Brokerages, online commingled inventory systems

All of the major online brokerage firms sell bonds through commingled inventory systems. The systems are provided with inventory from dozens of participating dealers, who have found that the number of different types of bonds that they can offer their customers has been enhanced and expanded. 

If you end up buying junk bonds online and lose your shirt, you can bet there will be more than just a complaint e-mail sent to the firm. There are serious liability issues here, and to protect themselves, online brokerages have refrained from offering all of their possible fixed-income inventory that can be provided by their trading desks and commingled inventory systems. 

While the case for commingled inventory systems seems to serve every bond market participant s best interests, not all of the major online brokerages offer these systems. Merrill Lynch Direct and Morgan Stanley, most notably, have shied away from offering a commingled system of bonds to their online retail brokerage customers and instead only offer bonds from their own in-house inventories—which are quite substantial. 

The executable inventory system is absolutely the trend in online retail brokerage. As technologies improve and online brokerages have been able to prove to dealers that individual investors are buying bonds online, more dealers are feeling increasingly comfortable commingling their inventories for display and sale to retail investors. 

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