Algomi ALFA to Enhance Market Liquidity
From Waters Technology by John Brazier, 31 May 2017
Access to fixed-income liquidity information is a pressing concern for buy-side traders, exacerbated by the number of electronic trading venues now operating in the market.
The ALFA solution aims to increase access to liquidity information for buy-side fixed-income traders and by utilizing the technology resources of Algomi, Alliance Bernstein will benefit as an early adopter of the solution and work toward developing the solution into an execution management system (EMS).
Fixed-income technology provider Aglomi is set to acquire and distribute the Alliance Bernstein-developed Automated Liquidity Filtering and Analytics (ALFA) solution to aggregate bond market liquidity venues into a single source. John Brazier speaks to both firms to find out how the fixed-income market as a whole is set to benefit from the partnership.
The electronification of fixed-income trading has seen a plethora of venues come to the market over the last few years, fragmenting bond liquidity further and increasing the importance of accessing critical information for traders.
In response, US-based asset manager Alliance Bernstein developed the ALFA solution to aggregate the market landscape onto a single screen and provide its bond traders with signals to where and when liquidity events occur across a number of electronic trading venues.
“When we saw this developing we had two choices: We could either hire a bunch of traders that would have to watch and maintain all of the different potential opportunities in the market, or, we could invest in technology,” says Tim Morbelli, vice president of credit trading at Alliance Bernstein, who was heavily involved in the development of the ALFA product.
Now the firm is sending the solution out to the rest of the market through a new partnership with UK-based fixed-income technology vendor Algomi, which will acquire and distribute the solution. Alliance Bernstein has also taken a minority stake in the vendor and plans to work in collaboration with Algomi to develop ALFA beyond its current capabilities.
“Ultimately, we plan on taking ALFA to where it becomes an EMS, where it is not only consuming data but pushing out information as well,” Morbelli explains. “Whether it be responding to an inquiry or pushing out levels on alternate trading systems, we don't have the tech capability to build it that way, so we decided to partner with Algomi.”
In addition to utilizing the technology development resources that Algomi offers, Morbelli says a solution such as ALFA provides benefit to the entire bond market, which was part of the reason why it decided against holding on to it.
“A solution like ALFA is relevant for the marketplace,” he says. “We felt that ultimately a product like this would be built, so why not be a thought leader and help build out the marketplace?”
The firm, alongside T. Rowe Price, BlueBay Asset Management and Brown Brothers Harriman, will be an early adopter of the ALFA solution under Algomi’s stewardship. The solution also furthers the trend of buy-side firms positioning themselves as price markets in the bond market as dealer balance sheets have shrunk in size.
“The buy side generally doesn't have the toolkit required to do this sort of opportunistic price-making effectively,” says Stu Taylor, CEO of Agomi. “Alliance Bernstein had a very mature way of thinking about this by putting this product out into the market, because the whole market will function better as a result.”
Alliance Bernstein began development of ALFA in March 2015, running through a number of live-beta test iterations across multiple sprints, before rolling it out across its bond trading desks in October that year. Morbelli says the firm identified a “bifurcation of opportunities” and designed the solution to bring those liquidity events into a central location that provides a single review of the market.
ALFA is currently connected to seven of the most prominent electronic bond trading platforms, with an eighth waiting to be confirmed, pulling in and updating information in real time on an agnostic basis, as well as historical information, analyst commentary, historic trades, and a Trace chart.
“The unique thing about ALFA is the range of electronic trading platforms that they have integrated,” says Taylor. “There is no other tool that can aggregate all the dominant platforms in the fixed-income market. I think it took a major buy-side firm to get that done.”
For Algomi, the acquisition of the ALFA product is an ideal way to increase its presence in the fixed-income market, particularly when it comes to electronic bond trading, as the firm has historically specialized in solutions for voice-based trading through its Honeycomb network for the buy side and information-matching platform Synchronicity for the sell side.
The deal will also further propel Algomi into the US bond market, according to Taylor, who says an acquisition of this kind was within the company’s roadmap, although probably further down the line.
The partnership with Alliance Bernstein follows on from last November’s announcement that Algomi would be working alongside exchange operator Euronext to develop a new pan-European bond multilateral trading facility. Similarly to the Alliance Bernstein deal, Euronext has taken a minority share in Algomi and will continue to work partnership in the future.
“As a relatively new entrant into the market it shows that Algomi can be nimble and has the resources to respond to opportunities like this now and get transactions done with major market participants,” says Taylor. “Now we are in the situation where there are two major industry players getting involved with the company. It helps Algomi to present an option to the market that is backed by major players and that we are going to be a part of things for a long time to come.
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