Sunday, December 7, 2008

SBL, CCPs, Shares (origin), Dark pools


I have 3 mins to do this!

Yahoo: Golden age for CCPs. Every dog has his day.
Another great trivia story: Shares
SBL: Couple of Q’s on this.
UBS: Congrats on move to X-Clear
Malaysia: Funny story. Nothing about the UBS Sapphire trading platform. However another regional win for NYSE Euronext (The infrastructure includes the NSC trading platform, Aramis market surveillance platform, and PAM broker workstations).
HSBC: Congrats on Canary Wharf?
Chi-X numbers out.
Dark Pools: Volatility, ICAP, Navigation, Grey order types

Wallabies: Almost as poor as the ref. Deserved to lose.

Wish me luck this w/end:

I’ll try and tidy this up on the blog at:

Great week end all.


Securities Lending CCPs

In response to one reader: Yes, this is an interesting development.
Both X-Clear and Eurex are now planning to offer CCP services on securities lending / borrowing (SLB).

Initially, Chi-X customers were not interested in a SLB service, neither from Chi-X nor centrally cleared from EMCF.
Brokers already have sufficiently advanced and mature systems and relationships in place.
The SLB world is also much less high volume. If you’re trading the FTSE100 constituents you’re only borrowing / lending 100 names.
I.e. SLB by its nature is already net.

In a subprime world where counterparty risk counts for so much more, I can now see this as a real service during times of stress for niche players and lesser known names. Once the market returns to normality I think the demand for the service may drop off. I also think there is already anonymity in the securities lending world so this is not an issue. I am not sure of the STP advantages, this could make the service a bit more ‘sticky’.

Another variable is how exchanges offer a formal SLB product and if their users embrace this or they prefer traditional means. Short selling bans also slow the whole business down in my view. People are becoming more ‘attached’ to their inventory in the current environment.

I don’t know the commercials. Today, I guess there is value in not taking risk with certain names but still getting your trade done. Tomorrow, once more is known about the credit situation and valuation the marginal economies I suspect will come back into play.

So an interesting and welcome development (I do believe in all thinks CCP). But I am not sure the materiality will transform the financial future of CCPs. I see this as more of a service than a revenue generator.

One securities lending specialist said none of the market participants would find much attraction in CCP offerings that do not manage dividend payments and corporate actions. He also said any clearing service unable to support current trading practices, whereby loan deals are struck on an open basis, would be unlikely to take off.
Roy Zimmerhansl, a former head of Icap’s securities lending platform and now a consultant, takes a more balanced approach. He said the entities that dominate the securities lending industry will resist change, hoping to maintain their stranglehold over the intermediation of flows between borrowers and lenders. He also doubted whether beneficial owners will want to sacrifice the collateral they typically take against inventory in return for the surety of facing a CCP. He also aired doubts over how fast agent lenders will want, or be able to, change their documentation and trading practices to support the ventures. Even so, Zimmerhansl said there is room for CCPs to carve out a niche in the market. Furthermore, if central clearing were to be encouraged or imposed by regulators, he said this would tip the balance and make central clearing pervasive throughout the securities lending market. This is possible, since supervisors will be looking for any way to reduce risks and increasing transparency in the financial marketplace.

SECFINEX SIGNS WITH SIS X-CLEAR FOR SECURITIES LENDING CCP Nyse Euronext subsidiary SecFinex has commissioned SIS x-clear to develop a central counterparty service for stock borrowing and lending across the SecFinex Order Market.
Full story:

Eurex and Clearstream to introduce CCP for securities lending

Central counterparties move into a golden age Central counterparties are bucking every trend in the financial industry. In the words of one particularly excitable enthusiast, clearing is the new rock ’n’ roll.

