G’day All,
I think I better get this blog out today.
Conference the next 48hrs so will be flat out keeping on top of the inbox.
(also mindful of mums feedback!)
EMCF cuts fees again and brings in the per order charge option. This throws up a few processing issues. The fact that some want optionality shows at least some people watch their fees closely enough to at least reconcile them.
Chi-X brings in dark pool and BATS inverts pricing
Nasdaq to explore clearing at cost in the US. I think there is once again room for the rigors of competition after a long standing monopoly (since the consolidation of the 70’s, or whenever – pls correct me)
LCH.CN should talk w/ DTCC about the respective bits of the business that they are mutually good at (and highly cost effective and commoditised at).
Transparency does not have to default to mandatory “on exchange” and on this front I like the RBA thinking.
LSE is joining the clearing game too late, I fear their price points.
Interoperability: DB w/ X-clear.
I’ve posted this on the blogspot:
http://clearingandsettlement.blogspot.com/
Have a great balance of the week all.
Some great Super 14 to look forward to. (And congrats to Lenster and the Irishmen…if that’s what you can call them).
S
DB interoperates with X-Clear.
x-clear belongs to SIX Group Ltd (Swiss Infrastructure and Exchange)
https://www.uzh.ch/isb//studium/fs09/pdf//3644_central_counterparty_xclear.pdf
and Eurex clearing is 50% owned by SWX.
http://www.eurexchange.com/download/institutional/Eurex_Clearing.pdf
…so we have interoperability between affiliates.
…and some feedback from mum….
I agree with the first sentence in your email below. L, M.
…Well, it is Friday night and I’m in the office too late!
HEDGE FUNDS REVIEW: Central Counterparty Gets Boost in Europe By Staff5/21/09European Multilateral Clearing Facility (EMCF), the European central counterparty (CCP), has introduced an optional order based pricing model. Clearing participants of EMCF will be offered the choice between the current flat fee for each execution and a flat fee per order from June 1, 2009.This pricing model will increase the predictability of fees and lower costs when orders result in multiple executions.EMCF is currently charging € 0.03 per execution for UK stocks and € 0.05 for all other markets. Many orders result in multiple executions, over which the current fees are charged.From June 1, 2009, EMCF clients will be able to opt for a fee of € 0.05 per order for UK stocks and € 0.07 per order for all other markets which EMCF services. Users will have the opportunity to choose to be charged either per execution or per order before the first day of every month.
Please find below the text of a press release regarding a new fee structure which EMCF will introduce as of 1 June 2009. http://www.euromcf.nl/editor/uploads/090521%20press%20release%20new%20fee%20model.pdf
CHI-X EUROPE DARK POOL LAUNCHES
Multilateral trading facility Chi-X Europe has launched its dark liquidity pool, Chi-Delta.
Full story: http://www.finextra.com/fullstory.asp?id=20065
Bats Europe to challenge NYSE Euronext with fee cut Bats Europe, the equity trading platform, is set to introduce an aggressive "inverted pricing" structure, which will effectively involve paying customers for carrying out certain trades, in an attempt to repeat a ploy that helped establish the firm in its domestic US market two years ago.
Nasdaq OMX moves to stem slide in market share Nasdaq OMX may provide a new stock-clearing service at cost in an effort to arrest the fall in its share of US stock trading, an executive said.
18/05/2009 11:05:00
TURQUOISE TO LAUNCH LIQUIDITY AGGREGATION SERVICE
Bank-backed equity trading venue Turquoise is set to launch a liquidity aggregation and order routing service after getting the go-ahead from the Financial Services Authority (FSA).
More on this story: http://www.finextra.com/fullstory.asp?id=20039
DTCC hints at reviving merger talks with LCH The Depository Trust & Clearing Corporation is open to reviving negotiations with LCH.Clearnet about a potential merger of the two transatlantic clearing houses, Don Donahue, the former’s chief executive, has said. (Financial Times)
EuroCCP creates products role in European drive EuroCCP, the European arm of the Depository Trust & Clearing Corporation, has appointed a new head of product management in the region, where it continues its push for new business less a month after its parent withdrew a bid for Europe’s largest clearer.
http://www.thetradenews.com/dangers-bifurcation
EUROCCP TO PROVIDE CENTRAL COUNTERPARTY SERVICES FOR PIPELINE EUROPEAN PLATFORM
http://www.finextra.com/fullpr.asp?id=27581
OVER-THE-COUNTER PLAN UPSETS DEALERS The plan outlined 10 days ago by US Treasury Secretary Timothy Geithner to reform the US over-the-counter derivatives market may have been long overdue but it has highlighted the deep-seated enmity that exists between OTC brokers and the world’s largest futures exchanges.
http://mail.efnmail.co.uk/r/79662686/MjU3MzA2OjIxMzI3/
COMMENT: PROPOSED US REFORMS CLOUD HORIZON FOR CLEARING Every two years the Futures Industry Association inducts a small group of “merited” individuals to the Futures Hall of Fame. Among the luminaries honoured this year at the FIA’s annual conference in Boca Raton was David Hardy, the former chief executive of LCH.Clearnet.
http://mail.efnmail.co.uk/r/79662699/MjU3MzA2OjIxMzI3/
***mandatory CCP delivers economy of scale for large users, occasional users are confronted with a cost of entry (hence potentially greater cost and disincentive to manage risk)
***terms of access to CCP. Regulatory conflict for home jurisdiction rather than ‘mutual recognition’.
***suitability of products to clear(ing).
'No' to sell-side disintermediation; 'no' to more loss of equity trading market share; 'no' to buying an MTF; 'yes' to expanded hosting services; 'yes' to more high-frequency flow; and 'maybe' to a new trading platform. Xavier Rolet, the London Stock Exchange Group's new CEO, makes his mark in his first official day in the office. Read story
LCH.Clearnet to launch CDS clearing offering in DecemberLCH.Clearnet SA will launch a credit default swap clearing offering in December this year in response to regulator and market demand. The first phase of the launch will cover iTraxx European indices.
LCH.Clearnet to offer swaps services to more market participantsLCH.Clearnet plans to expand its centralised clearing services for interest-rate swaps to more market participants, including governments, some investment funds and corporations. The move is expected to take place in the fourth quarter. LCH.Clearnet CEO Roger Liddell said the expanded service "specifically addresses over-the-counter trading and gets this market to the same standards as the exchange-traded world." The Wall Street Journal (27 May.) , Financial Times (free content) (27 May.)
Although many multilateral trading facilities (MTFs) have had to revisit their business plans following the recent dip in equity trading activity, Olof Neiglick, CEO of Nordic MTF Burgundy, is confident his venue will not suffer the same fate. Read the Interview
Australia says no need for local OTC clearing house
SYDNEY, May 22 (Reuters) - Australian regulators called on Friday for more transparency in over-the-counter (OTC) derivatives and better management of credit risks, but they stopped short of recommending a new central clearing house.
http://www.iii.co.uk/news/?type=afxnews&articleid=7334618&subject=markets&action=article
22/05/2009 13:04:00
JAPAN TO BUILD CCP FOR OTC DERIVATIVES TRADING
Japan Securities Clearing Corporation (JSCC) has announced plans to develop a central clearing counterparty for interest rate swaps and credit default swaps.
More on this story: http://www.finextra.com/fullstory.asp?id=20060
Brokers under fire on trade standards
OUTDATED computer systems and mismatched legal documents used by derivatives brokers and traders have come under fire from the Reserve Bank and financial regulators in a study that calls for a revamp in the workings of over-the-counter derivatives trading.
http://www.theaustralian.news.com.au/business/story/0,28124,25523645-36418,00.html
Wheatley: “We will not slavishly follow” US, Europe
By Jame DiBiasio
The Hong Kong SFC chief outlines areas of potential reform but promises consultation, not surprises
http://www.asianinvestor.net/article.aspx?CIaNID=103749
Tokyo Stock Exchange: Launch Of A Working Group On Clearing Operations For OTC Derivatives Trades
Japan Securities Clearing Corporation (JSCC) and Tokyo Stock Exchange, Inc. (TSE) have set up a Working Group on clearing operations for OTC derivatives trades in accordance with the report released from The Study Group on Post-Trade Processing of OTC Derivatives Trades (on March 27th, 2009).
http://www.exchange-handbook.co.uk/index.cfm?section=news&action=detail&id=82822
ASX to develop energy-related futures
By Sundeep Tucker and Peter Smith
The Australian Securities Exchange is taking steps to increase its revenues by developing energy-related derivatives amid uncertainty about whether it will be stripped of its monopoly to provide share-trading services. The exchange intends to launch a range of futures products based on coal, gas and renewable energy certificates – subject to regulatory clearance – to build on its existing electricity-related products. It is also to develop its platform for exchange-traded funds, where volumes badly lag behind international rivals.
http://www.ft.com/cms/s/9d8c6626-455b-11de-b6c8-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F9d8c6626-455b-11de-b6c8-00144feabdc0.html&_i_referer=http%3A%2F%2Fwww.futuresindustry.org%2F
Mr Hiom said the ASX would welcome competition for market access but added it had flagged several issues with authorities, questioning whether liberalisation should proceed until these were addressed
New chief, new focus on derivatives and clearing
By Jeremy Grant
Before Xavier Rolet uttered his first words as the new chief executive of the London Stock Exchange, he had already signalled a break with the culture of his predecessor, Dame Clara Furse. The former Lehman Brothers trading expert has shunned the spacious seventh floor executive suite where Dame Clara worked and will run the exchange from an ordinary glass-fronted office on the second floor, with other staff running LSE markets.
http://www.ft.com/cms/s/aa4ddd72-459c-11de-b6c8-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Faa4ddd72-459c-11de-b6c8-00144feabdc0.html&_i_referer=http%3A%2F%2Fsearch.ft.com%2Fsearch%3FqueryText%3Djeremy%2Bgrant
Approval is expected next month from UK regulators that would allow Cassa to clear on a pan-European basis out of London. Cassa will start by clearing for Baikal, the group's "dark pool" due to launch soon
Li Xiaojia tipped to head HKEx
By Bi Xiaoning (China Daily)
Li Xiaojia, the current chairman of JPMorgan Chase in China, appears to be the most likely candidate to head bourse operator Hong Kong Exchanges and Clearing Ltd (HKEx) when the current incumbent retires next year.
http://www.chinadaily.com.cn/bizchina/2009-05/21/content_7913341.htm
Nasdaq OMX mulls new services to arrest decline in market share Nasdaq OMX Group may offer a new stock-clearing service at cost in an attempt to halt the slide in its share of US equities trading, Brian Hyndman, senior vice-president of Nasdaq Transaction Services, said on Friday. (The Wall Street Journal)
BROKER FOCUSES LARGE-CAP TRADING TEAM ON LONDON CA Cheuvreux, the equity broker owned by French investment bank Calyon, is concentrating its large-cap European equity trading team in London by relocating sector specialists from around the region to the UK capital.
http://mail.efnmail.co.uk/r/76712785/MjU3MzA2OjIxMjU1/
UK risks losing AAA rating
LONDON (Reuters) - Britain risks losing its precious triple-A credit rating because of the danger that government debt may soar close to 100 percent of GDP, and uncertainty over policy before an election due by next year.
http://news.yahoo.com/s/nm/20090521/bs_nm/us_britain_economy;_ylt=AowVOHDiX4iIkwWRpAPBrU.yBhIF
Securities & Investment Institute Comments On FSA Consultation Paper 09/10 Reforming Remuneration Practices In Financial Services
http://www.exchange-handbook.co.uk/index.cfm?section=news&action=detail&id=82802
SURVEY OF THE OTC DERIVATIVES MARKET IN AUSTRALIA
http://www.rba.gov.au/MediaReleases/2009/mr_09_joint_rba_apra_asic.html
UBS TO LAUNCH HONG KONG DARK POOL
Swiss bank UBS is launching its Price Improvement Network (Pin) dark pool trading venue in Hong Kong.
Full story: http://www.finextra.com/fullstory.asp?id=20041
Deutsche Börse opens clearing to rival German exchange giant Deutsche Börse is set next year to open its doors for the first time to a clearing rival, a move welcomed by its customers who claim the competition will drive down the cost of trading German equities.
