GlobalTrading 2014 Quarter 4 by fixglobal.com

FIXGlobal.com

Q4 • 2014 • Issue #52

G lo b a lT r a d i n g

FX Algos: Changing Technology And Trading John Radle, Global Head of Trading Campbell & Company T. Rowe Price • Capital Group • Principal Global Investors IOSCO • Pioneer Investments • AMP Capital • BVI • RenAsset Management

ALSO INSIDE :

In support of

Global Edition Subscribe at www.fixglobal.com

GlobalTrading’s Editorial Think Tank Dear Readers, As we close out each year we typically look back on some of the key initiatives and trends taking shape and getting our attention over its course. In 2014 there was a great deal of focus in particular on several of the continuing buy-side initiatives such as execution venue reporting and analysis, data collection and usage, including the developing role of social media and, (never to be neglected) regulatory considerations and risk management. In addition the FIX post trade developments once overseen as part of the buy-side working group agenda have evolved into an inclusive and active global group. Bill Hebert Alpha Omega Financial Systems, Inc. Co-Chair, FIX Trading Community Global Membership Services Committee

In similar fashion the electronic trading world continues to evolve past the established equities and derivatives platforms to other asset classes such as foreign exchange, fixed income and futures. Algorithmic products once specific to equities trading are now being engineered for foreign exchange; and we hear about some of those developments in this version of GlobalTrading. Also this quarter we are grateful for some of the regional and more global pieces including contributions from Thailand, Australia, Hong Kong and Germany. Buy side views on ETF’s, transparency and liquidity seeking and the ongoing roles of indications of interest (IOI’s) figure in prominently. In addition we continue to cover the interest and developments in emerging markets trading which have been gaining greater attention of both the institutional and individual investing public.

Damian Hoult Macquarie Capital

We hope you enjoy this edition of the journal. As always we thank you for your interest, support and contributions and on behalf of GlobalTrading and the FIX Trading Community wish you and your families an enjoyable holiday season and prosperous New Year.

Best Regards, Greg Lee Barclays

Carlos Oliveira Brandes Investment Partners

Bill Hebert Alpha Omega Financial Systems, Inc. Co-Chair, Global Member Services Committee, FIX Trading Community

Emma Quinn AllianceBernstein

Rob Laible Liquidnet

GlobalTrading Publisher

Design & Layout

General Manager

General Enquiries

Managing Editor

Advertising

Edward Mangles

Rebecca Trant

Peter Waters

Sales and Marketing Yulia Kuksina Ravi Gangwani

Photographer © Brian Schneider

Goldie Lee

info@fixglobal.com

Companies interested in discussing sponsorship and/or advertising opportunities please contact your regional editorial representative or sales@fixglobal.com.

Publisher

HM Publishing 2802, 28/F Lippo Centre Tower Two 89 Queensway, Admiralty, Hong Kong Tel: 852 2121 1566 Fax: 852 3007 3821

Publishers’ Note GlobalTrading is proudly published by HM Publishing in support of the FIX Protocol and the FIX Trading Community. GlobalTrading is the official quarterly publication of the the FIX Trading Community, however, the content does not necessarily represent the opinions of the FIX Trading Community. The opinions expressed in this publication are not necessarily those of the publishers or of the institutions of the contributing author. Although care has been taken to ensure the accuracy of the information contained within the publication, neither the publishers, authors nor their employers can be held liable for any inaccuracies, errors or omissions; nor held liable for any actions taken on the basis of the views expressed, or information provided within this publication. No part of this publication covered by the publisher’s copyright may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, be they graphic, electronic or mechanical, including photocopying, without the written permission of the publisher. Any unauthorised use of this publication will result in immediate legal proceedings. All Rights Reserved © 2014

