Modernizing bond origination through fintech innovation
Plenty of people have left the trading floors of sell-side and buy-side firms to join or launch a financial technology startup, but in many cases fintech firms are focused on asset allocation, personal financial management or retail banking.
Others focus on the trading floor, with a particular focus to drag the largely manual corporate bond market into the electronic trading age. These include Algomi’s Honeycomb Network for bond market participants, the REDI trade management platform and now-defunct Bondcube, which matched buyers and sellers of fixed income inventory. However, between dark pools, high-frequency-trading specialists and the efforts of big banks, including Goldman Sachs, to build their own automated computerized trading platforms, that is a difficult space for smaller, newer players to compete in.
Overbond, the company co-founded by fixed income traders Han Ryoo and Vuk Magdelinic, has an institutional tilt as it digitizes bond origination and issuance, typically the purview of traditional investment bankers.
Magdelinic, the fintech startup’s CEO, claims that Overbond is the first end-to-end fully digital bond origination platform that connects all bond market participants together – corporate and government issuers, dealers and fixed-income investors. The selling point that Magdelinic emphasized is Overbond’s potential to reduce operational and market risk and transaction costs for all counter-parties.
His aim is to transform the multi-trillion-dollar primary bond market from a legacy manual-process-based marketplace to a fully digital investment banking approach. But to succeed, he’ll have to convince extremely powerful, entrenched fixed income market participants that those legacy manual bond-origination processes are in fact in need of an overhaul, and to ensure that they don’t feel threatened by this new fintech upstart.
Fateful encounter on the trading floor
Magdelinic met Ryoo on the CIBC fixed income trading floor, although during the time they both worked at the bank they did not discuss plans to embark on any entrepreneurial journey together or individually.
“I was working in a structured product origination capacity at CIBC, which provided me with great exposure to all stages of deal execution – pre-deal marketing, due diligence, risk disclosure, documentation, approval, system support, booking, legal and compliance,” Magdelinic said. “Process inefficiencies and regulatory containment led me to focus on fintech innovation very early on.”
In addition to his fintech and investment banking experience, Magdelinic’s career spans management consulting and professional services, having worked at Deloitte and PwC, and risk management, serving as the Toronto chapter leader of the Professional Risk Managers’ International Association (PRMIA).
Before joining CIBC, Ryoo worked as an institutional fixed income portolfio analytics software developer at BMO Capital Markets, worked in global DCM origination at TD Securities and was a derivatives trader at Barclays and Standard Chartered Bank. After leaving CIBC, he worked at startup TravelFlan freeDtour, an artificial intelligence-based travel assistant, and venture-backed fintech company Plooto.
Magdelinic applied his experience working in fixed income trading and origination at CIBC and in management consulting, helping global banks in their digital transformation and regulatory efforts, to identify the opportunity to launch a digital bond origination platform and get Overbond up and running.
Magdelinic feels that certain elements of the traditional primary bond issuance process are stagnant.
“It is a completely manual process; the most inefficient element, in my view, is manual price discovery, or soft sounding,” he said.
Technology’s impact on the financial services industry
The fears that the rise of fintech will cause mass unemployment across the financial services industry are overblown, according to Magdelinic.
“I do not think that fintech is necessarily cutting out jobs in financial services sectors,” Magdelinic said. “I think fintech advances raise the bar on what investment bankers’ starting point is for any given activity, thereby dramatically improving levels of client service and coverage investment bankers can provide and number of clients they can service.
“I think more advanced analytical skills will remain in high demand as more rudimentary operational skills become supported or executed by fintech service providers,” he said.
That said, some financial services roles will change significantly, be scaled back in terms of headcount or be phased out altogether.
“Consider the future operational workflow of any banking function you want to pursue, map out how it could look like five years for now,” Magdelinic said. “Make sure you are on the right side of this forecasted trend.
“Stay nimble and course-correct as new information becomes available,” he said. “Career paths are rarely a straight line.”