Mostly… fixed income and cross product eTrading

March 26, 2007

Who’d Be An Order Flow Intermediary?

Filed under: etrading, Nuts and Bolts — holky @ 3:52 pm

If the end game for etrading is with the customer system talking direct to the liquidity provider’s system, is any move of the existing platforms into the intermediary space to offer an “order routing+” service (so expanding on their FIX offering at present) a permanent move, or just breathing space while they find their ultiumate future to become the all-singing customer desktop (OMS?)

On the plus side, an intermediary can –

  • impose some form of “standard” over the commnunication, as all parties at least start with a single rules of engagement

  • simplify the connection itself; once you’re connected to an intermediary then as long as any new cpty is also connected to them it’s “just” an enablement and permissioning task to reach them

  • add value to the sellside; for example ensuring sellside get status information for the enquiry they didnt win; were they cover?, tied?, did it trade away or not trade?, and so on.  There is no guarantee that the customer would wish to provide this information in a genuinely direct connection, and even if they did, how far could you trust the information that is given?

But –

  • does the “standardisation” and value-add (above) imposed by the intermediary bring the same type of constraints that we see now regarding customer being able to do the type of order they really want?  less so than having the platform gui in the way, but does the intermediary need to recognise and add-value to particular types of transaction/product etc but just pass through anything else?

  • What is an acceptable cost for their involvement (whether annual fee, per transaction fee, connectivity costs), compared to d-i-y for direct connection to each client?
  • what latency does the intermediary introduce?  is there a valid argument that an enormous connection to an intermediary which aggregates all of the customer flow is “better” than individual and dedicated connections?  Should FI just look into the FX world to see the answer?
  • For those platforms that currently make their revenues from terminal license fees, how keen are they to change their fee structure in order to step into the orderflow intermediary space? – even those whose parent co is already doing this in equity space.  It’ll of course be a hugely tough sell to change from a free-to-execute service to a per-transaction cost, unless perhaps you have absolute dominance in terms of “important” customers connecting exclusively through that pipe.


NYSE Bonds launches April 23

Filed under: etrading — holky @ 1:32 pm

New York Stock Exchange’s parent, NYSE Group, said Friday that it received Securities and Exchange Commission approval for its NYSE Bonds platform and that the fixed-income trading system will open for business on April 23. NYSE Bonds was cleared to handle corporate and convertible debt, foreign bank and foreign government bonds, U.S. Treasury and agency securities, and municipals and debt-based structured products.

When the system goes live, however, it will offer only corporate debt trading. Plans to add other products hinge on results including the number of users NYSE attracts to the platform, which is powered by NYSE Arca electronic matching technology and will replace the legacy Automated Bond System (ABS).

Broker-dealer members of NYSE and their sponsored participants such as hedge funds will be able to trade bonds like equities; orders will be matched and executed if, when entered into the system, contra-side interest is available at that or a better price. The system is touted as a viable alternative to the request-for-quote (RFQ) method that dominates institutional bond trading.

March 25, 2007

Separating Alpha and Beta

Filed under: 2015 — holky @ 6:33 pm

On the theme of separating alpha and beta returns (re IBM paper in my original 2015 post) EFN article was drilling down into how investors are working out how to separate out the “alternative betas” away from hedge funds (and so avoid the “two and 20” hedge fund fees on these beta returns) and instead slot them into their portfolios to sit alongside the passive equity and bond funds they have had for years.  One example of the off-piste investments being made is with asset manager Orthogonal Partners who are targeting small investments that have few participants and almost no performance record; such as weather derivatives, emissions certificates, insurance write-offs, distressed power stations and equity in football players.

The biggest challenge in alternative beta remains capacity. An influx of capital tapping into such small markets and illiquid investments could hit returns. Mr Cutler (from BGI) said: “Capacity is a problem, but then capacity is a problem for everything.  In an active fund it is a problem but it is a manager-by-manager issue for alternative betas it is more about the markets. If there is a lot of demand for high-yield bonds, the spreads will narrow. This is part of the reason that the asset allocation is so crucial.  “Mr Beenen (from PGGM) agreed capacity was a difficulty, but said the demand for alternative betas would create supply. He said: “You can create capacity through the securitisation of new risks. Only a tiny fraction of the risks out there are available in a form that can be traded on the stock exchanges.”

I wonder how much this tells us about the shape of the future in terms of customer/provider etrading landscape. I dont recall seeing specific plans from any of the existing platforms with regard to expanding their etrading functionality to anything more flamboyant than finally nailing IRS, then CDS, and that’s about it.  So realistically the venue for etrading anything slightly off-piste is either a) one of the new platforms (websites) coming to market specifically for trading these types of investments?, or b) the customer-side desktop, liquidity taker runs their own system with connectivity into the market (wherever and whatever that may be).    If it’s b) then why would that customer then want to use a separate platform for their ‘traditional’ order flow?

Fixed Income / Equity

Filed under: 2015 — holky @ 6:15 pm

Just flagging that FT said Morgan Stanley are reorganising their Equity and Fixed Income divisions so they become a single sales and trading division.

March 22, 2007

oms in fixed income space

Filed under: OMS / EMS — holky @ 7:08 pm

So what is the definitive list of OMS with any presence to note in the fixed income space?

– Charles river
– latent zero

Is anybody else really making any headway into FI?