Contents 13

FOCAL POINT

6 FX Algos: Changing Technology And Trading - John Radle, Campbell & Company

Processing FX Algos - Damian Bierman, Portware

FX And Equities Algos - David Mechner, Pragma

OPINION 30 The Growing Importance Of Securities Markets - Shane Worner, IOSCO 32 MiFID II, Transparency And European Corporate Bond Markets - Jim Rucker, MarketAxess UNBUNDLING

13 The Rise Of Technology - Gianluca Minieri, Pioneer Investments

35 The FCA And Unbundling - David Lawton, FCA

17 Strategising Trading And Technology - Matt Howell, T. Rowe Price

37 Unforeseen Consequences - Rudolf Siebel, BVI

The Data Horizon - Daryl Bowden, Sunrise Brokers

Plugging Social Media Into Financial Services - Oli-Freeling-Wilkinson, Knowsis

39 The Changing Use Of Client Commissions - Joe Kassel, AMP Capital

INSIGHT 23 Efficient Access To Emerging Markets; The ETF Conundrum - Jesse Sherman, RenAsset Management 26 IOIs Evolve As Buy-side Demands Greater Transparency - Christopher George, Capital Group

Indicators Of Trust - Ross Hutcheon, UBS Direct Execution

43 Retailing Research: From Big-Box To Farmer’s Market? - Ed Stockreisser and Shan Han, AIRP AMERICAS 45 Fixed Income In Brazil – How FIX Can Help Organise The Market - Dr. Christian Zimmer, Itau Asset Management 48 Standardising Execution Reports - Linda Giordano and Jeff Alexander, TABB Group

Standardising Execution Data - John Cosenza, The Cowen Group

EUROPE

52 Let There Be Dark - Huw Gronow, Principal Global Investors ASIA 54 Technology On The Thailand Exchange - Kesara Manchusree, Stock Exchange of Thailand 56 Evolving Emerging Markets - Andy Maynard, CLSA 59 Emerging Markets – Risks And Opportunities - Rohini Tendulkar, IOSCO FRAGMENTATION 62 Fragmentation Of Liquidity On US Exchanges INDUSTRY 64 Company Profiles 66 FIX Trading Community Members MY CITY 68 Baltimore

Your guide to global markets

Navigating todayâ&#x20AC;&#x2122;s evolving markets requires a partner with a unique combination of skills: a global perspective with customized local solutions, supported with leading-edge technology. Macquarie Execution Services delivers all of this and more. Drawing from our global reach and on-the-ground teams, we partner with clients to provide best-in-class execution. Contact your Macquarie representative to learn more today.

Asia +852 3922 2223 | Europe +44 20 3037 1700 | North America +1 212 231 0300 | Australia +612 8232 6260 | Email eesales@macquarie.com The products and/or services mentioned herein may not be available in all jurisdictions. Other than Macquarie Bank Limited ABN 46 008 583 542 (â&#x20AC;&#x153;MBLâ&#x20AC;?), any Macquarie Group entity noted on this page is not an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia). The obligations of these entities do not represent deposits liabilities, protected accounts or other liabilities of MBL and MBL does not guarantee or otherwise provide assurance in respect of their obligations. This information is intended to be general in nature and has been prepared without considering your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of it having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making any investment decision about a financial product. For more information and important disclosures, please go to www.macquarie.com/mgl/com/global-regulatory-disclosures.

HighlightS “We have become more granular in our trading over the years, and now we take our orders and break them out to trade in different timeframes instead of doing those very large, potentially market impacting, trades.” P.6 John Radle, Campbell & Company

“In order to innovate, trading needs to change its mind-set and to start thinking about things over longer periods of time.” P.21

Matt Howell, T. Rowe Price

“A reduced market for research would negatively affect competition between research providers, favoring market participants with larger trading books, who can crosssubsidize research.” P.33 Rudolph Siebel, BVI

6 | FOCAL POINT

FX Algos: Changing Technology And Trading With John Radle, Global Head of Trading Campbell & Company

