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.
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