See also
x-clear belongs to SIX Group Ltd (Swiss Infrastructure and Exchange), which was created out of the merger of three infrastructure companies, SWX Group, SIS Group and Telekurs Group, at the beginning of 2008. The shareholders in SIX Group are the Swiss big banks (30.12%), foreign banks in Switzerland (22.68%), commercial and asset management banks (14.96%), cantonal banks (13.64%), private bankers (10.17%) and regional and Raffeisen banks (4.09%). Other banks account for 1.23%. SIX Group and its companies hold the remaining 3.11%.
https://www.uzh.ch/isb//studium/fs09/pdf//3644_central_counterparty_xclear.pdf
TED spread normalizes, signaling availability of creditThe TED spread, the gap between the two-month London interbank offered rate and the two-month Treasury bill rate, dropped from more than 450 basis points in October to 48 basis points Thursday. The credit-distress barometer's long-term average is roughly 50 basis points. "Over history, it's been quite an interesting predictor of credit crunches. The fact that it's gone down is a positive indicator of credit availability," said James Holtzman, a financial adviser at Legend Financial. MarketWatch (5/21)
Single Market News No 54 – Financial Crisis The newsletter includes an interview with David Wright on the causes of the financial crisis. “As far as we know, our banks and financial institutions purchased at least one trillion Dollars worth of US sub-prime assets and probably a lot more.
THE TRADE NEWS: Pipeline Europe Unveils Post-Trade PartnersBy Staff5/18/09The newly-launched European division of dark block trading platform Pipeline will offer clearing and settlement to both buy- and sell-side clients through BNP Paribas Securities Services and pan-European clearing house EuroCCP.Under the arrangement, BNP Paribas will act as an intermediary between EuroCCP and traders on Pipeline who are not able to connect to the clearer directly – typically buy-side clients. Pipeline’s buy-side users will also be able to settle using BNP Paribas’ settlement account as though they were direct clients of the firm. BNP Paribas will assume the associated settlement risk – a so-called ‘model B’ arrangement. Pipeline said access to BNP Paribas’ AA-rated balance sheet allows users to mitigate counterparty risk.Sell-side firms trading on Pipeline will be able to access EuroCCP directly as a central counterparty for their trades on Pipeline. As well as reducing counterparty risk for both buy- and sell-side, Pipeline said the arrangement enables reduction of settlement costs because it allows the netting of trades executed on the platform. “This unique new solution will provide risk reduction benefits to both buy and sell-side clients whether they directly use a CCP or not,” said Marcus Hooper, executive director of Pipeline in Europe, in a statement. “In these volatile market conditions where liquidity is more difficult to source and risk is a constant concern, we want to provide new and better solutions to clients. Offering this new hybrid model B/central counterparty clearing and settlement model will set a new standard in client risk management and enable considerable savings in settlement costs.”The new service will be available across more than 5,000 European securities, covering all equity instruments in 14 countries. Pipeline embarked on a soft launch in Europe in early April and full launch is targeted for the second half of May.
GLOBE AND MAIL: Phantom Trades Haunt Canadian Exchanges By Andrew Willis5/20/09To understand why trading volumes are exploding in blue chip Canadian stocks, take a moment to consider the concept of locking a market.We'll get to what's happening at the likes of OPTI Canada, Bombardier and Uranium One in a moment, but let's start with a metaphor from the world of auto dealers.Suppose Eastside Ford was offering a $1000-rebate to anyone willing to buy a new minivan. On the other side of town, Westside Used Cars decided to pay the full market price for nearly-new Ford minivans, to fill its lot. In this unlikely scenario, some enterprising soul would lock in a $1,000 profit by buying from Eastside, and promptly selling to Westside.Got the picture? Okay, now substitute a high-volume stock such as OPTI for the minivan. And substitute any one of a number of stock exchanges for the car dealership. The Toronto Stock Exchange and upstart rivals such as Alpha, Pure and Chi-X Canada offer rebates in certain situations to those who provide trading liquidity.Those rebates, and the advantages that come with having the fastest trading systems on the Street, have led to an explosive increase in what's known as High Frequency Traders (HFT), which are also known as Electronic Liquidity Providers. From a standing start just over a year ago, when new exchanges launched to compete with the TSX, the HFT crowd now accounts for as much as 15 per cent of Canadian stock trading. While that seems impressive, this type of trading is now estimated to account for more than 50 per cent of the volume of U.S. equity trading.The new players in Canada include companies such as Tradebot Systems, and one of their favourite strategies is a lock markets. The investment banking arm of CIBC have seen their trading volumes soar, in part by catering to this crowd with extremely low trading prices and quick, easy market access.Here's what an HFT might do with OPTI. They would use sophisticated, computer-driven trading to buy the stock for $3.45 on one exchange while selling it for $3.45 on another. The profit on this risk-free cross would be the rebate from an exchange, which would then advertise an apparent spike in traffic. Some HFT systems are so quick that they can jump the electronic queue in exchanges, snapping up buy or sell orders that are being processed by slower systems.What have a few high frequency traders done to traffic flows on Canadian exchanges? Buying and selling of OPTI now averages 4 million shares each day, up six-fold this year. Bombardier volumes are up over 300 per cent in the past 18 months. Uranium One trading has doubled since last summer.This new volume is deceptive. Few new, traditional shareholders have bought into a company. Instead, the HFTs simply generated a whole lot of trades in small lots of stock - at most, a few thousand shares are bought and sold at a time. The HFT trades are designed to blend in with other more traditional trading, so as to avoid detection.Of course, those who aren't in on the game can be fooled - witness the speculation recently on a possible bid for OPTI, driven in part by the spike in volume.As one equity desk veteran pointed out in discussing what he called “phantom liquidity” at OPTI, a show of interest from the HFTs got the attention of momentum traders, who mistook it for increased investor interest. These momentum traders jumped into the stock, and the new volume created additional arbitrage opportunities, which enticed more HFT interest.To date, Canadian regulators have opted to ignore locked markets, although U.S. market watchdogs have taken steps to curb the practice. The Canadian Securities Administrators did ask for comments on a proposal to prohibit the practice last year. A number of dealers stepped up to say locked markets are an increasingly large problem, and should be banned. But the CSA and our patchwork of provincial and national regulators have not followed through.For now, the onus is on investors to stay informed. If the volume of trading in a widely-held stock is soaring, with no apparent reason, the company may be in play. But the more likely explanation is a handful of computer-based programs are hard at work locking markets, and earning rebates on risk-free trades.
Wednesday, May 27, 2009
Friday, May 15, 2009
AMCF News: LCH, Fees, ICAP consortium
Well, it is Friday night and I’m in the office too late!
These last 2 weeks have seen a flurry of announcements and I try and digest them from afar (and without the subtleties of all the sub plots).
As I pondered this earlier in the week I started with fees – and below are some thoughts on that.
Then I tried to put this in context with the LCH bid.
Basically, I just don’t think equity clearing is relevant.
I think the bid is about potential, earnings growth (OTC / CDS etc.) and keeping appropriate stuff ‘off’ exchange.
The Duffie / Zhu paper has some merits (Does a CCP reduce risk?).
I think the US is knee jerking too far towards ‘on exchange’ mandatory.
Mandatory is a good word in the context of optimising CCP.
Given this, I think the best outcome would be for LCH.CN to engage with the consortium.
Those areas with potential and growth will be acquired and invigorated.
The rump of the commoditised business, like equities, will be commoditised and long overdue decisions will finally be made.
The LCH.CN accounts for 2008 are not out yet.
They’re due, and they’ll make interesting reading for those of us who have watched the reform of our capital markets these last 12 months.
Please excuse the below drafting, it’s just snippits as they come to mind during the week.
Have a great week-end.
And a quote of interest: Never compete, create. (Earl Nightingale).
S
http://clearingandsettlement.blogspot.com
Fees.
In last Friday’s (8th May) blog I mentioned fees.
LCH.CN SA: there is still an ad valorem kicker in all fees along with a quarterly banding fee (from 0 to 150K / qtr).
So, your floor fee is 5 cents, your max is 60 cents.
http://www.lchclearnet.com/fees/sa/products/cash_markets.asp
LCH.CN Ltd: we still have 18 bands (which implies two different types of cross subsidy 1. between small and large users and 2. between liquid and illiquid securities).
This cross subsidy is also refereed to as: The bands are structured to incentivise growth and reward those members that use the service.
There is also the question of EUI ‘clearing fees’ : Those Exchanges that choose to use the CCP services of EUI will be subject to an additional EUI CCP services fee that will be passed through at cost.
The applicable per trade fee will be applied to the member’s average daily volume over the month
http://www.lchclearnet.com/fees/ltd/transactions/equityclear.asp
The average daily number of trades was 695,574, an increase of 11 per cent on the previous April, and up by four per cent compared with the first quarter of 2009.
http://www.londonstockexchange.com/NR/exeres/D3B0E261-7362-411F-929E-9D389BA3FCE6.htm
If we look at these two a little more closely:
The LCH.CN Ltd equity clear tariff is cheapest on Band ‘R’ or ADV of 240K.
Yet the LSE claim their total, for all products, blue chip & illiquids, is 700K.
Lets allow for some double counting for clearing (buy side / sell side) and single count for trading platform.
So basically, even if the entire LSE market (1.4myn cleared sides) was cleared by 6 participants, only 5 CPs would qualify for the cheapest rate.
A quick look at the LCH.CN Ltd web site shows 42 equity clear participants
http://www.lchclearnet.com/membership/ltd/current_membership.asp
The rate bands / volume assumptions can also be checked against the LCH home page (Mar volumes, all equities, 34.7myn – you guess the ADV)
I remain a steadfast advocate of transparency and unit pricing.
There is still way too much complexity and ambiguity in the service propositions.
The job of the new entrants has begun, and performed well, but is still far from done.
It looks like interoperability gets a push too.
This is great, but again, I think overly complex.
http://www.tradeturquoise.com/press/turquoise_lch.pdf
http://www.tradeturquoise.com/press/six_x_clear.pdf
(This week BATS, Chi-X, Turquoise, and NYSE Arca Europe each announced that customers will have the choice to use LCH.Clearnet as a clearing counterparty in addition to their existing CCPs.)
Nasdaq OMX offers competitive Nordic clearing with SIX x-clear and EuroCCP deals
Hans-Ole Jochumsen, President, NASDAQ OMX Nordic. "The ability to choose a CCP will allow price and service advantages to our customers, and ultimately drive trading velocity on our Nordic markets."
Nasdaq OMX Group (Nasdaq:NDAQ) has announced that it has entered into Memorandum of Understanding agreements with Central Counterparty (CCP) clearing service providers SIX x-clear and EuroCCP in order to support a competitive clearing model on its Nordic markets.
http://www.automatedtrader.net/algo-trading-news-10778.xhtm
I’m of a view each CP should get to choose their CCP (and the ambiguous pricing model that suits them or their vested interest).
To do this, each trading platform should choose a ‘primary’ CCP. (I wanted to use the term ‘default’ CCP, but that can conjure up the wrong image).
We need and deserve certainty and finality.
However, when a CCP wants to interoperate, all the trade flows of the ‘primary’ and interoperating CCP should be open.
(This allows choice by the CP, not mandate by the trading platform).
Icap joins £740m bid for LCH.Clearnet
By Jeremy Grant
A consortium of 11 banks and Icap, the interdealer broker, has submitted a €11 per share cash offer for LCH.Clearnet, valuing the clearing house at about €830m (£740m). The bid was submitted on Friday, according to people familiar with the matter, marking the latest twist in the fate of Europe's largest independent clearer.
http://www.ft.com/cms/s/376d646c-3dc2-11de-a85e-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F376d646c-3dc2-11de-a85e-00144feabdc0.html&_i_referer=http%3A%2F%2Fsearch.ft.com%2Fsearch%3FqueryText%3Djeremy%2Bgrant
*** Critics of the consortium question whether it is in the best interest of market participants for Europe's largest clearer to fall into the hands of a private consortium made up of the largest dealers in the OTC business. However Larry Tabb, chief executive of Tabb Group, a consultancy, said: "LCH. Clearnet's profitability is an expense to the dealers, so there will be a natural tendency to hold down costs." One person familiar with the consortium's intentions said profits at LCH.Clearnet would be capped at a certain level, with the excess rebated to customers.
