Mostly… fixed income and cross product eTrading

November 30, 2007

MarketAxess still 0, Tradeweb 1?

Filed under: etrading, Nuts and Bolts, OMS / EMS — holky @ 9:40 am

As Techrockies tells us (also finextra), MarketAxess has bought “substantially all the assets of” Trade West Systems, a Utah-based provider of pricing, execution, connectivity and compliance products for the fixed income and equities markets. 

While the announcements seem to focus on ProOMS – which is the “Connectivity solution using XML, FIX or other protocols to transfer data between trading or other applications” , their product range (as on TWS site) includes a thin, ultra-thin, or web-based client front-end supporting real time updating fixed income and equity inventory.

Does the fact that the news articles are not mentioning a new & improved MarketAxess client gui on the way mean that the platforms are acknowledging the writing is on the wall for them having their own gui, or at least that the critical mass of buyside will in the forseeable future be integrating liquidity venues into their own desktop (no real surprise, eh, other than it’s taken quite so long to get there?). 

Of course if that’s the case then yes there are advantages in being able to offer easy integration – and an acquisition such as this could make a great deal of sense, but wouldn’t MarketAxess still be missing a big trick?   Tradeweb are talking the talk of combining [tradeweb] fixed income and [thomson] equity offering at the customer desktop.  If MarketAxess have really bought some technology (assuming it’s good -anyone know?) that lets the dealers that can get their fixed income and equity inventory out to customer desktop now, shouldn’t MarketAxess deploy a better gui now (perhaps especially as the existing MA gui is so often criticised), and try and use this genuine product improvement to keep the hearts and minds of its customers?  …offering equity (or whatever) as a coming-soon.

Once buyside really start integrating Tradeweb into their own desktop, why would they also need Marketaxess?  Fusion can certainly be spun to make a good reassurance that TW will have dealer liquidity, but even making the assumption that enough of the right dealers continue to provide same credit liquidity to each venue, if buyside have a Tradeweb connection just for govvies anyway, and the Tradeweb credit connection is at least adequate, and you’re not emotionally attached to the MarketAxess gui which you’ve built your trading workflow around … if there is a material running cost for the MarketAxess connection, then why keep both? 

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November 28, 2007

Wanna be top 5?

Filed under: etrading — holky @ 11:58 am

With FT showing that Euro bond market is changing (also in waratah) with the top 6 banks receiving over 45% of the flows – it includes a comment “Small players just don’t have the resources to compete as well now – it is definitely becoming more concentrated,” according to the head of fixed income at one of the largest European players.

While you’d expect the head of fi at one of those big boys to talk their own book, could a firm with aspiration to break into the top 5 do so by picking up some of the better traders from the existing top 5, and asking them to repeat their success at the new place? 

Sure, there are of course likely to be some technology challenges (surely everyone even half decent can quote bonds now?) and then there’s the client relationships … including ‘street’ perception of the house in question; so you’re going to need some pretty good eSales guys in to help get the new & improved offering out there and desired.

But over and above all of that I wonder if the main requirement that the new bank has risk appetite to let the traders get on with it, and the marketing budget (maybe also using that to prop up trading p&l in low margin products) to match it’s aspiration, and the fundamental trading management policy defining that the traders “last look” in the etrading cycle is only there so you can wave at the trade as its on its way into the book?  (Ask a client what they like about Autobahn, Barx, Jpex and certainty of execution is way up there).

Or is it really game over – the rankings are pretty much cast in stone, so move onto the next product set? 

November 27, 2007

Liquidity Hub $ Swaps

Filed under: etrading — holky @ 9:26 am

Finextra tells us Liquidity Hub have launched dollar swaps.. nothing about it on the liquidityhub website – other than saying that’s phase II, as is on the run $ treasury and the two most recent off-the-run notes and bonds.

November 26, 2007

Credit Suisse Quits MTS Market Making

Filed under: etrading — holky @ 10:21 am

WSJ said Credit Suisse has quit market making on 4 MTS platforms in protest over the move to allow hedgies access to MTS. So CS are market making French govvies on Brokertec and Spanish on Senaf.

November 25, 2007

Im a trader, not an investor (shamon)

Filed under: 2015, etrading — holky @ 6:09 pm

This post arises from me once back in the old days referring to a colleague as a trader, for him to reply in horrified manner “my dear boy, I’m not a trader, I’m an investor”. 