More Buy-side Interviews

GLOBALTRADING | Q4 â&#x20AC;˘ 2014

FOCAL POINT | 7

Currently we trade more than 90% of our FX flow electronically, that is a combination of bank supplied algorithms and point and click trading via an aggregator that we assembled leveraging our bank relationships and in conjunction with Portware our EMS provider. We put together the liquidity pool to give us the ability to trade point and click if that’s the best method of execution for the order. Or, we have the ability to use a variety of bank supplied algorithms that we use to target specific execution benchmarks, including time weighted average price and arrival price. Most recently we’ve been trying to take the bank algo approach a step further by partnering with Pragma. Pragma is working with us to build on their extensive experience with equity algos to develop custom FX execution algorithms. We assisted them in establishing a liquidity pool that their algos sit on top of accessing various bank and ECN streams. Our trading is strictly execution based. Our quantitative group on the research side creates the systematic alpha models, which then produce orders that are delivered to the trading desk. The orders route into our OMS and then the traders look at each one and select an appropriate execution algorithm to match the desired benchmark. We’ve also built some proprietary TCA tools. We have a platform that allows us to watch the orders in real time, compare the benchmark price to our average price and effectively monitor slippage in real time. As we’ve gone increasingly electronic and we have multiple execution algorithms trading simultaneously with different banks and at Pragma, the traders have a view as to how those algorithms are performing versus the stated benchmark that they’re targeting. That way if we start to deviate too much from a specific benchmark, the trader can intervene or investigate why that trade isn’t working as planned and adjust accordingly. Extending FX into TCA We see this as being part of our real time TCA, as we can see what percentage of the order is complete and how much is left. We can see our start time on the order, the end time, what the benchmark price is being calculated at and what our average price is at that moment. We can also see the difference in terms of dollars so it’s a very clear view. What we have found is, as we became increasingly heavy users of

algorithmic trading, we could not just rely on an end of day, after the fact, transaction cost analysis report. Moving that process to real time has assisted us in our goal to provide best execution for our investors. This allows us to effectively monitor trades as they are happening, as liquidity is evolving in the market. It tells us whether spreads are tightening or widening and then it’s very apparent to us as the trade goes on, what the slippage is, and it gives us a great view into what’s actually happening at the order level. If we have 10 or 20 algos trading at one time we can monitor that whole group in real time and it gives the traders another tool to ascertain whether the algo is

“We have become more granular in our trading over the years, and now we take our orders and break them out to trade in different timeframes instead of doing those very large, potentially market impacting, trades.” performing as we expected. The whole real-time TCA concept is something that the brokers really don’t offer. We had to build the systems ourselves. The liquidity pool that we created allows us to do point and click trading on that pool. It allows us the opportunity for better execution for our investors because we’re able to stream a variety of competing banks into that pool and we’re also able to include some ECNs in there too. We feel that this provides better price discovery by having the banks and ECNs compete. The future of RFQ voice trading There will always be a need for voice trading FX. It just depends on what trading style you use. Obviously, there’s more of a need for that type of execution when you are trying to move larger blocks

Q4 • 2014 | GLOBALTRADING

8 | FOCAL POINT

John Radle, Global Head of Trading Campbell & Company quickly. If you want a big position put on immediately and then a few hours later you want to take the entire thing off then that type of trading would suit. We have become more granular in our trading over the years, and now we take our orders and break them out to trade in different timeframes instead of doing those very large, potentially market impacting, trades. This allows us to take a large order and break it up into smaller pieces. Then we can execute those smaller pieces on much tighter spreads in much smaller amounts which allows us to effectively match our benchmarks more closely. Generating the benchmarks Our research team has done a lot of work around our execution benchmarks; when they deliver an order to us it has a pre-determined benchmark, a start time and an end time. Then we’re just measuring that benchmark over that timeframe. We did have benchmarking challenges when we were trading larger sizes more quickly because trading windows were less defined. But as we moved our trading style

