My last contribution covered the retail side of Finovate Fall 2014, which covers the vast majority of the companies showcased. The company I found best representing institutional capital markets innovation is Algomi. This is basically social networking for bond trading with a good-looking interface.
Years ago, I wrote about how all of capital markets technology innovation finds its way to retail eventually. In the case of good user design, I would argue the inverse is occurring. I'm working on a project exploring opportunities for a capital markets software company. As part of that research, we ask people questions about why they chose their current provider and what they would do differently if they were new entrants. Usability ranks at or near the top of the list of answers to each question.
As far as innovation goes, Algomi doesn't take the approach that it can migrate voice trading to electronic flow. That would be unrealistic at this point. Instead, it has decided to let the rest of the world chase MarketAxess while it focuses on making voice trading more efficient.
One of the primary ways it differentiates itself from others in its space is by providing no central data repository. Instead, each client maintains its own data repository and creates a rule set to determine when and how proprietary information gets shared with other repositories. This allows a bank to maintain control over its proprietary information.
In the case Algomi walked me through, a buy-side firm had a $50 million bond position it wanted to sell. It could see on its screen the level of experience each bank had with that position at a high level. When the buy-side firm chose to expose a $5 million position to one bank, the bank's rules engine rewarded the firm with more detail on its experience with that issue.
Once the bank received the order, it could see on its internal system which traders had experience with that issue, so the salesperson knew exactly whom to contact to begin selling the position. The entire interaction was being logged for audit, so the buy-side firm had in effect a best execution report.
Algomi maintains its own chat functionality and says it is prepared to integrate whatever Wall Street settles on. Surprisingly, the company is not working with either BT or IPC at this point. That seems like a missed opportunity on both sides for turret integration.
Having seen plenty of bad user design in capital markets, I thought the Honeycomb approach was refreshing, but during its demo to the Finovate audience, Algomi received minor criticism for all the blinking in the application. That's a fair point of comparison to the retail design the audience had spent the rest of the day watching.
Algomi is live with the portion of the application that manages internal processes in five institutions, and it is installing in another four. The process that connects institutions to one another will go live next week. Firms pay a subscription model, and the software is bundled as part of the service. Supported products include corporates, emerging markets, off the runs, and municipal bonds. Over time, Algomi plans to cover all fixed income.
Without significant resources and energy, rapid innovation in capital markets is hard. As more firms replicate the Algomi approach of making an incumbent process a little more efficient and a lot friendlier, each creates an on-ramp to take the next step in the process. Hopefully, next year's Finovate will feature more companies in institutional capital markets. As the comments on my last article illustrate, there is no shortage of retail people effectively trying to solve the same problems over and over.Adam Honoré is a CEO at MarketsTech, LLC. Prior to joining MarketsTech, Mr. Honoré was the managing director at NASDAQ OMX responsible for global business development and the ISV program for FinQloud, and research director of the institutional securities ... View Full Bio