G’day All,
Well, nothing solicits blog feedback more than sport.
There was me thinking people we’re interested in C&S!
I got an email from Google blocking the blogspot: http://clearingandsettlement.blogspot.com/
One of their robots thought it was spam. Anyway, looks like I’m able to post again.
News of the week has been the Chi-X Asian Dark Pool announcement with SGX.
It’s great to see the early positive feedback in the press.
As a result of a busy week I’ve not red all the stories.
There is a good piece on high frequency trading with is included in full.
Flash orders fail to light up the dark pools.
Waterhouse takes OMX securities.
The National Reference Data story resonated with me – absolute common sense.
And a clever cloggie!
ADXers, I called PPB to get confirmation of how they’re doing in tracking people down…they didn’t return my call.
Any updates / input gratefully received.
...but for all you souls that commented on the sport, I reserve the right of reply.
(BTW is a C&S Blog, not a multinational ridicule Australia at sport blog)
Cricket.
Yes, Yay to the Poms for defying the win at Cardiff and taking the spoils at Lords.
Headingly. A tale of two innings?
Langer. My heart goes out to him. Someone’s sold him out. Disappointing.
…and now to the Oval. Unless the weather favours England I call an Aussie win to retain the Ashes.
…dunno Freddies state of health, but put him in the side anyway.
Rugby.
Yes. The Wallabies continue to disappoint.
As much as I like Deans I still can’t see World Cup winners in the Wallabies.
I just don’t see the on field cohesion or the on / and off field hunger and passion for victory.
Deans still has much to do….maybe we could take some lessons from the Rugby League guys?
Wallabies to come 3rd in this years Tri-Nations.
Running.
I did the city2surf last week.
Largest fun run in the world – the atmosphere on the day makes this a must do if you can in my view.
My result?...pretty dreadful, but I blame Mrs R…I mean dinner with friends when the Rugby comes on at 1am?
I vow not to be a ‘slave’ to these events…and I sure wasn’t counting the beers.
Anyway, next year I have an easy time to beat.
(In 2001 I did the race in around 84 mins, in ’09 102 mins)
Got a lovely postcard from Miss R who is on a school field trip for 2 weeks in Far North Queensland.
…and as I flipped it over to see what sight she’d chosen…the Daintree…Cape Tribulation…Aboriginal crafts…..
Nah, a nice piccie of the Sydney Opera House.
Have a great week-end all,
S
http://clearingandsettlement.blogspot.com/
Platforms
Chi-X and SGX team up to launch Singapore dark pool
Market participants welcome dark-pool JV from SGX, Chi-XSingapore Exchange's plans to establish a joint venture with alternative trading platform Chi-X to develop a dark pool for Asia could revolutionise the region's trading. Market participants, including buy-side traders, technology providers and dark-pool brokers, lauded the announcement because the venture offers potential solutions to fragmentation and monopolisation, which are two of the biggest issues in Asia's equity trading. AsianInvestor.net (14 Aug.) , Financial Times (tiered subscription model) (12 Aug.)
Analysis shows renewed interest in block trading in AsiaITG developed a liquidity barometer to measure trading activity across several Asian-Pacific markets, including Australia, Japan, Singapore, South Korea, Hong Kong and Taiwan. The data generated suggest that liquidity in the region is coming back. "This indicates a renewed interest for block trading and a return to trading in volume, rather than the trend of small order sizes," said Clare Rowsell, head of client-relationship management at ITG in Hong Kong. AsianInvestor.net (13 Aug.)
Chi-X Canada inverts fees in ETF price promotion
FT.COM: High Frequency Traders -- The View from EuropeBy Richard Balarkas8/7/09High frequency traders, a relatively small number of firms that have grown to command upwards of 70 per cent market share of US equity trades without most equity investors even knowing they exist, are arousing suspicion. Throw into the mix the fact that many are proprietary traders and rumoured to be immensely profitable, and we have the makings of a scapegoat for everything from the next financial crisis to swine flu.