GLOBALTRADING | Q4 • 2014

to smaller sizes over defined windows, we were able to target our benchmarks within those specific trading windows. That also helps us to understand if we’re trading at optimal times, because we’re able to compare our benchmark slippage across the trading day and see if in certain periods we’re seeing higher slippage or lower slippage. This has helped us fine tune our FX trading. The impact on trading, and the traders We’ve seen a meaningful improvement in our slippage and our executions by having the traders really hands-on, in terms of monitoring slippage and making recommendations to our research group, such as modifying the times that we’re trading some of the currency pairs. We leverage a lot of knowledge to try to get better in other asset classes. Initially we saw good improvement in slippage in our futures trading and we applied that same methodology to FX. We’ve definitely seen the trading job evolve. When

FOCAL POINT | 9

everything was done over the phone, it was a much more manual process. Now that we’ve got this proprietary platform that allows us to monitor slippage in real time, it gets more granular for the traders to understand how an algorithm is trading. There is also greater leeway in the type of parameters traders can tweak when setting up an order, because of their past experiences doing similar trades. By looking at their impact they can make a decision based on what’s going on in the

“We give our traders flexibility on the execution front to look at the marketplace, to look at the tools they have, at the order itself and make the best decision as to how to handle that order and get the best execution. ” marketplace. If the trader determines that the algorithm should be a little bit more passive or a little bit more aggressive, they can make appropriate adjustments. If the trader needs to stretch or change the window, they can within certain parameters because, at the end of the day, everything is about getting the best execution for our investors. Our real focus is on experienced traders that understand the market and have old school knowledge but also a deep understanding of electronic trading, slippage management, how the algorithms work, and how the parameters within the algorithms work. We are effectively pairing an experienced trader with those electronic trading tools, optimising those tools and monitoring the results in real time to get the best possible execution.

to evolve and adjust. If you’re an old school trader whose only skillset is the ability to pick up a phone to get a trade done in a block, you’re unlikely to be successful long-term in tomorrow’s world. Clearly there’s a need for people who have that ability, but even on a desk where they do a lot of block trading, you also need people that are able to select the right algorithm, set the parameters and be more sophisticated in the way they handle an order. With the evolution of these trading tools, it’s difficult to see a world where one size fits all or one solution is the best for all trading. There could be times during a holiday period where maybe it isn’t appropriate to use an algorithm. We give our traders flexibility on the execution front to look at the marketplace, to look at the tools they have, at the order itself and make the best decision as to how to handle that order and get the best execution. This is why our proprietary platform is so important, because you don’t ever want to get into a “set it and forget it” mentality. You want to do your best to select the right execution strategy, appropriately set the parameters, and then monitor it so that if it’s not trading in an optimal fashion you can adjust and take action as needed. Once people start to trade electronically and they see the efficiencies that it can bring to a trading desk, the next step is to push deeper and utilise even more tools that are available. People are exploring the algorithmic tools that are out there. That is leading to more algorithmic usage, which is what the surveys have shown and what we’ve heard from our brokerage counterparts. We’ve always pushed for innovation on the electronic trading front and feel it is a necessary tool in order to provide best execution for the end investor. With the markets and trading tools constantly evolving you’ve always got to be looking at what’s new and where else you can advance so that you’re always at that cutting edge of what’s available to help deliver the best results for your clients.

Always advancing Trading overall is going electronic; all traders have

Q4 • 2014 | GLOBALTRADING

10 | FOCAL POINT

Processing FX Algos With Damian Bierman, Head of Asia-Pacific Operations, Portware

“Adding on FX in most cases is as simple as adding the appropriate liquidity providers and deploying the FX specific look and feel components.” Portware has the ability to implement a straight through processing layer that reads proprietary signals from a customer’s OMS and creates recommendations to traders or follows signals systematically through execution. The system constantly evolves and learns based on each trading experience and trader interaction. Campbell needed a trading platform that would integrate seamlessly with its proprietary order management system and give traders one platform to execute orders against any bank, ECN or interdealer offering. We also have the ability to provide comprehensive pre- and posttrade transaction cost analysis (TCA) and quickly identify liquidity trends. The algorithm characteristics are varied from ultrapassive to ultra-aggressive and can combine internal customer research data and Portware analytical components enabling them to trade with a number of different strategies on both streaming liquidity and posted venues. As the FX market continues to become increasingly electronic, firms are beginning to recognise how FX algos and integrating this element of trading with a more holistic set of TCA can be a competitive advantage. Both the buy-side and sell-side need