LCH.Clearnet Board Is Said to Weigh ICAP-Led Bid of $1.2 Billion This Week
LCH.Clearnet Group Ltd.’s board will consider a takeover offer this week of as much as $1.2 billion from a group of brokers and banks led by ICAP Plc, according to two people familiar with the matter.
http://www.bloomberg.com/apps/news?pid=20601208&sid=avLful3tzevw&refer=finance
11/05/2009 10:44:00
ICAP CONSORTIUM MAKES EUR830M LCH.CLEARNET BID - FT
A consortium of 11 banks and interdealer broker Icap has launched an EUR830 million bid for LCH.Clearnet just weeks after the Depository Trust and Clearing Corporation called of its pursuit of the London clearing house, according to the Financial Times.
More on this story: http://www.finextra.com/fullstory.asp?id=20014
*** the clearer is reportedly still considering buying out its 123 shareholders and converting into a user-owned utility in a bid to scuttle the consortium. After the conversion, LCH.Clearnet would invite shareholders to buy back in, making use of the clearer conditional on being a shareholder.
LCH.Clearnet up against clock as obstacles pile onBecause the Depository Trust & Clearing Corp. recently walked away from its bid for LCH.Clearnet, it increased the likelihood that a consortium of banks and Icap will take over the London clearer. The move also revealed that time is running short for the clearer as challenges to its market position mount. Standard & Poor's analyst Miguel Pintado said the clearer faces "a dynamic operating environment, which offers threats and opportunities to the group's competitive position". Financial Times (04 May.)
**** Pierre Francotte, Euroclear chief executive, says: “I think what has renewed urgency is for LCH.Clearnet to have a credible plan for integration now they are going to be discussing the two remaining options on the table.”
Meanwhile, competition is intensifying. Last month EMCF, jointly owned by Nasdaq OMX and Fortis, cut clearing fees for UK equities by 40 per cent. Mr Francotte says: “LCH.Clearnet must look for ways to secure its client base and its business flows.”
LCH.Clearnet formulates response to consortium bid LCH.Clearnet is planning to reply to a €830m ($1.1bn) offer from a group of 11 banks and Icap, by offering joint discussions targeted at merging elements of the bid with the clearer's own proposal for a new structure. (Financial Times)
Initial 2003 merger terms were Euro 1.2byn. (600myn Clearnet and LCH respectively)
http://www.lchclearnet.com/Images/SA%20R&A%202003_tcm6-44286.pdf
LCH.Clearnet Group will share benefits between users and shareholders by allocating 70 per cent of pre-interest and tax profits that exceed €150 million in any given year.7
http://www.oft.gov.uk/shared_oft/mergers_ea02/lch.pdf
2007 equity volumes: 314,013K (single count) or 628,026K (double count)
http://pages.lchclearnet-email.com/page.aspx?qs=330c754b5e92df74dd1c3652cef7c09158ddc38a5ad1adb07df323da4bab54b85e3b06e2f0e6d78923923c57672e9d2c81de4bb9f226200ea3f7c8c3536dc4b1e499c7f2f0b9abb88a8735cf480831011b968ef1ace83bb4
2007 equity revenue: 172.8myn
http://www.lchclearnet.com/Images/Group%20Report%202007_tcm6-44285.pdf
Gives average cost per cleared contract (2007) of 27.5 cents.
So, unless fees have come down 80% since then, we have some way to go.
(2007 are latest publically available figures).
US REGULATORY REFORMS TO DRIVE AUTOMATION IN OTC TRADING The US Treasury has proposed a series of regulatory reforms designed to improve transparency in over-the-counter derivative trading and encourage a market-wide shift to exchange-based electronic platforms.
Full story: http://www.finextra.com/fullstory.asp?id=20033
Top Four Derivatives Dealers Account for 94% of ContractsThe top four derivatives dealers in the United States — units of JPMorgan Chase, Bank of America, ...
Great News: A Central Clearing House For Credit Default Swaps ...
I also disagree with how Duffie and Zhu measure the benefits of netting, but we'll spare ... What Is A Central Counterparty? Rather than provide a one line, ...www.businessinsider.com/great-news-a-central-clearing-house-for-credit-default-swaps-might-help-the-market-2009-5 - 62k - Cached - Similar pages
Finextra: CDS clearing plans badly flawed say researchers
22 Apr 2009 ... Instead, Duffie and Zhu suggest that the clearing house should clear a ... 22/01/09 European Commission ready to mandate central clearing for CDS deals - Reuters. 14/11/08 US regulators sign CDS counterparty clearing MoU ...www.finextra.com/fullstory.asp?id=19949 - Similar pages
SIFMA supports US government's proposal for derivativesUS Treasury Secretary Timothy Geithner unveiled a plan to improve oversight of derivatives markets. The proposal includes federal oversight for major dealers as well as requiring credit default swaps and other over-the-counter derivatives to be traded on exchanges. SIFMA and other trade groups indicated their support. "It is important that new regulatory measures preserve the usefulness of derivatives as risk-management tools for American businesses, and we look forward to working with the administration to ensure that outcome," SIFMA president Timothy Ryan said. CNNMoney.com/Fortune (13 May.) , The Wall Street Journal (14 May.) , Financial Times (14 May.)
Single Market News No 54 – Financial Crisis The newsletter includes an interview with David Wright on the causes of the financial crisis. “As far as we know, our banks and financial institutions purchased at least one trillion Dollars worth of US sub-prime assets and probably a lot more.
Although many multilateral trading facilities (MTFs) have had to revisit their business plans following the recent dip in equity trading activity, Olof Neiglick, CEO of Nordic MTF Burgundy, is confident his venue will not suffer the same fate.
Read the Interview
Burgundy will employ a maker-taker pricing structure, which rewards liquidity posters and charges those who remove liquidity. For the 15 most-traded instruments, the rebate for posting liquidity will be 0.15 basis points, while the charge for removing liquidity will be 0.3 bps. The next 35 most-traded stocks will rebate members 0.1 bps for passive orders and charge 0.3 bps for aggressive orders, while mid- and small-caps and exchange-traded funds will be charged at 0.1 bps for passive orders and 0.3 bps for aggressive orders.
http://www.thetradenews.com/node/3153
11/05/2009 15:21:00
ADVENT INVESTS $170.6 MILLION ON 30% STAKE IN BRAZILIAN DEPOSITORY
Private equity firm Advent has bought a 30% stake in Brazilian fixed income and OTC derivatives clearing house Cetip, from a number of local financial-market participants.
More on this story: http://www.finextra.com/fullstory.asp?id=20017
08/05/2009 11:07:00
DIRECT EDGE TO CONVERT TO STOCK EXCHANGE STATUS
US stock trading venue Direct Edge has filed applications with the Securities and Exchange Commmission to convert into two national securities exchanges later this year.
More on this story: http://www.finextra.com/fullstory.asp?id=20010
*** Direct Edge broke the ten per cent threshold for matched market share in US stock trading last month for the first time, and now claims to be the third-largest stock market operator in the world.
Omega ATS Looks for Summer Flow
By Nina Mehta
In Canada, where competition against the dominant Toronto Stock Exchange has achieved a measure of success only in the last quarter, a small alternative trading system called Omega ATS is seeking to rock the boat with radical pricing. Omega is currently Canada's smallest displayed market.
http://www.tradersmagazine.com/news/-103748-1.html
NASDAQ OMX SELLS ORC SOFTWARE STAKE
Market operator Nasdaq OMX has divested its 25% stake in Swedish derivatives trading technology company Orc Software through an accelerated bookbuilding offering.
Full story: http://www.finextra.com/fullstory.asp?id=20026
SunGard Acquires ICE Risk Solution
SunGard has acquired the ICE Risk commodity trading solution from IntercontinentalExchange (NYSE: ICE). ICE Risk is a real-time position-keeping and risk management system that captures and values exchange-traded and cleared products across multiple trading venues. ICE Risk also provides exchange connectivity with real-time trade feeds. The acquisition, the terms of which were not disclosed, is not expected to have a material impact on SunGard’s financial results.
http://www.sungard.com/pressreleases/2009/kiodex051109.aspx
08/05/2009 11:32:00
GOLDMAN SACHS, MORGAN STANLEY AND UBS IN EUROPEAN DARK POOL AGREEMENT
Goldman Sachs, Morgan Stanley and UBS have agreed a deal that will allow their clients to access each bank's European dark pools.
More on this story: http://www.finextra.com/fullstory.asp?id=20011
The Big Flaw of the CDS Big BangGuest Blog: By Kevin McPartland, TABB GroupIs the CDS Big Bang setting us up for another Big Bust?
http://www.wallstreetandtech.com/blog/archives/2009/05/the_big_flaw_of.html?cid=nl_wallstreettech_daily
OTC, Central Clearing or Exchange-Traded: Choosing the Right PathIncreasing capital reserve requirements for OTC self-cleared products would change the economics of the ...
NYSE Liffe to launch FTSE 100 dividend index futures
Amsterdam, Brussels, Lisbon, London, New York, Paris, Monday, 11 May 2009 – NYSE Liffe, the European derivatives business of NYSE Euronext, announced today that it will launch a new standard, cash-settled futures contract based on the FTSE 100 Dividend Index, from Wednesday 13 May 2009.
http://www.euronext.com/fic/000/047/725/477250.pdf
Stress Test: Compare the 19 banks that were tested:
http://online.wsj.com/article/SB124172766940997563.html?mod=dist_smartbrief#project%3DSTRESS0409%26articleTabs%3Dinteractive
*** best information / presentation idea of the week by far!
Stress tests might lead to $500 million in feesDuring the first quarter of this year, underwriting fees reached a record low, but bankers are expecting a spike after the government's stress tests of the nation's 19 largest banks. Financial institutions are poised to earn in excess of $500 million for helping banks raise capital to make up for shortfalls found through the tests and to repay the government for funds received through the Troubled Asset Relief Program. Financial Times (5/12) , The Wall Street Journal (5/11)
*** nice!
12/05/2009 10:46:00
TOKYO COMMODITY EXCHANGE TRADING HALTED AFTER NEW PLATFORM HIT BY GLITCH
Connectivity problems forced the Tokyo Commodity Exchange (Tocom) to suspend all trading for over three hours today, just a month after a new technology platform developed by Nasdaq OMX went live.
More on this story: http://www.finextra.com/fullstory.asp?id=20020
WATERS: Getting the Best of Execution Capital markets firms can now no longer ignore the reality of best execution. But despite an increasingly competitive trading landscape in Europe, MiFID still appears some way off from achieving its goals. By Joe Morgan
THE TRADE NEWS: Quote MTF Aims to Attract SOR Flow with Pricing ModelBy Staff5/13/09Quote MTF, a Hungarian-based pan-European trading venue, is confident of securing liquidity from smart order routers (SORs) from launch because of its pricing model, which it claims will be the cheapest in Europe.The platform will charge 0.14 basis points for removing liquidity and will not pay a rebate for posting it. By comparison, rival MTF Chi-X Europe charges 0.3 bps for removing liquidity and rebates 0.2 bps for adding liquidity.
Securities Lending Remakes Itself in Wake of Market Crisis
By Carol E. Curtis
As the financial services industry has retrenched, the securities lending market has faced diminished liquidity, less demand due to deleveraging, and a shrinking pool of hedge funds, according to research firm Aite Group.
There are also fewer prime brokers and borrowers, says Aite in a report issued today, and even fewer lenders, “some of whom will be reevaluating their business-line viability.” The net effect, says the study, is a more cautious and aware beneficial owner, “concerned about a concentration of borrowers, counterparty risk, program risk-reward balance and program expenses in the belt-tightening economic climate.”
