Deutsche Bank AG is trying to drum up interest with some of itslargest competitors to create a multi-dealer U.S. bond tradingplatform at the same time that asset managers discuss ways to makebuying and selling debt easier, according to people familiar withthe matter.

Europe's biggest investment bank by revenue has pitched its planfor an electronic trading network to JPMorgan Chase & Co.,Citigroup Inc. and Barclays Plc, according to five people briefedon the talks, who asked to not be named because the discussions areprivate. Executives at State Street Corp. and FMR LLC's FidelityInvestments are among institutional investors that have held aseries of meetings, the last one in July in New York, to addressthe difficulty of finding the bonds they want to trade, accordingto two different people.

The bank discussions on forming a platform and asset managers'search for solutions comes amid a 76 percent decline in corporatedebt inventory at the world's biggest dealers since a 2007 peak.The pullback by market makers, which is spurring concern that therisk of trading disruptions has risen, comes amid stricter capitalrequirements from the Basel Committee on Banking Supervision andspeculation that the U.S. Dodd-Frank Act will weaken their abilityto facilitate bond trades.

“The industry is making progress,” said Will Rhode, director offixed-income research at consultant Tabb Group LLC in New York.“There are so many basic challenges, the market is fundamentallyfragmented.” The multilateral approach envisioned by Deutsche Bankis catching on with market users, he said. “The technologycertainly exists, the desire exists,” he said.

Representatives for Deutsche Bank, JPMorgan, Citigroup,Barclays, State Street and FMR declined to comment.

Most trading takes place through privately negotiatedtransactions. Corporate bond dealers and investors have started tobranch out into electronic-trading platforms as they seek to cutcosts and improve their ability to convert investments into cashamid the new capital rules.

Goldman Sachs Group Inc., the fifth-largest U.S. bank by assets,has expanded its GSessions electronic-trading system. BlackRockInc., the world's biggest asset manager, decided this year to routesome of its trades through MarketAxess Holdings Inc.'s computerizedsystem.

Bloomberg LP, the parent of Bloomberg News, offers trading ofbonds and credit-default swaps through its fixed-income tradingplatform.

Wary Clients

While clients have been wary of trading on platforms run by onebank, broker-dealers haven't agreed on parameters that would allowa single platform run by several companies to emerge, two peopleinvolved in the market said this week.

The platform, dubbed Oasis, from Frankfurt-based Deutsche Bankis aimed at the least-active part of the $4.2 trillion-a-yearmarket where bonds might not trade for days or weeks, two of thepeople said. It follows a more successful introduction of the sameidea in Europe, according to one executive.

Oasis clients would tell their bank how much of a particularcorporate bond they want to buy or sell, a process known as anindication of interest, and the dealer would enter a resting orderinto the electronic system, two of the people involved said. Ifanother party is interested and the trade crosses, the transactionwould be done between banks so that the clients remain anonymous,the people said.

Information leakage, or the possibility of rival investorsprofiting off an investor's plan to trade, is a major concern amongbank clients that Oasis is meant to address, the people said. Ifthe system succeeds, clients could eventually be allowed to accessOasis directly, they said.

Investors and their banks may have trouble moving more of themarket onto computers. Corporate debt is unsuitable for fullelectronic trading, according to a study last month by McKinsey& Co. and Greenwich Associates. There are more bonds thanstocks, and debt trades less frequently, making a full transitionto computer-based buying and selling unlikely, the consultantssaid.

Dealers have resisted a shift to electronic bond trading becausethe increased transparency can cut profits. In the 90 days afterthe Financial Industry Regulatory Authority's Trace starteddisseminating prices of junk bonds, trading in the securitiesdropped 41 percent, according to Massachusetts Institute ofTechnology and Harvard University researchers.

Investors Meet

Executives at Fidelity, the world's second-largest mutual fundcompany, and State Street, the third-biggest custody bank, met inMay 2012 with representatives from Deutsche Bank, Barclays,JPMorgan and Goldman Sachs, urging the dealers to develop anelectronic-trading system for bonds, people who attended the eventsaid last year. The group has held a series of meetings this year,some with only institutional investors present, some with onlybanks, and some with market vendors, two people familiar with thematter said this week.

New trading systems like Goldman's GSessions are only part ofthe solution and other ways to buy and sell need to be developed,according to one of the meeting participants. These includeelectronic auction systems, a central database where limit ordersare placed, and the resting order model like Oasis is proposing,the person said.

A continuing challenge is to get the banks to agree to supportone solution, the participant said. Institutional investors metearlier this year to discuss a list of market changes they wouldlike the dealers to implement, the person said, adding that atrading network that combined many ways to buy and sell debt in anaggregated fashion may be one promising idea.

The number of institutional investors participating in themeetings has grown to as many as 12 from 5 last year, while atleast 8 banks have been involved, the person said.

Bloomberg News