What Can We Learn From Retail e Transactions?

Chris Skinner’s blog commenting upon Visa processing more transactions in a minute than the world’s stock exchanges do in a day; visa 26 million transactions per hour, comparing to estimate of all stock exchanges totalling under 500,000 per hour is interesting. But while the numbers do indeed show a fundamental difference in processing scale, the transactions themselves are clearly fundamentally different too.

The visa part of the transaction is not the execution of a trade, it’s the settlement. When in Mexico using your visa to buy a hat for your llama, you haggle then agree the price of the hat with the shopkeeper .. deal done. Then you stand and wait at the till while the machine noisily dials into the visa network so details are captured and a settlement confirmation can be printed.  If visa says you can’t deliver the cash then you need to pay (settle) in some other way.

A brief peek into the world of visa processing does give many things to stick into the thought blender. The number of transactions compared to exchange transactions is astounding. With algos decreasing size of but increasing number of trades, scale is clearly important to us going forwards.  But the etrading and operational architects among us might also consider how that network is formed; how many intermediaries are there to provide each end retailer a route in that allows visa to operate a global settlement network – somewhere that any retailer from a corporate website through even to the remote hat-shop in my example can allow trade details to be captured electronically, for a credit check to be performed, and “instant” and agreed T+0 trade confirmations printed for both parties. Any parallel into Euroclear, Clearstream,  Swapswire, OMGEO, SWIFT ..and so on?

also see 2015 category and the electronic revolution.  

75% FX automated by 2010

A study from Boston-based consultancy Aite Group predicts that 75% of all FX trading will be automated by 2010. Article here

The Wave

There are many reasons to expect an imminent increased uptake of electronic trading –  its pretty much proven technology now so not so much of a perceived risk,  etrading is part of most people’s daily life anyway (tesco shopping, cinema tickets, ebay, and so on..) so it really isnt such a scary concept now to ‘do’ etrading at work, the ‘nintendo kids’ who were the early adopters are growing up into management positions where they influence and define trading firms’ strategy …. and so on.

Additionally I’m sure we all expect a desire to satisfy mifid-induced requirements to cause an additional wave of business moving to electronic channels rather than voice – if only to gain an audit of what was done and why.  That’s not a binary voice up to end Oct then electronic from 1-Nov, but once people have realised just how much easier getting a best execution ‘certificate’ from a platform will be compared to d-i-y, there seems little argument to continue to trade much of the basic flow in unexciting size by voice (er, except if you’re still getting a better price by voice)

Anecdotally I hear people claiming they’ve heard someone say that they’ve heard other people say they expect all flow products to be electronically executed within <cough – mumble – timeframe> – based on some or all of the above.  The Liquidnet research showing that 2/3 of buyside traders expect an increase in the use of electronic trading because of mifid is not perhaps quite so exciting as that, but it does show a general acceptance of electronic trading, and an acceptance in the buyside that the wave of adoption is indeed coming.

Great news for those in or moving to etrading roles maybe.  But are the stats/propoganda that the venues churn out to show how well they are doing actually going to be entirely meaningless from now? How are the venues going to clearly demonstrate the “alpha” increases they are seeing because of what they do well? over and above the “beta” increase in uptake just because it’s time – and they are surfing that wave?

Happiness by Geography

Greenwich and Liquidnet have produced some interesting research that takes a different view of the global markets.

Surveying buyside traders they find that almost 3/4 of them enjoy their work as much as in 03 – with reduced enthusiasm from Asia and Canada compared to US and Europe (Asia 54% as happy, and Canada 63% as happy).

Asian traders also registered highest dissatisfaction – specifically with administration and declining sellside coverage, with nearly 50% of respondents finding their job more stressful than 5 yrs ago.

With only 10% in Europe and 0% in the US finding the job more stressful, the research concludes on that point that nothing relieves stress more than satisfaction and control. I suspect its more a case that nothing increases stress more than uncertainty; and with US and Europe now being more certain regarding market shape in their new regulatory frameworks, there is clearly less uncertainty there.

In Europe only 1/4 said they were happy about the growth of execution venues.

Overall 86% see their trading desks adding more value now than 3 yrs ago, and 12% the same value as previously.

top 3 banks in etrading

financial news buyside trading poll shows 3 banks leading the pack in Europe for electronic trading; rated ahead of their rivals for algorithmic trading and DMA.

• Morgan Stanley
• UBS
• Credit Suisse

The article looks in the equity silo.  Expect a different list for Fixed Income. And how about in a cross-product ‘e’ view?

Algo trading in UK news

I see algo trading is in the uk telegraph today

ASP model is key for buyside desktop?

One thing Gartner says of the recent RoyalBlue and LatentZero news…

We believe future growth will come from small firms and hedge funds gaining OMS capabilities delivered via an application service provider (ASP) or software-as-a-service model, rather than installed software. As of mid-2006, LatentZero did not offer its product in an ASP model. Therefore, it is likely that this acquisition stemmed from a lack of sufficient future growth opportunities at LatentZero, given low or slow sales increases for its traditional product offering.

I’m not convinced majority of buyside are against an installed app per-se, providing it is easy install and subsequent update, and does not burden them with huge requirements for ‘local’ support.

MTS stats

Q1 07 – repo market continues to grow – up 36% vol y-o-y, with 200% increase in Europe-ex-Italy.  Bondvision doing well by all accounts too; €182 billion, up 28% from the fourth quarter.  B2B cash market volumes also grew to €744 billion in the first quarter, up 13% from the previous quarter, cash volumes particularly strong in Greece and France, which saw respective increases of 69% and 24%.

Release is here and the post on last years stats here

Hedge Funds Allowed Onto MTS

finextra says MTS is set to give hedge funds the green light to trade on its electronic markets; as the supervisory board now supports the view that it is “desirable to liberalise the access of the market to third parties as a way to enhance the liquidity” ….

The devil’s in the detail so don’t panic just yet though … further work is needed to address concerns and to “promote a consensual implementation” – MTS saying its management board will put together practical proposals, after consultation with its third party access committee, that will be discussed at the next supervisory board meeting.

a growing blog

blimey, a wordpress milestone i guess, as they now say this is a growing blog as of yesterday.

Liquidity Hub, not FIX

What are the implications of Liquidity Hub choosing to create their own proprietary API, rather than using FIX, for dealers to connect in consistent fashion to liquidity regardless of where it’s hosted?

With the Liquidity Hub crosshair on Euro Govys (after swaps initial offering from some LH dealers end Jun, US treasury OCT 07, then mortgages), does this introduce a competing ‘standard’ protocol for the most commonly etraded fixed income markets?

Fidessa buys LatentZero

as here and here

With LatentZero reassuring customers that nothing will change for two years under the conditions of the £63m (€92.5m) deal this is clearly a foundation for the long-game. For now LZ will operate as a separate entity within the Royalblue group, and its management team will stay with the company.

Watkins (co-founder of LZ) sees electronic fixed-income trading as part of the future because the liquidity is much more dispersed. He says there is potential to let the sell side share their liquidity on a targeted basis to their clients. “That means we would essentially be allowing both sets of clients communicate with each other on a private basis, as opposed to participating in an ECN or ATS,” he explains. “ I think for certain asset classes that is going to be the way that people want to work,” says Watkins.