US incumbents’ market shares slump as Direct Edge soars
Turquoise suffers third glitch in a year High-profile equity trading platform Turquoise, which has steadily rebuilt its market share in the past three months, suffered a setback this morning when its third technical problem in less than a year halved its trading activity overnight.
Quote MTF
BUDAPEST-Hungarian multilateral trading facility (MTF) Quote MTF will be available for participant testing by the end of this week, giving users the ability to see how the technology will operate once the new venue goes live on Sept. 4.
BATS, Nasdaq to stop offering flash orders Sept. 1Nasdaq OMX and BATS Exchange both announced that as of Sept. 1, they will no longer offer flash-trading orders, which give some traders an early glimpse at orders. "We respectfully call on other markets offering similar functionality to make the same decision," Nasdaq OMX CEO Bob Greifeld said in a statement. The Securities and Exchange Commission is considering prohibiting the practice. The Wall Street Journal (8/7)
DTCC and Markit set launch date for OTC derivatives service
*** 1st Sept.
ICE pulls ahead in CDS clearing in Europe, USIntercontinentalExchange appears to be pulling ahead of its competition in terms of clearing credit default swaps in both Europe and the US. The exchange group said its European clearinghouse cleared 840 CDS transactions worth a total of €37.8 billion during its first two weeks of operation. The firm's North American CDS clearinghouse, which launched in March, has cleared contracts worth more than $1,700 billion. Financial Times (tiered subscription model) (10 Aug.)
NYSE Euronext suspends CDS clearing
Luke Jeffs
Exchange giant NYSE Euronext has been forced to suspend its European credit default swap clearing service because it had failed to attract a single trade almost eight months after launch.
http://www.efinancialnews.com/homepage/content/1054929909/restricted
*** sounds like ownership and governance to me.
NYSE LIFFE SHELVES CDS CLEARING
Nyse Euronext subsidiary Liffe has suspended its European credit default swaps (CDS) clearing service after failing to attract a single trade since launching in December.
Full story: http://www.finextra.com/fullstory.asp?id=20369
White House divides CDS regulatory jurisdiction
Credit default swaps to be overseen by SEC, CFTC
http://www.ft.com/cms/s/0/5cfd675e-871e-11de-9280-00144feabdc0,dwp_uuid=60835a20-4167-11de-bdb7-00144feabdc0.html
*** whoops. Well, there goes another opportunity to try and get it right.
Move to OTC Clearing Is Right, Says LCH.Clearnet CEOAs regulators focus on curbing speculation, the Wall Street Journal chats with Roger Liddell, LCH.Clearnet CEO, about whether things are headed in the right direction. Liddell also reveals plans for forex clearing, and updates on a proposed LCH.Clearnet takeover.
FSA releases guidance on bankers' bonusesThe U.K. Financial Services Authority published updated rules regarding bankers' bonuses. The rules, which include a ban on guaranteed bonuses of more than a year, apply to a couple of dozen of the largest banks. The City watchdog said penalties for violations include higher capital charges and possible enforcement action. Financial Times (tiered subscription model) (8/13) , The New York Times/Reuters (8/12) , BBC (8/12) , Bloomberg (8/12) , The Times (London) (8/13)
**** not read this – but what an awful bind / balance to get right.
Sol's $9m final pay packet
Matt O’Sullivan 10:15AM Telstra's controversial former boss, Sol Trujillo, has pocketed a total of $9 million for 10 months work.
**** but a million a month can’t be right either.
TD Waterhouse expands into backroom services with acquisitionTD Waterhouse CEO Angus Rigby said the stockbroker plans to continue making acquisitions as he announced the takeover of OMX Securities, a provider of clearing and settlement services. "We continue to be in the marketplace for good-value acquisitions -- expanding into corporate services brings you the scale that is so important and lacking in UK brokerage," Rigby said. Financial Times (tiered subscription model) (13 Aug.)
