Algos and FIX

Following on from previous post about algos and FIX in Europe, Finextra shows FPL take another step forward in standardising the protocol for algorithmic order types… So far 15 industry participants, including six of the world’s largest broker-dealers, have particpiated in testing of the new language. Each firm has published samples of their algorithmic trading strategies in the new XML format, ensuring that all their current and near-term algorithmic trading strategies can be expressed in the new format.

ESME report on non-equity market transparency

The European Securities Markets Experts Group (ESME) has now published its report for the EU Commission on non-equity market transparency, concluding there is no evidence of market failure in the wholesale market in the provision of price transparency, but not a great deal of transparency is available/accessible to retail. 

electronic dark liquidity

FT says Lehman has boosted access to its own “dark liquidity” pool, offering to buy and sell shares that are hidden from the market, by installing an electronic access connection that is capable of linking with most order execution management systems (also EFN) – Lehman said that while its competitors were offering similar dark liquidity pools, it believes it is the only one allowing large institutional fund managers and hedge funds to access the pool directly [read “electronically”] without manually directing that order through a trader.

Project Boat Hits Big Wave?

EFN says a row has erupted between the banks involved in Project Boat over whether the proposed trade reporting system should be a for-profit commercial venture or spun off to Markit Group (a data and research group that is Project Boat’s business partner and owned by eight of the consortium), and suggests similar disagreements over Project Turquoise will follow.

Derivatives

Following on from previous post on derivatives, Financial News claims Fund managers (representing 100 of the largest European Asset Management firms) believe lack of understanding by clients about derivatives, the rapid growth of credit default swaps and collateralised debt obligations, and the potential for mis-selling by investment banks of complex structured products are the biggest risks facing the derivatives markets.

Despite the perceived risks in the credit derivatives market, mainstream asset managers are increasing their use of the instruments. The survey found the number of mainstream European fund managers using credit derivatives had doubled in the past year to one in four. A third of respondents expected to increase their use within the year.

However, investors in CDOs are predominantly banks, hedge funds and professional asset managers that should be in a position to evaluate the risks. It is thought hardly any pension funds invested directly in the vehicles.

The survey revealed growing sophistication in the use of derivatives by mainstream asset managers, with increasing emphasis on using the instruments to boost returns as well as to hedge risks. Nearly one in five managers said they were using volatility derivatives, which enable them to bet on whether equity markets will be more or less volatile in future.

It’s Plus Markets versus LSE

EFN confirmed today that the London Stock Exchange’s monopoly of UK share listings received the first challenge in its history, as Plus Markets Group today became the only other company to be granted formal recognition from the country’s regulators to operate a stock market; meaning Plus will become the first fully authorised stock market to go head to head with the LSE on its home turf.

wherefore art though, execution venue?

what is the industry consensus on how “execution venue” will be conveyed in mifid-ready FIX orderflow?  there are many users of old FIX versions (seems mostly 4.2) who just want to know which field will contain what and when.

is FPL going to use mifid as a stick to beat the non-upgrading FIX users?  giving all an ‘upgrade to 5.0 to get your mifid extensions and more OR ELSE!!!’   ….. or (rather less dramatically) have i just missed/not found a general consensus yet?

Dealing Systems Will Go Cross-Asset

Asset managers, investment banks and broker-dealers are losing revenue because their front office systems cannot handle the complexity of modern trading strategies, according to a TABB research report quoted in EFN. This says that the traditional structure of trading companies, with silos dedicated to particular instruments, “is slowly and surely disappearing” as the number of systems used diminishes.

Sellside companies are “beginning the process of aligning their businesses to reflect more accurately the needs of their biggest customers”, but the challenge is keeping pace with change. The report says the buyside is “approaching investing in a whole new way”, specifically that “They are using complicated, inter-related plans that expose them to securities outside of their traditional comfort zone, exploiting arbitrage opportunities across capital structures and achieving investment goals by using the most efficient financial instrument – or combination of instruments – to achieve the desired exposure, risk and reward.”

For this, desktop integration is the buyside traders’ top concern, ranking over liquidity or trading errors, according to Tabb, with the report saying it is the responsibility of the head trader to “balance all the desk requirements across the various silos” – relatively easy for smaller firms but becoming geometrically complicated for large sell side trading desks with multiple locations, multiple asset classes and multiple entrenched interests.

The Good The Bad And The Ugly – Next Year

I see a challenge to the “complex rating algorithm” that waratah used to great effect in that the good the bad and the ugly post (rating dealers FI etrading offerings), meaning next year’s update should look dramatically different;

Firstly if its a dodgy outlook for debt markets will some of the 2’s divest themselves of appetite of being a global investment bank, and instead focus their efforts on the markets where they can still make money; with product focus aiming to be exceptionally good at what they are good at – and “dang” (or just white label) the rest.

With technology increasingly able to consolidate a fragmented market into a single customer view, and the STP benefits of etrading making trade flow fairly predictable once the setup is setup (!), is it such a nightmare on the customer side to use specialists for each area you wish to trade?  Some way to go on this in FI maybe, but the etrading industry generally can do this (as here)

Does this mean that new “important” dealer names will emerge (like Jefferies appearing in the recent here is the city news firm ratings), and next years TGTBTU will be rating in product silos, rather than on the basis of a truly global offering (and if you check this post , youll see that being really global rather than international is still going to be a big hurlde for many anyway).

