Wednesday, August 22, 2012

'Limpix, Passwords, ASX results, Transitions, BIS bail-in, Trace, HFT....C2S, Fork.

Well, another week flies by.

Hard to believe last week we were absorbed by the Limpix, now we’ve had the welcome home parades and it’s all another memory.
Congratulations to Team UK...on raising the bar again for The Best Limpix ever.
As for Australia, something like our worst performance in 20 years and the local press is crying that all our top coaches are off winning gold for others.
Don’t forget, the Aussie Rugby team is coached by a Kiwi.

IT is one thing for the British to thrash Australia in the medals table of the London Olympics.
But now the Games are over, it is just as clear they have knocked Sydney off its pedestal as the best host of a modern Olympic Games.
As awful as it is to admit, London 2012 was bigger, slicker, almost as friendly and more thoughtfully planned than Sydney in terms of the legacy it will leave the host city.

How world stole the brains behind Australian sport
He, hee. Aussie coaches got more gold that Aussie competitors!

Meanwhile, we had the largest fun run on earth back in Sydney.
Some 69,160 out of a potential crowd of 85,000 showed up.

Superheroes, fairies and Lego men in suits, gorillas, bananas and colourful boots - it was like a Pixar film come to life.
My results here:
I was happy with under 100 minutes.

A sobering story on PC security.
When passwords fail: How to make yourself hack-proof
July 2012

  • Perform intraday credit controls at both clearing participant and trading participant level.
  • Set alerts and receive a web pop up, e-mail or SMS alert if a limit is breached so that immediate action can be taken
TMX Group to Offer Equity Pre-Trade Risk Management Solution
First to market with a comprehensive market-wide solution
We have published proposed rules and guidance on automated trading and released our fourth report on the supervision of Australian financial markets and market participants.
Consultation Paper 184 Australian market structure: Draft market integrity rules and guidance on automated trading (CP 184)

By Monday morning, he'd found out exactly how his online identities had been compromised. The upshot: Creating better passwords wouldn't have helped him....

And I’ve registered for a trendy(?...surely a contradiction in terms once identified by me) outlook email address.
Can Hotmail regain its crown?

I liked this analogy:
Steve Grob

I saw a presentation this week where one speaker suggested inviting “back office” people onto the trading floor should be banned.
Stated examples were:  Nick Leeson, Jerome Kerviel, Kweku Adoboli.
On the face of it there sounds to be some logic to it, but the more I thought about it, the more I think this is a rubbish proposition.
Does this mean an engineer who knows how a car works shouldn’t be allowed to drive?
In this age of ever more complicated best execution I think having people around that know the full workings of the industry can only be helpful.
And if your best efforts risk management strategy is reducing the talent pool you hire from....doesn’t sound like a great business model or control process either.
That said, I think these individuals are all vile and odious people. What they did to their colleagues and investors is unforgivable.
I’ve seen Leeson speak (and he claimed all the proceeds went back to victims / charity) but he didn’t look one bit apologetic to me.
Nah, there are bad eggs in every walk of life. ..a blinkered hiring strategy is not the solution.

Other news was ASX results yesterday.
The analysts presentation is nice.
As ever all the predictable results are there. Magnificent cost income ratios (even though some commentators picked up these are “bad results”...relative to what I wonder? these markets I think they’re fortunate results).
In the same breath as announcing these results there is also a submission on why Australia doesn’t need competition.
Links to all stories under platforms.

The other thing that struck me this week was the BIS consultation paper on recovery for FMIs.
This introduces the concept of a “Bail-In”.
I do think it would greatly alleviate the stress of a default and the obvious and practical difficulties of replenishment but it does leave me feeling the potential that it opens the door for a CCP to short change me.
I’ve not read the paper as yet.

The other trend I notice is the offering of “free” risk management tools.
At first I thought “Trace” was just an EMCF thing.
It looks like ASX could follow suit with Razor.

Lots more HFT bashing this week, so I’ve included a couple of old stories, but positive ones for HFT.
Also lots of debate about the dark....certainly lacking transparency and disclosure (of vested interests).
Knightmare extensively covered everywhere.
Couple of Cinnober stories I was late on picking up: Pave move and Nomura development acquisition.

An interesting Buddhist myth compares lunch in heaven to lunch in hell. Both places have the same set-up: large dining tables filled with delicious food. However, the forks are too long and it is impossible for the diners to eat with them. Those who dwell in hell live in eternal frustration and hunger at not being able to eat the delicious food. Those who dwell in heaven, however, simply smile and use the long forks to feed each other. The meaning is simple: The same circumstances can be experienced very differently depending on our attitudes and behavior. Scientific data suggests that compassion is the intelligent way.

