DLJdirect Steps It Up in Online Bond-Trading Business

The company's launch of its new Fixed Income Center makes it a force to be reckoned with in online bond trading.
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Another online broker is moving into the big, bad and youthful world of online bond trading.



new Fixed Income Center, launched on Veterans Day, is using a system that retail bond investors may already know. It's a product put together by San Francisco-based

Bond Exchange

-- the same product



has been using for months.

But that doesn't make it a bad choice. This isn't some kind of fake online system that updates its info once a day and requires investors to make phone calls to complete, or initiate, a trade. Though it appears to an individual that the information all comes from one source, that source (Bond Exchange) is compiling offerings from a growing network of dealers. In the case of Treasuries, users see both the bid and offered sides of the market, so investors know they're not getting fleeced.

Plus, DLJdirect has a few tricks up its sleeve. It has negotiated partnerships with brokers not already in Bond Exchange's inventory to make additional bonds available and it's got plans to add financial planning tools that Bond Exchange doesn't provide.

A quick, unscientific search of E*Trade's system turns up just over 6,000 bonds, including 3,000 municipal bonds. The same search on DLJdirect turns up more than 7,000, including 4,200 municipal bonds.

"There's a strong benefit to us to get as many players in there as you can," says Bob Flowers, director of select client services at DLJdirect. "I think we'll always have more

than Bond Exchange; we're much more muni-driven, which is where the high-end demand is."

This mix-and-match approach could end up being a popular one as demand for online systems grows. The

Bond Market Association

estimated that in 1999, about 6% of all bond trading was through an electronic system, compared with 3% the previous year. (That includes institutional trading, which dominates the bond markets, so individual trading is a very small slice of the market.)

From a technological standpoint, online bond trading should be a snap. But the bond market is a highly fragmented, opaque universe, operating without a central trading floor or the price transparency that exists in the equity market. Individual investors are more likely to get competitive pricing when more dealers are involved, which is why DLJdirect is adding to Bond Exchange's inventory.

Bond Exchange's system is still behind

Morgan Stanley Dean Witter


in terms of transparency -- Morgan Stanley gives you both sides of the market for munis and Treasuries. Bond Exchange currently provides both sides of the market only for Treasuries, although Flowers said DLJdirect's goal is to ultimately give bid and ask prices for all securities.

Bond Exchange is certainly putting its stamp on a significant share of the online brokers. In terms of average daily trades, E*Trade ranks second while DLJdirect ranks eighth, according to a third-quarter report by

Hambrecht & Quist


One difference between DLJdirect and E*Trade are commissions. DLJdirect charges $1 per Treasury bond, bill or note transacted, with a $45 minimum. For corporates, munis and agency bonds, the commission is $3 per bond up to 50 bonds, plus $2 per each bond thereafter -- also with a $45 minimum.

With E*Trade, you're better off buying more: There's a $40 transaction fee for Treasury bills, bonds, notes and STRIPs up to 20 bonds, and no fee for more than 20. It's also $40 for less than 10 muni, corporate or agency bonds, and again, no fee for more than 10.

E*Trade charges $25 for Treasury auctions and DLJdirect will run you $45. But if you're intending to hold bonds to maturity, you can save the fee by buying Treasuries at auction for no commission from the



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