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
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