Traders Seeking Bond Liquidity
Fintech firm benefits from market interest in information and has just allied with Euronext to broaden its network effect.
by Frédérique Garrouste, Editor of L'Agefi, 1st December 2016
Algomi's enriched information service is definitely attractive to bond market participants. When faced with and interest to trade, the possibilities offered by the storage of data interest all participants in the search of liquidity. Founded four years ago and with 16 investment banks and 200 asset managers among its clients, the FinTech firm continues to weave its network. It has just signed an agreement with Euronext to create an MTF (multilateral trading facility) where large orders will be processed on illiquid securities.
In banks, Algomi gathers all the bond data scattered around various systems, making them available to traders and multiplying their trading opportunities. Since last year, the system has been enriched with data on buy-side bonds businesses. "Our model is based on the provision of information from historical transactions," says Stu Taylor, founder and head of Algomi. They are placed in real time at the disposal of the traders. The solution presents traders with relevant information, driven by an algorithm. Finally, the transaction takes place over the telephone, negotiated by mutual agreement keeping all its place. "While on average 8% of the orders sent to banks can be processed on the basis of the bonds held in their books, with Algomi, 49% of the orders give rise to a positive response, the banks' balance sheets being virtually multiplied By 10 or 12, "says Stu Taylor.
For the buy-side, the tool facilitates the choice of an execution strategy. "With Honeycomb (Algomi's buy side product), we have access to a lot internal information from investment banks, about their past bond business," says Christophe Marcilloux, deputy head fixed income at Amundi . “The tool allows us to have a precise idea of the actual presence of a BFI on a bond, via a graphic representation. The interface is very well designed, with an intuitive and effective use."
Providing banks with a view of their clients' positions, the tool will help remedy the fragmentation and opacity of the market by maximizing the effect of the network. "Algomi should continue to increase the number of connected banks to bring the depth of information to its members, its innovative technology and the approach of the team, and a make-up of market makers, will contribute," anticipates Philippe Rakotovao, Of Global Markets Sales Division at Crédit Agricole CIB, one of the first clients. There is also a shared expectation on the buy-side side. "The number of users on Algomi has evolved and has grown satisfactorily, even if we wish for the participation of an even greater number of large CIBs to give us an even broader pre-trade vision", Says Christophe Marcilloux.
The partnership with Euronext, focusing on illiquid bonds and trading of large blocks, is expected to take a step in this direction. "With the creation of an MTF, we will connect all the banks that use Algomi, and then develop our membership base. Counterparty research by banks will be carried out among clients of other banks and will be facilitated by alerts to potential counterparties managed by Algomi and the network effect will result," said Anthony Attia, Chairman and CEO of Euronext Paris.
Certainly, some stakeholders believe that the issue of liquidity goes beyond information, with interests being largely in the same direction. "All executives work to understand their customers' intentions in sell-side or buy-side, with proprietary models or various tools developed by vendors," notes Olivier Gazzolo, Head of Global Trading Credit, At Société Générale CIB. “But price adjustment (bid - ask ranges) is an equally important variable that facilitates secondary liquidity and market efficiency."
Specifically, the association between Algomi and Euronext proposes to give the banks a place for the execution of transactions. "Some platforms that exist focus on buy-side orders, but in practice, actors do not pass the price and execution stage, hence their relative failure," says Nathalie Masset, director of bond markets at Euronext. On our MTF, we leave banks in there as intermediaries, so that they offer their clients the indispensable added value on counterpart search and execution. "
To read the full article in French visit L'Agefi.