Eaton Aims To Take Algomi To Next Stage
Scott Eaton took over as chief executive of Algomi last month and the fintech company looking to improve bond market liquidity has added two new board members and received an investment from Euroclear, the financial market infrastructure.
— Algomi (@Algomi_Ltd) June 6, 2018
Eaton told Markets Media: “I was hired to take Algomi to the next stage by moving from a start-up to a sustainable business. Previous management were excellent at idea generation and getting a company off the ground.”
He continued that his priorities include tight cost containment, growing the client base for custodian data, the firm’s exchange technology and Algomi ALFA, a tool which improves liquidity intelligence.
Last year Algomi acquired AllianceBernstein’s Automated Liquidity Filtering & Analytics 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.
“We have a unique footprint with Algomi ALFA as it was created by a buy-side firm for its own use,” said Eaton.
James Wallin, senior vice president in AllianceBernstein’s fixed income group became a non-executive director of Algomi last month.
“Algomi ALFA brings information to the fore for the executing trader and is a rich tool we can use to create a data lake for the buyside,” added Eaton.
MiFID II, the regulations which went live in the European Union this year, extended best execution requirements from equities into other asset classes, including fixed income, for the first time. However, unlike equities, there is no central order book in fixed income and the majority of bonds are illiquid, so it is difficult to measure best execution.
Eaton said: “If traders can provide compliance with a picture of the whole market at the time of execution and five minutes before and after, then this is a tool that can help demonstrate best execution.”
New CEO, new investment
On 6 June Algomi announced that Eaton was replacing Stu Taylor as chief executive. Eaton was previously chief operating officer for MarketAxess in Europe, Middle East and Africa. Before MarketAxess, Eaton was global head of emerging markets trading with UniCredit and held a variety of leadership roles in credit trading and structuring at ABN Amro, RBS, Deutsche Bank and UBS.
Eaton said: “MarketAxess built an outstanding business and I was able to get into the weeds in electronic markets, post-trade reporting with Trax and learning how to run a business.”
This week Euroclear said that its data and information business, Euroclear Information Solutions, is investing in Algomi.
— Euroclear (@EuroclearGroup) July 19, 2018
Euroclear said the investment will enable EIS to benefit from Algomi’s bond liquidity matching system by making certain bond holding information available anonymously, which will improve liquidity across the whole fixed income market.
“The investment from Euroclear validates Algomi’s strategy with support from an important market infrastructure,” added Eaton. “As part of the partnership we will develop a dataset for their custody holdings, as we have for BNY Mellon and HSBC.”
BNY Mellon and HSBC hold trillions of dollars of bonds in custody and clients can choose to receive alerts when members of Algomi’s Honeycomb network are looking to trade specific bonds. The bond holder can then decide whether to trade through BNY Mellon or HSBC affiliated broker dealer’s trading desk.
When the custody partnership was launched last year, 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.”
Euronext Synapse MTF
Euroclear added that liquidity will be improved as counterparties using Algomi ALFA can also access the Euronext Synapse Multilateral Trading Facility and trade in the securities.
Peter Golder, chief executive of Euroclear Information Solutions, said in a statement: “Our investment in Algomi is driven by client demand to access untapped liquidity pools. This venture represents an opportunity to transform our data into an asset to increase transparency and provide a substantial boost for global fixed income markets.”
Last year Algomi formed a joint venture with pan-European exchange Euronext to launch the MTF, an anonymous inter-dealer centralised market place, which focuses on large trades benefitting from a waiver under MiFID II. Customers can send indications of interest in a bond 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.
Algomi is expanding the partnership with Euronext as the exchange has received a license for a trading venue in the US and may also expand to Asia. “We could also work with exchanges in other regions,” Eaton added.
Back in 2015 Algomi was also selected as the technology partner for the development of SIX Corporate Bonds, an electronic trading platform for the Swiss Exchange.
“People are realising that technology is moving so fast that they cannot build their own solution and are looking to outsource,” added Eaton. “We have the advantage of developing technology for Euronext and SIX.”
Euroclear joins earlier investors who have funded Algomi since it was founded in 2012 – Euronext, AllianceBernstein and index provider S&P Global. Charles Mounts, global head of research & design at S&P Dow Jones Indices also became a non-executive director of Algomi last month.
We are pleased to welcome two new non-executive directors to the Algomi board: Charles Mounts , Managing Director, Global Head of Research & Design at @SPDJIndices James Wallin, Senior Vice President in @AB_insights Fixed Income group. https://t.co/JSHOJusY7j pic.twitter.com/1EMPyXVUJw
— Algomi (@Algomi_Ltd) June 7, 2018
“Passive investment will become larger and we can work with S&P on data that can be used in Algomi ALFA and index construction,” added Eaton.” Looking ahead, the logical step is to develop data for fixed income exchange-traded funds.”
MiFID II has encouraged a shift to electronic trading in European markets, including bonds. The Desk’s Trading Intentions Survey 2018 said: “Of primary interest amongst execution platforms are operators with a twist. Block-trading specialist Liquidnet, data aggregators and the interdealer-broker operated BGC Fenics both have strong pipelines for the year, with Algomi and Neptune leading the charge for data aggregators. MTS BondVision is also clearing the 10% mark for firms looking to onboard.”
The survey said that Liquidnet, Algomi and Neptune stand out amongst the new entrants in the last five years, having grown their major user base by 31%, 15% and 12% respectively.
“Data aggregators are a solid bet for longevity, if they can turn their market share into revenue,” said the survey.
Connection to China Foreign Exchange Trade System provides enhanced access to onshore bond market.
The priority should be to ensure continuity of cross-border services and avoid market fragmentation.
The order book was the largest for a sovereign green transaction.
RBC Capital Markets paid more than $800,000 to resolve charges that it engaged in unfair dealing in munis.
Electronification of the municipal bond market also presents a large opportunity.