There is a thought that electronic trading and algorithms will do away with the buyside execution desk- and in terms of traditional order flow that’s probably right: why pay someone to take an order from the investment manager then just type them into a system that will route the execution to the right venue? ..when the investment manager armed with oms/ems with decent routing rules could just as easily “release” the order and let the system get on with its thing.

While this may indeed be the end of the traditional execution desk as we know it, is this actually the first step on a new path for the execution desk holding a more powerful (more recognised) position within a fund’s alpha generation team?  

In terms of evolution, those on the execution desk should be glad to start relinquishing their responsibilities re vanilla order routing m’larky to order routing rules instead, in order to concentrate on quantifying their alpha contribution by becoming the electronic trading experts- sure knowing and building those routing rules for one, but then by really exercising algos to pick up/get out of a position in the most opportune manner.   This is already happening to a point in “exchange” markets where there is a big market exposing algorithms to customers, but what about the other markets? – in fixed income still manually routing orders, and any voice trades put through dealers/agent to work in whatever way will continue to take power (value?) out of the execution desk – so surely all forward-thinking execution desks should really want to be able to electronically pushing orders through algorithms and systems direct, so they are not just twiddling the brokers knobs, rather they own the knobs being twiddled, right?

Fast forward on that thought, then does the shift towards controlling the machine give power to change the stock selection criteria?  So while the “investment” piece decides what attributes need to traded in/out based on the duration of the liability (or however you’re going to run the fund) and the executioner “just” executes these instructions to best advantage, what happens when this is all electronic and the executioner has opportunities to daytrade their way in and out of a position (within a universe constrained however you see fit to avoid breaching overall exposure limits etc?) in order to add some alpha with that short term risk?   While there is still a differentiation between the investor (long term view) and trader (short term view) , perhaps the response you receive if you call someone the wrong one would not be quite so horrified?

November 21, 2007

Sell MarketAxess

Filed under: etrading — holky @ 11:30 pm

Now it mght all of course be part of the usual comp plan, but it was in the news that MarketAxess Chief Executive sells
a nice chunk of MA shares

Forbes – NY,USA
AP 11.19.07, 2:06 PM ET The chairman and chief executive of MarketAxess
Holdings Inc., an operator of an electronic trading platform, sold 30000
shares

November 15, 2007

Markit buys iTraxx and ABX indices

Filed under: 2015 — holky @ 3:52 pm

from EFN, MarkIt buying IIC (now) from abn, barclays, dbn, deutsche, deutsche boerse, dresdner, goldmans, hsbc, jp, ms, ubs … and CDS IndexCo indices (by end of year) from abn, bofa, barclays, bears, bnp, citi, csfb, deutsche, goldmans, hsbc, jp, lehmans, merrills, morgans, ubs, wachovia.

November 8, 2007

Charles River’s FIX Network

Filed under: etrading, FIX, OMS / EMS — holky @ 4:19 pm

Finextra article shows CRD are talking up their FIX network … no real or major news, but interesting figure is the claim of more than 90% of Charles River clients using Charles River Network for electronic trading.   Also talking up the CRD cross product / multiple asset class point to point architecture;  including algorithmic trading, FIX allocations, fixed income, futures, options and FX

eTrading on Facebook?

Filed under: Client Onboarding, etrading, Nuts and Bolts — holky @ 3:10 pm

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The news has covered it many times – yes companies losing millions in terms of lost productivity because people are facebooking each other rather than getting on with their latest excel spreadsheet. The world is doomed with everyone spending their day in Facebook installing and using apps to prod/poke or conduct zombie or werewolf wars against their friends.  Just scoot around Facebook looking for your colleagues and you’ll see a gazillion US students with names similar to those you are seeking, and when you do connect with your colleagues you’ll quite possibly get to see their holiday snaps – yes the bloke who is always Mr Sensible in the smart suit every weekday is Mr Speedo (or worse) on the beach…. So sure – I can see why there might be reluctance to site your business in that environment (though would that environment remain so “personal” if more businesses set up shop there?)

How about linkedin though? Its already got an implicit business stamp of approval, so is the addition of Google OpenSocial Api which allows developers to integrate applications in javascript and html (rather than limiting them to using proprietary fbml in and for Facebook) into/within a social network, a catalyst to moving institutional etrading/esales closer to the South Korean model of trading in conversational manner electronically?  So take the etrading gui away from inventory pages and the like and instead onto contacts pages for conversation, negotiation … leading to execution captured electronically?

