BNY Mellon and HSBC team up with Algomi

17 October 2017 in COMPANY NEWS by Tim Binnington

BNY Mellon and HSBC are each partnering with Algomi to expand corporate bond trading opportunities for their custody clients and the wider market. The collaboration is expected to bolster fixed income market liquidity by giving clients the ability to make select holdings information available anonymously on the Algomi Honeycomb network of market participants.

The initiative will increase trading in the illiquid corporate bond market, which has seen turnover shrink while outstanding debt has risen by 75% in the last decade¹. In a recent FCA study, a leading fixed-income trading house reported that the number of corporate bond trades resulting from orders and request for quotes has declined from around 65% before the financial crisis to 20-25% in 2017.²

To address this growing liquidity challenge, custody clients of BNY Mellon and HSBC will have the opportunity to make their bond holdings in custody available on a non-disclosed basis through a system powered by Algomi’s Honeycomb network, and delivered through Algomi ALFA. Counterparties on the network will be able to query those bond holdings, which will alert the custody holder, and give them the ability to instruct their dealer to trade on their behalf while protecting the client’s identity. This can be done directly through BNY Mellon or HSBC affiliated broker dealer’s trading desk.

Enhancing liquidity in the multi-trillion dollar pool of custodial corporate credit holdings has the potential to significantly increase the number of possible trade matches, and therefore executed transactions. BNY Mellon and HSBC expect to roll out the initiative to clients early next year, potentially with other custodians.

“US companies rely on the corporate debt market for funding more than any other major financial zone in the world. By enabling the market to access potential trade matches with our custodial clients, we can play a significant role in not only increasing our clients’ access to liquidity, but in improving the infrastructure of the entire market,” said Michelle Neal, CEO of BNY Mellon Markets.

 “This initiative demonstrates BNY Mellon’s continued long-term commitment to developing innovative tools that help our clients achieve their investment goals,” says Samir Pandiri, CEO of Asset Servicing at BNY Mellon. “This collaboration with Algomi is poised to replenish needed liquidity in the corporate credit markets.”

Niall Cameron, Global Head of Corporate & Institutional Digital at HSBC, comments: “The global reach of our markets and custodian businesses, and the presence of both in Asia, MENA and Europe offer specific benefits to our clients. By collaborating with a cutting edge fintech firm, in parallel with a leading US custodian business, we can use digital innovation to create a multi-trillion dollar bond pool that spans the globe.”

Cian Burke, Global Head of HSBC Securities Services, said: “By aggregating data in this way, we will create exciting new trading prospects for participating investment manager and asset owner clients. The initiative will deliver them opportunities to transact simply but securely, helping them be more flexible and proactive, and drive higher turnover velocity in their bond portfolios.”

Mehmet Mazi, Global Head of Credit Trading at HSBC, said: “This initiative is a great example of using data mining and connectivity to open up new pools of fixed income assets. Coupled with our automated trading technologies, this application could provide significant liquidity to our client base. Connecting buy-side and sell-side in this manner benefits both, and is sign of how fixed income markets continue to transform in the digital age.”

Stu Taylor, CEO, Algomi comments: “The ability for dealers to tap the databases of large global custodians on behalf of their buy-side clients, to find a buyer or seller for a specific bond in real-time without compromising data privacy is a breakthrough development for fixed income markets. Working with two of the largest custodian banks will open up new avenues for price discovery and alert market participants to relevant signal data that indicates market activity, price and depth.”

Mark Ledwards, Head of Sell Side Division, Algomi said: “Custodian data is often perceived to be the ‘holy grail’ of inventory in bond markets, yet the need for data privacy has rightly prevented this resource from being used to its full potential. A permission led approach that gives custody members the power to only reveal their data if they wish to interact with trade enquiries from the market, provides a mutually beneficial model that enhances liquidity across the ecosystem”.


¹Source: Securities Industry and Financial Markets Association
²Source: Financial Conduct Authority: New evidence on liquidity in UK corporate bond markets, 02.28.17

ILLUSTRATION OF THE 'CLOSED PROTOCOL' PROCESSS

Custodian closed protocol

An asset manager has entered an indication of interest in Honeycomb and will be shown high-level meta-data on the holdings within the custodian’s database.  This may indicate number of known holders, average size of holdings or other non-sensitive information. 

The moment asset manager A clicks on the custodian holding data:

  • A Honeycomb signal is generated and routed to the custodian’s database and is used to interrogate the custodian repository, to see if a holding exists at another asset manager. This interrogation uses signals which preserve the anonymity and privacy of the data at all times. 
  • If a holding does exist at asset manager B, then a further signal will invite any opted-in beneficial owner to indicate an interest to sell or buy through the custodian’s capital markets desk. This invitation will appear as an alert in asset manager B’s Honeycomb.
  • A Honeycomb reveal is generated and routed to the dealer Synchronicity user.

At this point, the custodian’s capital markets desk has a live buyer and a seller match in their trading instance which they can trade on.

The asset manager can use Honeycomb directly or access it as one of their feeds in Algomi ALFA.