Mostly… fixed income and cross product eTrading

December 28, 2006

EDS forecast of eight financial services trends for 2007

Filed under: 2015 — holky @ 2:21 pm

EDS (financial services IT) is predicting the following trends will affect the industry in 2007:

Full story here … but #2 in particular caught my eye as another part of the ‘2015’ predictions

1. Emerging Economies See Accelerated Growth in Mortgage Lending

2. Retailers at the Gates — The number of retailers crossing over to Financial Services will grow, as they are better positioned to serve the emerging segments of the market. Their strong value proposition in terms of service and convenience, as well as their superior marketing skills, will become a differentiator in cross selling.

3. Se Habla Espanol

4. True Globalization of Global Banks, but Will Life Insurers Enter the Global League

5. Emergence of Individual Consumer Healthcare Investment Accounts

6. Security and Privacy Move From Hype to Action

7. Good Looking Annuity Moves the Needle

8. Modernizing the Claims Process

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December 18, 2006

Changes on buyside agenda and broker selection criteria

Filed under: etrading, Nuts and Bolts — holky @ 12:13 pm

Key items on the agenda for buyside next year (according to FinancialNews buyside survey)

Agenda Items

Also an update on broker selection criteria – “quality of execution” at the top of the shop, and back office efficiency at 3rd most important.  I also note that multi-asset class capabilities is in the list, indicating that some of the buyside are valuing the benefits of being able to deal with a single counterpart for multiple assets (though understandably after  those criteria which enable them to get the job done right for single classes).

Selection Criteria

December 14, 2006

MarketAxess Europe

Filed under: etrading — holky @ 5:54 pm

Iain Baillie to step down from being Head of MarketAxess Europe at the end of the year  more on the story here

Priced for perfection?

Filed under: Uncategorized — holky @ 1:43 pm

So … while we’re all waiting for the funds to get their mandate to trade derivatives.. going back to the point that being able to understand the product is clearly the first step.

In a speech given 13/12 to a group of market participants, Sir John Gieve – Deputy Governor for Financial Stability, Bank of England – said that near-term risks to financial stability remain low. This view reflected benign macroeconomic conditions in the UK and globally, the strength of major financial institutions and the continued resilience of markets.  He did caution, however, that many markets appeared to be ‘priced for perfection’. Implied volatilities in equity markets, bond markets, credit markets and foreign exchange markets are low by historic standards. Risk premia are also at subdued levels. This seems to have encouraged risk taking outside the financial sector, for example, via leveraged corporate borrowing – a vulnerability previously identified by the Bank.

He suggested that while there were good reasons to believe there had been a genuine decrease in macroeconomic volatility, some of the fall in financial market volatility might be driven by the popularity of derivative strategies that amount to selling insurance against unlikely financial events. At a time when “risks in the wider environment are as great as ever…it is not clear to me that these risks are fully priced into the market”.

He concluded by stressing the importance of effective market discipline in current circumstances. “Given the rapid pace of innovation in financial markets and products and the low level of risk premia, investors may need to take particular care to understand the risks they are exposed to. More than in the past, they may need to ask some searching questions about how funds are being invested and how risks are being managed.” He suggested that one approach might be to put greater emphasis on stress test results as well as more conventional risk metrics.

Focus On Strategic Clients?

Filed under: 2015 — holky @ 8:07 am

efn says Morgan Stanley has sold its “Quilter” business to focus on clients worth more than $10m (€7.5m)Quilter, a discrete unit within Morgan Stanley, looks after a number of clients at the lower end of the mass affluent high net worth market.

Being a discrete unit clearly makes it easier to pick up and sell, as opposed to just dropping a whole tier of customers into a void.  It also gets some cash in for the sale, which changes the dynamics a bit… But this is posted in the same vein as previous “banks getting choosy about their counterparts” post.

December 13, 2006

Rating Your Counterparts

Filed under: Nuts and Bolts — holky @ 3:10 pm

The UK financial services industry should introduce an eBay-type ratings system that each customer or counterparty could supply after every transaction, so said Simon Culhane of the Securities & Investment Institute (SII) earlier this year – stating that the financial services industry needs better ways for customers to provide feedback, and praising the eBay customer ratings system for being a highly visible, individual feedback rating given to each member, which allows users to decide whether they trust the counterparty before committing to any deal.

“An individual’s rating is dynamic and changes according to the simple feedback received from the counterparty on completion of each transaction. The feedback is positive, neutral or negative and is usually accompanied by a brief comment,” says Culhane.  “Both the comments and the ratings are visible at all times to any potential counterparty that is considering entering into a transaction,” he adds. “It is, in effect, a simple, empirical way of measuring reputation and provides a real expression of trustworthiness.”

Culhane argued that eBay customer feedback relies entirely on individuals wanting to protect and enhance their reputation, using no legal rules or power, and draws a parallel with the financial world where reputation and trust are crucial. “What is needed is a measure of proportionality that discriminates between firms with systemic problems and those with occasional blips. Wholesale, private client and retail trades would all be rated,” he says.