Denise Valentine, a senior analyst at Boston-based Aite and author of the report, noted that a major problem for the stock-loan market is that participants have lost money, which historically has not happened. Beneficial owners may have invested collateral in instruments that are now under water, said Valentine, and cannot return the collateral without taking a loss. “People stuck in that scenario have to keep the deal open,” she explained. To other participants, that is a deterrent--“There is reduced participation, and an exit by some people.”
Source: J.P. Morgan TicDB
Summary – week 19
· Liquidity fragmentation in Europe last week reached an all time high of 17.7%, driven by the UK and Germany.
· Ireland (73.1%), UK (30.6%), Germany (21.1%), France (20.8%) and Netherlands (18.8%) were the most fragmented markets in percentage terms.
· UK ($3.4bn), Germany ($1.6bn), France ($1.5bn), Netherlands ($0.4bn) and Italy ($0.4bn) were the most fragmented in terms of Displayed Liquidity traded away from the primary market.
· Chi-X achieved average daily turnover (ADT) of $5.5bn, equivalent to 12.2% of flow in Chi-X names. HSBC ($157m, 18.8%), Total (115m, 19.5%) and BP ($112m, 25.0%) had the highest ADT.
· ADT on the Turquoise Displayed Order Book was $1.3bn, its highest level since Week 12. Market share in Turquoise names was 2.9%. HSBC ($61.5m, 7.4%), BP (45m, 10.0%) and Vodafone ($33m, 7.4%) had the highest ADT.
· BATS achieved ADT of $0.9bn, its highest level since launch. Market share in BATS names was 2.1%. HSBC ($31m, 3.7%), E.ON ($25m, 3.9%) and Arcelormittal ($23m, 3.3%) had the highest ADT.
· Nasdaq OMX achieved ADT of $149.3m, a second successive new high.
· 8 stocks traded more than 20% ADV on Dark venues. See Figures 7 – 10 and Tables 8 - 9 for further details.
THIS week it is a step away from being politically correct for Strictly Boardroom and a dive into scientific controversy. Allan Trench reviews Ian Plimer’s new book – Heaven and Earth, which promotes the case against human-induced global warming – and finds it very compelling indeed.
It is now approaching 20 years since your scribe departed the mainstream academia of Oxford University’s Earth Science department to join the “real world” of the mining industry. Reading Ian Plimer’s latest book, Heaven and Earth, had me hankering back to those good old days of long hours writing journal articles for little but the self satisfaction of pushing back the frontiers of science. It was a privilege back then to study the work of the great modern day geoscientists. Ian Plimer’s book demonstrates that he sits right up there with the best. Why? Because authors that are capable of pulling together diverse lines of evidence from broad areas of science to apply them to a unifying theme are few and far between. Plimer is clearly one of this rare breed. But geologists among readers would know that fact already. Incidentally, Oxford’s Earth Science department sits adjacent to the Oxford University Museum, venue to the famous Huxley-Wilberforce debate in 1860 on Darwin’s On the Origin of Species. Reading Plimer’s book suggests the time has come for another landmark Oxford debate – this time one focused on the cases for and against human influences on global warming. No doubt Ian Plimer would attend – and so should Al Gore and his cameras. The problem is that the general public, the media – and perhaps most critically the politicians – are a long way off the pace when it comes to understanding the complex science of climate change, and as Plimer argues convincingly, are no longer giving real scientific debate on the subject any airplay. Seven-second taglines on the news all reinforce the notion of human induced climate change – but that the debate is far from over. If only people knew.For example, news reels showing ice-flows breaking up imply a human source to warming. But that’s just what ice-flows do at the margin – they break up – perfectly naturally.I went into this book with an open mind and I finished the book in Plimer’s camp. Anyone with an open mind – and certainly those of a scientific persuasion – should read it Here are some of Plimer’s conclusions in sound-byte form through the medium of frequently asked questions:
· Is the speed and amount of modern climate change unprecedented? No.
· Is dangerous warming occurring? No.
· Is the temperature range observed in the 20th century outside the range of normal variability? No.
· Does the sun influence the Earth’s climate? Yes. (In fact, if there is one overarching conclusion from the book it would be “It’s the sun, stupid”)
· Do volcanoes change climate? Yes.
· Do wobbles in the Earth’s orbit change climate? Yes.
· Have past climate changes driven extinction? Yes and no.
· Is warming melting the polar ice caps and valley glaciers? Yes but no
· Do human emissions of carbon dioxide create sea level rise? No.
· Will the seas become acid? No.
· Does sea level rise kill coral atolls? No.
· Are humans forcing changes in ocean currents? No.
· Do thermometer measurements show the planet is warming? No.
· Do other temperature measurements show the planet is warming? No.
· Is atmospheric carbon dioxide of human origin increasing? Possibly.
· Is atmospheric CO2 approaching a dangerous level? No.
· Do higher sea temperatures cause more hurricanes? No.
· Do clouds influence climate? Yes. If you are involved in the mining industry, then read this book. If you are not in the mining sector at all, then read this book. I wonder if Ian Plimer has sold the film rights to Heaven and Earth.Allan Trench is Adjunct Professor of Mine Management & Mineral Economics, Western Australian School of Mines and a Non-Executive Director of several resources sector companies. He is the Perth representative for CRU Strategies, the consulting division of independent metals & mining advisory CRU group (allan.trench@crugroup.com).
Scott Riley
EMCF Business Development
European Multilateral Clearing Facility
8th Floor 50 Bridge Street Sydney Australia 2000
((Off)+61 (0)2 8916 9634 È(Mob): +61 (0)418 117 627
* scott.riley@au.fortis.com
These last 2 weeks have seen a flurry of announcements and I try and digest them from afar (and without the subtleties of all the sub plots).
As I pondered this earlier in the week I started with fees – and below are some thoughts on that.
Then I tried to put this in context with the LCH bid.
Basically, I just don’t think equity clearing is relevant.
I think the bid is about potential, earnings growth (OTC / CDS etc.) and keeping appropriate stuff ‘off’ exchange.
The Duffie / Zhu paper has some merits (Does a CCP reduce risk?).
I think the US is knee jerking too far towards ‘on exchange’ mandatory.
Mandatory is a good word in the context of optimising CCP.
Given this, I think the best outcome would be for LCH.CN to engage with the consortium.
Those areas with potential and growth will be acquired and invigorated.
The rump of the commoditised business, like equities, will be commoditised and long overdue decisions will finally be made.
The LCH.CN accounts for 2008 are not out yet.
They’re due, and they’ll make interesting reading for those of us who have watched the reform of our capital markets these last 12 months.
Please excuse the below drafting, it’s just snippits as they come to mind during the week.
Have a great week-end.
And a quote of interest: Never compete, create. (Earl Nightingale).
S
http://clearingandsettlement.blogspot.com
Fees.
In last Friday’s (8th May) blog I mentioned fees.
LCH.CN SA: there is still an ad valorem kicker in all fees along with a quarterly banding fee (from 0 to 150K / qtr).
So, your floor fee is 5 cents, your max is 60 cents.
http://www.lchclearnet.com/fees/sa/products/cash_markets.asp
LCH.CN Ltd: we still have 18 bands (which implies two different types of cross subsidy 1. between small and large users and 2. between liquid and illiquid securities).
This cross subsidy is also refereed to as: The bands are structured to incentivise growth and reward those members that use the service.
There is also the question of EUI ‘clearing fees’ : Those Exchanges that choose to use the CCP services of EUI will be subject to an additional EUI CCP services fee that will be passed through at cost.
The applicable per trade fee will be applied to the member’s average daily volume over the month
http://www.lchclearnet.com/fees/ltd/transactions/equityclear.asp
The average daily number of trades was 695,574, an increase of 11 per cent on the previous April, and up by four per cent compared with the first quarter of 2009.
http://www.londonstockexchange.com/NR/exeres/D3B0E261-7362-411F-929E-9D389BA3FCE6.htm
If we look at these two a little more closely:
The LCH.CN Ltd equity clear tariff is cheapest on Band ‘R’ or ADV of 240K.
Yet the LSE claim their total, for all products, blue chip & illiquids, is 700K.
Lets allow for some double counting for clearing (buy side / sell side) and single count for trading platform.
So basically, even if the entire LSE market (1.4myn cleared sides) was cleared by 6 participants, only 5 CPs would qualify for the cheapest rate.
A quick look at the LCH.CN Ltd web site shows 42 equity clear participants
http://www.lchclearnet.com/membership/ltd/current_membership.asp
The rate bands / volume assumptions can also be checked against the LCH home page (Mar volumes, all equities, 34.7myn – you guess the ADV)
I remain a steadfast advocate of transparency and unit pricing.
There is still way too much complexity and ambiguity in the service propositions.
The job of the new entrants has begun, and performed well, but is still far from done.
It looks like interoperability gets a push too.
This is great, but again, I think overly complex.
http://www.tradeturquoise.com/press/turquoise_lch.pdf
http://www.tradeturquoise.com/press/six_x_clear.pdf
(This week BATS, Chi-X, Turquoise, and NYSE Arca Europe each announced that customers will have the choice to use LCH.Clearnet as a clearing counterparty in addition to their existing CCPs.)
Nasdaq OMX offers competitive Nordic clearing with SIX x-clear and EuroCCP deals
Hans-Ole Jochumsen, President, NASDAQ OMX Nordic. "The ability to choose a CCP will allow price and service advantages to our customers, and ultimately drive trading velocity on our Nordic markets."
Nasdaq OMX Group (Nasdaq:NDAQ) has announced that it has entered into Memorandum of Understanding agreements with Central Counterparty (CCP) clearing service providers SIX x-clear and EuroCCP in order to support a competitive clearing model on its Nordic markets.
http://www.automatedtrader.net/algo-trading-news-10778.xhtm
I’m of a view each CP should get to choose their CCP (and the ambiguous pricing model that suits them or their vested interest).
To do this, each trading platform should choose a ‘primary’ CCP. (I wanted to use the term ‘default’ CCP, but that can conjure up the wrong image).
We need and deserve certainty and finality.
However, when a CCP wants to interoperate, all the trade flows of the ‘primary’ and interoperating CCP should be open.
(This allows choice by the CP, not mandate by the trading platform).
Icap joins £740m bid for LCH.Clearnet
By Jeremy Grant
A consortium of 11 banks and Icap, the interdealer broker, has submitted a €11 per share cash offer for LCH.Clearnet, valuing the clearing house at about €830m (£740m). The bid was submitted on Friday, according to people familiar with the matter, marking the latest twist in the fate of Europe's largest independent clearer.
http://www.ft.com/cms/s/376d646c-3dc2-11de-a85e-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F376d646c-3dc2-11de-a85e-00144feabdc0.html&_i_referer=http%3A%2F%2Fsearch.ft.com%2Fsearch%3FqueryText%3Djeremy%2Bgrant
*** Critics of the consortium question whether it is in the best interest of market participants for Europe's largest clearer to fall into the hands of a private consortium made up of the largest dealers in the OTC business. However Larry Tabb, chief executive of Tabb Group, a consultancy, said: "LCH. Clearnet's profitability is an expense to the dealers, so there will be a natural tendency to hold down costs." One person familiar with the consortium's intentions said profits at LCH.Clearnet would be capped at a certain level, with the excess rebated to customers.
LCH.Clearnet Board Is Said to Weigh ICAP-Led Bid of $1.2 Billion This Week
LCH.Clearnet Group Ltd.’s board will consider a takeover offer this week of as much as $1.2 billion from a group of brokers and banks led by ICAP Plc, according to two people familiar with the matter.
http://www.bloomberg.com/apps/news?pid=20601208&sid=avLful3tzevw&refer=finance
11/05/2009 10:44:00
ICAP CONSORTIUM MAKES EUR830M LCH.CLEARNET BID - FT
A consortium of 11 banks and interdealer broker Icap has launched an EUR830 million bid for LCH.Clearnet just weeks after the Depository Trust and Clearing Corporation called of its pursuit of the London clearing house, according to the Financial Times.
More on this story: http://www.finextra.com/fullstory.asp?id=20014
*** the clearer is reportedly still considering buying out its 123 shareholders and converting into a user-owned utility in a bid to scuttle the consortium. After the conversion, LCH.Clearnet would invite shareholders to buy back in, making use of the clearer conditional on being a shareholder.
