The Curse of the Mogul by Jonathan A. Knee Bruce C. Greenwald Ava Seave

Author:Jonathan A. Knee,Bruce C. Greenwald,Ava Seave
Language: eng
Format: epub
Publisher: Penguin Random House LLC
Published: 2010-02-28T16:00:00+00:00

More important than the growth or absolute size of the markets, the nature of fixed-income information lends itself to greater long-term competitive advantage than do the foreign exchange or equity markets. The very liquidity in the latter markets that made them so attractive for Reuters initially planted the seeds for their ultimate vulnerability.

There are lots of different currencies. But the largest five of them represent almost 90 percent of the trading volume. And if you increase the number of currencies to ten, you account for over 99 percent.12 Any of the major international banks performs billions of dollars in currency trades in the major currencies in a day, and since it is the trades themselves that are the source of the exchange-rate data, the ability of a financial information provider to develop a proprietary information product around these securities is challenging indeed. There are obviously a lot more stocks than there are currencies, but even these number only a few thousand domestically and under fifty thousand globally.13 More important, these are still largely traded through large exchanges that provide real-time transaction feeds on a nonexclusive basis to anyone interested in aggregating them. Again, the obstacles to developing a differentiated information product around this data are substantial.

Fixed-income markets are quite different. A single public company could have issued dozens of debt securities. Each of these securities would have multiple standard attributes with critical financial implications—not just the term of the debt, but call dates and premiums, any original issue discount, change-of-control terms, and convertibility privileges and indentures. The precise nature of these terms lends itself to certain analytic functions that allow an investor to compare the returns available from different securities from the same issuer as well as analogous securities issued by other issuers with similar credit profiles. And it is not just public but private companies that issue debt securities. And national governments. And states. And localities. And various governmental and quasi-governmental entities. Just in the United States there are almost twice as many outstanding debt securities, some of which support highly liquid markets but many of which do not, as there are equity securities globally.14 And that doesn’t count the more than one hundred thousand different global structured products that were created by slicing, dicing, and aggregating various other forms of debt obligations into now synthetic instruments that trade independently.15 More important, debt securities do not trade predominantly on well-developed centralized exchanges but rather through trades negotiated directly by individual market participants themselves.

Bloomberg built its businesses by developing strength in segments where the incumbent did not have an overwhelming position and that lent themselves to creating sustainable barriers to entry. While targeting the growing and underserved fixed-income markets and buy-side user base, Bloomberg focused relentlessly on client needs, developing specialized software allowing customers to use, analyze, and manipulate the data seamlessly into their daily work flow. Bloomberg protested that his aim was to become “something more than a niche information provider to a group of bond-market-data junkies.”16 But this

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