03/12/2008 12:08:00UBS TO SWITCH CLEARING TO SIS X-CLEARUBS is set to become the first London Stock Exchange client to switch its clearing from incumbent provider LCH.Clearnet to Switzerland's X-Clear, under a new competitive clearing regime introduced by the LSE in September.More on this story:

28/11/2008 11:03:00UBS LAUNCHES MALAYSIAN DMA AS EXCHANGE PREPARES NEW TRADING PLATFORMUBS has launched direct market access (DMA) on Bursa Malaysia, and rolled out its proprietary execution management system, UBS Sapphire, as the exchange prepares to switch to its new cash equities trading platform on Monday.More on this story:

GO TO ECONOMIST.COMThe Spanish property company that bought HSBC’s headquarters in London’s Canary Wharf last year for £1.1 billion ($2.2 billion) offered to sell it back to the British bank for £838m. The tower was the first building in Britain to fetch more than £1 billion.

Fortis board gets booed by angry shareholders

04/12/2008 12:50:00MARKIT LAUNCHES MIFID FRAGMENTATION INDEXFinancial information outfit Markit has combined with eleven top dealers to provide a consolidated source of aggregated data on market activity and liqudity across fragmenting European trading destinations.More on this story:

02/12/2008 13:27:00
The UK's Office of Fair Trading has decided not to take any further action in the market for derivatives clearing, after inviting views earlier this year.
More on this story:

BIS: Supervisory guidance for assessing banks' financial instrument fair value practices

EC confident about post-trade sector harmony plans The European Commission is adamant the credit crunch will not derail its efforts to build a harmonised capital market in Europe.

Chi-X Total Consideration Traded:November 2008: EUR 57,044,981,870October 2008: EUR 109,157,247,286That’s a decline of EUR 52,112,265,416 or 47.74%Chart on:

ICAP Said to Plan Stock-Exchange Rival, ‘Dark Pool’ for SharesBy Nandini SukumarDec. 4 (Bloomberg) -- ICAP Plc, the world’s largest broker of trades between banks, plans to start an alternative trading platform for stocks in competition with traditional exchanges, according to a person with direct knowledge of the situation. The London-based company wants to develop a multilateral trading facility by the second half of 2009, said the person who declined to be identified because the plans aren’t public. The electronic system for banks and fund managers will be created specifically to handle large blocks of shares and act as a so- called dark pool that won’t display prices, the person said. ICAP, which in 2006 ended merger talks with London Stock Exchange Group Plc, joins other so-called MTFs including Chi-X Europe Ltd., Turquoise, Nasdaq OMX Group Inc. and Bats Trading Inc., all of which aim to take market share from the traditional European stock exchanges.

02/12/2008 15:41:00
Buy-side trading network Liquidnet has shelved plans to go public until 2010 due to poor market conditions.
More on this story:

04/12/2008 11:28:00LONDON STOCK EXCHANGE SET TO OUST NASDAQ OMX IN NORWAYThe London Stock Exchange has executed a daring raid on the 'home' turf of Nasdaq OMX, after signing a letter of intent with Oslo Børs to establish a strategic partnership and provide a new trading system.More on this story:

New Star valuation collapses from £500m to ‘token 1p’ New Star’s shares, once worth £500m (€585m), were valued by stockbrokers on Tuesday at a "token 1p", as the fund manager is poised to cede control a banking syndicate led by HBOS, which includes HSBC, Royal Bank of Scotland and National Australia Bank. (The Guardian)

Volatility pushes dark pools into the shade Widely vaunted over the past year as the next big thing for the European equities markets, dark pools have suffered in recent weeks amid market volatility and growing concerns about counterparty risk, following the collapse of Lehman Brothers and doubts about the viability of other large institutions.

