Algomi, the bond market infrastructure provider, has partnered with BNY Mellon and HSBC to enable wider access to private data held by the custodians in order to improve corporate bond market liquidity.
Stu Taylor, chief executive of Algomi, told Markets Media: “There are many interesting sets of private data that will never be stored in traditional corporate bond execution platforms.”
Custody clients of BNY Mellon and HSBC can choose to receive alerts when members of Algomi’s Honeycomb network are looking to trade the bonds they own. The bond holder can then decide whether to trade through BNY Mellon or HSBC affiliated broker dealer’s trading desk.
Michelle Neal, chief executive of BNY Mellon Markets, said in a statement that US companies rely on the corporate debt market for funding more than any other major financial zone in the world. She added: “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.”
Taylor continued that the partnership could have a profound impact on corporate bond liquidity.
“Total corporate bond issuance is potentially $80 trillion while BNY Mellon and HSBC have about $25 trillion in custody,” added Taylor. “BNY Mellon has a 45% share in the US while HSBC has 30% in Asia and we are looking for other partners, especially in Europe.”
BNY Mellon and HSBC expect to roll out the initiative to clients early next year, potentially with other custodians.
Taylor added: “‘A lack of data leads to a lack of risk taking. Banks will now be able to know there are more ways to get out of a position.”
Mehmet Mazi, global head of credit trading at HSBC, said in a statement: “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.”
There is a visible trend in the emergence of information networks which aggregate dealer inventories and aim to match up potential trading interests, rather than facilitate execution, according to the International Capital Market Association's latest quarterly report.
In addition, consultancy Greenwich Associates has said that liquidity intelligence, helping to enable bilateral negotiations for illiquid bonds, is likely to be more important than the growth of electronic trading in fixed income. In a report at the beginning of this year Greenwich found that 80% of investors feel that reduced bond market liquidity is affecting their ability to implement their strategy.
“If Uber can upend the taxi business without owning any cars, it might be possible for a complete data set with the right intelligence to create a virtual balance sheet without having one of its own,” added Greenwich. “As such, putting the two solutions together should take us a long way toward a more fluid secondary market.”
In order to improve liquidity intelligence Algomi acquired AllianceBernstein’s Automated Liquidity Filtering & Analytics this year to provide an aggregated picture of bond liquidity signals across multiple electronic venues, message platforms and direct dealer inventories. AllianceBernstein had created and developed ALFA as an in-house liquidity tool to provide aggregated real-time information on liquidity and trade intent.
Taylor said: “Algomi ALFA has been delivered this month and some clients started using it about two weeks ago. Alliance Bernstein has been spreading awareness to the buyside which has been very helpful and far more effective than Algomi doing it on its own.”
To open up another pool of liquidity, Algomi formed a joint venture last year with pan-European exchange Euronext. They have launched Euronext Synapse, a new multilateral trading facility.
Euronext Synapse is an anonymous inter-dealer centralised market place for fixed income markets, which initially focuses on large trades which benefitting from a waiver under MiFID II. The new regulations coming into force in the European Union in January 2018 exempt large in scale trades from pre-and post-trade transparency requirements.
Customers can send indications of interest to their respective bank who will execute what can be internalised in their own pool of liquidity and send the remainder to Euronext Synapse. The MTF scans current and historic indications of interest, as well as trades, in order to send a signal to the best banks who will want to join an auction on the same bond.
Both Algomi ALFA and Euronext Synapse can be used in conjunction with the custodian data to increase the potential liquidity pool for a trade.
Taylor said: “There are fragmented datasets across the global custody network and prime brokerage. There is a huge potential for signposting this data across a network.”