it's not entirely true, since HFT firms trade on them directly without going through a bank. The issue is there is no liquidity on these platforms for bonds other than on the run treasuries because banks don't want to provide it. Without banks providing it, there will be nothing for pension funds to trade.
here is from their website
"BrokerTec facilitates both API and manual trading for institutions, banks and non-bank professional trading organisations"
HFT firms can only access on-the-run trading currently. That doesn't mean the bank is responsible for all the liquidity in off-the-runs. It's just highly inefficient that intermediation has to occur via the swapbox, which isn't accessible to electronic market makers. There are plenty of relative value hedge funds that would take the other side of buy-side flows, if they had access to a market where they could show their trading intentions anonymously.
If Direct Match has enough success, what would stop ICAP/BrokerTec/eSpeed from allowing HFT firms to trade off-the-money and snatching back up the market?
Yes, you are correct. ICAP formerly BrokerTec allows large non-bank professionals to trade on their platform. However, what about the smaller entities or retail traders? The only option available to the small guy is either invest via mutual fund or buy ETF like TLT.
here is from their website
"BrokerTec facilitates both API and manual trading for institutions, banks and non-bank professional trading organisations"