Soon after Algomi was founded in 2012, it quickly became a darling of the burgeoning fintech scene in London. Its Honeycomb platform aimed to spur liquidity in the illiquid bond market by organizing information within the bank—for the bank—and then allowing the institution to act as an anonymous database for the buy side. But new regulations—and, specifically, the revised Markets in Financial Instruments Directive (Mifid II)—have forced the vendor to shift its roadmap.

This change really started in May 2017 when it acquired the Alfa platform from AllianceBernstein. The coming 15 months, though, will see Algomi focus on shifting its business offering toward Alfa and away from Honeycomb. While the pipes of the Honeycomb network will still exist, Algomi is working toward building Alfa on top of that infrastructure, says Usman Khan, co-founder and chief technology officer of Algomi.

“The Honeycomb concept was good from a perspective of [providing] soft information to clients,” he says. “From Algomi’s perspective, we still have the infrastructure. So being able to distribute Alfa through that infrastructure is definitely an objective of ours. The Honeycomb screen…will get replaced by the Alfa screen. At some point next year, [users] will refresh their browser or refresh whatever they have and all of a sudden Alfa will appear.”

A New Year

After the acquisition, Algomi’s team first had to make it cloud friendly. Alfa sat inside of AllianceBernstein’s systems, so they had to, essentially, surgically remove it and make it so that it could be provided as a cloud-based service, as the hard tech install was too expensive and time consuming for users, Khan says.

With that accomplished, there are now two major pieces to this transition that will be rolled out—they hope—in 2019.

Algomi Alfa, as currently constructed, is an anonymized, real-time data aggregation tool, but the key bit that is missing, Khan says, is the ability to execute from the platform. He stresses that Algomi is not—and will not be—an execution venue. But they do need to streamline Alfa so that people can connect through to their desired platform, such as MarketAxess or Tradeweb.

“We don’t intend to become an execution venue; that is not our play,” he says. “We want to help optimize the workflow. If I’m a user and I see a price on the venue, I want to be able to click within one screen, have a ticket pop up, and send that trade to that venue from that screen.”

The plan is for this functionality to go into a beta-testing phase in the first quarter of 2019, with a tentative go-live date sometime in the second quarter.

The second piece of this evolution will address analytics. Khan says that after they have structured the data, they will next be able to provide deeper insights to users, such as offering quality scoring of prices for venues—“someone is quoting a price and I try and execute and it doesn’t, you score that,”—and also for pre-trade transaction-cost analysis. “If you have data in real time you should be able to figure out the cost of execution before you hit a venue,” he says.

This piece is still well down the road, with a very rough third-or-fourth-quarter 2019 timetable, but Khan is quick to say that the actual release date could change.

Many Moves

Algomi has seen a significant amount of change over the last few years, with this pivot being just the latest move.

Perhaps the biggest shakeup, though, was the departure of co-founder Stu Taylor, who stepped down as CEO earlier this year and was replaced in August by Scott Eaton, the former chief operating officer for MarketAxess Europe. Khan, during the interim period, took on the CEO role on a temporary basis. But that was just the latest in a series of big announcements.

A tough 2016 saw the company report a $15.5 million loss. A series of investments through the course of 2017 by the likes of Euronext, AllianceBernstein, and S&P Global helped Algomi to shore up its finances as it looked to incorporate the Alfa platform and “cloud-ify” it.

In October 2017, it was announced that Algomi was expanding into the custody market by establishing a partnership with BNY Mellon and HSBC. The deal would see Algomi apply its technology to indicate trading intent in illiquid bonds held by the two banks. At the time of that announcement, Taylor, who was still with the firm, told WatersTechnology that the company would seek out a European custody bank to help the vendor expand its global presence. Enter Euroclear.

In July 2018, Euroclear joined Euronext, AllianceBernstein and S&P Global, among others, as the latest investor and would join BNY Mellon and HSBC on Alfa’s development.

Khan says that one of the big things that they were hearing from both the sell side and the buy side was that they knew that there was a lot of intelligence to be gleaned from the data sitting inside of these custodians. They have real-time information about holdings, which is incredibly valuable information, but the challenge is that this information is private.

“You can’t do anything with it,” Khan says. “You can’t give a real-time holding list of ‘here are the holders of these bonds,’ because the holders will never allow that. If I’m holding this bond or a volume of bonds, I don’t want people to know that.”

The way it works today is that asset managers report on their holdings quarterly, but this information is months old by the time that information is scraped from the firm’s website. Khan says that they have the ability to aggregate and anonymize that information to help users better match orders using real-time information. When finished, Alfa will allow users to see aggregate holdings for a given bond, but that information will be up-to-date rather than weeks-or-months-old information. Additionally, if the buy-side trader or portfolio manager wants to be alerted on their holdings that there’s some activity happening in the market, Alfa will be able to handle that, too.

Before any of this becomes a reality, though, they first must establish a protocol for how to consume the data from these venues and figure out how to alert relevant holders.

“There’s a whole methodology there; it’s a lot of work,” Khan says. “So we’re trying to come up with a way to do that in an agnostic fashion, which can then be applied to BNY, HSBC, and any custodian.”

In Progress

Currently, the vision for the end state—or at least, what it will look like when it’s fully live—is that an execution trader or portfolio manager will have uploaded their watchlist of ISIN identifiers, which will come from their order management system (OMS), as Alfa is integrated with it. They will then click on a bond to see the holdings information. From there they’ll see that, for example, there are 15 holders of the bond and by volume how much is held at the moment. As those values change, they will see that change in real-time, Khan says.

That will be the first aspect of Alfa. The second will allow a buy-side firm to opt-in and say that they are happy for Algomi’s algorithms to run against their custodian data and alert them when the Alfa platform detects some activity in the bonds that they are holding.

So, for example, a trader at T Rowe Price uploads a watchlist of bonds; that sends out a signal to, say, AllianceBernstein that a trader is looking at some bonds that AB holds. Because Algomi is not an execution venue, they will not connect those two buy sides. Rather, the way they will execute will be via the venues that they are connected to—say, MarketAxess or Tradeweb. So they are alerted through Alfa that there’s activity, a notification appears, and then they will go to their dealers and see what they are saying and then execute through them. 

At its core, Alfa will be a messaging router, Khan says.

“We started off with the concept of organizing information within the bank for the bank, and then allowing the bank to act as an anonymous database for the buy side. But the banks have invested more than what even Algomi could give due to regulatory reasons and we need to tap into that,” Khan says. “So our sell-side offering is still there in the banks that we had, but from our perspective, the objective now isn’t to continue to build on that because the banks are doing it themselves. They’ve set up their pipes to distribute to the buy side. So our objective now is to hook up to those pipes and provide that content to the buy side.”

With additional reporting by James Rundle