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The U.S. Justice Department has reportedly launched an antitrust investigation into the business practices of five e-commerce firms, including electronic bond trading firms BondBook LLC, BondDesk and Market Axess, and foreign exchange firms FXall and Atriax.
The firms received civil investigative demands (CIDs), the first step in determining if further antitrust investigation is necessary.
Justice Department spokesperson Gina Talamona confirmed in published reports that the Antitrust Division "is looking at the competitive effect of certain joint ventures in the online trading industry."
Wide Probe
The federal investigators will reportedly examine the companies' documents related to new electronic networks, as well as the methods Wall Street is using to venture online.
Merrill Lynch & Co., Citigroup's Salomon Smith Barney, Morgan Stanley Dean Witter and Deutsche Bank AG have also been contacted in connection with the probe, according to news reports.
One of the companies being investigated, BondBook, an online market that trades both municipal and corporate bonds, was launched this past June by Goldman Sachs Group, Merrill Lynch, Morgan Stanley Dean Witter and Salomon Smith Barney.
BondBook's head of marketing and communications Steve Van Anden told the E-Commerce Times that the company’s business model is "very pro-competitive in that it’s an open, anonymous platform, open to all qualified institutional participants, with live bids and offers."
Van Anden said that the firm "provides a high degree of price discovery and price transparency and easier access to the market price," which are some of the elements companies hope will satisfy regulators.
Just Looking
According to other industry sources, many of the online bond market firms are downplaying the Justice Department’s inquiries to a general fact-finding mission. Such investigations are not typically signs of improprieties.
VanAnden believes the probe makes sense given the recent boom in the online trading market.
"There's a lot that's been happening in this marketplace over the last 18 months," VanAnden said. "It's understandable that the Justice Department might want to get their arms around what's been happening and what the implications are for the marketplace. We are addressing the major issues and concerns that the regulators have been expressing.”
Booming Market
The online trading market has boomed significantly in recent years. Electronic trades accounted for 6 percent of the US$13.5 trillion fixed-income market last year, according to the Bond Market Association.
Major securities firms are pushing fixed-income trading online in an effort to reduce costs and prevent the loss of customers to new electronic startups. There are 4 million fixed-income securities, compared with about 10,000 listed stocks.
Additionally, the number of electronic-trading networks has grown from 11 networks just
three years ago to over 70.
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