Liquidity Hub Shuts Down

Headline in Finextra.

The MarketAxess CDS long-game

OTC derivatives spending to soar …says TABB, via Finextra, in which case is the MarketAxess long game actually a good bet?

Quote  Investment banks may be firmly focused on the reform of equity trading in Europe and the US but the fixed-income market is facing different issues, according to a bond trading specialist who argues the credit crisis six months ago may have set back the modernisation of credit default swap trading by a year or more.    

Are any eyes on e- CDS at this point or is everyone looking at rates?  … I wonder just how long that long game is

Bondvision and LatentZero

I see in Finextra that BondVision is partnering with Fidessa LatentZero (Minerva).   Clients will be able to ‘auction’ their business to the best bidder either outright, or by switching with up to five dealers online …. which i presume means singledealer orders and rfq?

I recall way back towards the tail end of 2005 (?) a Bondvision announcement about the FIX pipe being opened. 

LZ point to point etrading gets a step closer?

smart order routing?

Finextra quotes Tabb as saying there are 55+ venues competing for (US) equities e-trading business … which sounds like the ideal landscape in which to be selling smart order routing ..the tools to pick out the right venues for the order in question.  I wonder whether there is a market for buyside smart order routing in fixed income space too; and whether this technology has potential to change the general dealer reluctance to permission a client on more than one platform for a particular product class?

MarketAxess FIX future

Story in Finextra saying that MarketAxess has bought Greenline Financial Technologies .. and says the acquisition will expand its revenue base by adding equities and exchange-traded options, futures and commodities connectivity to its fixed income options.

“The acquisition of Greenline further broadens the range of technology services that we offer to institutional financial markets, provides a meaningful expansion of our client universe, including global exchanges and hedge funds, and further diversifies our business beyond our core electronic credit trading products,” says Richard McVey, chairman and CEO, MarketAxess.

Four Seasons

EFN tells us that the Four Seasons dealer consortium looking to challenge the largest US derivatives exchanges (initiallly with US treasury futures), is reportedly about to hire Gerald Putnam (founder of Archipelago trading system bought by NYSE in 2006), as its CEO. 

What Do You Want From A Hub?

Another post from John Greenan …. anyone want to volunteer something that fits the bill?

What do you want from a hub? Let’s clarify what we mean here.  In a classic equities buy-side connectivity world the institutional asset manager would generally choose between point-to-point connections using BTRadianz/TNS/similar or a hub such as Thomson Order Routing, Reuters Order Routing, FidessaExpress, UL Net, NYFIX etc.In the past the measure of value of a hub was seen in pure techie network terms – that the value increases as the square of the number of nodes.  That worked fine in a world where buy-sides were busy trying to add as many brokers as possible in the initial stages of the move to FIX based rather than telephone based trading.  But what are the dynamics in motion now?

Unbundling means that you do not need to deal with a broker in order to pay for their research.  So why bother with multiple brokers?  If you look at the execution capabilities of a firm such as Goldman Sachs or Morgan Stanley then it’s hard to see what else you need.  For simple risk management reasons it makes no sense to put all your eggs in one basket but the optimal number of brokers is perhaps now a great deal smaller than the consensus opinion.

Let’s put forward a new model of broker relationships – core and satellite.  Have a small number of core brokers with whom the buy-side maintains deep and broad trading relationships, multi-asset class, algos, programs and so on.  Have a number of satellite brokers that provide specialist execution capability – illiquid German mid caps, access to smaller markets where the tier one firms may not have a seat.  In this core satellite world how many brokers do you need for a global institutional asset manager?  Deal out of the US, EU and Asia Pacific.  Have say 6 core brokers and say 8 satellite brokers per region.  A total of thirty connections.

In this case it’s never mind the width, feel the quality.  Rather than a massive number of connections, lets go for the smallest number but have in depth trading relationships.  What can the hubs offer in this quality, rather than quantity, driven world?

What about a hub that offers 24×5 uptime based upon the hub having two connections to a broker and the buy-side having one connection to the hub?

What about a hub that offers crossing capabilities by default based upon being able to see all flow routed down the pipe?

Another issue, end of days.  In a global trading environment it’s hard to fit in end-of-days for sequence number resets.  Either you have a five minutes slot where a broker is unavailable or else you build two or more connections such that there are regional connections so an end-of-day can run after the business day has finished.

Intelligent management capabilities.  Monitor DKs and rejections and try and add value – notify people and let an investigation begin.

Management statistics.  What percentages of orders go where, which algos are used.  Can any patterns be determined?

Real time and post trade TCA.  How well is the firm performing in executing client orders?

I don’t think that a single hub exists at the moment with all these capabilities but it’d be nice to see it soon…