TD Waterhouse acquires OMX Securities
Hannah Stodell
UK execution only broker TD Waterhouse is acquiring 100 per cent of the share capital of OMX Securities Services, a provider of outsourced clearing and settlement services.
http://www.moneymarketing.co.uk/cgi-bin/item.cgi?id=191726&d=340&h=341&f=342
Banks start to unload billions of dollars in troubled mortgagesLarge financial institutions are quietly selling troubled residential mortgages to hedge funds, private-equity firms and other participants in the distressed-mortgage market. The move comes as the government pressures lenders to rid their balance sheets of such troubled debt. Distressed-mortgage players expect the loans to generate profit after they are modified, sources said. The New York Times/DealBook blog (8/13)
**** If I could, I’d be doing this too. I think there is a huge up side here. (as already experienced by the CS bonus pool)
07/08/2009 13:05:00
PETITION SET UP FOR NATIONAL REFERENCE DATA RESPOSITORY TO COMBAT SYSTEMIC RISK
The American Statistical Association (ASA), as well as the EDM Council, have endorsed a petition to create a new US Federal agency to build and oversee a centralised utility for maintaining reference and trade data.
More on this story: http://www.finextra.com/fullstory.asp?id=20352
Madoff Relied on `Key Lieutenant,' Old Stationery to Hide Scam
Bernard Madoff used a random-number generator, old stationery, a “phantom” trading platform and an aging computer to hide for decades the world’s biggest Ponzi scheme, U.S. regulators said in claims against the person they called his “key lieutenant,” Frank DiPascali.
http://www.bloomberg.com/apps/news?pid=20601170&sid=alsaRupBZoMU
*** Awful, just awful. Beggars belief. How could one bring themselves to do this?...and by closing “sophisticated investor” accounts the pain is localised to those least able...(e.g. charities). That’s becoming evil….prolonged public ritual humiliation is more appropriate than a warm jail cell and a good book to reflect on times of living the high life.
Locked up Myanmar's opposition leader, Aung San Suu Kyi, is detained againFull article
*** this don’t feel right either.
THE FLYING DUTCHMAN Teen Takes to the Skies in Pedal- Powered Plane At the tender age of 16, Jesse van Kuijk already knew he wanted to fly. But he didn't take flying lessons or train as a flight attendant. Instead, he built his own pedal-powered aircraft and became one of a select group of people to take to the skies under their own steam.
*** clever cloggie!
FT.COM: High Frequency Traders -- The View from EuropeBy Richard Balarkas8/7/09High frequency traders, a relatively small number of firms that have grown to command upwards of 70 per cent market share of US equity trades without most equity investors even knowing they exist, are arousing suspicion. Throw into the mix the fact that many are proprietary traders and rumoured to be immensely profitable, and we have the makings of a scapegoat for everything from the next financial crisis to swine flu.As equity markets have become increasingly electronic and faster-moving these firms have invested heavily in trading technology and the brain power to drive it. Their employees are rumoured to be more at home with fluid mechanics and wave theory than with discounted cash flow analysis.That their current success results from careful competitive positioning in response to easily discernible trends in market structure is neatly overlooked by commentators who suggest that they have an unfair advantage, or that they represent innovation gone too far. Based on what we know, however, it is hard to find anything that is unfair or indeed new in how these firms generate their revenues. Take for example liquidity rebates. In order to win market share stock exchanges and MTF’s [multilateral trading facilities] often “buy” liquidity through offering rebates to traders who leave passive limit orders. This is designed to attract high frequency trading firms as they can employ strategies in which they are net providers of liquidity, generating profits from the rebates alone. This is leading to concerns that rebates are an unnecessary tax on other investors who come to the market as net takers of liquidity. Paying for liquidity in order to generate revenue or attract additional paying liquidity is, however, a long standing practice. Every institutional investor who has ever used a broker’s risk book to complete a trade, or asked for guaranteed VWAP*, has swapped a fixed execution performance for their liquidity usually without having any idea of how much money they are leaving on the table for the broker to make out of the trade. A more valid concern for institutional investors should be guarding against their brokers boosting their own margins and potentially sacrificing execution quality by routinely routing their clients’ orders to the exchanges that pay the broker the highest rebate.Some traders no doubt use smart computer models to spot traders using less intelligent computer algorithms to work larger orders into the market over