UK firm targets Asian bond markets with hire
Software firm Algomi has unveiled a first hire in Asia Pacific as part of its global drive to provide liquidity in over-the-counter secondary market bond trading.
The firm, established in London in 2012, announced the appointment of Jesper Bruun-Olsen as head of its Asia-Pacific operations, effectively immediately.
He is tasked with building Algomi’s regional presence, starting with Singapore and Hong Kong (where he is based). He came from online FX broker Oanda and spent a decade at Tradeweb, an e-trading hub for bonds and derivatives.
Algomi co-founder and CEO Stu Taylor told AsianInvestor that the firm wants to capitalise on changes in the traditional role of banks, which he noted had moved from risk-taking to more of a broking role when it comes to trading.
“We are seeing a number of banks starting to come out with agency-type models not just as risk-takers, but as distributors of bonds,” he said. “What we do is provide technology to help banks become credit brokers.”
Taylor noted that Algomi has built an algorithm enabling banks to profile clients and identify buyers. It also offers a social network for bond trading, providing pre- and post-trade information on brokers.
The firm now has 100 staff across London and New York, around 70% of whom are tech specialists. It sees specific opportunities for expansion in Asian bond markets.
“Generally Asia is not as much of an electronic trading region as some others, with the style of business very much based on trust and relationships,” said Taylor. “We position our platform as a voice network, so Asia is a very interesting opportunity for us.”
While Taylor confirmed it had no Asia-Pacific clients at present, he said it was in contractual negotiations with several banks and institutional investors.
“As the size of the Asia-Pacific corporate bond market has continued to grow significantly, we have also seen there has been more emphasis placed on voice trading versus electronic,” added Bruun-Olsen.
As a result of post-crisis regulatory changes designed to make banks safer, the broker-dealer arms of major financial institutions have been forced to increase reserves, reduce risk and get out of a variety of trading activities.
They have had to shutter proprietary trading desks that would have housed securities, while Basel-3 capital rules have increased the costs of holding inventory and financing positions in overnight repurchase agreements.
According to the Institute of International Finance, a US banking lobby, US primary dealer corporate bond inventories have decreased from $250 billion in 2007 to as little as $50 billion last year.
Trading has likewise been decimated, with average daily secondary market trading of US corporate bonds falling from $32 million in 2012 to $8.3 million in early 2014, according to IIF data.