GLOBALTRADING | Q4 • 2014

Damian Bierman, Head of Asia-Pacific Operations, Portware to keep pace with new industry standards, and automating critical trading systems and the relevant data capture is a key part of this. Adding on FX in most cases is as simple as adding the appropriate liquidity providers and deploying the FX specific look and feel components. The entire system is built to easily add on features where and when needed quickly and painlessly. The way Campbell trades is somewhat unique. Their client base is global and full of complexity. Portware built features in the system to help create synthetic term trading solutions while also keeping in mind the need to book trades at a base currency and supply the appropriate information to their OMS and internal repositories.

FOCAL POINT | 11

FX And Equities Algos With David Mechner, CEO, Pragma

David Mechner, CEO, Pragma What are the fundamental similarities and differences between equity and FX algos? Both equities and FX are continuous two-sided quotedriven markets, which creates fundamental similarities. Equity and FX algos therefore offer many of the same fundamental benefits. For example, algos reduce market impact by breaking a larger order up into several smaller pieces so that a smaller price concession has to be paid, and thus better execution. In addition, algos can trade passively in a systematic way, making prices in addition to taking, and thus further saving part of the bid-ask spread even for those smaller individual orders. And in both asset classes, one of the major practical challenges of algorithmic trading is managing adverse selection through intelligent routing and order placement policies. The biggest difference between equities and FX for algorithms is probably the nature of the fragmentation - including the existence of Reg NMS in equities - and the bilateral structure of the FX market – the fact that more than half the spot volume is transacted on a private, disclosed basis. From a trading perspective, this bilateral model provides a lot of flexibility and is in many ways superior to the equity markets. When a dealer knows his client, he’s able to price liquidity more efficiently. In contrast, when dealers have to price orders to be profitable in public markets, they have

to price for the worst case scenario. Effectively, in FX directional traders can get better prices by excluding short-term informed traders like HFTs from the equation and transacting directly with dealers. To what extent is responsibility for FX trading shifting to the buyside? The basic structure of the FX market is that the buyside trades against their dealers’ P&L. This creates a clear conflict of interest when the dealer is in control of the client’s order – every dollar the client saves is a dollar the dealer loses. This conflict has been starkly illustrated over the past few years by a series of scandals, and is very much on the buyside’s mind. As a result, the buyside is shifting where trading decisions are made, pulling back control from the dealer. In the context of click-trading, this can be accomplished through aggregation, which is increasingly common workflow. In algorithmic trading, one way to accomplish it is a service bureau model, in which dealers are used as trading counterparties and liquidity providers, not as agents entrusted to control the client’s entire execution. That said, there will continue to be long-term sustainable and mutually beneficial relationships between dealers and their clients, and indeed this is one of the strengths of the FX market structure. The buyside can achieve this when have the ability to aggregate liquidity across dealers in order to create a competitive environment that eliminates conflicts and keeps everyone honest. What are the future trends in this area? Algorithmic trading is still a relatively small fraction of overall FX trading, and it is likely to continue to increase over the coming years for the same basic reasons it has become the dominant way of trading in equities – it adds significant value. Other than that, short of a regulatory earthquake, the fundamentals of trading don’t look likely to change much. Volatility and spreads will change over time, but there is a natural homeostasis in the markets. Regardless of the market conditions, there is always a spread that is sustainable and provides mutual value for dealers and their customers. Some players may drop out, but as competition decreases and liquidity dries up, spreads will widen, participation will again become more profitable, and new players will step in to keep the markets healthy and efficient. Q4 • 2014 | GLOBALTRADING