a period of time. For example many trading algorithms simply “peg” orders at the market’s current best price, and as the market price moves the pegged order price follows suit, with less intelligent algorithms literally being walked up and down the market paying more, and selling for less, than they might otherwise have done. If this is deemed unfair then on whom should the regulators focus, the high frequency trader competing fairly on a transparent market, or the clumsy broker employing a trading strategy that can be second-guessed? Lets not forget that for years any institution - and there are plenty of them - that has ever asked a bank to “start” a buy order by selling the institution a parcel of stock off the bank’s book, possibly making the book short of stock, has been setting up a competitive buyer for the stock who has a distinctly unfair advantage and who is very likely to push the price higher as they try to cover the short position. High frequency traders employ a diverse range of strategies. Some will involve spotting short term trading patterns and reading supply and demand signals. Others will involve more complex strategies that straddle the equity and derivative markets. But as yet nothing indicates they have an unfair advantage. As large participants they will, however, exercise their significant buyer power to further their goals. In the space of one second we recently registered 90 trades, 72 price changes and 11 “backwardations” (ie: where the stock was offered for sale on one trading venue at a price below what it was being bid for on another venue) in Vodafone’s shares. Traders can choose to invest in acquiring the ability to assimilate this information and make and execute profitable trading decisions. Those who do not will never know the opportunities existed, and into this segment fall a large number of Europe’s institutional brokers. Brokers who are not adept at using technology to seek and exploit opportunities for themselves or their clients, but who are themselves exploited, deserve to lose competitive ground. Information imbalance may be unfair, intellectual imbalance is not. Big and powerful as the high frequency firms may appear, most of what they feed on are the crumbs that fall from the institutional brokers’ tables. If, as they predominantly do, institutions place their orders with brokers who internalise client orders so that they can interact with their proprietary trading capability, then they should assume that every means of extracting revenue from their order will already have been exploited before what is left of it gets passed to the market. * Volume-weighted average price, representing the total value of shares traded in a particular stock on a given day, divided by the total volume of shares traded in that stock on that day.Richard Balarkas is chief executive of Instinet Europe, a broker.
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
Well, nothing solicits blog feedback more than sport.
There was me thinking people we’re interested in C&S!
I got an email from Google blocking the blogspot: http://clearingandsettlement.blogspot.com/
One of their robots thought it was spam. Anyway, looks like I’m able to post again.
News of the week has been the Chi-X Asian Dark Pool announcement with SGX.
It’s great to see the early positive feedback in the press.
As a result of a busy week I’ve not red all the stories.
There is a good piece on high frequency trading with is included in full.
Flash orders fail to light up the dark pools.
Waterhouse takes OMX securities.
The National Reference Data story resonated with me – absolute common sense.
And a clever cloggie!
ADXers, I called PPB to get confirmation of how they’re doing in tracking people down…they didn’t return my call.
Any updates / input gratefully received.
...but for all you souls that commented on the sport, I reserve the right of reply.
(BTW is a C&S Blog, not a multinational ridicule Australia at sport blog)
Cricket.
Yes, Yay to the Poms for defying the win at Cardiff and taking the spoils at Lords.
Headingly. A tale of two innings?
Langer. My heart goes out to him. Someone’s sold him out. Disappointing.
…and now to the Oval. Unless the weather favours England I call an Aussie win to retain the Ashes.
…dunno Freddies state of health, but put him in the side anyway.
Rugby.
Yes. The Wallabies continue to disappoint.
As much as I like Deans I still can’t see World Cup winners in the Wallabies.
I just don’t see the on field cohesion or the on / and off field hunger and passion for victory.
Deans still has much to do….maybe we could take some lessons from the Rugby League guys?
Wallabies to come 3rd in this years Tri-Nations.
Running.
I did the city2surf last week.
Largest fun run in the world – the atmosphere on the day makes this a must do if you can in my view.
My result?...pretty dreadful, but I blame Mrs R…I mean dinner with friends when the Rugby comes on at 1am?
I vow not to be a ‘slave’ to these events…and I sure wasn’t counting the beers.
Anyway, next year I have an easy time to beat.