LCH.Clearnet up against clock as obstacles pile onBecause the Depository Trust & Clearing Corp. recently walked away from its bid for LCH.Clearnet, it increased the likelihood that a consortium of banks and Icap will take over the London clearer. The move also revealed that time is running short for the clearer as challenges to its market position mount. Standard & Poor's analyst Miguel Pintado said the clearer faces "a dynamic operating environment, which offers threats and opportunities to the group's competitive position". Financial Times (04 May.)
**** Pierre Francotte, Euroclear chief executive, says: “I think what has renewed urgency is for LCH.Clearnet to have a credible plan for integration now they are going to be discussing the two remaining options on the table.”
Meanwhile, competition is intensifying. Last month EMCF, jointly owned by Nasdaq OMX and Fortis, cut clearing fees for UK equities by 40 per cent. Mr Francotte says: “LCH.Clearnet must look for ways to secure its client base and its business flows.”
LCH.Clearnet formulates response to consortium bid LCH.Clearnet is planning to reply to a €830m ($1.1bn) offer from a group of 11 banks and Icap, by offering joint discussions targeted at merging elements of the bid with the clearer's own proposal for a new structure. (Financial Times)
Initial 2003 merger terms were Euro 1.2byn. (600myn Clearnet and LCH respectively)
http://www.lchclearnet.com/Images/SA%20R&A%202003_tcm6-44286.pdf
LCH.Clearnet Group will share benefits between users and shareholders by allocating 70 per cent of pre-interest and tax profits that exceed €150 million in any given year.7
http://www.oft.gov.uk/shared_oft/mergers_ea02/lch.pdf
2007 equity volumes: 314,013K (single count) or 628,026K (double count)
http://pages.lchclearnet-email.com/page.aspx?qs=330c754b5e92df74dd1c3652cef7c09158ddc38a5ad1adb07df323da4bab54b85e3b06e2f0e6d78923923c57672e9d2c81de4bb9f226200ea3f7c8c3536dc4b1e499c7f2f0b9abb88a8735cf480831011b968ef1ace83bb4
2007 equity revenue: 172.8myn
http://www.lchclearnet.com/Images/Group%20Report%202007_tcm6-44285.pdf
Gives average cost per cleared contract (2007) of 27.5 cents.
So, unless fees have come down 80% since then, we have some way to go.
(2007 are latest publically available figures).
US REGULATORY REFORMS TO DRIVE AUTOMATION IN OTC TRADING The US Treasury has proposed a series of regulatory reforms designed to improve transparency in over-the-counter derivative trading and encourage a market-wide shift to exchange-based electronic platforms.
Full story: http://www.finextra.com/fullstory.asp?id=20033
Top Four Derivatives Dealers Account for 94% of ContractsThe top four derivatives dealers in the United States — units of JPMorgan Chase, Bank of America, ...
Great News: A Central Clearing House For Credit Default Swaps ...
I also disagree with how Duffie and Zhu measure the benefits of netting, but we'll spare ... What Is A Central Counterparty? Rather than provide a one line, ...www.businessinsider.com/great-news-a-central-clearing-house-for-credit-default-swaps-might-help-the-market-2009-5 - 62k - Cached - Similar pages
Finextra: CDS clearing plans badly flawed say researchers
22 Apr 2009 ... Instead, Duffie and Zhu suggest that the clearing house should clear a ... 22/01/09 European Commission ready to mandate central clearing for CDS deals - Reuters. 14/11/08 US regulators sign CDS counterparty clearing MoU ...www.finextra.com/fullstory.asp?id=19949 - Similar pages
SIFMA supports US government's proposal for derivativesUS Treasury Secretary Timothy Geithner unveiled a plan to improve oversight of derivatives markets. The proposal includes federal oversight for major dealers as well as requiring credit default swaps and other over-the-counter derivatives to be traded on exchanges. SIFMA and other trade groups indicated their support. "It is important that new regulatory measures preserve the usefulness of derivatives as risk-management tools for American businesses, and we look forward to working with the administration to ensure that outcome," SIFMA president Timothy Ryan said. CNNMoney.com/Fortune (13 May.) , The Wall Street Journal (14 May.) , Financial Times (14 May.)
Single Market News No 54 – Financial Crisis The newsletter includes an interview with David Wright on the causes of the financial crisis. “As far as we know, our banks and financial institutions purchased at least one trillion Dollars worth of US sub-prime assets and probably a lot more.
Although many multilateral trading facilities (MTFs) have had to revisit their business plans following the recent dip in equity trading activity, Olof Neiglick, CEO of Nordic MTF Burgundy, is confident his venue will not suffer the same fate.
Read the Interview
Burgundy will employ a maker-taker pricing structure, which rewards liquidity posters and charges those who remove liquidity. For the 15 most-traded instruments, the rebate for posting liquidity will be 0.15 basis points, while the charge for removing liquidity will be 0.3 bps. The next 35 most-traded stocks will rebate members 0.1 bps for passive orders and charge 0.3 bps for aggressive orders, while mid- and small-caps and exchange-traded funds will be charged at 0.1 bps for passive orders and 0.3 bps for aggressive orders.
http://www.thetradenews.com/node/3153
11/05/2009 15:21:00
ADVENT INVESTS $170.6 MILLION ON 30% STAKE IN BRAZILIAN DEPOSITORY
Private equity firm Advent has bought a 30% stake in Brazilian fixed income and OTC derivatives clearing house Cetip, from a number of local financial-market participants.
More on this story: http://www.finextra.com/fullstory.asp?id=20017
08/05/2009 11:07:00
DIRECT EDGE TO CONVERT TO STOCK EXCHANGE STATUS
US stock trading venue Direct Edge has filed applications with the Securities and Exchange Commmission to convert into two national securities exchanges later this year.
More on this story: http://www.finextra.com/fullstory.asp?id=20010
*** Direct Edge broke the ten per cent threshold for matched market share in US stock trading last month for the first time, and now claims to be the third-largest stock market operator in the world.
Omega ATS Looks for Summer Flow
By Nina Mehta
In Canada, where competition against the dominant Toronto Stock Exchange has achieved a measure of success only in the last quarter, a small alternative trading system called Omega ATS is seeking to rock the boat with radical pricing. Omega is currently Canada's smallest displayed market.
http://www.tradersmagazine.com/news/-103748-1.html
NASDAQ OMX SELLS ORC SOFTWARE STAKE
Market operator Nasdaq OMX has divested its 25% stake in Swedish derivatives trading technology company Orc Software through an accelerated bookbuilding offering.
Full story: http://www.finextra.com/fullstory.asp?id=20026
SunGard Acquires ICE Risk Solution
SunGard has acquired the ICE Risk commodity trading solution from IntercontinentalExchange (NYSE: ICE). ICE Risk is a real-time position-keeping and risk management system that captures and values exchange-traded and cleared products across multiple trading venues. ICE Risk also provides exchange connectivity with real-time trade feeds. The acquisition, the terms of which were not disclosed, is not expected to have a material impact on SunGard’s financial results.
http://www.sungard.com/pressreleases/2009/kiodex051109.aspx
08/05/2009 11:32:00
GOLDMAN SACHS, MORGAN STANLEY AND UBS IN EUROPEAN DARK POOL AGREEMENT
Goldman Sachs, Morgan Stanley and UBS have agreed a deal that will allow their clients to access each bank's European dark pools.
More on this story: http://www.finextra.com/fullstory.asp?id=20011
The Big Flaw of the CDS Big BangGuest Blog: By Kevin McPartland, TABB GroupIs the CDS Big Bang setting us up for another Big Bust?
http://www.wallstreetandtech.com/blog/archives/2009/05/the_big_flaw_of.html?cid=nl_wallstreettech_daily
OTC, Central Clearing or Exchange-Traded: Choosing the Right PathIncreasing capital reserve requirements for OTC self-cleared products would change the economics of the ...
NYSE Liffe to launch FTSE 100 dividend index futures
Amsterdam, Brussels, Lisbon, London, New York, Paris, Monday, 11 May 2009 – NYSE Liffe, the European derivatives business of NYSE Euronext, announced today that it will launch a new standard, cash-settled futures contract based on the FTSE 100 Dividend Index, from Wednesday 13 May 2009.
http://www.euronext.com/fic/000/047/725/477250.pdf
Stress Test: Compare the 19 banks that were tested:
http://online.wsj.com/article/SB124172766940997563.html?mod=dist_smartbrief#project%3DSTRESS0409%26articleTabs%3Dinteractive
*** best information / presentation idea of the week by far!
Stress tests might lead to $500 million in feesDuring the first quarter of this year, underwriting fees reached a record low, but bankers are expecting a spike after the government's stress tests of the nation's 19 largest banks. Financial institutions are poised to earn in excess of $500 million for helping banks raise capital to make up for shortfalls found through the tests and to repay the government for funds received through the Troubled Asset Relief Program. Financial Times (5/12) , The Wall Street Journal (5/11)
*** nice!
12/05/2009 10:46:00
TOKYO COMMODITY EXCHANGE TRADING HALTED AFTER NEW PLATFORM HIT BY GLITCH
Connectivity problems forced the Tokyo Commodity Exchange (Tocom) to suspend all trading for over three hours today, just a month after a new technology platform developed by Nasdaq OMX went live.
More on this story: http://www.finextra.com/fullstory.asp?id=20020
WATERS: Getting the Best of Execution Capital markets firms can now no longer ignore the reality of best execution. But despite an increasingly competitive trading landscape in Europe, MiFID still appears some way off from achieving its goals. By Joe Morgan
THE TRADE NEWS: Quote MTF Aims to Attract SOR Flow with Pricing ModelBy Staff5/13/09Quote MTF, a Hungarian-based pan-European trading venue, is confident of securing liquidity from smart order routers (SORs) from launch because of its pricing model, which it claims will be the cheapest in Europe.The platform will charge 0.14 basis points for removing liquidity and will not pay a rebate for posting it. By comparison, rival MTF Chi-X Europe charges 0.3 bps for removing liquidity and rebates 0.2 bps for adding liquidity.
Securities Lending Remakes Itself in Wake of Market Crisis
By Carol E. Curtis
As the financial services industry has retrenched, the securities lending market has faced diminished liquidity, less demand due to deleveraging, and a shrinking pool of hedge funds, according to research firm Aite Group.
There are also fewer prime brokers and borrowers, says Aite in a report issued today, and even fewer lenders, “some of whom will be reevaluating their business-line viability.” The net effect, says the study, is a more cautious and aware beneficial owner, “concerned about a concentration of borrowers, counterparty risk, program risk-reward balance and program expenses in the belt-tightening economic climate.”
Denise Valentine, a senior analyst at Boston-based Aite and author of the report, noted that a major problem for the stock-loan market is that participants have lost money, which historically has not happened. Beneficial owners may have invested collateral in instruments that are now under water, said Valentine, and cannot return the collateral without taking a loss. “People stuck in that scenario have to keep the deal open,” she explained. To other participants, that is a deterrent--“There is reduced participation, and an exit by some people.”
Source: J.P. Morgan TicDB
Summary – week 19
· Liquidity fragmentation in Europe last week reached an all time high of 17.7%, driven by the UK and Germany.
· Ireland (73.1%), UK (30.6%), Germany (21.1%), France (20.8%) and Netherlands (18.8%) were the most fragmented markets in percentage terms.
· UK ($3.4bn), Germany ($1.6bn), France ($1.5bn), Netherlands ($0.4bn) and Italy ($0.4bn) were the most fragmented in terms of Displayed Liquidity traded away from the primary market.
· Chi-X achieved average daily turnover (ADT) of $5.5bn, equivalent to 12.2% of flow in Chi-X names. HSBC ($157m, 18.8%), Total (115m, 19.5%) and BP ($112m, 25.0%) had the highest ADT.
· ADT on the Turquoise Displayed Order Book was $1.3bn, its highest level since Week 12. Market share in Turquoise names was 2.9%. HSBC ($61.5m, 7.4%), BP (45m, 10.0%) and Vodafone ($33m, 7.4%) had the highest ADT.
