Mostly… fixed income and cross product eTrading

February 26, 2007

Joining more dark liquidity pool dots..

Filed under: 2015 — holky @ 7:05 am

Fidelity Brokerage Co. and Lehman Brothers announced that they have created a linkage between their dark, or unquoted, pools of liquidity, Fidelity’s CrossStream and Lehman’s Liquidity Center Cross (LCX). The move is designed to bolster execution fulfillment rates by matching diverse but complementary orders on two of the industry’s new wave of alternative trading systems (ATSs).   — another step towards a single access point into one virtual pool of liquidity?

February 24, 2007

Orders via Instant Messaging

Filed under: etrading, Nuts and Bolts — holky @ 8:00 am

WST article … Buy-side traders that feel comfortable using instant messaging to communicate with and route order flow to the sell-side community can now use IM to sweep crossing networks and dark pools.   The technology (more here) converts the I.M.  into FIX which is then routed into the brokers OMS.

February 19, 2007

Just One Cornetto — A Single Super-Exchange

Filed under: 2015, etrading — holky @ 8:29 pm

There’s a school of thought that the mifid-triggered fragmentation of liquidity pools is actually only a stepping stone towards the end game of one super-exchange.    

With increasing visibility of the dark pools of liquidity (such as the private off-exchange crossing networks which Tabb Group suggest now account for some 10% of all US equity dealing volume here) , and increasingly buyside ability to consolidate many different pools of liquidity into a single virtual pool accessible from their desktop (with tools such as this), why would buyside want to go back to a single physical pool? 

The ongoing price war on costs should drive venue costs down to the bare minimum, after which all there is to differentiate your choice of liquidity pool is reliability and any value-add functionality (stp and beyond).  

So who is going to be best positioned for this? – the exchanges with their history of doing this for a living, or the strategic alliances who have the luxury of being able to architect their technology from scratch now?    

Perhaps the answer should actually come down to who wants it the most.  We know the exchanges want to stay in the picture. I reckon there is a pricing point that will cause those in the strategic alliances to decide that they don’t want to run that type of business just for the sake of it, meaning the answer to whether there is ever a super-exchange or not will depend on the wannabe super-exchange having the pockets deep enough to get down to that price.

February 18, 2007

Year 3000 bug on its way….

Filed under: Nuts and Bolts — holky @ 10:12 am

Did we learn nothing from y2k ???? – c++ vulnerability means y3k problems are on their way here.

February 7, 2007

SIFMA survey 2007

Filed under: etrading — holky @ 9:21 am

Securities Industry and Financial Markets Association (SIFMA) press release said “The Securities Industry and Financial Markets Association (SIFMA) today released the results of its 2nd Annual European Fixed Income e-Trading Survey, which reveals that sellside, buy-side and trading platforms expect e-Trading, as a percentage of volumes, to grow by as much as 38% in 2007.  This follows the sell-side reporting a 32% growth in volumes of e-Trading as a percentage of the total from 2005 to 2006.”

  • Multidealer RFQ is the dominant model for executing electronically in liquid markets.
  • Price consistency is the top reason buyside choose particular dealers.
  • Depth of liquidity top reason buyside pick a platform.
  • STP functionality not a particularly big factor in platform selection.
  • And 42% of the buyside respondents do not know about MiFID.
  • February 6, 2007

    Platform Consolidation

    Filed under: etrading — holky @ 9:53 pm

    There has been much pontification over the past couple of years about consolidation of etrading platforms.  Indeed, at last year’s TBMA fixed income etrading conference one of the questions posed to a panel consisting of Tradeweb, Marketaxess, Reuters, Bloomberg, MTS was where and when is this consolidation going to occur? (and by the way, great mumble-sweve to avoid giving an answer guys!)

    Of course, given the consolidation of previously silo’d flow product areas in several banks , why not look for the first real wave of platform consolidation to be between platforms so far dealing with different asset classes joining forces; creating an offering with potential to service more desks at the buyside (ie fx and fi trading desks using the same thing) ?   Getting the developers to join the dots between asset classes is surely a better route to reaching new trades and opportunities, and perhaps winning the hearts and minds of customers on both sides of the trades, rather than tinkering with the existing offering to stick a few more bells and whistles on your existing screens?

    February 1, 2007

    Viva the Revolution: Price makers/takers? Algos in the FI space?

    Filed under: Algos, etrading, Mifid, Nuts and Bolts — holky @ 2:31 pm

    Some axe grinding in response to Waratahpost geeing up his readers to challenge the status quo-

     Banks make prices and Funds take prices
    – Algo trading isn’t for Fixed Income

    There is no fundamental barrier between making prices and taking prices, but those making a living market making are by nature going to need to be good at sticking their prices out in whatever shop front and enticing customers to trade, whereas those on the customer side need to have honed their skills to know where to shop for the best opportunities to get the deal they want.   My post a while ago suggested “executable bid lists” might give the ability for top tier customers to send their inventory requests in executable form to dealers – I expect we will enjoy an increase in this activity as direct customer to dealer connectivity increases, and this is offered by dealers as a value-add for their top customers.

    The difficulties in a market maker doing this for all of their customers in processing unsolicited requests from many thousand customers at one time is purely “scale”.  You can’t just present each request as a popup msg to the trader to manually decide (like many did in the early days of Tradeweb’s mybid/myoffer in the $ treasury market).  The machine needs to be able to work out whether to accept or not – which gets us onto Algos.

    The other point about this is why is the customer sending in their price. I can see a join between an OMS generating the orders needed to execute a particular move in a portfolio (adjusting overall duration or whatever), but would you want customers to have a gui on one of the platforms to just send you their own price … without your machine on the receiving end being able to instantly auto-reject all the crap?

    So Algos in the fixed income space. You will find algos in fixed income, in pricing engines. The easiest place to start with this is responding to RFQ (because at that point you have a reasonably narrow set of data to crunch). So your algos look at all of the relevant data related to the inquiry in question and return the “right” price. Of course once you trust your algo to be able to do that, letting it loose market making on your order driven markets is just scaling this up – after all, it’s just a broader selection of inventory, still with a specific type of counterparty at the other end.   If you need to handle executable bid-lists/IoIs where customers send in what they want and the price they’ll do it you’d need the RFQ processing and the ability to accept when the customers price is “close enough”, determined by how much you want/dont want the position.

    Conventional wisdom suggests that the demand for customer-facing algos in the fixed income space will increase after they sort out their algos for FX.   I also see the MiFID triggered changes in the exchange markets putting OTC closer on the algo radar too, as the re-engineering to make the existing (exchange focused) algos able to deal with fragmented liquidity does mean they are architecturally similar to what would be required in OTC markets.  Why would a client not wish to utilise algorithms to systematically go-get their best execution?  Of course the fundamental problem then will be whether the fixed income quotes the algos are relying on are truly executable or not – which is another item I’ve already added to waratah’s list.

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