Unlock the value of your business

Whether itâ&#x20AC;&#x2122;s connectivity, trading or all the tools and framework to manage and optimise, there is now a single destination for all things FIX. One shop, unlimited possibilities. www.camerontecgroup.com

FOCAL POINT | 13

The Rise Of Technology By Gianluca Minieri, Global Head of Trading, Pioneer Investments

Over the last few years, the debate around the growing role of technology in the trading space has been one of the hot topics in the industry. It is unfortunate that due to growing concerns surrounding the wider HFTs topic, this debate has very often generated a negative perception of the role of technology in the financial services industry. I am generally considered to be one of the most sceptical voices in the industry in the whole debate about HFTs. The fact is that some of the discussions around high-speed trading and HFTs have become pure science fiction. Last year a press agency published the news that companies had started to use laser beams military technology and microwave dishes in an attempt to shave milliseconds off dealing time while behind the scenes others were planning to trim thousandths of seconds off execution time using drones as platforms for wireless links. I genuinely find these discussions surreal and think that we have gone too far. We seem to have lost sight of the fact that the primary purpose of financial markets is not to offer a place where speculation and short-term profit can flourish but to serve the needs of those supplying and consuming capital. The final objective should be to create a financial system that is capable of supporting

companies seeking to raise moneyto invest into the real economy, so that their business can grow, create jobs and bring benefits to people and society as a whole. I am proud to work for a company that puts fundamental analysis and the value of companies we invest in at the core of the investment process. In Pioneer Investments, we are in favour of technology and we strive to use it to exploit opportunities with the aim of providing a better service to our clients. Technology is not only about high-speed. The advent of technology in trading has brought many positive things. It has enhanced the efficiency of financial markets, improved transparency and increased the degree of control that the buy-side trading desks have over their orders, just to mention a few. One year ago, this strong conviction led us to embark on a significant technology investment, on-boarding a global multi-asset order management system (OMS) capable of bringing all our trading desks around the globe onto one common execution platform, thereby providing the capability for greater support and more efficiency across different hubs. The concept of the global trading model, inherent

Q4 â&#x20AC;˘ 2014 | GLOBALTRADING

14 | FOCAL POINT

in our new OMS, is the capability, where needed, to route orders to local trading desks and execute them in local time zones leveraging local market expertise at no additional cost. This global model will eliminate some of the inefficiencies of the trading process and should ensure enhanced capabilities to support the growing demand for multi-asset global products with potential for an enhanced price discovery process and better quality of execution. Within the same initiative, we have also implemented an advanced execution management system (EMS) embedded into the OMS, which has been designed to complement and enhance the execution functionalities of the OMS. The new EMS has not only dramatically increased the percentage of trading volume executed electronically but has also enhanced traders’ capability to source liquidity from all available sources, from low touch and DMAs to algo trading and dark pools and to make that choice with the speed that today’s trading environment requires. The latter is critical when you have trading volumes in excess of 500 billion Euro annually across all asset classes with a huge variety of requirements and criteria in terms of how best to achieve best execution. We feel that centralising all our trading activity on a common technology platform has given us an edge in terms of improving our trading capability overall and could put us ahead of the curve vis-àvis our peers and competitors. We believe it can result in a quicker decision making process, letting the firm react faster to volatile market conditions which may require a quick change in the trading strategy. The latter will minimise our alpha slippage rate, reducing the cost of trading and will eventually help deliver better performances to our clients. Cross asset-class trading should also be easier to manage on a single global platform, especially for those multi-asset mandates which provide for investments in both fixed income and equity across regions, sectors and currencies. This is an example of technology that is designed to serve the need of end investors and not the other way around and is a confirmation that technology can be of mutual benefit to investment firms and their clients, by improving execution quality, cutting down on manual inefficiencies, and reducing risks and costs.

