Financial technology is changing how people borrow, save and invest, and is now infiltrating one of the stodgiest areas of financial services: the fixed-income market.
Overbond is a relatively new Toronto-based fintech with a cloud-based pricing communication platform that automates tasks for bond issuers and dealers, and is vowing to make trading more efficient and transparent.
Chief executive Vuk Magdelinic says the Overbond's digital platform allows more dealers to trade at once, which helps to increase volume and offer greater pricing transparency.
The digital platform caters to the primary bond market, which is for bonds being issued for the first time.
Overbond is considered a "first mover" fintech in the Canadian bond market, connecting corporate and government issuers directly with dealers and investors.
Experts in both fintech and financial services say it was inevitable a platform would come along to shakeup the old-school bond market, where orders are still taken manually, one at a time, by phone and e-mail and tracked on spreadsheets.
Still, they caution Canada's bond buyers and sellers may be slow to change their ways and adopt the technology.
Mr. Magdelinic, who co-founded the company with fellow fixed-income expert Han Ryoo, won't name the clients who have signed on so far, but says the issuers include a major power utility and a real estate company. He says Overbond is also signing a major Canadian bank on the dealer side.
The company recently closed a $7.5-million seed-funding round led by Morrison Financial. The sum is considered one of the largest in Canadian history for an early-stage company and a unique investment for Morrison Financial, which handles construction and real estate financing.
That funding is the first outside financing for the company, and will enable Overbond to beef up its platform. To date, Overbond has been largely bootstrapped by its founders, Mr. Magdelinic says.
He believes there's huge pent-up demand for the platform in the bond industry, which he says is suffering from an "unprecedented" liquidity crunch. That's due in part to increasingly strict regulations in the financial services industry, but also the antiquated, manual system of trading fixed-income securities.
"You need trades to understand how things move and at what price. If you don't have trades, you can't discover price. There's no benchmark," Mr. Magdelinic says.
Any technology that promotes transparency in the Canadian bond market is welcome, says Renée Colyer, chief executive officer of Toronto-based capital markets consultancy Forefactor Consulting.
However, she says Overbond will be challenged to penetrate a market well known for being opaque, especially in Canada.
"This is a great first step toward making the broker-dealer community more comfortable with the transparency of fixed income," Ms. Colyer says.
It's an opportunity to give brokers access to what the prices are," she adds. "Maybe they can come together and close those margins a little bit and make the buy side, the asset managers, happy as a result."
Overbond emerged from the MaRS fintech cluster and the Communitech technology innovation supercluster. Sunil Sharma, co-director of the Toronto chapter of startup launch program The Founder Institute, brought the company to into his program, believing in its potential to disrupt the traditional fixed-income market.
Mr. Sharma says the new seed financing will help the company scale its business even more quickly than it already has.
"They now have a very big mandate," says Mr. Sharma, who is also managing partner at Extreme Venture Partners. "This is not a small play by any means."
Alan Green, head of iShares Capital Markets Canada, says the bond market needs to embrace fintech solutions to stay competitive globally.
Today, he says electronic trading is restricted to the government bond market. In the corporate space, it's still mostly done by telephone.
"It's very frustrating for a large asset manager like ourselves, who potentially has thousands of bonds to trade, to pick up the telephone and try and trade every single bond like that," Mr. Green says.
While he wouldn't comment on Overbond in particular, and says iShares isn't a client, Mr. Green is encouraged by the technology.
"We are definitely supportive of initiatives or firms that are looking to make things more scalable through the use of technology," he says.
While it could take time for the bond market to change, "I don't think it's going back to the way it used to be," Mr. Green says. "It's clear this is the way the industry is moving."