05.30.2014
By Terry Flanagan

Algomi to Add Buy-Side Firms

Algomi, which builds internal social networks for banks to become more effective fixed income brokers, is adding buy-side firms this year.

Stu Taylor, chief executive of Algomi, described the firm as a smart network.

Taylor told Markets Media: “We are backed by the same venture capital firm as Spotify and Facebook. They are not into financial technology but understand the power of networks and we benefit from that perspective.”

He illustrated the difference between a social network and a smart network as Facebook sending a recommendation to all of your friends after you visit a restaurant compared to sending a recommendation to just the two friends who have eaten there before or only the friends who like that type of cuisine.

“Algomi helps banks become very effective brokers for less liquid bonds,” added Taylor. “Our software helps collaboration across the sales team and find out that someone spoke about a certain bond three months or three days ago. Banks can form a virtual balance sheet by replacing risk capital with information.”

New regulations have forced banks to hold more capital leading to firms reducing their bond inventories and only making markets in the most liquid debt issues, a small share of the market. As a result more than 40 competing electronic fixed income trading venues have been set up but Taylor believes most will be unsuccessful.

“By ticket count 70% are executed electronically in Europe but 75% of dollar value is still executed by voice, he said. “Most electronic platforms will not be relevant as they have not made inroads into less liquid bonds. Our platform allows voice trades to be done better.”

Algomi has been installed in nine banks and pulls together information that has been validated by their own internal systems. Later this year Algomi will open its network to fund managers.

“Our beta program will allow buyside firms to choose the broker with the best distribution network where electronic trading does not work,” said Taylor. “Buyside firms get to deal in size and remain discrete in the market while banks get to use their large distribution networks.”

Taylor declined to identify the asset managers who have signed for the launch but said their presence has led to more interest from banks in installing Algomi’s network. The firm moved into a new London office three weeks ago and is already looking for new space after growing to 75 people from just three founders two years ago.

In January this year Algomi opened an office in New York and Taylor said Algomi is holding exploratory talks in Hong Kong to open an Asian office.

In April Hugh Willis, co-founder of BlueBay Asset Management, one of the largest fixed income credit managers in Europe, joined Algomi as an advisor.

“Hugh Willis will help guide and advise us in making the market more efficient and getting the velocity of bond trading back,” added Taylor. “If banks know they can get in and out of a trade they are more likely to put risk to work.”

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