GLOBALTRADING | Q4 • 2014

In our view, other market participants are eager to explore how technology can help them to achieve the above-mentioned objectives and increase the percentage of trading volume that goes through electronic platforms. In my view, the degree at which this process will unfold will depend not so

“It is of critical importance that these actors are unquestionably perceived to be impartial when setting the rules aimed at creating more transparency and increasing the percentage of trading volume on platforms. ” much from financial budget constraints but the capability of regulators and policy-makers to satisfy the basic requirements to establish a level playing field amongst all market participants. It is of critical importance that these actors are unquestionably perceived to be impartial when setting the rules aimed at creating more transparency and increasing the percentage of trading volume on platforms. Our primary objective is always to achieve the best trading outcome for our clients and if we feel that such an objective can be achieved away from electronic market, we will continue to do so by trading in a high-touch fashion in order to minimise market impact and protect the confidentiality of our orders. Pointless to say, the situation is very different between equity and fixed income markets. While equity markets have probably gone “too far” from a technology perspective, creating the need for regulators to slow down the pace at which orders are executed, the fixed income world is still at an early age of development from a technology point of view. Despite the increasing number of electronic trading platforms and dealers, in fact, the liquidity in the secondary markets of these instruments has been constantly reducing over the last couple of years, mainly due to the lack of information and communication between them.

FOCAL POINT | 15

When you have so many different venues each with a different set of communication standards, the search for liquidity becomes extremely difficult and creates a gap which only human intervention can fill. In our view, the role of technology in this space has to be aimed at creating some form of aggregation tool which can act as a source of liquidity. In order to do that, the creation and adoption of a common language by all venues in terms of standards and the development of a communication network between them is a prerequisitefor a real development of the fixed income market. Especially in the more illiquid instruments, where the need for more transparency is increasing, these challenges are harder to get addressed through electronic platforms. Well calibrated post-trade transparency rules for these types of instruments might be crucial to give market participants the confidence to rely more on what they see on the screen, which in turn will make electronic trading more efficient. This point is an obsession for me and I try to reinforce it every time I meet with brokers. There is still a lot to be done on RFQ protocol, where brokers still freely advertise prices at which they are unwilling to trade. This practise has to be discontinued and we, as buy-side, should all aim to put more pressure on to promote more reliability of prices and push for more automation. It is clear that no single company can afford to lead this by itself. That is why we continue to be very proactive with vendors,peers and the sellside

on every proposal that is aimed at enhancing quality of execution by standardising connectivity through multi-participant networks. We believe that the buy-side should continue to have an active role in this space and together with all markets participants should push for an industry-led solution, including the sell-side and exchanges which so far have not always had a proactive approach to addressing these issues. Unless otherwise stated all information and views expressed are those of Pioneer Investments as at September 25, 2014. These views are subject to change at any time based on market and other conditions and there can be no assurances that countries, markets or sectors will perform as expected. Investments involve certain risks, including political and currency risks. Investment return and principal value may go down as well as up and could result in the loss of all capital invested. The investment schemes or strategies described herein may not be registered for sale with the relevant authority in your jurisdiction.Pioneer Investments is a trading name of the Pioneer Global Asset Management S.p.A. group of companies.

Q4 â&#x20AC;˘ 2014 | GLOBALTRADING

Strength in breadth Fidessa systems are trusted because they work, and â&#x20AC;&#x201C; just as important â&#x20AC;&#x201C; they work together. We understand what the buy-side needs and what the sell-side wants, and our solutions span every possible aspect of the trading and investment process. With 30 years of experience, 1,700 expert professionals and operations across Europe, the Americas, Asia Pacific and the Middle East, you can trust us to keep you trading, 24/7.

fidessa.com

FOCAL POINT | 17

Strategising Trading And Technology Matt Howell, Trader, T. Rowe Price examines how trading and technology are evolving their relationship.