ADVANCED TRADING: Navigating Liquidity in a Post-MiFID WorldBy Charles-Albert Lehalle 12/3/08"Now that Chi-X has been live long enough to assert its efficiency as a trading destination, we observe that as the availability of new trading destinations increases, the optimal way to trade changes" says Charles-Albert Lehalle, Head of Quantitative Research at CA Cheuvreux and author of a new research report titled, "Navigating Liquidity", which investigates the optimal way to trade in a post-MiFID liquidity landscape. While the availability of new trading destinations since MiFID came into effect on 1 November 2007 has improved the liquidity offer and the available information on the price formation process, it also simultaneously increases, exponentially, the complexity of intra-day trading. While the search for a counterpart and the price discovery take place on their own time scale, the fair value of the exchanged assets and its level of uncertainty evolve on another time scale. One of the difficult tasks for investors is to find a balance between those two time scales. Once the fair price of an asset is known with a good level of certainty, trading too fast might cause a loss on the microstructure scale, such as paying a large price impact or missing the adequate counterpart. Taking these two time scales into account requires finding a subtle balance between trading fast, to minimise the market risk, and trading slowly, to be sure of having enough information on the price formation process and finding a counterpart large enough to avoid market impact. Moreover, the appropriate combination is unique for each investor; it has to take into account his or her own risk aversion. "That's why investors are well advised to utilise SORs (Smart Order Routers) and trading algorithms that are best adapted to this new context," says Lehalle. New destinations have a strong incentive to innovate in terms of trading rules, thus trading algorithms must continuously evolve as new destinations become available. Tick size also has a clear impact on trading efficiency and must thus be taken into account by SORs to efficiently route orders. To be efficient, SORs must for example be adapted to the fact that the sensitivity of some stocks to NY opening on Chi-X is really different from those on their primary markets. Moreover, the optimal way to trade a stock on a given trading destination depends on a subtle mix between the trading rules of the destination, the type of investor populating it, and the specific properties of the stock and its underlying asset. Embedding quantitative methods in algorithmic trading and SOR strategy is a good answer to the continuously changing mix of investors. "Navigating Liquidity," CA Cheuvreux's analysis of the issues surrounding liquidity access, concludes that the well known strategy of using trading algorithms to optimise the execution of large orders by slicing them in volume-indexed intervals, now has a cross-exchange equivalent: optimal slicing across trading destinations, taking into account investors' risk aversion. "This trading approach will have to be adapted to the rate of change in the European landscape which, to-date, has developed later than in the US and is likely to have fewer ultimate destinations," concludes Lehalle. About the Author Charles-Albert Lehalle is Head of Quantitative Research at CA Cheuvreux. He also lectures at the "Paris 6 (Elkaroui) Master of Finance" (Ecole Polytechnique, ESSEC, Ecole Normale Suprieure) and gives master classes in the Certificate in Quantitative Finance in London. He has also given lectures at numerous seminars and international conferences at MIT and the University of Edinburgh. With a Ph.D. in applied mathematics, Charles is an expert in stochastic processes, information theory and nonlinear control. He has published international papers in quantitative finance, real time optimisation of high dimensional processes (with applications to Formula One, high mix fabs, large plants, aerospace), and learning theory

PRESS RELEASE: BNY ConvergEx Group Announces 'Grey' Order Type 12/2/08BNY ConvergEx Group, LLC, a leading provider of global agency brokerage and investment technology solutions, today announced the release of "Grey," its latest TactEx order type. Grey is designed to actively sweep available displayed liquidity while an order is marketable and then post the remaining balance across multiple dark pools, including VortEx(SM), ConvergEx's agency dark pool with patent-pending IOI aggregation technology. This order type was developed to capture liquidity as it becomes available while minimizing a trader's footprint in the market.With unprecedented levels of volatility in today's marketplace, orders that once stood out in the crowd are now hidden. Liquidity today is quickly being dispersed between transparent market centers and dark pools. To capture non-displayed flow, current smart order routing technology needs to shift between light and dark seamlessly. TactEx is the first suite of DMA order types that allows traders to access both dark and displayed liquidity simultaneously. Designed to increase execution opportunities by reaching multiple liquidity sources and simplifying workflow, TactEx helps to maximize execution rates and improve performance. Unlike dark algorithms, which are built to make decisions for traders, TactEx gives traders more control over execution strategies.Joseph M. Velli, Chairman and Chief Executive Officer, BNY ConvergEx Group, stated, "With liquidity fragmented between displayed markets and dark pools, traditional execution tools are quickly becoming obsolete. Grey, our latest TactEx order type, is another example of ConvergEx's ongoing commitment to innovation. We will continue to develop sophisticated products and technologies to help clients efficiently aggregate and access the breadth of available liquidity in the evolving electronic marketplace."

