Mostly… fixed income and cross product eTrading

March 21, 2010

Google eTrading

Filed under: 2015, etrading, FIX, Nuts and Bolts, OMS / EMS — holky @ 9:15 am

With Google hiring the former global head of FX at Bloomberg you can sense the anticipation that this could be the point that Google steps up with a Bloomberg-challenging capital markets offering.

While there is plenty for the market data lovers to expect from this, I wonder where etrading functionality sits in the roadmap, and whether those plans are all d-i-y within Google or whether there are any exploratory conversations going on with guys like marketcetera about creation and distribution possibilities regarding getting that Google OMS going? I know that if I was pushing FPL, I’d be all over Google to ensure FIX is high on Google’s radar as the api of choice for orderflow, as the wave of adoption that would create would be enormous.

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March 17, 2010

eTrading is king

Filed under: 2015, etrading, STP — holky @ 6:47 am

No need to talk up your own book if you’re involved in eTrading, EFN summarises the recent Morgan Stanley and Oliver Wyman publication Outlook for Global Wholesale and Investment Banking as specifically very positive from the eTrading front:

Flow Monsters – As spreads narrow and margins tighten, MS and Oliver Wyman are predicting that so-called ‘flow monsters’ with electronic trading platforms, ‘scale, leading edge technology and outstanding risk management in key categories’ will prevail in equities and fixed income trading. In fixed income currencies and commodities (FICC) sales and trading think market leaders Goldman Sachs, Citigroup, JP Morgan, BofA Merrill Lynch, Deutsche and BarCap. In equities sales and trading think Goldman Sachs, Credit Suisse, SocGen, Deutsche, JPMorgan, and Bank of America Merrill Lynch.

also specifically in

Electronic Trading We noted yesterday that anything related to electronic trading is hot (here). MS and Oliver Wyman confirm that the push to cut costs and build volume will ensure that electronic trading remains key in flow businesses for the foreseeable future. As a corollary, they also predict ‘down-skilling’ in other areas, such as flow sales.

and just to touch on the STP/processing side,

Post trade servicing Few people get rich from working in post trade servicing, but it’s definitely a growth area. Banks are predicted to invest heavily in post trade clearing and asset servicing capabilities this year. This is largely to prepare for changes to the OTC derivatives market, where up to 85% of trades are expected to move to centralised clearing systems in the next few years.

August 27, 2009

Speculative Trading

Filed under: 2015, etrading — holky @ 9:19 am

A Tobin tax is now threatened by Lord Turner, FSA Chairman, to stop ‘excessive’ bonus payments, by reducing opportunities in speculative trading.

Assuming this is intended to be a tax levied on every single fx trade from every participant in the fx market (to penalise speculators from punters through to tier1 banks), and one cant net out any liability (well that would miss the point wouldn’t it), then everybody will need to report every fx trade done in order for this to be fully policed. Whether that reporting is ‘just’ an extension to FSA transaction reporting, or an interesting project for exchanges and trade reporters, it certainly doesn’t sound like its cheap, easy, or quick to implement ..or indeed to police – here presumably needing to audit OTC trades reported against payments in/out of bank accounts; taking into account all nets and splits along the way.

I wonder if the real threat is not a tax on every fx transaction, rather it’s that there would be a dumbed down version that would emerge; something that could be agreed by all states involved, and then implemented within a time frame of a couple of years. Still, think MiFID, with change comes opportunity, and just think of all of the hitherto-unforeseen knock-on effects that could be monetized.

May 5, 2009

Live the dream

Filed under: 2015, etrading — holky @ 3:33 pm

Ah … i see that WSJ says etrading is defining the activity at NYSE…. so all of the humans on the floor there are having “big lunch” between the electronic activity around the open and close. Crikey – isn’t this getting to be like a pilots job? Alert, sober, and on the case for take off and landing, but otherwise on autopilot for the rest of the journey?

November 10, 2008

Get Those Humans Back!

Filed under: 2015, etrading, Nuts and Bolts — holky @ 6:28 pm

EFN tells us that humans are back in vogue…

Wild swings in global stock markets and unprecedented volatility are luring buyside and sellside traders back to the personal touch broking model, where they can find an experienced broker on the end of the phone. Electronic trading remains a high priority, but the human element may be the key to brokers gaining business.

Do you think this is indicative that e-trading technology still isn’t “good enough” to merit the trust of the customers wishing to trade? In which case what function is missing? Based on that article, it’s some sort of reassurance screen/popup; “yes that looks like a very sound trade, pretty much in-keeping with what were seeing, so please click OK to invest wisely”. Ok, that’s an exaggerated thought, but surely a colour/context check could be part of an automated negotiation/orderflow?

