Celestino Amore, md and founder of IlliquidX, answers SCI's questions

Q: How and when did IlliquidX become involved in the structured credit market?
A: IlliquidX is a financial services boutique providing innovative solutions to professional investors that include institutional, corporate and high net worth clients. We enable our clients to effectively price and trade illiquid securities, such as high yield and distressed debt, bankruptcy claims, NPLs, MBS, CLOs, CDOs and CSOs. Our extensive network of contacts and our approach to, and expertise in, trading, settlement and financial restructuring, ensure we can add significant value in resolving liquidity and execution issues within illiquid markets.

We identified a gap in the market to service institutions, corporates and family offices holding illiquid assets and securities. Specifically, from our own histories in the market, we realised there was an opportunity to deliver solutions that would help improve transparency, pricing and access to liquidity. For example, we noted that, in the general downsizing by financial institutions, sales desks in the credit area were becoming understaffed counter to the increasing need to better manage the risks of distressed assets.

Galina Alabatchka (co-founder and md of IlliquidX) and I thrashed out our ideas around using an electronic platform to help deliver transparency and build liquidity, then started operations early in 2009. We assembled a team of product specialists and quickly gained enough experience and critical mass to become a leader in pricing, trading and restructuring the most illiquid and complex fixed income securities and portfolios.

We have grown rapidly from our inception and now boast a client community of over 600. We have recently moved our office to larger premises to further enable our expansion. We have also made some recent key hires to aid our growth: Nagi Kamar joins us from Calyon to advise and execute on synthetic structured credit products such as CSOs; while Nasir Zubairi leverages his experience from RBS and ICAP electronic broking to take the lead on business development, focusing on marketing, alliances and enhancing our service offering.

Q: Which market constituent is your main client base?
A: The spectrum of our clients is very broad: any firm that may be holding an illiquid asset or portfolio of illiquid assets. This could be a corporate creditor to a bankrupt institution, Lehman Brothers being a classic example; money managers holding ABS in their portfolios; professional traders in the credit markets looking for improved market access to buy and sell their positions; pension funds; hedge funds; investment funds; family offices; and high net-worth individuals.

We offer a solid and clear value proposition to both buyers and sellers, so interest in our services has been very strong. Our current geographical focus is Europe, but we are beginning to look at the Middle East and Asia as an area for expansion.

Q: Do you focus on a broad range of asset classes or only one?
A: Right now, we service clients with solutions for four broad asset groups: stressed and/or defaulted debt; high yield debt; illiquid structured products (including MBS, CDOs, CLOs and CSOs); and illiquid equities and equity derivatives.

Q: How do you differentiate yourself from your competitors?
A: We offer a unique combination of services to deliver a total package for consumers who need help in managing their distressed debt and illiquid assets. Our sales and trading team has considerable experience in the securities and assets we cover, gained from within the most prestigious financial institutions around the world. Our incentive model ensures that our people are dedicated to their clients and are looking to add value.

The front office assists in providing valuations and appraisals for structured products, both cash and synthetic, such as ABS, CDOs and CLOs, as well as asset portfolios. Moving down the value chain, we leverage our expertise to provide advisory services in financial restructuring and workouts for corporate debt capital structure and NPL portfolios.

A key differentiator for us is the way we generate liquidity. Our proprietary web-based platform provides our clients with easy access to information on the plethora of securities and assets we have an interest in, which is supplemented by the hard work carried out by our sales people offline. Our team has an in-depth knowledge of our international clients' trading needs, so know who to contact and when.

Finally, we place considerable importance on our company values. Our values help generate the enthusiasm, the collaboration and the motivation to deliver excellent service that forms the basis of our corporate culture. It is our values and dedication to service excellence that have enabled us to build the strong trusting relationships that are fundamental to our business.

Q: Which challenges/opportunities does the current environment bring to your business and how do you intend to manage them?
A: The current market environment - with constant contradictions on economic recovery, critical emphasis and action on banks' operations and credit markets (in particular, the expected lag in bankruptcies and credit actions on businesses and individuals resulting from the harsh environment of the past two years), among other things - all lead to a lot of volatility in the market we are operating in. Volatility in most markets is generally a good thing for traders seeking alpha, but the extent of the volatility benefits in our market are counterbalanced by the complexity of the assets and the degree of illiquidity - prices become hard to determine and there is more uncertainty around the correct timing to trade a position.

In these circumstances, our team has been working diligently to help our clients regain the confidence to trade by ensuring they have as much useful information as possible in their decision-making process. The illiquidity spots followed by liquidity rushes we are witnessing mean we need to move quickly and adapt to different circumstances. Our platform is an efficient way to manage and communicate these ebbs and flows in the market.

Q: What major developments do you need/expect from the market in the future?
A: There are still billions of dollars of assets that will need to be disposed of by banks; institutions are still holding large pools of illiquid structured credit products, and we believe that there is still a bubble in bankruptcies and credit downgrades waiting to happen as firms finally succumb to cashflow issues. This is where the market needs IlliquidX.

By providing an independent, transparent and regulated service for the pricing and trading of distressed and illiquid debt and structured products, we deliver the efficiency and create the environment for best execution that clients desperately need. By working with IlliquidX, market participants also have access to a wide range of opportunities for investment.

Our goal is for an efficient and profitable market to exist for the trading of distressed debt and structured products. We believe this is in the interest of all and that IlliquidX can play a key role in achieving the objective.

We think the continuity of an OTC market in these products and its self-regulation by participants is a market objective. We feel that our services and the transparency they provide can help to ensure that the market structure and its operation align with the wants of its users. IlliquidX is agile enough in its strategy to ensure we can adapt to any developments in market dynamics that may occur in the future and continue to deliver to the needs of our clients.