How can investors trade effectively in an inefficient corporate bond market?

Algomi’s Jesper Bruun-Olsen says 70% of bond trades are still completed by voice.

Local and global bond markets are huge, but are extremely inefficient. This is an observation made by Algomi’s head of APAC Jesper Bruun-Olsen who also characterised the market as ‘illiquid.’ He noted that 70% of trades, by value, are still conducted by voice rather than electronic platforms.

To help unlock the potential of corporate bond market, fin-tech firm Algomi wants to address the inefficiency in two ways. First is to allow the buy-side to see private data from their dealers on a privileged basis that enables them to make the right trading decisions and select the best trading partner. Secondly, for the sell-side, Algomi helps them generate efficient collaboration between traders, salespeople and their clients.

Singapore Business Review sat with Bruun Olsen to delve deeper into how Algomi’s technology empowers both sides of the market.

SBR: Tell us about Algomi – what exactly do you do?

Algomi creates a bond information network that enables all market participants to securely and intelligently harness data to make valuable financial trading connections.

Our technology empowers fixed income professionals to fulfil their precise needs, for both sides of the market. It works by maximising the relationships between salespeople, traders and investors over a suite of scalable software called the Algomi Honeycomb. This greatly increases the opportunities and velocity in larger and less liquid corporate bond trades between banks, institutional investors and exchanges.

SBR: Can you tell us about some of the challenges your clients face? How do you help them overcome these?

Local and global bond markets are vast, and are hugely inefficient. Bonds are significantly more complex and diverse than equities. This opaque and fragmented market has limited information to help guide trading decisions.

The changes since 2008 in regulations, reduced risk appetite and rising resource costs has seen the bond market become significantly less liquid. However the issuance of debt has surged, thanks to years of low interest rates. This has resulted in the buy side becoming massive holders of bonds whilst the banks who could previously warehouse debt on their balance sheets are no longer able to do so due to regulation.


SBR: How do your products and services differ from others in the market?

As banks shift from risk to hybrid risk/agency models in fixed income, the need to manage huge volumes of sensitive information has become paramount. Salespeople at banks are exposed to overwhelming 10,000+ information updates every day. The inability to put the right people on the right trade opportunities has a large revenue opportunity cost. Algomi Synchronicity, our sell-side product, is the only product that sits within the bank to help them manage and interrogate this data.

Our Honeycomb Network introduces a new dimension of data – namely unique insight into bank distribution capability. Laser targeted not broadcast and timed to perfection. Installed within each bank - inside compliant trading processing systems. This verified data can be trusted as accurate. No other solution out thee takes this approach.

SBR: What do you consider your biggest milestones so far? Please tell us a bit about your success story.

Our growth story has been phenomenal and this is largely down to the uniqueness of the product, the vision of our founders and support from our investors. Algomi is a multi-award winning business that is recognised as a credible and viable solution in multiple regions. We’ve had a swift and successful global expansion, and for a business that was only formed in 2012 we now have offices in the Europe, US and Asia.

The network we’ve built is probably the most significant milestone – today 19 banks and over 250 asset management firms using our technology. We’ve also recently collaborated with key financial services businesses in order to fully enhance our product. This included Euronext taking a stake in the business, and Alliance Bernstein who selected Algomi to become the sole marketer of its ALFA product.

We’ve also considered new ways for us to deploy our technology, developing the technology as a cloud-based solution to allow banks to more readily adopt our sell-side offering, and also partnering with OpenFin to drive greater interoperability with users’ existing technology.

SBR: What are your plans for the next 3-5 years?

Our focus will be on continuing to work with clients locally in Asia and globally who are seeking to create efficiencies in the way they trade corporate bonds.

Banks in Europe and the US were impacted more quickly by balance-sheet regulations under Basel III and CRD IV and as a result adoption of Algomi’s solutions has been faster. In Asia, banks are now coming under similar pressures and we’re on-hand to help them create a solution to this challenge.

We’ll continue to work with global and local sell-side and buy-side firms who are looking to address these challenges, bringing new and innovative products to market and driving more liquidity and velocity into global bond markets. This will include rolling out our ALFA product as a major opportunity for the buy side, and continuing to expand our Honeycomb Network in the region, adding new territories and local market data.