On-Exchange Credit: Doom and Gloom, v2

Just like the post showing three of Eurex’s credit derivatives contracts failed to attract a trade, we now hear that credit products launched by the three Chicago derivatives exchanges have yet to attract any trading volume since their launch last month;  None of the new products have attracted any volume according to spokespeople at the three exchanges.

We are also reminded that when CBOT launched interest rate swap futures in 2001 they failed to attract liquidity until Citigroup and Goldman Sachs became marketmakers a year ago; and to underline that point, last month, CBOT’s 10-year interest rate swap contract had an average daily volume of just under 3,000, more than four times the volume of a year ago.

FX ‘winners’

From FX Week’s http://www.fxweekefxawards.com –

Best electronic broker – GFI
Best trading technology vendor – Currenex
Most innovative bank e-trading platform – Deutsche Bank
e-FX initiative of the year (bank) – Citi
e-FX initiative of the year (vendor) – FXMarketSpace
Best post-trade services to clients – UBS
Best vendor for post-trade services – DEALHub
Best professional e-trading venue – FXall
Best algorithmic trading technology (bank) – Credit Suisse
Best algorithmic trading technology (vendor) – FlexTrade
Best retail platform – Saxo Bank
Best liquidity outsourcing service – Deutsche Bank

Liquidity Hub; Bloomberg or Reuters?

Reuters have very little low hanging fruit in terms of getting the Liquidity Hub product out to their “already installed users” of RTFI, compared to Bloomberg who already have BBTS and are also the de-facto terminal for most institutional fixed income traders in the rates space.  So looks like Bloomberg is a clear cut favourite to execute the first real Liquidity Hub trade … then get the first 100 customers onboard … and so on.

If you throw the “Reuters to Dump RTFI”news into the pot – then as waratah asked (albeit in not so many words) in his comment, how much effort do we really expect Reuters to make in terms of developing the swaps functionality for Liquidity Hub, then getting this out on the road to deploy this to customers?   ….. for the type of customers who the Liquidity Hub dealers actually want to see enabled … client takeon clearly being “a bit more involved” than dvp cash bonds autoex.   If you’re a client, is it a worry to signup to a Reuters platform with a potentially limited shelf life?

Sure, sticking Tradeweb in position to carry the swaps for Thomson-Reuters does give you an installed swaps clientbase, and a platform as proven as Bloomberg’s, but the Tradeweb and Reuters mashup isn’t due by LiquidityHub time – so what does Reuters do?  Develop its new swaps offering and distance it entirely from RTFI?  Re-invent its fixed income etrading offering as a specifically LiquidityHub channel?  Boast some new technology, new name (RTFS? RTFLH?), new tee shirts and caps… (leaving space on the branding for the Tradeweb logo in due course) … then tread water –  moving RTFI staff onto RTFLH .. and leaving RTFI to wither on the vine?

I can’t help thinking Reuters now has far too much on the go to make a big success of any Liquidity Hub etrading gui, and that all roads at this point lead to Bloomberg.  Great news for Bloomberg, but hang on…. as a customer, once you’ve decided you want swaps, and you’re going to use Bloomberg … then with access to BBTS and the singledealer autoex offerings, which don’t attract direct cost for using them, where is the sales pitch explaining why you actually need access to the Liquidity Hub broker code in your ALLQ and BBTS? 

Actually that’s where I was looking forward to Reuters stepping up to the plate to demonstrate something new. They still could. Reuters could avoid being a GUI and just open the door for customers to connect their own OMS/EMS to the Liquidity Hub stream. Become a routing intermediary in this order flow.

Reuters to sacrifice RTFI

Sunday Telegraph says Reuters is prepared to sacrifice its fixed income trading platform and Multex databases dealing with Estimates and Fundamentals in order to win regulatory approval for its $8.8 billion merger with ThomsonThe prime candidates for disposal are Reuters’ electronic bond trading platform (RTFI) and two databases that collect financial statements and press releases from 50,000 firms, as well as forecast data from analysts at 600 brokers.

According to the report, Reuters’ Trading for Fixed Income – launched in February 2005 with support from ABN Amro, BNP Paribas, Goldman Sachs – is likely to be closed or sold in favour of Thomson’s more successful TradeWeb platform.

Divisions earmarked for disposal could be put up for sale or simply closed, with staff reallocated to other parts of the company. Decisions on disposals are expected after the summer.

Reuters trade reporting?

Reuters has moved to develop a trade reporting system for investment firms operating under the MiFID rulebook with “Reuters Trade Publication (RTP)” – providing “an independent and cost effective mechanism” to help both buy-side and sell-side firms to meet their obligation to publish data on any trading activity that does not take place on an exchange or a Multilateral Trading Facility (MTF) immediately after a trade is done.

Order Routing Execution Services

When the Pilot Stocks Phase of Reg NMS goes into effect the entire securities industry exchanges, brokers and market makers must be capable of routing orders for the 250 pilot stocks to most exchanges and ECNs under Reg NMS’ best price requirements.

Rather than build the necessary connectivity to all 10 required equity market destinations, many firms are turning to third-party vendors – and so far, the vast majority of exchanges have chosen Order Execution Services (OES) and Lava Trading (part of Citi Electronic Trading Solutions) to provide the connectivity and smart-order routing to sweep the various destinations.

With Lava believed to be using OES to reach some of the destinations, and the EMS vendors also using them for the ‘market connectivity’ they offer too, WSJ poses the question of whether too many eggs are now in these two baskets – OES and Lava…