Tuesday, January 15, 2013

Dark Bats Asia and Brazil, SGX, LCH and portfolios....and viruses

Happy New Year one and all.

Over Xmas I managed to pick up two viruses. I got some trojan virus on the PC. Missing LPK.dll file error. The great thing about migrating to android and using the cloud meant that I just did a PC restore (basically reformat) and everything then sychronised back to the versions I’d saved in ‘the cloud’. Easy peasy.
The other virus was a bit more personal, the good old Xmas virus known as the Sydney12 or as fondly reported in the local UK press, the “down (ch)under”...
Ya gotta laugh.

The BATS story highlights the frustration so many participants have on signing up to exchange rule books. One rule for brokers and customers...a whole different set of rules for SROs. Of course BATS is doing everything right, self disclosure and embracing compensation but it highlights just another aspect of the evolving markets and the imperfect nature of them.

Dark pools will again come under scrutiny in 2013. The buy side every wary of HFT and different platforms (MarketBourse, AX Trading) trying to come up with solutions to preserve quality whilst facilitating liquidity. All variations on the generic lit market, price / time priority model.

Good luck to Direct Edge Brazil. Personally I don’t feel new platforms can successfully compete in new jurisdictions unless they compete further along the value chain (i.e. include clearing). That said, Chi-X Global continues to persevere..and make inroads. (Market Share graph included on web site posting).

Some ambitious forecasts for Asian ATSs. Asia is such a different set of cases I don’t think you can be generic. Different wallet sizes (size of market), domestic market practices, vested interests etc.

Which leads onto suitability and the SGX story. Great that new regulatory standards are being “imported” but what is this doing to the dynamics of the existing participants. Capital rules are great...but if you don’t have equivalence in legal certainty and finality how effective are the measures you’re trying to import?

Bravo BNY...every success with the CSD status. I think the step should reap them big rewards...and the industry should benefit too.

Portfolio margining...of course great, but it’s about what is in the portfolio (eligibility). I think the clever money is in clearing what eligible products where. You’re never going to capture all business in one place, so the best you can hope for is to optimize positions / correlations for the most ‘efficient’ margin call. Too many red herrings in portfolio margining.

I think this is reflected in the LCH shift away from a “portfolio” approach to their default funds. I don’t want my default contributions caught up (not returned) in some other asset classes troubles.

I need more brevity. Hence some quotes on the topic to remind me!

Have a great week all.




BATS addresses "system issue" that led to pricing problem
BATS Global Markets said a "system issue" let some trades occur at less than or equal to the national best bid and offer price during the past four years, violating Securities and Exchange Commission rules. BATS discovered the issue internally.
The Bats announcement comes amid a securities industry debate about benefits afforded to exchanges in their role as self-regulatory organizations. According to its rules, Bats’s aggregate liability to its customers is limited to $500,000 per calendar month when the exchange makes a mistake in the normal course of business.

Mackay targets 2013 launch of MarketBourse
The core idea behind MarketBourse is to let traders share trading information in circles of other market participants they select, similar to choosing friends on social networking platforms. The functionality would allow members to minimise market impact by selecting who they trade with.

Buy-side head calls for regulatory action on dark pools
Complexity and diversity is making US dark pools a minefield for buy-side traders, creating suspicions on how brokers internalise orders

AX engages with corporates to facilitate block trades
US alternative trading system AX Trading has launched a new tool letting sellers of large blocks of shares trade directly with the buy-side via an investment bank sponsor.
The DirectAX initiative gives corporate clients, private equity firms and venture capital firms access to institutional investors via their sell-side partners, with the aim of improving block trading opportunities. Sellers have the ability to set a minimum size and price threshold for their orders

Direct Edge to file for Brazil launch within weeks
US exchange operator Direct Edge expects to lodge a formal application to launch an equity trading venue in Brazil in the coming weeks, but admits its success will depend on clearing interoperability.
...given the cost and complexity associated with building separate post-trade services in the country, the launch of the new platform will depend on the willingness of BM&F Bovespa to let Direct Edge use the domestic clearing house that the incumbent exchange owns

Asian ATSs to grab nearly a quarter of market share by 2014
"We have seen the emergence of alternative trading platforms in the Asia-Pacific over the last few years, but the region's market share penetration has been remarkably unassuming, especially when compared with the significant penetration that multilateral trading facility Chi-X Europe has had in the European equities market in a relatively short period of time,"


Bank of New York Mellon gains regulatory approval  for  CSD status
Bank of New York Mellon will offer a central securities depository in Belgium after gaining regulatory approval. With CSD status, BNY Mellon will be able to help institutional investors access collateral to comply with margin obligations.

