Buried in BlackRock’s recent report into bond market liquidity was a bombshell bit of news.

Here’s the story:

BlackRock Inc. is muscling into trading venues that had long been the exclusive territory of big banks as the world’s biggest asset manager seeks to make up for declining liquidity in the bond market.

BlackRock revealed last week that it’s now trading bonds directly with inter-dealer brokers, following years of warning that liquidity is waning. In September, BlackRock said the corporate bond market is “broken.”

Banks have long facilitated the business, but regulations passed after the 2008 crisis hobbled their ability to do so. By trading with inter-dealer brokers — an industry that includes ICAP Plc and Tullett Prebon Plc — BlackRock is circumventing a middleman.

Money managers are “looking to get liquidity anywhere they can get it, and the other side is the inter-dealer brokers — their business model has been totally turned upside down,” Kevin McPartland, head of research for market structure and technology at Greenwich Associates, said in a phone interview.
Tara McDonnell, a spokeswoman for New York-based BlackRock, declined to comment.

A large investor trading directly with inter-dealer brokers marks a sea change for Wall Street, where big bond trades traditionally are executed between asset managers and large banks like JPMorgan Chase & Co. and Goldman Sachs Group Inc. Trading venues run by ICAP and Tullett Prebon, meanwhile, have historically brokered trades between banks and stayed clear of interacting directly with buy-side investors such as BlackRock …

BlackRock participating in IBD trading venues is a big deal and one that demonstrates the balance of (bond trading) power on Wall Street, tipping firmly in favour of the buyside.

Here’s some Twitter reaction from Cate Long.

@A_Reader_FT @tracyalloway Blackrock trading with ICAP is biggest fixed income news I’ve heard in long time. Makes sense though.

— Cate Long (@cate_long) July 16, 2015

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