G’day All,
Well, no blog last week.
I was up on the Gold Coast at the sister-in-laws wedding.
Did I read the Oxera report?...Ummm, nope.
I did do a 14K run along Southport beach to the spit and I went for a swim in the surf most days (unless Shaz had me on family duties).
Even though it is “winter” here the water is a glorious 19oC (which actually feels less cold, the colder the outside air temp is – if that makes sense).
…and the water. Amazing. Absolutely crystal clear. The summer currents tend to stir things up a bit. For some reason the winter currents leave the water clear as a bell. As you dive under the breaking waves you just see this vast expanse of aqua before you…mesmerising apart from the fact that your lungs might burst.
…oh that and after a while the toes go numb (you lose some feeling pushing of the sea floor) and the fingers white…
Anyway, Queensland is lovely….
…but not as lovely as my daughter.
OMG. I walked my daughter to the bridesmaid suite with her dress and heels and I just thought…OMG.
Amazing.
Weddings are always great events but Rebecca sang to the congregation at this one.
Moved me (to be expected) but also brought a tear to the eye of many others (including the celebrant).
That made me think this was pretty special too.
Pretty gutsy performance by R.
But it’s our industry that binds us together.
The current kerfuffle appears to be about flash orders.
I’m not opposed to flash order types. I don’t think they are evil or disrupt liquidity.
Please excuse me, as trade types are not my area of expertise (leave me in the C&S world) but I feel entitled to a view.
Lets go back a step.
Flash orders are just another order type of increased functionality.
By default, an order has to have an order type but no-one is saying you have to use flash types.
(see direct edge)
Flash orders would only have been created to satisfy a demand in the market.
Why is there this demand?
Maybe because smart order routers are not always so smart, and sometimes orders weren’t waiting around long enough to be replenished etc.
Customers might have valid reasons to use one order type on one platform and a different order type on another.
Why can’t customers control their own costs of execution and execution types?
To me, it’s all about customer choice.
There are a couple of other remarks I respect. (including the official responses from the new entrants)
Balarkas:
“The dilemma for the regulators in the US seems to be this assumption that their job is to ensure there is absolute equality of information amongst all market participants and it all boils down to this efficient market hypothesis,” he says. “In reality there are a couple of thousand tiers of information in the market and there always have been. If the regulators want to insist on this single-tier philosophy, where do they stop?”
…and I like the parallel that Time magazine went with.
If flash orders are so bad i.e create an unlevel playing field…then what about co-location?
The primary exchanges have little or no credibility in this debate. I just see their vested interest.
As a retail investor, do I care?
Maybe I should co-locate my compliance officer on a trading engine before I send my orders through for pre-approval.
Different folks have different strokes.
Trading covers a spectrum from size / speed / cost etc. Leave each to their own.
Interesting. NYSE hates flash yet builds a monster data centre that they can charge a premium for…buts that OK because its in the shareholders interest?
I’m still learning – bear with me.
Flash rant over.
Spain: Phah. Last time I looked MTF orders had to be reported net for book entry / “put through” (double counted) on the exchange anyway – just further reducing the credibility and transparency.
FSA is right to step back from position limits to control market prices. Regulators should not be in the business of manipulating markets, they should act against it.
CDS clearing. Interesting to see the wallet size range of 100-200myn.
ICE has a CCP and posts record revenues. (Once upon a time IPE used LCH).
NYSE wants it’s own derivatives CCP and incurs a cost in doing so. (Once upon a time Liffe used LCH).
ETF’s: After the GFC ETFs should boom. People want diversification and liquidity. ETFs give you all that plus they don’t lock you in with redemption clauses etc.
Another little rant.
ADX Alumni: PPB have to distribute ½ a mill to former staff in unpaid entitlements. I’ve added you to the distribution list this week in the hope to spur you on to identify all the names. So far we have 27 validated responses, 12 unconfirmed and 17 unknown / undeliverable of 56 staff. Lets pin ‘em down.
(please see blog post from earlier this week).
..and finally…
This week-end sees the City to Surf with a record 75,000 entrants. Hopefully all of them will be an excuse for holding me up. (I’d run faster but you need to move over). Running is one of my least favourite activities but this event is spectacular and worth taking part in. You hear the feet of the herd before the runners are in sight. (meanwhile at the back of the pack you just see a sea of bobbing heads as far as the eye can see).
http://city2surf.sunherald.com.au/
..next up…I’ll be back on the bike…spring cycle with a view to doing the ‘gong (Sydney to Wollongong for you foreigners)…and that should bring us back into the ocean swimming season…
Whatever you’re up to, have a great week-end!
