Mostly… fixed income and cross product eTrading

October 30, 2006

We are the robots (panel transcript)

Filed under: 2015, etrading, Mifid — holky @ 6:33 pm

Transcript of panel discussion (in NY Sep 06) on developments in advanced automated trading strategies; delving into the past, present and future of advanced trading strategies and the implications for technology requirements and the human intervention.   As you might expect, many of the “2015” points at least touched upon.

  • Moderator Chris Church of BT Radianz
  • Andrew Brenner, managing director and head of ISE Stock Exchange
  • Andy Brown, MD and CTO Credit Suisse
  • Edward Brown, global head of new business development and prime services at Icap
  • James Leman, managing director and head of execution trading for the Americas, HSBC.

Here is the download (pdf)

Banks step up challenge to exchanges

Filed under: 2015, etrading — holky @ 1:49 pm

(efinancialnews) The nine investment banks developing a new European trade reporting service are talking about expanding the scope of the project to challenge Europe’s stock exchanges and clearing houses. The consortium made up of ABN Amro , Citigroup , Credit Suisse , Deutsche Bank , Goldman Sachs , HSBC , Merrill Lynch, Morgan Stanley and UBS said a month ago the platform “will be developed to meet future market demand”. However, sources close to the initiative, called Project Boat, have confirmed that members are looking beyond trade data reporting. One banking source said: “The first phase tackles trade reporting but the investment banks are already talking about phases two, three and four, including trading.”

Investment banks and brokers have become increasingly vocal about the cost of transacting business in recent years as their margins have narrowed in line with spreads. They believe the introduction of the markets in financial instruments directive, the European Commission’s trading rules, in 12 months will enable them to change the equities landscape.

In the 2015 category where Boat is feasibly turning into the equity flavoured Liquidity Hub initiative…

October 18, 2006

Holky’s rules…

Filed under: 2015, etrading — holky @ 2:37 pm

A new example (from efinancialnews – Deutsche Bank has dropped 12,000 clients around the world as part of its strategy to focus on the most lucrative companies…) of banks getting more choosy over who their counterparts are, lead me to start stitching together some of the threads in “Mostly”, from which we now reach the first tranche of “Holky’s Rules” below — served with a ;-^

The “90% of traders/sales to lose their jobs”  rule:  Ensure your (expensive) people are servicing “strategic” business that genuinely adds value….   Ok clear enough. But what can you do with the rest of what you do?

The “Did you not know it’s an electronic revolution?” rule: …ah, scale the machines so they can service the rest of the customers in the rest of those flow products…. with scale, the marginal cost for processing all those the ‘extra’ trades makes this a revenue opportunity. But of course you’re soon going to find the next rule…

The “But of course you have to actually use the technology” rule: ..actually you have to reposition your people to ensure your e- customers are really using the technology available, to deliver true zero touch execution and processing, as you can only genuinely scale once your people don’t need to type or touch the trades to help them through.

The “Lets open the doors to (just about) all” rule: get the machines in place, focus some of your e-savvy people on getting the tail e- customers onto the end of your electronic offering with no voice coverage, and expand your client base like crazy to maximise the flow coming through.. then monitor what’s happening, preparing for…

The “Never eat anything bigger than your own head” rule: (also known as “are they cleverer than me?”):  if any predatory e-client is demonstrably costing you money on their trades, you need to switch them off immediately, and if they have used all their lifelines then terminate the relationship. Of course this is not a new concept, perhaps particularly in the FX world where the blurred edges between price maker and taker, and where predatory accounts with good (or maybe even great) technology are in a position to pick-off your quotes in the market. It’s elsewhere too, though still to a lesser extent – so far.

I never said these rules were new. I just wanted to point out that this is pretty much where etrading 1.0 has been for many years. Or more accurately, where it’s been aiming, as it’s organisationally very difficult (see “90%..”), technologically and operationally challenging (see “..electronic revolution..”), and is by necessity educational for those trading with you electronically (see “But of course you have to use..”). But even with all of that, I believe most (yes only “most”, re post about BMA conf) banks were starting to get their act together in terms of quantifying the value they get from etrading 1.0, and even in some cases establishing their USP on etrading.

