ING Setting Up Fintech Spin-Off for Bond Discovery Tool

ING is in the process of spinning out a financial technology arm that will commercially produce its bond discovery platform for asset managers, a year after ending a phase where the bank was testing it out internally.

The platform, called Katana, was first produced for use within the bank and launched in 2017.

Katana scans the European and UK bond market for possible pairs that have out-of-the-ordinary spreads or behave abnormally. It aims to help bond traders and asset managers find investment opportunities they otherwise could have missed out on.

Katana is funded by ING Ventures, ING’s fintech start-up fund, and will be completely separate from the bank. The platform Katana will be its first product.

Santiago Braje, global head of credit trading at ING and the founder of Katana, says the platform makes trading pairs of bonds more efficient.

“This is something that we developed as a trade idea discovery tool for portfolio managers to scan the market and detect anomalies in the relative value of bonds. It uses advanced analytics to scan all the possible combinations of bonds and determine a subset that shows abnormal behavior, where spread levels are out of the bounds that you would expect,” Braje says.

“That alerts investors of possible opportunities and the impact is that investors find opportunities faster to start with and also find and execute trades that they would otherwise miss. It’s impossible for the human mind to really go through all of those possibilities fast enough, to detect what actually requires attention or what seems like an interesting opportunity.”

Braje adds that in a pool of even just 2,000 bonds, there can be almost two million potential pairs, and a machine-led platform finds these opportunities much faster than a human can.

The platform uses data analytics and machine learning to find abnormal bonds and learn if these patterns could be an investment opportunity that an asset manager might be interested in. It looks at the historical prices of the bond and compares it to others in the portfolio. Once it’s identified potential investments, the trader gets an alert and it’s up to them to decide to pursue that trade.

Katana was first developed for ING’s own traders, but was expanded last year when Dutch pension fund PGGM began to use it. ING used feedback from that project to inform the development of Katana for other asset managers. The platform needed to figure out how investors make connections between bond pairings; for example, what makes pairings compelling.

Once the spin-off is stable, Braje says, Katana will be brought to the US market.

“At the moment we are working with European corporate bonds and emerging markets credit, including corporate and sovereign,” Braje says. “We have a team doing European government bonds on it, but the main markets are the credit markets in Europe and emerging markets. We do plan to go to the US but first, we need to spin out and launch the company; that’s the more immediate plan.”