(In 2001 I did the race in around 84 mins, in ’09 102 mins)
Got a lovely postcard from Miss R who is on a school field trip for 2 weeks in Far North Queensland.
…and as I flipped it over to see what sight she’d chosen…the Daintree…Cape Tribulation…Aboriginal crafts…..
Nah, a nice piccie of the Sydney Opera House.
Have a great week-end all,
S
http://clearingandsettlement.blogspot.com/
Platforms
Chi-X and SGX team up to launch Singapore dark pool
Market participants welcome dark-pool JV from SGX, Chi-XSingapore Exchange's plans to establish a joint venture with alternative trading platform Chi-X to develop a dark pool for Asia could revolutionise the region's trading. Market participants, including buy-side traders, technology providers and dark-pool brokers, lauded the announcement because the venture offers potential solutions to fragmentation and monopolisation, which are two of the biggest issues in Asia's equity trading. AsianInvestor.net (14 Aug.) , Financial Times (tiered subscription model) (12 Aug.)
Analysis shows renewed interest in block trading in AsiaITG developed a liquidity barometer to measure trading activity across several Asian-Pacific markets, including Australia, Japan, Singapore, South Korea, Hong Kong and Taiwan. The data generated suggest that liquidity in the region is coming back. "This indicates a renewed interest for block trading and a return to trading in volume, rather than the trend of small order sizes," said Clare Rowsell, head of client-relationship management at ITG in Hong Kong. AsianInvestor.net (13 Aug.)
Chi-X Canada inverts fees in ETF price promotion
FT.COM: High Frequency Traders -- The View from EuropeBy Richard Balarkas8/7/09High frequency traders, a relatively small number of firms that have grown to command upwards of 70 per cent market share of US equity trades without most equity investors even knowing they exist, are arousing suspicion. Throw into the mix the fact that many are proprietary traders and rumoured to be immensely profitable, and we have the makings of a scapegoat for everything from the next financial crisis to swine flu.
US incumbents’ market shares slump as Direct Edge soars
Turquoise suffers third glitch in a year High-profile equity trading platform Turquoise, which has steadily rebuilt its market share in the past three months, suffered a setback this morning when its third technical problem in less than a year halved its trading activity overnight.
Quote MTF
BUDAPEST-Hungarian multilateral trading facility (MTF) Quote MTF will be available for participant testing by the end of this week, giving users the ability to see how the technology will operate once the new venue goes live on Sept. 4.
BATS, Nasdaq to stop offering flash orders Sept. 1Nasdaq OMX and BATS Exchange both announced that as of Sept. 1, they will no longer offer flash-trading orders, which give some traders an early glimpse at orders. "We respectfully call on other markets offering similar functionality to make the same decision," Nasdaq OMX CEO Bob Greifeld said in a statement. The Securities and Exchange Commission is considering prohibiting the practice. The Wall Street Journal (8/7)
DTCC and Markit set launch date for OTC derivatives service
*** 1st Sept.
ICE pulls ahead in CDS clearing in Europe, USIntercontinentalExchange appears to be pulling ahead of its competition in terms of clearing credit default swaps in both Europe and the US. The exchange group said its European clearinghouse cleared 840 CDS transactions worth a total of €37.8 billion during its first two weeks of operation. The firm's North American CDS clearinghouse, which launched in March, has cleared contracts worth more than $1,700 billion. Financial Times (tiered subscription model) (10 Aug.)
NYSE Euronext suspends CDS clearing
Luke Jeffs
Exchange giant NYSE Euronext has been forced to suspend its European credit default swap clearing service because it had failed to attract a single trade almost eight months after launch.
http://www.efinancialnews.com/homepage/content/1054929909/restricted
*** sounds like ownership and governance to me.
NYSE LIFFE SHELVES CDS CLEARING
Nyse Euronext subsidiary Liffe has suspended its European credit default swaps (CDS) clearing service after failing to attract a single trade since launching in December.