· BATS achieved ADT of $0.9bn, its highest level since launch. Market share in BATS names was 2.1%. HSBC ($31m, 3.7%), E.ON ($25m, 3.9%) and Arcelormittal ($23m, 3.3%) had the highest ADT.
· Nasdaq OMX achieved ADT of $149.3m, a second successive new high.
· 8 stocks traded more than 20% ADV on Dark venues. See Figures 7 – 10 and Tables 8 - 9 for further details.
THIS week it is a step away from being politically correct for Strictly Boardroom and a dive into scientific controversy. Allan Trench reviews Ian Plimer’s new book – Heaven and Earth, which promotes the case against human-induced global warming – and finds it very compelling indeed.
It is now approaching 20 years since your scribe departed the mainstream academia of Oxford University’s Earth Science department to join the “real world” of the mining industry. Reading Ian Plimer’s latest book, Heaven and Earth, had me hankering back to those good old days of long hours writing journal articles for little but the self satisfaction of pushing back the frontiers of science. It was a privilege back then to study the work of the great modern day geoscientists. Ian Plimer’s book demonstrates that he sits right up there with the best. Why? Because authors that are capable of pulling together diverse lines of evidence from broad areas of science to apply them to a unifying theme are few and far between. Plimer is clearly one of this rare breed. But geologists among readers would know that fact already. Incidentally, Oxford’s Earth Science department sits adjacent to the Oxford University Museum, venue to the famous Huxley-Wilberforce debate in 1860 on Darwin’s On the Origin of Species. Reading Plimer’s book suggests the time has come for another landmark Oxford debate – this time one focused on the cases for and against human influences on global warming. No doubt Ian Plimer would attend – and so should Al Gore and his cameras. The problem is that the general public, the media – and perhaps most critically the politicians – are a long way off the pace when it comes to understanding the complex science of climate change, and as Plimer argues convincingly, are no longer giving real scientific debate on the subject any airplay. Seven-second taglines on the news all reinforce the notion of human induced climate change – but that the debate is far from over. If only people knew.For example, news reels showing ice-flows breaking up imply a human source to warming. But that’s just what ice-flows do at the margin – they break up – perfectly naturally.I went into this book with an open mind and I finished the book in Plimer’s camp. Anyone with an open mind – and certainly those of a scientific persuasion – should read it Here are some of Plimer’s conclusions in sound-byte form through the medium of frequently asked questions:
· Is the speed and amount of modern climate change unprecedented? No.
· Is dangerous warming occurring? No.
· Is the temperature range observed in the 20th century outside the range of normal variability? No.
· Does the sun influence the Earth’s climate? Yes. (In fact, if there is one overarching conclusion from the book it would be “It’s the sun, stupid”)
· Do volcanoes change climate? Yes.
· Do wobbles in the Earth’s orbit change climate? Yes.
· Have past climate changes driven extinction? Yes and no.
· Is warming melting the polar ice caps and valley glaciers? Yes but no
· Do human emissions of carbon dioxide create sea level rise? No.
· Will the seas become acid? No.
· Does sea level rise kill coral atolls? No.
· Are humans forcing changes in ocean currents? No.
· Do thermometer measurements show the planet is warming? No.
· Do other temperature measurements show the planet is warming? No.
· Is atmospheric carbon dioxide of human origin increasing? Possibly.
· Is atmospheric CO2 approaching a dangerous level? No.
· Do higher sea temperatures cause more hurricanes? No.
· Do clouds influence climate? Yes. If you are involved in the mining industry, then read this book. If you are not in the mining sector at all, then read this book. I wonder if Ian Plimer has sold the film rights to Heaven and Earth.Allan Trench is Adjunct Professor of Mine Management & Mineral Economics, Western Australian School of Mines and a Non-Executive Director of several resources sector companies. He is the Perth representative for CRU Strategies, the consulting division of independent metals & mining advisory CRU group (allan.trench@crugroup.com).
Scott Riley
EMCF Business Development
European Multilateral Clearing Facility
8th Floor 50 Bridge Street Sydney Australia 2000
((Off)+61 (0)2 8916 9634 È(Mob): +61 (0)418 117 627
* scott.riley@au.fortis.com
Friday, May 8, 2009
AMCF & News: CCP Fees cut, MTFs Clearing partners, Gaia, "eat what you kill"
Well, G’day All,
What a hectic couple of weeks it has been.
Lots of visitors, meetings, announcements etc.
Of course there is never enough time to read and digest it all.
So, the important stories (for me at least), are clearing.
LCH.Clearnet gets the big news of the week, oops fortnight. Cuts and fee cuts again.
There are some shifts in the MTF clearing space and new avenues being pushed open.
Some of the shifts in flow are still ‘by the market’. My preference remains clearing ‘for the market’ (I.e the Clearing Participant should choose).
The fee cuts and releases as always need more analysis.
Lets not forget transparency.
We must talk the entire transaction value chain.
I want to check to see if we still have ad valorem pricing in Europe.
I also want more transparency in the UK model on the role of Euroclear (Crest).
We still need a pricing spreadsheet for ‘comparability’.
Anyway, all the news and changes are great.
I believe this is the mission objective that the new entrants set out with. To make the incumbents change.
Change we are certainly seeing…and frankly, I’d much rather see the gap close between the incumbents and the entrants than have two parallel games, old school and new.
Change is good, results are good, end investor is getting ever closer to a fair deal.
On the IT job front. London based role for blue chip (well, as blue as Banks are these days) bank.
I am looking to recruit an IT Project Manager (with finance exp) for a contract position.
Please let me know if you know someone who might suit.
Must go, as visitors await.
Have a wonderful week-end all.
S
http://clearingandsettlement.blogspot.com/
LCH.CLEARNET SLASHES CLEARING COSTS
LCH.Clearnet is to slash its fees by a third as it responds to the arrival of fresh competition inspired by an EU-mandated Code of Conduct for European clearing agreed last year.
Full story: http://www.finextra.com/fullstory.asp?id=19991
LCH.CLEARNET AGREES COMPETITIVE CLEARING DEALS Just days after revealing swinging price cuts, LCH.Clearnet has stepped up the pressure on rivals by agreeing new competitive clearing offerings for European MTFs Bats Europe, Chi-X and Nyse Arca Europe.
Full story: http://www.finextra.com/fullstory.asp?id=20006
LCH.Clearnet cuts EquityClear fees
LCH.Clearnet Ltd (LCH.Clearnet) is revising its EquityClear tariff structure to bring 1p clearing to trades cleared by the service.
http://www.finextra.com/fullpr.asp?id=27390
LCH.Clearnet signs MOU with Chi-X Europe to offer CCP services
http://www.chi-x.com/news/LCH.Clearnet%20signs%20MOU%20with%20Chi-X%20Europe%20to%20offer%20CCP%20services.pdf
LCH.Clearnet to clear for Turquoise
London, 07 May 2009
http://www.lchclearnet.com/media_centre/press_releases/2009-05-07.asp
DTCC CALLS OFF LCH.CLEARNET MERGER
The Depository Trust and Clearing Corporation has called off its pursuit of LCH.Clearnet after the parties failed to reach agreement over a proposed transatlantic merger.
More on this story: http://www.finextra.com/fullstory.asp?id=19980
He got the world's best job but now the wait for his mates
It is our responsibilities, not ourselves, that we should take seriously."
--Peter Ustinov, British actor and writer
US EXCHANGE PRICE WAR DEEPENS AS BATS CUTS FEES
http://www.finextra.com/fullpr.asp?id=27355
Knight Capital Hires Scott From Merrill Lynch, Shapiro From TradeWebA central clearinghouse for CDSs is a bad idea, contend these new managers of Knight's NetDelta CDS netting ...
Gaia and the risk manager
Financial risk managers could learn a lot from the study of bio-engineering and natural sciences says Andy Haldane, the Bank of England's head of financial stability.
IOSCO consults on interim recommendations on unregulated financial markets and products The Consultation Report makes recommendations about regulatory approaches that may be implemented with respect to securitisation and credit default swap markets and then goes on to discuss the broader unregulated financial markets and related products.
http://www.iosco.org/library/pubdocs/pdf/IOSCOPD290.pdf
(http://www.iosco.org/library/index.cfm?section=pubdocs)
LIBA and SIFMA Europe form new European associationAs market and regulatory developments increasingly take place on an international stage, a global-facing organisation is the optimum structure to best serve members’ interests, both associations state.
Bischoff Report sets out vision for UK financial services sector UK’s regulators should take a lead on what is appropriate for the industry, the report demands. “We expect and encourage better regulation”, Sir Bischoff said in the opening remarks. “But not everything is broken”, he added.
http://www.hm-treasury.gov.uk/d/uk_internationalfinancialservices070509.pdf
EU votes through banking 'eat what you kill' law The European Union is set to force banks to keep a 5% stake in loan and debt assets that they package into securities, one week after its executive branch proposed legislation to regulate funds and private equity firms.
TMX TAKES STAKE IN LSE'S EQUITY DERIVATIVES BUSINESS
http://www.finextra.com/fullpr.asp?id=27449
TMX acquired its stake for a total consideration of £4.35 million or approximately Canadian $7.7 million, invested in cash into EDX London. For the year to 31 March 2008, EDX London had gross assets of approximately £17.7 million and profit before tax of approximately £5.1 million.
TOKYO COMMODITY EXCHANGE LIVE WITH NASDAQ OMX TRADING SYSTEM
http://www.finextra.com/fullpr.asp?id=27442
Another day another inquiry
Senator Nick Sherry has announced another inquiry into the superannuation system but if it goes to plan it could be the most fundamental review of modern superannuation since its introduction in the mid nineteen eighties.
Read more »
World Economic Outlook (WEO)
http://www.imf.org/external/pubs/ft/weo/2009/01/index.htm
SUSTAINABILITY TAKES HOLD Many analysts predicted that the economic crisis would stall socially responsible investing as the most important shade of green became the colour of money. But new research suggests that environmental, social and governance factors are actually taking root in emerging market portfolios.
http://mail.efnmail.co.uk/r/68129495/MjU3MzA2OjIxMDM0/
*** My favourite part of this… socially responsible investing as the most important shade of green became the colour of money
DEVELOPING WORLD COULD BE FIRST OUT OF DOWNTURN There can be no denying that last year was an annus horribilis for emerging markets. The MSCI emerging markets index was down 54% for the year, and panicking investors pulled $20bn (€15bn) from equity and fixed-income emerging market funds. But the green shoots of recovery have begun to take root.
http://mail.efnmail.co.uk/r/68129497/MjU3MzA2OjIxMDM0/
*** and another one, welcome back to the re-emerging market(s).
EUROPE CLOSER TO CDS STANDARD The creation of a standardised document for credit default swaps has moved a step closer after a working group of the International Swaps and Derivatives Association, an industry trade body, agreed measures that would help align the terms of European contracts with those in the US.
http://mail.efnmail.co.uk/r/68129513/MjU3MzA2OjIxMDM0/
LSE COUNTS DOWN TO BAIKAL LAUNCH For a man who has just two months to complete the most ambitious project attempted by Europe’s highest profile exchange in over 10 years, John Wilson, chief executive of London Stock Exchange Group-owned Baikal, seemed in good spirits last week.
http://mail.efnmail.co.uk/r/68129526/MjU3MzA2OjIxMDM0/
*** Syndication (though no details whether it is the parent or subsidiary model)
*** Funny, LSE set the precedent for charging a premium for onward routing (Nasdaq Europe).
ELECTRONIC TRADERS ARE UPBEAT ON EUROPE Electronic traders met in Paris’ La Défense business district last week for the ninth annual TradeTech summit, an industry conference that offers the chance to reflect on the state of Europe’s equity markets.
http://mail.efnmail.co.uk/r/68129532/MjU3MzA2OjIxMDM0/
Björn Schubert, author of the recently-published book 'Evolution of algorithmic trading and challenges of the future'.
Read the Interview
However he contends that algorithms are incapable of completely replacing human dealers on certain transactions. “For single-order trading, a good, focused, aggressive trader will always be able to outperform a computer,” he says. “But for list trading, the algorithm secures an optimal and efficient trade execution which cannot be replicated by a human trader.”