Regulators OK portfolio-based margining on some CDS at ICE
The Commodity Futures Trading Commission followed the Securities and Exchange Commission's precedent in allowing investors to offset some types of credit-derivatives trades within IntercontinentalExchange's clearinghouse.

LCH.Clearnet has implemented formal loss allocation arrangements for its RepoClear service
In the event of a RepoClear member default, where exceptional losses are incurred in excess of the financial resources available, loss allocation ensures the ongoing operation of other LCH.Clearnet clearing services by introducing a further level of protection to the default waterfall.

Watch the OTC Market in real-time
For the first time in recorded history you can now watch OTC trades occur in “real time” via the DTCC Swap Data Repository, based in the US. The website provides anonymised data snapshots of market activity for Credit and Rates trades, plus a “real-time” ticker showing trade events being reported

CME and DTCC disagree over data destinations
CME Group and Depository Trust & Clearing continue to disagree over who gets to share data required by regulators and recently made available to the public. Because CME is a clearinghouse in addition to a data repository, it says that it should be permitted to record its own proprietary swaps. DTCC says such an arrangement violates transparency rules

Singapore Exchange tightens risk management
Singapore Exchange says it has allocated more funds to its two clearinghouses and has increased transparency in a general tightening of its risk management. The moves may clear the way for banks in the U.S. and Europe under new regulatory requirements to be members of SGX's clearinghouses

Global capital, local liquidity and the Basel Committe
“This perceived misdirection in regulation creates difficulties for EM CCPs as well as some absurdities. The primary complaint is the impact that requiring a large default fund has on a market with a small concentration of banks. This concentration allows the CCP to have an in-depth understanding of its major counterparties and track risk differently than some of their developed world peers. When CCPs respond to broad brush-stroke mandates for risk management or to regulators newly concerned about CCP balance sheets, CCP management becomes occupied with explaining how their local realities differ from the Basel test case scenarios.” We tend to agree with their arguments.


Authorities obtain more time to review EMIR
The European Parliament and the Council of the EU have been granted a one-month delay, until Feb. 19, to examine rules within legislation on over-the-counter derivatives. Lawmakers had noted that "adoption of the delegated regulations shortly before Parliament's winter recess made it impossible for Parliament to exercise its scrutiny rights within that period." The rules were developed by the European Securities and Markets Authority and the European Banking Authority in support of the European Market Infrastructure Regulation


Memory is a complicated thing, a relative to truth, but not its twin."
--Barbara Kingsolver,
American novelist, essayist and poet

If any man will draw up his case, and put his name at the foot of the first page, I will give him an immediate reply. Where he compels me to turn over the sheet, he must wait my leisure. ~Lord Sandwich

Therefore, since brevity is the soul of wit,
And tediousness the limbs and outward flourishes,
I will be brief.
~William Shakespeare, Hamlet

Brevity is the soul of lingerie. ~Dorothy Parker

Any philosophy that can be put in a nutshell belongs there. ~Branch Rickey


What a difference a letter makes!
When setting up Chi-X in Europe we had many ‘mantras’. It’s a process not an event...it’s evolution not revolution...but I think this one is also very good. Change requires steadfast commitment (and belief!) to the cause. Yes, change requires revolution, but without resolution change can be pretty rudderless and pointless.

Real change requires revolution...
Real change requires resolution...

From the same artist I also enjoyed this thought:
Life is what you fake it!
If change is too hard, start faking it...and slowly but surely providence will take over and what you’re faking may well become reality.


The Fight Over The $1 Trillion Coin

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