Full story: http://www.finextra.com/fullstory.asp?id=20369
White House divides CDS regulatory jurisdiction
Credit default swaps to be overseen by SEC, CFTC
http://www.ft.com/cms/s/0/5cfd675e-871e-11de-9280-00144feabdc0,dwp_uuid=60835a20-4167-11de-bdb7-00144feabdc0.html
*** whoops. Well, there goes another opportunity to try and get it right.
Move to OTC Clearing Is Right, Says LCH.Clearnet CEOAs regulators focus on curbing speculation, the Wall Street Journal chats with Roger Liddell, LCH.Clearnet CEO, about whether things are headed in the right direction. Liddell also reveals plans for forex clearing, and updates on a proposed LCH.Clearnet takeover.
FSA releases guidance on bankers' bonusesThe U.K. Financial Services Authority published updated rules regarding bankers' bonuses. The rules, which include a ban on guaranteed bonuses of more than a year, apply to a couple of dozen of the largest banks. The City watchdog said penalties for violations include higher capital charges and possible enforcement action. Financial Times (tiered subscription model) (8/13) , The New York Times/Reuters (8/12) , BBC (8/12) , Bloomberg (8/12) , The Times (London) (8/13)
**** not read this – but what an awful bind / balance to get right.
Sol's $9m final pay packet
Matt O’Sullivan 10:15AM Telstra's controversial former boss, Sol Trujillo, has pocketed a total of $9 million for 10 months work.
**** but a million a month can’t be right either.
TD Waterhouse expands into backroom services with acquisitionTD Waterhouse CEO Angus Rigby said the stockbroker plans to continue making acquisitions as he announced the takeover of OMX Securities, a provider of clearing and settlement services. "We continue to be in the marketplace for good-value acquisitions -- expanding into corporate services brings you the scale that is so important and lacking in UK brokerage," Rigby said. Financial Times (tiered subscription model) (13 Aug.)
TD Waterhouse acquires OMX Securities
Hannah Stodell
UK execution only broker TD Waterhouse is acquiring 100 per cent of the share capital of OMX Securities Services, a provider of outsourced clearing and settlement services.
http://www.moneymarketing.co.uk/cgi-bin/item.cgi?id=191726&d=340&h=341&f=342
Banks start to unload billions of dollars in troubled mortgagesLarge financial institutions are quietly selling troubled residential mortgages to hedge funds, private-equity firms and other participants in the distressed-mortgage market. The move comes as the government pressures lenders to rid their balance sheets of such troubled debt. Distressed-mortgage players expect the loans to generate profit after they are modified, sources said. The New York Times/DealBook blog (8/13)
**** If I could, I’d be doing this too. I think there is a huge up side here. (as already experienced by the CS bonus pool)
07/08/2009 13:05:00
PETITION SET UP FOR NATIONAL REFERENCE DATA RESPOSITORY TO COMBAT SYSTEMIC RISK
The American Statistical Association (ASA), as well as the EDM Council, have endorsed a petition to create a new US Federal agency to build and oversee a centralised utility for maintaining reference and trade data.
More on this story: http://www.finextra.com/fullstory.asp?id=20352
Madoff Relied on `Key Lieutenant,' Old Stationery to Hide Scam
Bernard Madoff used a random-number generator, old stationery, a “phantom” trading platform and an aging computer to hide for decades the world’s biggest Ponzi scheme, U.S. regulators said in claims against the person they called his “key lieutenant,” Frank DiPascali.
http://www.bloomberg.com/apps/news?pid=20601170&sid=alsaRupBZoMU
*** Awful, just awful. Beggars belief. How could one bring themselves to do this?...and by closing “sophisticated investor” accounts the pain is localised to those least able...(e.g. charities). That’s becoming evil….prolonged public ritual humiliation is more appropriate than a warm jail cell and a good book to reflect on times of living the high life.
Locked up Myanmar's opposition leader, Aung San Suu Kyi, is detained againFull article
*** this don’t feel right either.
THE FLYING DUTCHMAN Teen Takes to the Skies in Pedal- Powered Plane At the tender age of 16, Jesse van Kuijk already knew he wanted to fly. But he didn't take flying lessons or train as a flight attendant. Instead, he built his own pedal-powered aircraft and became one of a select group of people to take to the skies under their own steam.