He adds, “The best trade execution involves an efficient interaction between human trader and machine.”
***I’d agree with that. Humans add context.
DTCC announced that four senior executives from AllianceBernstein L.P., Goldman Sachs, Morgan Stanley and MF Global Ltd. have been newly elected to the DTCC Board of Directors. The 2009 DTCC Board is composed of 18 directors serving one-year terms. Fourteen directors are representatives of clearing agency participants, including international broker/dealers, custodian and clearing banks, and investment institutions.
http://wallstreetandtech.com/exchanges/showArticle.jhtml?articleID=217200104&cid=nl_wallstreettech_daily
*** Post sub-prime we are moving away from short-termism to accountability. One year terms are just a little too much churn for me.
Circumstances of BofA's acquisition of Merrill spark uproar
Testimony by Bank of America CEO Kenneth Lewis regarding the circumstances under which the bank acquired Merrill Lynch has triggered a furor. Lewis, who is under tremendous pressure regardless, testified in February that former Treasury Secretary Henry Paulson raised the possibility of having him and his board removed if they did not complete the deal. New York Attorney General Andrew Cuomo released Lewis' testimony and raised concerns about the Bank of America-Merrill Lynch merger. Financial Times (4/24) , The Washington Post (4/24)
….
Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said he had been aware for months of the pressure put on Lewis to go through with the deal, adding, "There wasn't anything we could do about it. It was a fait accompli . . . I put my energies into things where I can make a difference."
EU lawmakers back regulations for credit rating agenciesMembers of the European Parliament overwhelmingly favoured regulations for credit rating agencies that operate in the EU. Agencies will have to register with the Committee of European Securities Regulators in Paris, where they will be supervised by national securities regulators. The regulators will impose strict rules, including disclosure of the rating agencies' methodologies for the basis of their ratings. Financial Times (23 Apr.) , The Wall Street Journal/The Associated Press (23 Apr.)
24/04/2009 11:11:00
SIX SWISS EXCHANGE COMPLETES MIGRATION TO NEW PLATFORM
SIX Swiss Exchange has completed member migration to its new SWXess platform, which went live in February.
More on this story: http://www.finextra.com/fullstory.asp?id=19959
While competition among trading venues in Europe is bringing down execution fees, the continuing complexity and cost of the continent's post-trade infrastructure is stunting the growth of its equities market, says Bradley Duke, managing director of institutional electronic sales, Europe, at US-based agency broker Knight Capital Group.
Read the Interview
THE TRADE NEWS: LSE Share of FTSE 100 Trading Closes on Two-ThirdsBy Staff5/7/09The London Stock Exchange’s (LSEs) share of FTSE 100 stocks fell to just over two-thirds yesterday for the first time, as a result of accelerated fragmentation in European share trading since the introduction of MiFID in November 2007.According to figures from data vendor Fidessa and BATS Europe, a pan-European multilateral trading facility (MTFs), the LSE’s share of the UK’s blue-chip index stood at 68.17% post-auction on Wednesday.The biggest beneficiaries were fellow MTFs Chi-X Europe, which picked up 20.74% of FTSE 100 trading, Turquoise (7.14%), now close to market share levels last seen prior to the expiration of its marketing making deals on 13 March, and BATS Europe, which gained 3.56%.By comparison, the two main US exchanges, Nasdaq OMX and NYSE Euronext, now hold market shares of just 25% and 26% respectively. The exchanges began to lose market share following the authorisation of electronic communications networks by the US Securities and Exchange Commission in 1998.
THE TRADE NEWS: Buy-side Hampered by Transaction Cost Paralysis By Staff4/24/09Brokers may or may not be routing client orders to reduce their own trading costs, but the real focus of buy-side ire at the TradeTech securities industry conference held in Paris this week was the transaction cost analysis (TCA) providers who are failing to provide the evidence to convict the accused. “My suspicion is that some smart order routing (SOR) tools are not as smart as others, but I’d like to be able to prove it,” said Nigel Coleman, UK head of equity trading, Credit Suisse Asset Management, in a panel discussion entitled ‘Addressing the key concerns of the buy-side dealer in a changing world’. “I’d like to know whether a broker is using a particular venue because it suits them or because it suits me. Are they inappropriately routing my orders to the cheapest venue for the broker? There’s a gap in the market for policing SOR.” Coleman also predicted that the buy-side faced a period of cold turkey as innovation and service levels from brokers and other providers diminished in accordance with the reduced level of available resources. “A lot of the problems of the buy-side stem from our dependency on the tools provided by the sell-side. We are now addicted to the infrastructure provided by the sell-side. It is now inevitable that spending on that infrastructure will plummet,” said Coleman. He also blamed the tightening of belts across the finance sector for the lack of progress toward much-needed product innovations, such as a consolidated market data tape to provide buy-side traders with an aggregated view of European liquidity. “If MiFID had happened a year earlier, it would have been like the gold rush, with a lot of market participants and software vendors filling the gaps, but we’re feeling the pain because of the slowdown in technology spend,” Coleman observed.Nevertheless, he called on providers of transaction cost analysis to provide more comprehensive market data and to broaden their product capabilities. “The TCA industry has had it easy for quite some time and providers now need to take their services to the next level,” he said. “I want to know how smart smart order routing is, but I can’t until TCA firms source data from alternative vendors. As yet, I don’t think any of them are.”Klaus Timpel, global head of valuation control, DWS and Deutsche Asset Management, said that TCA must move beyond data collection issues if it is to help traders and portfolio managers to work together to minimise alpha leakage in the trading process. “It’s still a huge battle to get proper data, but we also need to develop intelligent models rather than lumping together a few data points. You need to create a benchmark that reflects the style of your trading and investment processes,” he said. “It’s hard for a trader to have a good result when your portfolio manager jumps of the cliff like a lemming.” Timpel called for TCA developed along more scientific lines to help put an end to arguments between portfolio managers and traders over the cause of poor trade performance.Rather than providing an accurate indicator of the trader’s contribution to alpha generation, Coleman said that TCA most often identified outlying trades whose performance good or bad, depended almost exclusively on the input of the portfolio manager rather than the trader. “The use of TCA should be about saying to those individual portfolio managers: ‘Here’s the cost of trading in your style versus the cost of trading for the man sitting next to you with a separate approach to the market. Are you comfortable with that?’” he said.
Summary
· Liquidity fragmentation in Europe last week was 16.1%, 0.1% down on the previous week driven by France and Netherlands.
· Ireland (71.6%), UK (27.3%), Netherlands (20.4%), Germany (18.8%) and France (21.3%) were the most fragmented markets in percentage terms.
· UK ($2.2bn), Germany ($1.3bn), France ($1.3bn), Netherlands ($0.3bn) Switzerland ($0.3bn) and Italy ($0.3bn) were the most fragmented in terms of Displayed Liquidity traded away from the primary market.
· Chi-X achieved average daily turnover (ADT) of $4.3bn, equivalent to 11.6% of flow in Chi-X names. Total ($131m, 21.9%), Deutsche Telekom (106m, 13.4%) BP ($104m, 27.2%) had the highest ADT.
· ADT on the Turquoise Displayed Order Book was $0.9bn. Market share in Turquoise names was 2.3%. HSBC ($22.7m, 5.1%), BP (21m, 5.5%) Deutsche Telekom ($19m, 2.4%), had the highest ADT.
· BATS achieved ADT of $0.7bn. Market share in BATS names was 2.2%. Deutsche Telekom ($26m, 3.3%), Total ($21m, 3.5%) and E.ON ($20m, 4.9%) had the highest ADT.
· Nasdaq OMX achieved ADT of $66.7m, its highest level since launching in October 2008.
· 11 stocks traded more than 20% ADV on Dark venues. Exact (EXAH.AS) traded 3x ADV on Liquidnet. See Figures 7 – 10 and Tables 8 - 9 for further details.
Source: J.P. Morgan TicDB
Scott Riley
EMCF Business Development
European Multilateral Clearing Facility
8th Floor 50 Bridge Street Sydney Australia 2000
((Off)+61 (0)2 8916 9634 È(Mob): +61 (0)418 117 627
* scott.riley@au.fortis.com
What a hectic couple of weeks it has been.
Lots of visitors, meetings, announcements etc.
Of course there is never enough time to read and digest it all.
So, the important stories (for me at least), are clearing.
LCH.Clearnet gets the big news of the week, oops fortnight. Cuts and fee cuts again.
There are some shifts in the MTF clearing space and new avenues being pushed open.
Some of the shifts in flow are still ‘by the market’. My preference remains clearing ‘for the market’ (I.e the Clearing Participant should choose).
The fee cuts and releases as always need more analysis.
Lets not forget transparency.
We must talk the entire transaction value chain.
I want to check to see if we still have ad valorem pricing in Europe.
I also want more transparency in the UK model on the role of Euroclear (Crest).
We still need a pricing spreadsheet for ‘comparability’.
Anyway, all the news and changes are great.
I believe this is the mission objective that the new entrants set out with. To make the incumbents change.
Change we are certainly seeing…and frankly, I’d much rather see the gap close between the incumbents and the entrants than have two parallel games, old school and new.
Change is good, results are good, end investor is getting ever closer to a fair deal.
On the IT job front. London based role for blue chip (well, as blue as Banks are these days) bank.
I am looking to recruit an IT Project Manager (with finance exp) for a contract position.
Please let me know if you know someone who might suit.
Must go, as visitors await.
Have a wonderful week-end all.
S
http://clearingandsettlement.blogspot.com/
LCH.CLEARNET SLASHES CLEARING COSTS
LCH.Clearnet is to slash its fees by a third as it responds to the arrival of fresh competition inspired by an EU-mandated Code of Conduct for European clearing agreed last year.
Full story: http://www.finextra.com/fullstory.asp?id=19991
LCH.CLEARNET AGREES COMPETITIVE CLEARING DEALS Just days after revealing swinging price cuts, LCH.Clearnet has stepped up the pressure on rivals by agreeing new competitive clearing offerings for European MTFs Bats Europe, Chi-X and Nyse Arca Europe.
Full story: http://www.finextra.com/fullstory.asp?id=20006
LCH.Clearnet cuts EquityClear fees
LCH.Clearnet Ltd (LCH.Clearnet) is revising its EquityClear tariff structure to bring 1p clearing to trades cleared by the service.
http://www.finextra.com/fullpr.asp?id=27390
LCH.Clearnet signs MOU with Chi-X Europe to offer CCP services
http://www.chi-x.com/news/LCH.Clearnet%20signs%20MOU%20with%20Chi-X%20Europe%20to%20offer%20CCP%20services.pdf
LCH.Clearnet to clear for Turquoise
London, 07 May 2009
http://www.lchclearnet.com/media_centre/press_releases/2009-05-07.asp
DTCC CALLS OFF LCH.CLEARNET MERGER
The Depository Trust and Clearing Corporation has called off its pursuit of LCH.Clearnet after the parties failed to reach agreement over a proposed transatlantic merger.
More on this story: http://www.finextra.com/fullstory.asp?id=19980
He got the world's best job but now the wait for his mates
It is our responsibilities, not ourselves, that we should take seriously."
--Peter Ustinov, British actor and writer
US EXCHANGE PRICE WAR DEEPENS AS BATS CUTS FEES
http://www.finextra.com/fullpr.asp?id=27355
Knight Capital Hires Scott From Merrill Lynch, Shapiro From TradeWebA central clearinghouse for CDSs is a bad idea, contend these new managers of Knight's NetDelta CDS netting ...
Gaia and the risk manager
Financial risk managers could learn a lot from the study of bio-engineering and natural sciences says Andy Haldane, the Bank of England's head of financial stability.
IOSCO consults on interim recommendations on unregulated financial markets and products The Consultation Report makes recommendations about regulatory approaches that may be implemented with respect to securitisation and credit default swap markets and then goes on to discuss the broader unregulated financial markets and related products.
http://www.iosco.org/library/pubdocs/pdf/IOSCOPD290.pdf
(http://www.iosco.org/library/index.cfm?section=pubdocs)
LIBA and SIFMA Europe form new European associationAs market and regulatory developments increasingly take place on an international stage, a global-facing organisation is the optimum structure to best serve members’ interests, both associations state.