Bloomberg marching into Reuters FX territory

Filed under: etrading — holky @ 6:57 pm

Something in EFN underlining platforms moving into new asset classes. (Yes I know bbg fx itself is not new)

Bloomberg is set to challenge the dominance held by its main rival Reuters over foreign exchange trading with the launch of a new trading marketplace – Tradebook FX – targetting the 18,000 traders from 4,000 companies that use Reuters’ dealing platform to trade FX spot, forwards, options and futures as well as interest rate and index swaps.

While Bloomberg and Reuters have between them dominated financial data provision, the electronic FX dealing sector has traditionally been the territory of Reuters alone- winning Financial News best foreign exchange trading system for the last three years in a row.

March 19, 2007

terms of business

Filed under: Nuts and Bolts — holky @ 9:25 pm

Isn’t is astounding that in this digital age that when getting setup with electronic trading services that your application and setup can’t be done entirely electronically as a matter of course?  

Yes dealers need to set out their terms of business and address any risks associated with a transaction being executed electronically, but sending out dealer-specific contracts which require review and signature (especially when the standard terms of business do not require signature – you know who you are!) surely means any customer will need a pretty strong reason to persist in getting e-connected to that dealer. 

Drawing a parallel with the retail ecommerce space, if the great unwashed can buy and sell things without first having to do anything more tedious than click to accept some terms that they didnt actually read, have the dealer lawyers who’ve defined electronic trading terms requiring signature overengineered a solution to address the perceived risks of trading electronically in the capital markets?  

Surely it is easier to verify (even without signature on agreement) a trader at a customer firm is actually a) known at that firm, b) approved by them to trade electronically with you.

If the etrading access being given materially changes the customers risk profile then surely the better route to address this is to ensure adequate trading controls to prevent this additional risk are built within the electronic trading service?   

March 15, 2007

Italian stock exchange decides on MTS

Filed under: etrading — holky @ 9:43 am

The Italian stock exchange meets today to decide on its involvement in MTS, the European government bond trading system which it part owns with Euronext, as the vendor has warned its biggest clients it may be forced to admit hedge funds… more on this from efinancialnews

March 13, 2007

multiple platforms?

Filed under: OMS / EMS — holky @ 7:04 am

Some key stats from Tabb Group report “OMS, EMS, or DMA: The Future of the Buy-Side Desktop”

  • 80% of the buy side require multiple trading platforms to execute their trades (that’s a lot of buyside desktop being used for multiple systems, and a lot of manual routing of business)
  • Half of the firms with multiple disconnected platforms wish for a converged platform, and only 30% of firms with integrated trading platforms wish for the same  (so once you have integrated view of the world, not surprisingly a truly converged platform moves way down the priority list)
  • In 2004 long only managers averaged 2.2 platforms and multi-strategy managers 3.6, a 64% difference – but in 2006 it was 25% difference, and it will be just 7.8% in 2008  (squeezed both sides; growing functionality within existing platforms, and long only guys getting more connected to the outside world)
  • 68% of the buy side is concerned about their OMS moving to a transactional/connectivity based pricing model (speaks for itself)

March 7, 2007

Algorithmic Trading’s Use of News Feeds

Filed under: Algos, etrading, Nuts and Bolts — holky @ 7:30 am

Dow Jones has launched a data feed that delivers news items in XML format which can be rapidly processed by electronic trading programs(so same sort of offering that Reuters recently launched). It says its new Elementized News Feed delivers data directly to quantitative-analysis models and automated trading programs and is designed for both buy and sell side firms involved in algorithmic trading, quantitative analysis and execution management. The ultra-low-latency service delivers economic and corporate news in precise and discrete elements in XML-tagged fields. This eliminates the need to parse unstructured text, allowing trading models and computer programs to process, interpret and take action on breaking news in milliseconds.

If you’re thinking about using this sort of thing, isnt the first question how much trust you are going to put in their tagging?  whats the error rate of items – how many are edited and retagged (after your algo machine has done something on the basis of the first tag)?   Who does the tagging? – if it’s the journalist do you know for sure all of their journalists will tag in consistent fashion?  if its a separate “tagging” desk doing this then how much latency is added?  And of course is the backtesting history tagged by hand by the same people and with the same time pressures so the history is consistent? 

March 2, 2007

Direct buyside involvement in FPL / FIX

Filed under: etrading, FIX — holky @ 7:27 pm


  1. Is that the right combination of member firm types?
  2. Should there be more buyside involved in the committees and contributing directly – helping steer fix to ensure it addresses their real pain points and strategic aims?
  3. Or is the buyside voice sufficiently and accurately heard through the vendors?
  4. Or don’t the buyside actually care?
  5. Or don’t they know that they care, because its not something they are directly involved with?
  6. How many buyside firms – larger in size than the small firms who can qualify to get in for free – aren’t involved because there is a cheque to write – whereas they could commit some time, which would be useful if the answer to qustion 2 was yes
  7. repeat from question 3 on….

Can you eeeempreuuuve???

Filed under: Algos, etrading — holky @ 7:24 am

Electronic sizes increasing. Greater percentage of business going electronic.  But with more algos being used to price each inquiry .. and trying to keep the price as wide as circumstances and order history shows the customer will probably accept at that time, unless the bank has a very clear policy that the machine’s price is the only price available at that point for that customer, then with the knowledge that there is occasionally still some margin (even if that margin is not profit per-se), surely the future is for buyside to continue phone in their important orders so they can beg, steal, borrow, threaten, ask for a favour just this once for a price improvement?

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