So why would one of the existing platforms integrate one of the social networks such as linkedin for their clientbase?  Well, is there any value in making the user group for the venue in question more public (at least among that user group) and providing some form of authentication of their identity, just as Bloomberg do with their MSG userbase?   And if people are using social networks from where they aggregate everything then dig into whatever they wish to spend their time on, then shouldn’t the etrading platforms offer them a route to do this for their offering too?

November 2, 2007

Innovation and Incentivisation

Filed under: 2015, etrading, Nuts and Bolts — holky @ 3:18 pm

The firms that will survive and prosper will not be those that adopt the latest technology – the survivors will be the firms that make the organisational change to utilise new technology in the right way.  

Focussing on etrading – yes of course there will be a continued uptake as the world gets their OMS/EMS in place and connectivity evolves, but big, bold, fundamental changes in sellside offering will only come when that firm makes the organisational change to correctly support the offering.   Now I’m not talking about tech support here,  I’m actually talking about overall organisational support to make the offering work from a business perspective. How doo you ensure your firm consistently and thoroughly supports their electronic offering?  – the first thing to get right is the sales credit.

1. Sales credit for salesguys

In current form the institutional salesforce may (or may not … depends where you work) be rewarded with a sales credit for their clients’ electronic trades.   With a sales credit generally expressed in money terms, even though we all know that money amount does not reflect the value in the trade, especially as margin is ever-shrinking in electronic trades, should the salesguy sitting on a gazillion quids worth of sales credits by year end get a whopper of a bonus based on that?    The answer of course is that they may indeed deserve to get that whopper, but it needs to be because of the work they have done to secure that business, in the context of the work everyone else has done to secure that business, in the context of the value of the business to the firm. 

  • Example 1; If the salesguy doesnt ever talk to the e clients, doesnt ever need to cajole or convince them to execute a particular trade, and indeed the only trades the client does are simple trades in flow products, pretty much to the level that you’d expect for the year, then why is the salesguy rewarded in any way for those trades?  
  • Example 2; If the salesguy has been out on the road all year executing a sales strategy to get N of the firms’ target clients signed up and using the platform, then a measurement of the number of clients doing even simple trades in euro benchmarks really should be significant in terms of their incentivisation.

The tough thing is the value to be attributed … so for these examples, what’s the value of that 10m client buy of euro benchmark back in April?   Don’t forget to add to the calculation the fact that the trader had to quote choice price at the time to win the RFQ , and as the price on their next hedge was a bit higher they ended up in terms of flash out of the money for that trade.  Oh, also adjust the value because the IT department is going to put in a charge for team of 20/200/2000?? supporting that part of “the business” in terms of development, tech-support, connectivity, licence fees, and so on, and the ops guys have costs coming out of their ears to process all of this. On the other hand, the guys dealing with this client in the primary markets have a splendid relationship with them and the client clearly appreciates the choice price on their admittedly boring secondary market stuff, and from a bank perspective the only reason they run a secondary market desk in this product is to support the originators.   Hooray – lets say the quants crunch some numbers and we reach some form of value for this.  So how should that compare to the sales credit on an electronic trade in a 15 year credit? 

2. Sales credit for all !

In this article about some banks’ recently adjusted compensation plans we can see that UBS say they are looking at rewarding support staff for the capture of efficiency gains (“we will enforce discipline in the way we manage costs, allowing us to direct our investment spending where it makes the greatest difference for our clients and investors. To do this, we will change the incentive structure within UBS to reward people who deliver efficiency gains as well as people who deliver increased revenues.”).

There really are many banks who struggle to align the interests of the different divisions in delivering a strategy to make the bank money – I often hear that the technology and or operations divisions dont seem to understand that without the business, there is no business for them to support.  So by delivering on the sentiment of the UBS words above you should develop a shared interest in making sure the business is done.. 

All of this boils down to (a) having a strategy regarding what business you want to get in the door, (b) having plans in place to get that business in, and (c) incentivising everyone involved in executing those plans to ‘go get em tiger’. Of course to fully incentivise there also has to be an element of personal risk.  Therefore if you do something (or dont do something you should) and the business doesnt get done as a result, you get a negative sales credit.  So the worst case for your bonus isnt necessarily a doughnut … but isn’t that the point of the capital markets;  the return you get for the risk you take?

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