S
http://clearingandsettlement.blogspot.com/
You better live your best and act your best and think your best today, for today is the sure preparation for tomorrow and all the other tomorrows that follow."
--Harriet Martineau, English writer and philospher
The Paper Behind the High-Frequency Trading UproarWhy have mainstream news outlets suddenly gotten excited about the "high frequency" or algorithmic trading that's taken place on Wall Street for years? According to Time magazine, a short white paper written by Joseph Saluzzi and Sal L. Arnuk, co-heads of the equity trading desk at agency brokerage Themis Trading, is behind most of the uproar.
High-Frequency Trading Grows, Shrouded in Secrecy
By Kristi Oloffson and Stephen Gandel
The Securities & Exchange Commission (SEC), concerned about the exponential growth of hyper-frequency trading, announced on Tuesday, Aug. 4, that it was considering a ban on one form of this activity, known as flash trading. But it has said nothing about an even bigger element of high-frequency trading, known as co-location, even as the New York Stock Exchange (NYSE) is building two new facilities to house such traders.
http://www.time.com/time/business/article/0,8599,1914724,00.html?xid=rss-topstories
DIRECT EDGE CEO HITS BACK OVER FLASH ORDERS The boss of Direct Edge, the alternative trading system that pioneered the introduction of flash order types three years ago, has launched a robust defence of the controversial practice as regulators hint at a looming crackdown.
Full story: http://www.finextra.com/fullstory.asp?id=20348
Direct Edge explain their ELP product here:
http://www.directedge.com/ELPP.aspx
Of note is the comment: All Direct Edge subscribers can choose to interact with ELPs or act as an ELP themselves.
This is a service open to all users, “based upon the subscriber’s instructions”.
Nobody is forced to use the service or order type.
Direct Edge Update - Market Structure Principles
http://www.directedge.com/NewsletterDetail.aspx?Id=100
FINANCIAL TIMES: The Dash to FlashBy Michael Mackenzie and Jeremy Grant 8/6/09
“The dilemma for the regulators in the US seems to be this assumption that their job is to ensure there is absolute equality of information amongst all market participants and it all boils down to this efficient market hypothesis,” he says. “In reality there are a couple of thousand tiers of information in the market and there always have been. If the regulators want to insist on this single-tier philosophy, where do they stop?”
NASDAQ OMX PROFIT SLIDES ON MARKET SHARE DECLINES AND WRITE-OFFS Nasdaq OMX has posted a 31% drop in quarterly profits as the transAtlantic exchange operator incurred some $35 million in charges and saw its market share in US stock trading drop for the fifth successive quarter.
Full story: http://www.finextra.com/fullstory.asp?id=20347
… its share of cash equity trading crashing to 20%, compared to 30% this time last year.
I think this just goes to show how commoditised trade matching (exchanges) has become. And I fully believe this is appropriate. Matching is a commodity.
Compare Nasdaq valuations to Asian exchanges and we start to get a feel of how much value needs to be “shifted”.
NYSE builds huge data centre for high-frequency trading The New York Stock Exchange is creating a nearly 400,000-square-foot data centre in New Jersey that, in 12 months’ time, is expected to house several football fields of cutting-edge computing equipment for hedge funds and other firms that deal in high-frequency trading. (The Wall Street Journal)
NYSE Euronext seeks bank backers for derivatives platforms NYSE Euronext plans to offer equity stakes in its US derivatives units to banks in a bid to boost business, a senior official said.
*** this is not a “copy” of any playbook…unless it means getting the ownership and governance model right.
Munich Stock Exchange Selects Trayport Carbon Credit Trading PlatformMunich Stock Exchange will create a pan-European carbon emissions exchange to trade European Union Allowances ...
PATSYSTEMS SWINGS TO H1 PROFIT
http://www.finextra.com/fullpr.asp?id=28990
Spanish exchange outperforms rivals with volume rise The Spanish exchange Bolsas y Mercados Españoles, Europe’s fourth largest market, outperformed its larger rivals in the second quarter of this year as its equity trading rose strongly, partly to a relative lack of competition in its domestic market.
See also:
http://www.tradeturquoise.com/doclibrary/FAQs_Spanish_Trading_English.pdf
FSA appears against tightening commodity-market regulationThe UK Financial Services Authority, which held a meeting with oil-industry representatives this week, seems likely to keep the status quo in regard to regulation of commodity markets, an industry source said. "The conclusion of the FSA remains the same -- they are not convinced speculation has been a major influence in the long-term trend in commodity prices. The problem has been supply and demand," the source said. "They are not convinced tightening position limits or removing hedging exemptions is really the way forward." Reuters (06 Aug.)