A piece of the action (removed to separate entry)


From the ARU website.

The WC2011 website says the ticketing process will be decided early in 2009 with tickets going on sale later in 2009. Start planning.

Australia seeded top of Pool C for 2011 Rugby World Cup December 02, 2008 - 10:02am Story by: ARU

The Wallabies have been drawn in Pool C with Ireland and Italy for the 2011 Rugby World Cup in New Zealand.
The Qantas Wallabies have been drawn in Pool C – alongside Ireland, Italy and yet-to-be-determined qualifiers from Europe and the Americas – for the 2011 Rugby World Cup in New Zealand.

The draw in London today spread the 12 pre-qualified nations across the four pools of five teams each, while the last eight positions in the tournament (two spots in each pool) will be determined by regional qualifying events.

Official International Rugby Board rankings were used for the draw process, with the pre-qualified teams from the 2007 RWC in France given Band 1, Band 2 or Band 3 classification.

Band 4 and Band 5 teams will be determined once qualifying in various regions is complete.

The draw was random across each of the bands and produced the following pools (IRB rankings are in brackets behind the top three seeded teams in each group):


New Zealand(1) Argentina(4) Australia(3) South Africa(2)

France(7) England(6) Ireland(8) Wales(5)

Tonga(13) Scotland(9) Italy(11) Fiji(10)

Americas 1 Europe 1 Europe 2 Oceania 1

Asia 1 Playoff winner Americas 2 Africa 1

The highlights of the draw include:

+ Australia to face three European teams in Pool C, led by Ireland
and Italy. On current world rankings, Europe 2 would be Romania and Americas 2 would be USA.

+ Host nation New Zealand will play France in Pool A – the same side
that beat the All Blacks in the quarter finals of the 2007 Rugby World Cup.

+ England will meet long time rivals Scotland in the preliminary
stages for the first time in Pool B – the two countries contested a semi final back in 1991.

+ Defending champion South Africa has been drawn in Pool D against
Six Nations champion Wales and Fiji – the nation that gave the Springboks a scare in the 2007 quarter finals.

The knockout section of the 2011 RWC will unfold as follows:

Quarter Final 1: Winner Pool B v Runner-up Pool A
Quarter Final 2: Winner Pool C v Runner-up Pool D
Quarter Final 3: Winner Pool A v Runner-up Pool B
Quarter Final 4: Winner Pool D v Runner-up Pool C

Semi-Final 1: Winner QF1 v Winner QF2
Semi-Final 2: Winner QF3 v Winner QF4

Third place playoff: Loser SF1 v Loser SF2
Final: Winner SF1 v Winner SF2

An endless number of possibilities exist, including the following potential scenarios based on the IRB rankings:
+ Australia (if they top Pool C) will play the runner-up of Pool D
where, on the IRB rankings, Wales is the second seed

+ If the preliminary matches and the quarter finals pan out per the
IRB rankings and the seeding for each pool, the Wallabies would not face the All Blacks or Springboks until the final

+ If the Wallabies top Pool C and subsequently win their quarter
final they would face in the semis the winner of the quarter final between the top side in Pool B (Argentina per the rankings) and the runner up in Pool A (France per the rankings)

+ According to the draw, if the All Blacks and Springboks win their
respective pools and quarter finals, they will meet in the semi finals

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