*** clever cloggie!
FT.COM: High Frequency Traders -- The View from EuropeBy Richard Balarkas8/7/09High frequency traders, a relatively small number of firms that have grown to command upwards of 70 per cent market share of US equity trades without most equity investors even knowing they exist, are arousing suspicion. Throw into the mix the fact that many are proprietary traders and rumoured to be immensely profitable, and we have the makings of a scapegoat for everything from the next financial crisis to swine flu.As equity markets have become increasingly electronic and faster-moving these firms have invested heavily in trading technology and the brain power to drive it. Their employees are rumoured to be more at home with fluid mechanics and wave theory than with discounted cash flow analysis.That their current success results from careful competitive positioning in response to easily discernible trends in market structure is neatly overlooked by commentators who suggest that they have an unfair advantage, or that they represent innovation gone too far. Based on what we know, however, it is hard to find anything that is unfair or indeed new in how these firms generate their revenues. Take for example liquidity rebates. In order to win market share stock exchanges and MTF’s [multilateral trading facilities] often “buy” liquidity through offering rebates to traders who leave passive limit orders. This is designed to attract high frequency trading firms as they can employ strategies in which they are net providers of liquidity, generating profits from the rebates alone. This is leading to concerns that rebates are an unnecessary tax on other investors who come to the market as net takers of liquidity. Paying for liquidity in order to generate revenue or attract additional paying liquidity is, however, a long standing practice. Every institutional investor who has ever used a broker’s risk book to complete a trade, or asked for guaranteed VWAP*, has swapped a fixed execution performance for their liquidity usually without having any idea of how much money they are leaving on the table for the broker to make out of the trade. A more valid concern for institutional investors should be guarding against their brokers boosting their own margins and potentially sacrificing execution quality by routinely routing their clients’ orders to the exchanges that pay the broker the highest rebate.Some traders no doubt use smart computer models to spot traders using less intelligent computer algorithms to work larger orders into the market over a period of time. For example many trading algorithms simply “peg” orders at the market’s current best price, and as the market price moves the pegged order price follows suit, with less intelligent algorithms literally being walked up and down the market paying more, and selling for less, than they might otherwise have done. If this is deemed unfair then on whom should the regulators focus, the high frequency trader competing fairly on a transparent market, or the clumsy broker employing a trading strategy that can be second-guessed? Lets not forget that for years any institution - and there are plenty of them - that has ever asked a bank to “start” a buy order by selling the institution a parcel of stock off the bank’s book, possibly making the book short of stock, has been setting up a competitive buyer for the stock who has a distinctly unfair advantage and who is very likely to push the price higher as they try to cover the short position. High frequency traders employ a diverse range of strategies. Some will involve spotting short term trading patterns and reading supply and demand signals. Others will involve more complex strategies that straddle the equity and derivative markets. But as yet nothing indicates they have an unfair advantage. As large participants they will, however, exercise their significant buyer power to further their goals. In the space of one second we recently registered 90 trades, 72 price changes and 11 “backwardations” (ie: where the stock was offered for sale on one trading venue at a price below what it was being bid for on another venue) in Vodafone’s shares. Traders can choose to invest in acquiring the ability to assimilate this information and make and execute profitable trading decisions. Those who do not will never know the opportunities existed, and into this segment fall a large number of Europe’s institutional brokers. Brokers who are not adept at using technology to seek and exploit opportunities for themselves or their clients, but who are themselves exploited, deserve to lose competitive ground. Information imbalance may be unfair, intellectual imbalance is not. Big and powerful as the high frequency firms may appear, most of what they feed on are the crumbs that fall from the institutional brokers’ tables. If, as they predominantly do, institutions place their orders with brokers who internalise client orders so that they can interact with their proprietary trading capability, then they should assume that every means of extracting revenue from their order will already have been exploited before what is left of it gets passed to the market. * Volume-weighted average price, representing the total value of shares traded in a particular stock on a given day, divided by the total volume of shares traded in that stock on that day.Richard Balarkas is chief executive of Instinet Europe, a broker.
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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