Regulators enter stage right (cue orchestral stab in the background, post here), to focus even more time and effort on measuring true transaction costs. Which leads to an ability and appetite to measure true value captured from each transaction and each relationship too. This obviously isn’t applied to just e- , so even outside of the e- space there’s turbulence as increased transparency of costs and value from particular relationships is enabling banks to work out what they should be doing going forwards (eg. news I lead in with) rather than doing some of everything as long as the till fills throughout the year.

Turbulent times. But you’d be mad not to expect turbulence on a journey through to the 2015 visions from IBM trader is dead and Sean’s AmazonBay (posts here).  But even though Holky’s Rules remain broadly the same as above, a rapidly changing landscape (posts on shockwaves and liquidity hub), dramatically improving technology and appetite for technology improvements on buyside (post here), hedge funds blurring the edges of buyside/sellside, banks blurring the edges of banks/hedge funds, amidst an ongoing ravenous appetite for alpha, is bringing different participant types and product classes into a single view. This brings it’s own challenges as the different operational models and order types of the legacy single-product-set electronic markets converge. Etrading is no more about just the electronic transacting of voice trades, it will drive a fair chunk of the change well see in capital markets over the next few years, and the trading mindset will need to change (post here) in order to surf the wave that’s coming.

Welcome to etrading 2.0.

October 12, 2006

Good news on benchmarking and best execution

Filed under: Mifid — holky @ 6:14 am

Chief Exec of FSA John Tiner made a speech 11/10/06 clearly indicating that a one-size-fits-all benchmarking issue is no-more, and also that the customer-side of each trade holds ultimate responsibility for “shopping around” for best execution, rather than the dealers having a duty to provide it (unless asked to do so) –

“Overall, industry response to our benchmarking idea was quite negative although many conceded that benchmarks are already used to price instruments in some OTC markets. In any event, this feedback has convinced us that any guidance on benchmarks would be unhelpful so we will not be proposing any ….”,

and, “I am now satisfied that we have found an approach to implementing the best execution provisions of MiFID which will maintain the positive aspects of the UK’s trading markets. In particular, we are clear that dealers giving quotes will remain free to do so on the basis of their own books and internal models and that it will remain possible in dealer markets for fund managers to obtain best execution by shopping around themselves, if they wish and forming their own judgements about who to deal with, without that lucky dealer then being subject to a duty to provide best execution. It will of course be the case that fund managers will continue to be expected to obtain best execution for their funds and that if a fund manager wants a dealer to provide him with best execution, the dealer must do so or decline to trade. It is important to recognise that while these proposals will, we believe, enable current market practices to continue, it is possible that the Directive requirements for greater clarity around best execution may lead to the industry itself developing new business models.”

Full speech available here

October 2, 2006

90% of traders face the axe as computers take control

Filed under: 2015, etrading — holky @ 7:34 pm

The Times (2.10.06) reports that, according to a new report said to be published today, 90% of City traders could face the axe by 2015, as ‘all-electronic algorithmic trading’ comes more to the fore and traders find that they are surplus to requirements. Algorithmic trading is carried out by computers largely unsupervised by human beings and reacting automatically within a split-second to price movements. It is one factor that has sent volumes on all world exchanges rising dramatically in recent years. Nevertheless, London will continue to be a key international financial centre, IBM concludes.

Hereisthecitynews adds this and concludes with a quote about I, Robot  🙂

Is this another IBM paper or the 2015 as mentioned here (If it is a new one can someone please update with the link)

I already work on a trading desk where the strategic focus is much more on building, enhancing and expanding the reach of our technology, connectivity and algorithms.  What we do is scalable.  There is no real reason other than politics that this model can’t begin to be applied throughout the capital markets flow product set right now.  By 2015 the politics will have passed, there will be less traders by then as desk structure like ours becomes the norm.  But this isn’t all doom and gloom jobs lost “I, Robot” just yet…  Along the way to 2015 I suspect quite a few of the 90% ex-traders from the headline will find equally well paid work building the algos that are replacing them at the per-transaction coal face.

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