a market for the individual investors NYSE Euronext is targeting with the venture. Currently four to eight firms are expected to be online with the program when NYSE Euronext introduces it early next year, according to exchange officials.

Additional approvals would be needed to trade the corporate debt of companies listed on other venues, such as Nasdaq OMX Group Inc. (NDAQ), they said.

The expansion into trading U.S. debt securities squares with a broader push by regulators and lawmakers around the world to direct the dealings of banks, institutions and hedge funds toward more regulated venues.

The financial crisis of 2008 was seen as being exacerbated by the opaque nature of some off-exchange markets, and new rules are being crafted in the U.S. and Europe that would require collateral to be posted against outstanding transactions and more deals done on regulated platforms.

"In the general evolution of financial services, you're seeing a trend toward transparent markets, particularly in over-the-counter derivatives, which is making these products more liquid and more transparent," said Peter Clifford, deputy secretary general of the World Federation of Exchanges, which studied exchanges' efforts in fixed income instruments earlier this year.

While bond trading largely remains the domain of banks, Clifford noted that several exchange groups -- notably London Stock Exchange Group (LSE.LN) and Johannesburg Stock Exchange Ltd. -- operate successful bond markets.

NYSE Euronext's initiative also comes as retail investors have gravitated out of stocks and into the relative safety of fixed income instruments over the past six months, driven by a sputtering economic recovery in the U.S., ongoing debt problems in Europe and the jarring "flash crash" that hit U.S. markets on May 6.

Molloy also pointed to the baby boomer generation hitting retirement age, prompting that segment to dial down equities investments and shift more savings toward bonds that offer regular payments.

--By Jacob Bunge, Dow Jones Newswires; 312-750-4117; jacob.bunge@dowjones.com

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