November 3, 2008

Tradeweb Changing Shape

Filed under: 2015, etrading — holky @ 8:57 pm

Tradeweb’s vision – where markets meet;

To be the first network to offer insitutional clients trading from ONE platform, with ONE ticket, in ANY asset class, in ANY currency, anywhere in the world.

A great aim – but clearly not enough to keep them busy. Today we hear that Tradeweb also plans to launch an electronic inter-dealer platform (for pass-through mortgage-backed securities in early 2009 ..as part of their purchase of Hilliard Farber’s interdealer business). I wonder how much appetite (within TW & the dealer shareholders) there is to extend the interdealer product set?

Well, even though Tradeweb clearly has many irons in many fires, and shipping (/cargo) is something ICAP have mentioned with a degree of excitement, I don’t think this Tradeweb trademarked product will actually be related (odd about the trademark though) …

Tradeweb ™ streamlines the cargo declaration process by enabling users to send declarations to the Singapore Customs, IE Singapore, and other controlling agencies directly from the computer

…unless you know different?

September 17, 2008

More venues than banks..

Filed under: 2015, etrading — holky @ 12:05 pm

A crap week for those in the investment banking space, but should we expect a wave of closure of liquidity venues to hit the headlines shortly? If a third of banks need to dissappear in order to cleanse and rejuvenate the market, surely we are at risk of ending up with more venues than there are liquidity providers to adequately support them? …albeit you could argue were in that space now given a lack of liquidity already.

June 20, 2008

Human sales/trading in an increasingly electronic world

Filed under: 2015, etrading, Nuts and Bolts — holky @ 8:19 am

EFN tells us that TABB reckon e-trading use will grow rapidly in European fund managers and investment banks over the next two years – causing the number of sales traders to drop by 9% a year for the next two years, with human traders executing 50% of flow in 2010 (down from 82% in 2005).

The point that new opportunities for the sellside trader are arising thanks to increasing fragmentation – in providing clarity to the buyside on where to execute (“navigating the markets”) – appears underlined by Traders Magazine suggesting that buyside traders do not have a coherent and considered strategy regarding the use of dark pools (for example 18% of the buyside traders unsure what they think their potential usage would be of a dark pool that was able to send out indications based on order flow that resides in that pool).

Isnt the uncertainty just because the landscape is not particularly well charted because it is still changing (and perhaps dramatically so) – eg more execution venue launches later this year. So while sellside need to help buyside clients understand whats out there, surely once the dust settles and the landscape is charted, more buyside will want to execute based on the proprietary rules that they have, in their systems/processes, with regard to when where and why.

April 21, 2008

Time for CCP in FI Markets?

Filed under: 2015, etrading, Nuts and Bolts — holky @ 12:21 pm

At the same time the exchange markets are moving into a much more OTC shaped model with fragmentation and dark liquidity .. Tabb is suggesting that the Fixed Income industry may need to migrate from a traditional OTC market without a central venue to a more traditional exchange model in which there are not only liquidity providers making two-sided markets but a vibrant agency model as well.   Full article here

With development resource more scarce given current market conditions I think all roads lead to Rome – with Rome being whatever the target client wants it to be. This definitely isnt a one-size-fits-all sort of Rome though. Instead we’ll see continued fragmentation of the existing etrading landscape leading to multiple venues happily co-existing, but each operating with a model specifically aiming at the type of customer they are targeting.  As each trading model brings a different proposition value for each different tiers on client and also on dealer side, it will be interesting to see how many of the existing venues have appetite for revolution to extend their footprint into dramatically new and unproven models (and new target clients), rather than reinforcing what they do by continuing on an enhancement-based evolutionary path – allowing new venues to enter the picture.

Institutional Buyside FI etrading

Filed under: 2015, etrading, FIX, Nuts and Bolts, OMS / EMS — holky @ 12:03 pm

Another post from John Greenan…

What’s the future for Institutional buy-side Fixed Income trading?

Within the e-trading world a lot of the emphasis has been on the sell side with different firms and strategies (Liquidity Hub, project fusion and so on).  One aspect that does not seem to get as much attention is the buy-side.  Typically a big institutional buy-side will have an OMS like Charles River, LatentZero, MacGregor etc.  On top of that will sit one or more of MarketAxess, Tradeweb, BondVision and so on.  The model that these firms impose is one of FIX connectivity into the EMS but no option of end-to-end FIX connectivity from OMS to brokers.

As this market place matures it’s difficult to see what the future direction will be.

I’d like to propose one model.