Bischoff Report sets out vision for UK financial services sector UK’s regulators should take a lead on what is appropriate for the industry, the report demands. “We expect and encourage better regulation”, Sir Bischoff said in the opening remarks. “But not everything is broken”, he added.
http://www.hm-treasury.gov.uk/d/uk_internationalfinancialservices070509.pdf
EU votes through banking 'eat what you kill' law The European Union is set to force banks to keep a 5% stake in loan and debt assets that they package into securities, one week after its executive branch proposed legislation to regulate funds and private equity firms.
TMX TAKES STAKE IN LSE'S EQUITY DERIVATIVES BUSINESS
http://www.finextra.com/fullpr.asp?id=27449
TMX acquired its stake for a total consideration of £4.35 million or approximately Canadian $7.7 million, invested in cash into EDX London. For the year to 31 March 2008, EDX London had gross assets of approximately £17.7 million and profit before tax of approximately £5.1 million.
TOKYO COMMODITY EXCHANGE LIVE WITH NASDAQ OMX TRADING SYSTEM
http://www.finextra.com/fullpr.asp?id=27442
Another day another inquiry
Senator Nick Sherry has announced another inquiry into the superannuation system but if it goes to plan it could be the most fundamental review of modern superannuation since its introduction in the mid nineteen eighties.
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World Economic Outlook (WEO)
http://www.imf.org/external/pubs/ft/weo/2009/01/index.htm
SUSTAINABILITY TAKES HOLD Many analysts predicted that the economic crisis would stall socially responsible investing as the most important shade of green became the colour of money. But new research suggests that environmental, social and governance factors are actually taking root in emerging market portfolios.
http://mail.efnmail.co.uk/r/68129495/MjU3MzA2OjIxMDM0/
*** My favourite part of this… socially responsible investing as the most important shade of green became the colour of money
DEVELOPING WORLD COULD BE FIRST OUT OF DOWNTURN There can be no denying that last year was an annus horribilis for emerging markets. The MSCI emerging markets index was down 54% for the year, and panicking investors pulled $20bn (€15bn) from equity and fixed-income emerging market funds. But the green shoots of recovery have begun to take root.
http://mail.efnmail.co.uk/r/68129497/MjU3MzA2OjIxMDM0/
*** and another one, welcome back to the re-emerging market(s).
EUROPE CLOSER TO CDS STANDARD The creation of a standardised document for credit default swaps has moved a step closer after a working group of the International Swaps and Derivatives Association, an industry trade body, agreed measures that would help align the terms of European contracts with those in the US.
http://mail.efnmail.co.uk/r/68129513/MjU3MzA2OjIxMDM0/
LSE COUNTS DOWN TO BAIKAL LAUNCH For a man who has just two months to complete the most ambitious project attempted by Europe’s highest profile exchange in over 10 years, John Wilson, chief executive of London Stock Exchange Group-owned Baikal, seemed in good spirits last week.
http://mail.efnmail.co.uk/r/68129526/MjU3MzA2OjIxMDM0/
*** Syndication (though no details whether it is the parent or subsidiary model)
*** Funny, LSE set the precedent for charging a premium for onward routing (Nasdaq Europe).
ELECTRONIC TRADERS ARE UPBEAT ON EUROPE Electronic traders met in Paris’ La Défense business district last week for the ninth annual TradeTech summit, an industry conference that offers the chance to reflect on the state of Europe’s equity markets.
http://mail.efnmail.co.uk/r/68129532/MjU3MzA2OjIxMDM0/
Björn Schubert, author of the recently-published book 'Evolution of algorithmic trading and challenges of the future'.
Read the Interview
However he contends that algorithms are incapable of completely replacing human dealers on certain transactions. “For single-order trading, a good, focused, aggressive trader will always be able to outperform a computer,” he says. “But for list trading, the algorithm secures an optimal and efficient trade execution which cannot be replicated by a human trader.”
He adds, “The best trade execution involves an efficient interaction between human trader and machine.”
***I’d agree with that. Humans add context.
DTCC announced that four senior executives from AllianceBernstein L.P., Goldman Sachs, Morgan Stanley and MF Global Ltd. have been newly elected to the DTCC Board of Directors. The 2009 DTCC Board is composed of 18 directors serving one-year terms. Fourteen directors are representatives of clearing agency participants, including international broker/dealers, custodian and clearing banks, and investment institutions.
http://wallstreetandtech.com/exchanges/showArticle.jhtml?articleID=217200104&cid=nl_wallstreettech_daily
*** Post sub-prime we are moving away from short-termism to accountability. One year terms are just a little too much churn for me.
Circumstances of BofA's acquisition of Merrill spark uproar
Testimony by Bank of America CEO Kenneth Lewis regarding the circumstances under which the bank acquired Merrill Lynch has triggered a furor. Lewis, who is under tremendous pressure regardless, testified in February that former Treasury Secretary Henry Paulson raised the possibility of having him and his board removed if they did not complete the deal. New York Attorney General Andrew Cuomo released Lewis' testimony and raised concerns about the Bank of America-Merrill Lynch merger. Financial Times (4/24) , The Washington Post (4/24)
….
Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said he had been aware for months of the pressure put on Lewis to go through with the deal, adding, "There wasn't anything we could do about it. It was a fait accompli . . . I put my energies into things where I can make a difference."
EU lawmakers back regulations for credit rating agenciesMembers of the European Parliament overwhelmingly favoured regulations for credit rating agencies that operate in the EU. Agencies will have to register with the Committee of European Securities Regulators in Paris, where they will be supervised by national securities regulators. The regulators will impose strict rules, including disclosure of the rating agencies' methodologies for the basis of their ratings. Financial Times (23 Apr.) , The Wall Street Journal/The Associated Press (23 Apr.)
24/04/2009 11:11:00
SIX SWISS EXCHANGE COMPLETES MIGRATION TO NEW PLATFORM
SIX Swiss Exchange has completed member migration to its new SWXess platform, which went live in February.
More on this story: http://www.finextra.com/fullstory.asp?id=19959
While competition among trading venues in Europe is bringing down execution fees, the continuing complexity and cost of the continent's post-trade infrastructure is stunting the growth of its equities market, says Bradley Duke, managing director of institutional electronic sales, Europe, at US-based agency broker Knight Capital Group.
Read the Interview
THE TRADE NEWS: LSE Share of FTSE 100 Trading Closes on Two-ThirdsBy Staff5/7/09The London Stock Exchange’s (LSEs) share of FTSE 100 stocks fell to just over two-thirds yesterday for the first time, as a result of accelerated fragmentation in European share trading since the introduction of MiFID in November 2007.According to figures from data vendor Fidessa and BATS Europe, a pan-European multilateral trading facility (MTFs), the LSE’s share of the UK’s blue-chip index stood at 68.17% post-auction on Wednesday.The biggest beneficiaries were fellow MTFs Chi-X Europe, which picked up 20.74% of FTSE 100 trading, Turquoise (7.14%), now close to market share levels last seen prior to the expiration of its marketing making deals on 13 March, and BATS Europe, which gained 3.56%.By comparison, the two main US exchanges, Nasdaq OMX and NYSE Euronext, now hold market shares of just 25% and 26% respectively. The exchanges began to lose market share following the authorisation of electronic communications networks by the US Securities and Exchange Commission in 1998.
THE TRADE NEWS: Buy-side Hampered by Transaction Cost Paralysis By Staff4/24/09Brokers may or may not be routing client orders to reduce their own trading costs, but the real focus of buy-side ire at the TradeTech securities industry conference held in Paris this week was the transaction cost analysis (TCA) providers who are failing to provide the evidence to convict the accused. “My suspicion is that some smart order routing (SOR) tools are not as smart as others, but I’d like to be able to prove it,” said Nigel Coleman, UK head of equity trading, Credit Suisse Asset Management, in a panel discussion entitled ‘Addressing the key concerns of the buy-side dealer in a changing world’. “I’d like to know whether a broker is using a particular venue because it suits them or because it suits me. Are they inappropriately routing my orders to the cheapest venue for the broker? There’s a gap in the market for policing SOR.” Coleman also predicted that the buy-side faced a period of cold turkey as innovation and service levels from brokers and other providers diminished in accordance with the reduced level of available resources. “A lot of the problems of the buy-side stem from our dependency on the tools provided by the sell-side. We are now addicted to the infrastructure provided by the sell-side. It is now inevitable that spending on that infrastructure will plummet,” said Coleman. He also blamed the tightening of belts across the finance sector for the lack of progress toward much-needed product innovations, such as a consolidated market data tape to provide buy-side traders with an aggregated view of European liquidity. “If MiFID had happened a year earlier, it would have been like the gold rush, with a lot of market participants and software vendors filling the gaps, but we’re feeling the pain because of the slowdown in technology spend,” Coleman observed.Nevertheless, he called on providers of transaction cost analysis to provide more comprehensive market data and to broaden their product capabilities. “The TCA industry has had it easy for quite some time and providers now need to take their services to the next level,” he said. “I want to know how smart smart order routing is, but I can’t until TCA firms source data from alternative vendors. As yet, I don’t think any of them are.”Klaus Timpel, global head of valuation control, DWS and Deutsche Asset Management, said that TCA must move beyond data collection issues if it is to help traders and portfolio managers to work together to minimise alpha leakage in the trading process. “It’s still a huge battle to get proper data, but we also need to develop intelligent models rather than lumping together a few data points. You need to create a benchmark that reflects the style of your trading and investment processes,” he said. “It’s hard for a trader to have a good result when your portfolio manager jumps of the cliff like a lemming.” Timpel called for TCA developed along more scientific lines to help put an end to arguments between portfolio managers and traders over the cause of poor trade performance.Rather than providing an accurate indicator of the trader’s contribution to alpha generation, Coleman said that TCA most often identified outlying trades whose performance good or bad, depended almost exclusively on the input of the portfolio manager rather than the trader. “The use of TCA should be about saying to those individual portfolio managers: ‘Here’s the cost of trading in your style versus the cost of trading for the man sitting next to you with a separate approach to the market. Are you comfortable with that?’” he said.
Summary
· Liquidity fragmentation in Europe last week was 16.1%, 0.1% down on the previous week driven by France and Netherlands.
· Ireland (71.6%), UK (27.3%), Netherlands (20.4%), Germany (18.8%) and France (21.3%) were the most fragmented markets in percentage terms.
· UK ($2.2bn), Germany ($1.3bn), France ($1.3bn), Netherlands ($0.3bn) Switzerland ($0.3bn) and Italy ($0.3bn) were the most fragmented in terms of Displayed Liquidity traded away from the primary market.
· Chi-X achieved average daily turnover (ADT) of $4.3bn, equivalent to 11.6% of flow in Chi-X names. Total ($131m, 21.9%), Deutsche Telekom (106m, 13.4%) BP ($104m, 27.2%) had the highest ADT.
· ADT on the Turquoise Displayed Order Book was $0.9bn. Market share in Turquoise names was 2.3%. HSBC ($22.7m, 5.1%), BP (21m, 5.5%) Deutsche Telekom ($19m, 2.4%), had the highest ADT.
· BATS achieved ADT of $0.7bn. Market share in BATS names was 2.2%. Deutsche Telekom ($26m, 3.3%), Total ($21m, 3.5%) and E.ON ($20m, 4.9%) had the highest ADT.
· Nasdaq OMX achieved ADT of $66.7m, its highest level since launching in October 2008.
· 11 stocks traded more than 20% ADV on Dark venues. Exact (EXAH.AS) traded 3x ADV on Liquidnet. See Figures 7 – 10 and Tables 8 - 9 for further details.
Source: J.P. Morgan TicDB
Scott Riley
EMCF Business Development
European Multilateral Clearing Facility
8th Floor 50 Bridge Street Sydney Australia 2000
((Off)+61 (0)2 8916 9634 È(Mob): +61 (0)418 117 627
* scott.riley@au.fortis.com
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