Trending: Bond-Liquidity Aggregation

Shanny Basar

Venture capital firm Illuminate Financial Management has invested in a platform which aggregates bond liquidity after a similar partnership launched last month, highlighting the demand for navigating an increasingly fragmented and complex market.

AxeTrading, which provides fixed income trading technology, announced a €2m ($2.25m) strategic investment from Illuminate Financial Management, a venture capital firm which focuses on capital markets financial technology. Last month Algomi, the bond information network, and fund manager AllianceBernstein announced a partnership to provide an aggregated picture of bond liquidity.
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Mark Whitcroft, partner at Illuminate Financial Management, said in a statement: “With a strong and highly experienced leadership team, AxeTrading are well placed to solve key challenges for fixed income market participants today; liquidity fragmentation, regulatory compliance around MiFID II and the growing need to drive greater efficiencies across trading workflows.”

Capital restrictions have led to dealers shrinking their balance sheets, pulling back from market-making and shifting to an agency model where they match both sides of the trade before committing capital. As a result, there has been a rise in the number of electronic bond trading venues and new sources of liquidity have appeared, such as a rise in all-to-all trading, where multiple parties in a network come together – rather than the traditional model of only banks supplying liquidity to the buyside. Nearly half, 48%, of buyside bond traders expect all-to-all trading to grow according to a recent report from consultancy Greenwich Associates.

AxeTrading provides banks, broker-dealers and buyside firms with a complete picture of fixed income liquidity including axes, runs and quotes across electronic venues, messaging platforms and voice channels as well as tools which support best execution and regulatory reporting.

Last month Algomi said it will acquire and distribute 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 created and developed ALFA as an in-house liquidity tool to provide aggregated real-time information on liquidity and trade intent.

In addition Algomi ALFA provides an audit trail of execution decisions with time-stamped information and MiFID II, the regulations which come into force in the European Union from January, introduce new requirements for best execution. BlueBay Asset Management, T. Rowe Price and Brown Brothers Harriman will be among early adopters of Algomi ALFA.

Brad Bailey, Celent

Brad Bailey, research director with the Securities and Investments practice at consultancy Celent, told Markets Media last month that for most fixed income asset managers, the markets have become more challenging and there are a growing set of exciting technology tools that can help them access disparate liquidity across different parts of the fixed income markets.

Stu Taylor, chief executive of Algomi, said in an email to Markets Media that the buyside owns more 99% of all bonds and so clearly has a role to play in helping solve the well documented liquidity problems in fixed income.

“The major platforms are all innovating and providing an increasing range of protocols to allow the buyside to engage more actively in price making,” said Taylor. “However, market timing is everything. Algomi ALFA ensures buyside firms are completely plugged into trade opportunities as they arise – this benefits all platforms, and all market participants.”

In addition to the development of fixed income liquidity tools, exchanges have been acquiring bond indexes from banks to take advantage of the investors increasing flows to passive strategies.

On May 30 the London Stock Exchange Group said it was buying the The Yield Book, which provides proprietary fixed income analytics, and Citi Fixed Income Indices from Citi, including the World Government Bond Index, for $685m. The UK exchange said the deal represents a significant opportunity to enhance the data and analytics capabilities of its Information Services division and its FTSE Russell index franchise.

At the beginning of this month Intercontinental Exchange announced its acquisition of Bank of America Merrill Lynch’s global research division’s index platform of 5,000 fixed income, currency and commodity indices. This will bring the assets under management benchmarked against the combined fixed income index business of the exchange to nearly $1 trillion. The indices will become part of ICE Data Services and will be powered by the exchange’s prices and reference data.

Jeff Sprecher, chairman and chief executive of ICE, said on a panel at the FIA IDX conference in London yesterday: “Citadel was an early mover in using digital information to allow algos to price markets. Exchanges now need to provide infrastructure for data, networks and connectivity and we aim to grow relevant content.”

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