Buy-side EMS connects via pure FIX 4.4 to a limited number of brokers.  A RFS process starts to request two way quotes in size for a list of instruments that the firm is interested in.  These quotes are combined into a synthetic order book – such that the buy-side can see ‘market-depth’ for instruments of interest.

The strength of this solution is that there is no longer a need to look at proprietary systems, the streamed quotes can be used for monitoring, it’s pure FIX, brokers can be plugged in or dropped without much fanfare.

The weakness is that the first buy-side to implement this may have to build the system.  Potentially it’s a very resource intensive system, depending on the number of quotes, brokers and instruments.

What are buy-sides doing in this space?

March 28, 2008

Liquidity Hub Shuts Down

Filed under: 2015, etrading — holky @ 5:54 pm

Headline in Finextra.

March 7, 2008

MarketAxess FIX future

Filed under: 2015, etrading, FIX — holky @ 7:26 am

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.

March 6, 2008

Four Seasons

Filed under: 2015, etrading — holky @ 8:46 pm

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. 

February 18, 2008

A Single Platform

Filed under: 2015, etrading, Nuts and Bolts, OMS / EMS — holky @ 11:40 am

SIFMA Fixed Income eTrading Survey 2008 results show 85% of buy-side respondents expect to be using a single platform for all of their institution’s wholesale electronic trading activity within the next two years.

At SIFMA we heard that the future is not all multidealer venues. Indeed, singledealer platforms are still a serious consideration for the majority of attendees where there is a functional benefit.  We also heard that buyside do actively want competition in the ECN/vendor space – if only so the functional landscape does not stagnate.

So answering the question posed in Tales from a trading desk, buyside expectation and indeed their desire would appear that the single platform in question is not one of the vendor or dealer platforms, instead it is their own desktop (ie their single platform), and that this platform is able to aggregate their view of liquidity into a single view of the market, from where they trade. So OMS or EMS depending how you measure it.

My panel ( this one of the only snippets I heard 😦 ) concluded that 2008 is back to basics and so time for the foundational work to be done so we are ready to benefit from the new venues and landscape changes that the dealer consortia are driving.   In an environment where fixed income etrading budgets are broadly the same as last year (*), we need to be specific about where the right place to spend is. So in terms of back to basics, spend your 2008 money on the implementation of your OMS and then […through 2009] plugging it into the liquidity pools.  

Which pools do you connect to though? Well, once buyside have got the hang of plugging their OMS into fixed income liquidity pools, we’d be mad not to expect a much stronger drive from buyside and sellside to hook up direct in order to handle bespoke orderflow/information flow, or perhaps a move towards something more cross-product.  Sure, this is a relationship enhancer so perhaps only really relevant for top tier clients, but how long will critical mass of connections into say one of the fi venues want electronic order flow constrained in some way just to match what is possible via the venue’s GUI ?  Will those venues constrain the types or order that they can process, or will they move towards a more generic orderflow routing instead?  … though perhaps that’s a question for 2010 and beyond.

(*) assuming survey of SIFMA attendees is indicative of the market as a whole. The other options were that budget was materially less or materially more than 2007.

February 5, 2008

Everyone’s moving to equity anyway!

Filed under: 2015, etrading — holky @ 8:40 pm

EFN tells us  3 senior traders from Citigroup have left to set up a cash equities division at  London-based fixed income heavyweight Icap … in the latest evidence that specialists in other areas are moving into the equities business.

January 30, 2008

Turquoise Airlines

Filed under: 2015, etrading — holky @ 4:20 pm

At Finexpo earlier today Eli Lederman, CEO of Turquoise, drew a parallel between 80s deregulation in US airline markets and what is going on in capital markets now. So where airline customers (passengers) now benefit in terms of more readily available flights that are cheaper (relative to the bad old regulated days) .. capital markets customers (buyside, who will of course pass on these benefits to the ultimate investor), should expect the new competition to bring more readily available (/accessible) liquidity, with tighter spreads, and the resulting upsurge in volumes transacted because of this reinforcing (/deepening) that liquidity.

One additional airline point jarred me.  The point about multiple airlines sharing terminals being a benefit to the passenger; who can now easily change airline etc for a connecting flight as part of a single journey. Which of course they can. So multi-airline venues rule! … Though if so, why would Virgin get any value from now claiming their entirely-separate-from-other-airlines security facilities are a differentiating and major plus point?  and who cares if silverjet have an entirely separate terminal?   Perhaps ~ 20 years on some of the multi-airline-per-venue benefits have lost their sparkle?