Culhane says the effect on reputations when these ratings are published would be immense as counterparties and customers would be able to ascertain the reputation and integrity of a firm immediately. Firms that adopt a principled approach and actively demonstrate their fairness, honesty and integrity would be the winners.

This is actually a concept that keeps resurfacing with me in different shapes. 

While I’m not convinced that someone is going to manually rate their counterparty for each and every trade unless they trade r-e-a-l-l-y infrequently, there is something along these lines that could be achievable and feasibly offering an immediate value-add when making or demonstrating your choice of counterparty for best execution.  

Why doesn’t each settlement venue calculate the STP % rate of each firm then offer slice and dice facilities by product/currency/anything else where someone might want to see what the chances of getting STP are for the products/whatever they are interested in?   

Just imagine if you could get this kind of information from Euroclear, OMGEO …. or of course DTCC/Swapswire in the derivative space.   

Clearly, correctly attributing fault for each fail is of importance in order to give a truly meaningful rating, and that is where an explanatory text (though likely subject to legal/compliance review and release) could be of use to mitigate or praise or criticise the handling of the underlying problem..

Extending this further, where the etrading venue has electronic links through to settlement venue it could feasibly make this information avilable as part of the price discovery process.

December 11, 2006

Buyside Dealers Earn Stay Of Execution

Filed under: 2015, etrading, OMS / EMS — holky @ 3:04 pm

Interesting question in here about quantifying the value added by the dealing desk in terms of alpha in the funds performance.

Equity traders at fund management firms are having to prove they earn their keep. It is a challenging time for buyside equity dealers. Swamped by technology, targeted by regulators, scrutinised and measured as never before, dealers must also fend off the threat they should be dispensed with altogether. Advances in trading technology mean fund managers can for the first time realistically consider outsourcing equity dealing.

While some firms have invested heavily in updating their dealing desks, others are only beginning to assess their capabilities. With better analysis of trading performance, the contribution of the dealing desk to fund performance can be isolated. The problem for many dealers is that in stark numeric terms, even the best are likely to have only a marginal impact on returns.

If the choice of execution venue and way the order is executed doesn’t have a material impact upon the return achieved then what the hell is all this fuss about best execution?  If the problem is actually that an execution desk costs too much and so eats up any alpha they achieve through clever execution and knowing the market – then surely the buyside execution desks face a similar and parallel future to the 90% sellside traders previously discussed;  creating and managing algorithms (/trading rules) in the machines that are doing the trading –  in this case the buyside OMS.

December 7, 2006

Singledealer/Multidealer

Filed under: etrading, Nuts and Bolts — holky @ 12:29 pm

A thought that surfaces each time I see comparisons of singledealer/multidealer systems.

I’m not convinced that reports telling us how popular singledealer systems still are in the fixed income space are correctly classifying singledealer / multidealer systems.

In terms of system, a customer looking at a multi-dealer view (eg ALLQ) to see all of the autoex pricing available to them but then sending their order or inquiry through to a single dealer is clearly very different to where a customer can only see and trade on a single (and specific) dealers pricing. 

The comparison of singledealer orders -v- multidealer inquiry is of interest within each multidealer system (which supports both), but that’s comparing the order type, rather than the system itself.

When was the last time you saw this breakdown used in a report/presentation?

December 6, 2006

SIFMA eCommerce In Fixed Income Markets 2006

Filed under: etrading — holky @ 4:38 pm

The 2006 e-Commerce in the Fixed-Income Markets: The 2006 Review of Electronic Transaction Systems was released today and is now available on the Securities Industry and Financial Markets Association’s website here

December 4, 2006

The Real World?

Filed under: etrading — holky @ 3:19 pm

Thanks to mdavey post for flagging this old chestnut of providing financial services in virtual worlds.

According to a Reuters report, ABN Amro has opened a virtual bank in Second Life, which resembles the Dutch bank’s real-life outlets and offer online citizens financial advice.  Also referenced an article about Reuters establishing themselves as a virtual news agency in that virtual world..

So I was just wondering … what are the virtual regulatory bodies that each firms compliance avatars use and refer to when formulating their view on and advice re the services offered?

EPDA attacks government bond market restrictions

Filed under: etrading — holky @ 9:57 am

Following on from Icap hits out at eurozone bond restrictions, now efinancialnews  says that European Primary Dealer Association wrote to the competition directorate of the European Commission in August and effectively condemned the practices of some of its most important clients, those offices who were prescribing where secondary market trading activity in their bond issues should take place .. complaining this was uncompetitive and was keeping the cost of capital artificially high.

The letter only recently became public and the directorate has not officially responded. But a study published last week added weight to the dealers’ arguments and is likely to spur a reaction.

December 1, 2006

Ah the perils of the machine

Filed under: etrading — holky @ 7:22 am

nicely captured in this
This morning on the television I saw AMEX ticker symbol CSN climb 800%, from $0.08 to $1.09….

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