JonesTrading launches distressed debt trading desk

By Stephanie N. Rotondo

Portland, Ore., April 7 - JonesTrading Institutional Services LLC said it expanded its reach beginning Monday into the distressed debt trading realm.

The previously equity-focused company made the move to the junk sector in part as a response to client demand and in part because of a perceived void in that arena.

"We are kind of trying to fill that void, which is sadly growing," said Kerry Stein, the managing director of the new trading desk. Stein has more than 20 years of experience in the industry and was previously the managing director and head of high-yield trading at Morgan Joseph & Co.

According to Stein, the distressed debt marketplace is "growing and getting more active." Thus, "it is necessary to have some players out there."

"It is sort of like the swell of the ocean," he told Prospect News, citing the increase in distressed issuers since just last year. Currently, there are more than 170 issuers labeled distressed, whereas last year there was around 20.

In its move to branch out, the institution hopes to "bring more liquidity" to the marketplace by using the same formula that it has successfully employed in its equity business - that is, matching buyers with appropriate sellers of block trades through its Active Crossing Network.

"For those waiting to get in and out of positions, this is a great platform," Stein said. "This is as good a model as you can possibly get for these dicey securities."

Stein notes that while the company's platform might not be "all things to all people," the goal is to "put buyers and sellers together that in a way will provide more liquidity for the system."

"For too long bond accounts have been held captive to one means of liquidity provision," Stein said in a statement. "Our goal is to help unlock liquidity, while simultaneously protecting client information. We are convinced that an agency block liquidity model will infuse new competition and be an innovative approach into distressed debt that will resonate with our clients."

The process to get from a mainly equity-focused company to a bond trading atmosphere has been long, Stein said. The 80-person sales force had to be educated in the new market, systems had to be updated and so on.

"We didn't really want to launch the business until we could be successful," Stein said. "It was frustrating to sit here while so many things were going on."

Still, Stein said he developed a "we have to walk before we can run" philosophy and is excited about what the future holds.

"As we prove out this model, this is going to be the thrust of our business," he said of the distressed desk. Eventually, there is a possibility the firm will move into asset-backed securities, CDOs and possibly even bank debt. But for now, Stein said he is focused on making an impact in the junk bond market.

JonesTrading has been around since the time of the Great Crash. Since 1975, the company has focused on execution-only equity trading, creating liquidity for institutions on an agency basis. Based in New York, the company has branches throughout the United States.

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