Corporate bond liquidity solutions emerging

18 January 2017 in THE BOND MARKET by Tim Binnington

Greenwich Associates interviewed 998 U.S. institutional investors and 1,132 European institutional investors active in fixed income (Between February and July 2016). Interview topics included trading and research activities and preferences, product and dealer use, service provider evaluations, market trend analysis, and investor compensation.

This research examines changes in fixed-income investor behavior as it relates to market electronification and examines the market’s remaining incumbent and new technology solutions best placed to drive change going forward.

Although years in the making, the new face of corporate bond liquidity still makes the buy side anxious. Of the more than 400 credit investors interviewed by Greenwich Associates in the U.S. and Europe in 2016, over 80% still feel that reduced market liquidity is impacting their ability to implement their investment strategy.

While new regulations have generally disincentivized large bond dealers from providing principal liquidity, institutional investors are beginning to accept the current environment as normal and are now working to find new solutions, counterparties and ways of doing business. This focus explains why the corporate bond technology market is starting to shake out, with the winners slowly floating to the top.

Trading desks

While electronic execution is a huge part of the market’s evolution, providers of liquidity intelligence, information aggregation and market data/analytics are increasingly important. Remember that as e-trading in corporate bonds is growing, over 80% of the roughly USD 6 trillion traded annually in the U.S. market is still matched and executed over the phone or via instant messenger. With trading desks on both the buy and sell side now smaller, technology to help the high-touch business is needed as well.

Algomi is a notable player in what Greenwich Associates call the liquidity intelligence space. Algomi has stuck to its strength - crunching the data provided to its buy- and sell-side customers to help the former choose the right broker to call and the latter to create a smarter sales force that can provide clients with new ideas.

Technology ecosystem

Other platforms offer similar liquidity intelligence, but Algomi’s platform is currently the only one that provides distinct yet interconnected offerings that benefit both the sell side and buy side. The ultimate goal is to take buy-side best execution from art to science.

The secret sauce for liquidity intelligence is in allowing the buy side to gain access to data on what the sell side is doing. To alleviate sell-side concerns, Algomi has created “safe zones” to ensure only the right people see the right data. Assuming all goes to plan, this approach provides the buy side with unique insight and creates what Algomi refers to as “virtual balance sheet.” Taking this idea one step further, partnerships with Euronext and SIX now allow dealers to interact with one another in a similar manner.

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