Startup firm OpenYield is preparing to launch a digital fixed-income trading platform by the end of this quarter tailored toward retail investors.
The fixed-income platform will focus on munis, along with Treasuries and corporates, said Jonathan Birnbaum, OpenYield's founder and CEO.
OpenYield can provide users with a "completely modern and equity-like trading experience because our liquidity is 100% firm and actionable … it's fully automatic, and there's no minimum," he said.
Birnbaum said it is a "timely opportunity" to build a new retail-focused marketplace because there has been a "demand-side catalyst" with the rise of interest rates, leading to renewed interest in investing in fixed-income markets, Birnbaum said.
There has also been a "supply catalyst" in how the bond market structure has become more electronic over the last few years, particularly with the emergence of algorithm-enabled liquidity providers. For munis, he said this is "relatively cutting edge and new."
Additionally, there have been new entrants in brokerage and wealth management accounts over the last decade, "who don't have access directly to bonds and are interested in adding on that for the first time," he said.
Legacy fixed-income platforms mostly dominate the distribution to retail investors today. However, Birnbaum said general feedback had been the practice "brings a lot to be desired" due to underinvestment, along with constraints on the experience, such as long wait times for executed trades to be confirmed by dealers and high minimums.
"We built a modern marketplace that provides an equity-like trading experience back to the brokerages," he said.
The marketplace is the result of Birnbaum's varying jobs throughout his career, starting on the sell-side as a "market maker" at Morgan Stanley, "responding to tickets from these platforms and thinking about how to automate those workflows and how that would change the market with electronic trading," he said.
While there, he also served as the chief operating officer for U.S. credit. He was tasked with thinking about electronic markets, changes in market structure and looking at the new platforms and marketplaces for the company to integrate with.
He later joined the buy-side, running the fixed-income execution team at Bridgewater Associates and then helping build retail brokerages at SoFi and Domain Money.
Upon leaving Domain Money, Birnbaum, after thinking about the themes happening on the retail brokerage side, said he realized the market had hit a "tipping point" and there was a timely opportunity to build a new marketplace.
OpenYield has signed up some "market makers" to integrate the platform and provide the supply. The firm has also been "actively engaged in a pipeline" of buy-side customers across retail brokerages, advisor platforms and asset managers.
The changing of the marketplace through interaction enables the larger adoption of individuals and advisors owning bonds directly.
"If you can change the marketplace to make them more intuitive and encourage and build a base layer for this ecosystem, you'll see a much wider participation rate by individuals and advisors, and also dramatically make it easier for asset managers to grow and scale their [separately managed account] businesses as another conduit for the exposure," he said.