All is not lost is Asia:
Overall, the mood was quietly optimistic, and for three reasons. First, the world economy can continue to grow briskly despite North Atlantic sluggishness – after all, it grew by 25 per cent over 2007-11, thanks mostly to Emerging Asia. Second, Australia's major trading partners are in that region. And third, if worse comes to worst, and the world does experience another 'Lehman moment', both Asia and Australia have the capacity to respond with policy stimulus to cushion any downturn.

I couldn’t quite see 25% growth, but a good heat map available at the world bank:
All the action is down south.

After an 18th last week end (no, not mine) I’m just happy to still have a house and the same number of TVs.
(didn’t inspire a London riot).

Whatever your leisure, make it a pleasure....and be generous and compassionate serving with your long fork!
Have a great week-end,



P4. EBITDA remains over 75% (as per last 5 years!..see also p28)
P7. Revenue pie chart.
P9. Average trade size down 23% to $7,149.
P14/15. Business plan budget...including clearing fees and OTC
P30. Average fee per dollar of traded value (bps)....1.05....(At Chi-X Europe our gross revenue was 0.10 bps)
P31. Hosting services. 76 cabs at ALC.

Full annual report available here:

Some comment here:

Now, given the above, here we have reasons why competition is bad for Australia and Australians:

THOMSON REUTERS EXTENDS FXALL TENDER OFFER; AGREES TO SETTLE CLASS ACTION SUIT Thomson Reuters has filed an application to settle a class action lawsuit over its proposed acquisition of multi-bank foreign exchange portal FXall and extended its $616 million tender offer by three days.


Creditors should face clearing failure hit
Many clearing houses have default funds, held in reserve, as well as the margin posted by customers for trading but CPSS-Iosco said it may be better to use both sources to cover losses.
“It may be preferable to haircut the creditor’s claims to them and give these creditors equity in the FMI through the mechanism of bail-in, in resolution, rather than resort to liquidation,” it said.

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Recovery and resolution of financial market infrastructures - consultative report
CPSS Publications No 103

Paper here:
40 pages

Esp FMIs that take on Credit Risk.
P 12.

New standards for financial market infrastructures issued by CPSS-IOSCO
16 April 2012

Paper here:

How TRACE improves your daily business:
What are the costs for me?
TRACE will be offered free of charge to Participants.

August 9, 2012

TMX Group's Razor Risk 3.0 launches at ASX
Participants can now familiarize themselves with their potential margin calls in the equity market before ASX Clear starts calling margins in June of next year," said Paul Jones, General Manager, ASX Clearing Risk Policy.



A 25 page “introductory guide” to NSCC fees.


12-195MR ASIC consults on electronic trading and releases fourth market supervision report

ASIC’s proposed rules and guidance include:
·         draft new market integrity rules requiring direct control over filters and automated controls to suspend orders and/or systems;
·         draft rules that revise the process for certifying systems and reviewing changes at least yearly; and
·         draft regulatory guidance on automated trading, covering issues consulted on in (CP 168), consolidated with updated guidance currently contained in ASX guidance notes. This includes guidance on testing of systems and filters/controls - the ability to manage highly automated trading, and stress testing of order flow.

Submissions to CP 184 close on 14 September 2012.

·         Report 296 ASIC supervision of markets and participants: January to June 2012 (REP 296)

Further dark pool regulation premature: Fidessa
Dark pools in Australia are too young for more regulation, said trading technology provider Fidessa, following a call from the ASX to tighten rules for off-exchange trades

ASX submission to ASIC Consultation 179 –
Australian market structure:  Draft market integrity rules and guidance

High Frequency Trading – Position Paper
In our High Frequency Trading – Position Paper Optiver tries to explain what HFT is and why it is actually beneficial to the market and investors. We also try to refute often heard accusations of HFT harming the market quality or having unfair competitive advantages over other investors. Finally we discuss a number of proposed regulatory initiatives that are recently voiced to limit the impact of HFT and analyse the impact of these proposed measures on the financial markets.

High Frequency Trading Review, Mike O’Hara talks to Mark Spanbroek, Vice-Chairman of the FIA European Principal Traders Association (EPTA)

SEC to Host Market Technology Roundtable
The roundtable entitled "Technology and Trading: Promoting Stability in Today's Markets" will take place on September 14 and convene experts on designing, operating, and controlling the systems that form the core of our market's infrastructure.

Interesting read on HFT and microwave


We have now published Market Watch 42:


Knight $440 Million Loss Sealed by Rules on Canceling Trades

Javier Tordable new CEO for Cinnober Financial Technology
In the last one and a half years, Tordable has been leading the efforts to establish PAVE, aiming to be Spain’s first MTF, to attract international traders and increase liquidity in Spanish equities

Cinnober acquires Nomura’s Swedish technology development centre
The deal includes 40 specialists in developing equity trading applications and platforms.

In addition to evidence that survival may be enhanced by caring for others, there are now findings suggesting that the statement made by the Dalai Lama, ‘if one wishes to make others happy be compassionate, if one wishes to be happy be compassionate,’ in fact, has great validity.”

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