Persisting with the parallel but looking at FI otc markets, if we step past the current rush for multi-dealer consortia and venues, is the shape of the more distant future that singledealer venues will actually end up ruling?  Then it’s the buyside desktop that keeps the single dealer “terminals” (in airline speak) in close proximity (for easy parking and some benefits of connecting flights during an overall transaction). So that’s still an api connection per dealer (or perhaps per-aggregator) into the buyside desktop then that we should all be seeking?

January 29, 2008

2007 – year of consortia

Filed under: 2015, etrading — holky @ 12:39 pm

A consortium is an association of two or more individuals, companies, organizations or governments (or any combination of these entities) with the objective of participating in a common activity or pooling their resources for achieving a common goal.

Well 2007 was certainly the year of the consortia. Everywhere you look, banks pooling their resources for participating in a common activity or to achieve a common goal. 

And with Project Rainbow now on the horizon .. we see that 2008 is continuing the theme …
consortia2.gif
But what are the common goals that are sought?

The short term appears a defensive move in a landscape changing dramatically because of regulatory change –  the banks individually backing many/all horses in order to remain agnostic over choice of venue that business gets executed (until you start declaring you actually do have a preference), forcing exchanges/venues into lowering their costs … all of which of course appears to be working, though what cost of those venues countering with diversification into markets they previously didnt touch?

For the longer term do you have to start joining the dots between the consortia?  As and when the products cross over into another asset class, something that is typically managed in a separate silo in the sellsides, then those sellside representatives around each board table need to be there to execute their firm-wide strategy for the venue in question, rather than a product-silo specific view.  So will Tradeweb/Fusion plans to venture into Equity drive us down the road of a Fusioned MarkIT Boat Tradeweb ?  Or will MarkIT or Liquidity Hub turn Turquoise at any point?

Or is the only genuine end game for all of this wise investment just the exit strategy to sell any shareholding at a higher price than you paid?

January 23, 2008

MarkIT Boat

Filed under: 2015, Mifid — holky @ 2:07 pm

Just to close the circle, MarkIT buys BOAT … which already claims 68% of the off-exchange trade reporting and roughly 25% of the equity trades in Europe.

December 27, 2007

Tradeweb cash equity trading

Filed under: 2015, etrading — holky @ 11:40 am

Thomson TradeWeb, the dominant fixed-income electronic trading platform, plans to broaden its reach to cash equities in the second half of 2008. So says traders magazine.

A cash-equities trading platform is anticipated for the latter half of next year, with equity options after that. Toffey said TradeWeb could build an upstairs equities block trading platform. An electronic communications network is less likely, he added, although he didn’t rule it out.

“Bringing the equities business under the TradeWeb organization gives us focus and expertise to build out the transaction side,” Toffey said, referring to the trading of equities, compared with routing and the current AutEx indications product. “It’s ultimately about having liquidity. We’ll work with dealers and the buyside to help put the [fragmented] market back together.”

TradeWeb will also make AutEx, its indications-of-interest and trade-advertisements product, more electronic and executable. This overhauled product, as well as any other TradeWeb trading platforms, could use the firm’s FIX-based routing network. The network, which has 7,000 connections and handles more than 15 percent of U.S. volume in traded equities, will be renamed TradeWeb Order Routing Network.

December 20, 2007

MTS offers German bonds to hedgies

Filed under: 2015, etrading — holky @ 4:02 pm

MTS is setting up a new segment to offer German bonds to hedge funds in EuroMTS. As in EFN

December 12, 2007

2008 (part 1) – Bachman, Turner, Overdrive

Filed under: 2015, etrading — holky @ 4:25 pm

WSJ article on TowerGroup’s predictions for 2008….

– Global remaking of the capital markets, led by the battle for global exchanges

– All things electronic trading. If you’re not trading electronically, you’re dead.  (as a result, 2008 will be the year that the impact of latency really rears its head)

 – Derivatives.

– Global Risk Modelling.

– Portals. (bloody hell – where did we park that tardis?)

…and to get more European ingredients in there, stick MiFID into the pot with the first challenge/test of a major firms best-execution policy.

December 5, 2007

MarkIt and Liquidity Hub

Filed under: 2015, etrading — holky @ 2:27 pm

Finextra lets us know that Markit has agreed in principle to acquire SwapsWire, the dealer-backed electronic trade confirmation network for OTC derivatives processing.  So when will MarkIt officially join forces with Liquidity Hub?   … draw a venn diagram of the shareholders of each.   So LH handle the front end execution technology, MarkIt (swapswire) the STP, and MarkIt taking the market data stuff that they have always done pretty well anyway.   Sure, MarkIt have historically been on the credit side, so with just a nodding acquaintance with the rates swaps guys, but we’re in a different world now, right?

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 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 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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