BATS LAUNCHES MEMBER CONNECTIVITY DASHBOARD
http://www.finextra.com/fullpr.asp?id=28981
*** I like this. Is it free?
Clearing
On CDS clearing commercial opportunity I thought this comment from Sanford C. Bernstein & Co Research interesting…
…We remain cautious that the overall European CDS revenue opportunity is relatively slight (likely under ~€100m a year),
I think I’ve read elsewhere this market (wallet size) is estimated at 200myn. Either way, we are starting to get a range.
Market participants partially meet deadline for CDS registrationParticipants in the global over-the-counter derivatives market entered 216,765 credit default swap contracts into The Depository Trust & Clearing Corp.'s Trade Information Warehouse, according to DTCC. The industry had made a commitment to global regulators to have all such contracts registered into a repository by mid-July. "We are pleased to be able to verify and now report on CDS data based on what we've seen from firms' initial submission of contracts into our global registry to meet their 17 July deadline," said Stewart Macbeth, DTCC managing director and general manager of the Trade Information Warehouse. SCI (05 Aug.)
Clearing revenues drive Ice performance IntercontinentalExchange posted record revenues from transaction and clearing services in the second quarter, providing a welcome boost for the electronic derivatives market ahead of plans to expand its credit default clearing platform to buyside investors later this year.
NYSE Euronext slumps on $440m charges NYSE Euronext slumped to a $182m (€129m) loss in the second quarter despite higher trading volumes, as the transatlantic exchange paid out almost half a billion dollars to cut loose staff and exit an agreement with its European derivatives clearing house.
Brokers
Instinet hires Foster to boost UK sales effort
http://www.thetradenews.com/trading-execution/brokerage/3487
Optiver claims rival Tibra stole software
Susannah Moran
ONE of Australia's largest derivatives trading companies is suing a rival company set up by a former employee, claiming that its software is being used by the new company to help win lucrative trades.
http://www.australianit.news.com.au/story/0,24897,25890671-15306,00.html
FINANCIAL NEWS: Nomura Hits Top-Spot on LSE in July By Dawn Cowie8/5/09Japan's Nomura leapfrogged Credit Suisse and Bank of America Merrill Lynch to become the largest trader by value of shares on the London Stock Exchange last month, hitting an ambitious target that it set itself in January when it relaunched the former Lehman Brothers equities platform.Nomura had a market share of 7.4% of cash equities traded by value on the LSE in July, the largest of any broker, according to an internal memo seen by Financial News. This was up from 6.3% in June when it ranked third.
Investors return to ETFs en masseFrom April 2008 to the end of last year, the value of global exchange-traded funds dropped from $805 billion to $711 billion. Now, assets invested globally in ETFs have increased to $862 billion, with net inflows accounting for roughly half of the rebound. "We're on track for assets to reach $1,000 billion by the year-end," said Deborah Fuhr of BGI. Financial Times (tiered subscription model) (06 Aug.)
Asia
Nasdaq Dubai mulls contingency plan for DP World bourse exit
by Claire Ferris-Lay and Kat Slowe
Nasdaq Dubai has admitted that it is examining contingency plans should its largest stock, DP World , chose to leave the bourse. DP World has lost 72 percent of its listed value since it joined the bourse in November 2007.
http://www.arabianbusiness.com/564070-nasdaq-dubai-admits-plans-in-case-dp-world-leaves-bourse
ANZ buys RBS businesses for $687 million
ANZ forges its presence in Asia when it bought several banking and wealth management businesses in the region from the Royal Bank of Scotland for $687 million.
Read more »
HKEx overcomes CME to become world's largest exchangeWhile the Obama administration pushes regulatory changes, Hong Kong Exchanges and Clearing has become the largest exchange in the world, according to its market capitalisation. US futures exchange CME Group previously held the top spot. CME and other US exchanges are growing as regulators demand clearing for more over-the-counter derivatives. CME has struggled, however, to launch its clearing facility for OTC credit default swaps. Financial Times (tiered subscription model) (30 Jul.)
Electronic Brokerage Fees In Asia
http://www.asiaetrading.com/blog/electronic-brokerage-fees-in-asia/
Green
Our carbon bubble danger
“We could ‘do something’ about reducing Australia’s greenhouse gas emissions by taxing them fairly heavily, encouraging pass-through of the costs to consumers and using the tax proceeds to compensate consumers by cutting income taxes and raising social benefits, with the net effect being revenue neutral",
http://www.businessspectator.com.au/bs.nsf/Article/Our-carbon-bubble-danger-pd20090804-UKT7J?OpenDocument&src=kgb
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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