Algomi, the bond information network, and fund manager AllianceBernstein have partnered to provide an aggregated picture of bond liquidity, which the buyside needs to trade efficiently in an increasingly fragmented and complex market.

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.

Algomi said yesterday 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.

John Orrock, senior trader and trade operations lead of BlueBay Asset Management said in a statement: “What is interesting about Algomi ALFA is its ability to aggregate price information across the breadth of the market, including new sources of liquidity drawn from message platforms, e-venues and bank inventories. Such features can increase the likelihood of a successful trade and we think this has the potential to be a ‘game changer’ for price discovery in bond markets.”

BlueBay Asset Management, T. Rowe Price and Brown Brothers Harriman will be among early adopters of Algomi ALFA.

Brad Bailey, research director with the Securities and Investments practice at consultancy Celent, told Markets Media 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.

“ALFA has proven that there is demand for aggregation of pricing information across the spectrum of fixed income products,” added Bailey. “Given where Algomi sits in the market it makes perfect sense for them to take it to the next level, given their expanding network.”

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.”

James Wallin, senior vice president at AllianceBernstein, said at a conference in London in February that the fund manager was making progress on developing data aggregation and risk tools to make the fund manager less dependent on dealers in the bond market. Wallin said at the time: “Banks’ market-making ability has changed so we are looking to data aggregation and sorting to source liquidity. This would have happened 10 or 20 years ago if big banks had not got into the market in the 1990s and given the buyside the luxury of relying on big pools of liquidity.”

AllianceBernstein said in a statement it selected Algomi in a competitive search process to acquire and become the sole marketer of the product to other fund managers. Algomi ALFA will help buyside traders determine whether and when to buy or sell a security and the best method of execution. This will cut the required time to fund a new trading mandate from weeks to days, and allowing more rapid repositioning of portfolios.

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.

Taylor said: “Best execution requires documented knowledge of what is happening in the market at any point in time. Having time-stamped events provides clear evidence for traders and compliance officers of the market environment at the time of trade.”

Kevin McPartland, head of research for the market structure and technology practice at Greenwich Associates, told Markets Media that Algomi ALFA could give the buyside a measure of expected execution based on price and also an audit trail evidencing their choice of execution method. However, he also noted that it is not easy to get buyside traders to use new technology.

McPartland said: “The buyside have order and execution management systems in place that are integral to their workflows. Making a change is not a non-trivial event.”

To protect individual client data integrity and ownership, ALFA clients will procure and own their own hardware to use with an approved cloud provider. Algomi will then install and deploy the ALFA software and have no access to the data.

In addition, the Greenwich report said that incumbent trading venues see little benefit to their liquidity being aggregated, as doing so would put them in more direct competition with other liquidity on a single screen.

“While all are confident that their liquidity is deep and spreads are tight, encouraging quick access to quotes elsewhere isn’t in their best interest,” said the report. “Trading in equity markets is done largely via venue aggregation technology today, but that only came about following the implementation of Reg NMS, which essentially required the change. Nothing similar is expected in corporate bonds in the foreseeable future.”

Taylor said: “For this to work correctly it is crucial that platform rules and platform data access are respected – this is why clients procure their own hardware via an approved cloud and ask all venues they engage with to connect. A number of the venues are currently connected to ALFA. We are in discussions on the services to be offered.”

Taylor continued that Algomi already has more than 250 contract buyside firms, but Algomi ALFA broadens the toolkit the firm can provide for fund managers.

Sandler O’Neill & Partners and JAG Shaw Baker advised Algomi on the ALFA transaction.