At the start of the year a small group of traders and technologists from across T. Rowe Price were given the task of organising an event to explore the relationship between trading and technology. Our remit was to explore new possibilities, try not to be restricted by our current capabilities, and here management particularly encouraged us to take a radically different approach from how this topic has been tackled in the past. We started with a blank sheet of paper which had “trading and technology” written on it and not a lot else. We then got out there and talked to our peers, technology guys on the sell-side and different vendors to try and get a sense of how other people have been approaching new technology and strategy and what lessons could be learned from their successes and failures. Historically the approach of trading towards technology has always been short term and practical; “I’ve got a problem, fix it now regardless of implications down the line”. Whilst acknowledging that some issues are short term in nature, we increasingly believed that this approach stymied innovation while increasing complexity, and that a more strategic approach was going to be required. At the beginning, there was no expectation that this was going to evolve into anything more strategic

but as we worked on it, it became apparent that with the current environment there was a real opportunity to make a difference because the rate of technological change is accelerating. There is an opportunity for T. Rowe Price’s trading to develop a competitive advantage and improve its service clients, both internal and external. Traders need information To help us assess where we could have most impact we sent out a questionnaire to the entire global trading team. We asked them where they thought technology could make the biggest improvement to their workflow, and what questions they thought technology could provide the answers to. There was a surprising degree of homogeneity across geographies and asset classes. Traders said they wanted help making their workflow more efficient, reducing manual processes, filtering/ sorting data and solutions needed to recognise the high value on desktop real estate. But the most powerful finding was that when we examined the results in aggregate, looking at the words most frequently used in the responses three words topped the table. In isolation none of them were a surprise but when you put them together it really sums up what technology can do for us as an industry sector: the three words used most often were “Traders Need Information.”

Q4 • 2014 | GLOBALTRADING

18 | FOCAL POINT

During the event we had more than 200 associates from around the firm visiting this site and contributions from nearly half of them. We had status updates, longer blog posts, and some associates searched the web to find relevant material while presentations were ongoing. The content generated was an invaluable source of material for follow-up sessions and the

“In order to innovate, trading needs to change its mind-set and to start thinking about things over longer periods of time. ” Matt Howell, Trader, T. Rowe Price So we decided to organise a conference specifically geared around longer-term objectives. We collected together a group of technology vendors (both startups and incumbents), industry specialists and a couple of thought leaders from outside the world of finance to help us set the tone. A wide group from within T. Rowe Price was invited to come along and share their thoughts on these presentations and then a smaller group met to discuss our findings and start to formulate post conference strategy. In order to best leverage input from the conference attendees we set up an internal “Livefeed”. This was a social media style intranet site where we encouraged all the participants to engage during the 2 days. We really didn’t know how people would end up using it and we deliberately didn’t leave any strict guidelines on how to use the site. Although we had a couple of people in the room who committed ahead of time to contribute content throughout the sessions in general we left the forum to develop as organically as possible. Would people use hashtags? Would people contribute questions or just make comments? Would the feed end up looking like Twitter or more like the nested conversations that happen on Facebook?

GLOBALTRADING | Q4 • 2014

approach promoted global connectivity by allowing associates from any location, not able to attend in person, to follow and join the conversation, see the presentation materials, and speaker bios. It also enabled the team attending the forum to collaborate their thoughts, questions, and comments in real time. The Q&A sessions of the forum were noticeably more interactive and insightful because often they were already being discussed on the “LiveFeed”. Trading and technology in the future The challenge associated with trading is that traders are conditioned to be methodical and meticulous in the way that we approach things. The nature of the market itself is such that we look for short term fixes to immediate problems. In order to innovate, trading needs to change its mind-set and to start thinking about things over longer periods of time. This is going to be one of the biggest challenges. We need to keep trading engaged over those periods where it might not seem much progress is being made. That is one of the reasons that we have started some small project teams to try and keep a higher level of ownership of some of our projects and use these to keep the whole group engaged on the longer-term target. For example, one of the technologies we are assessing at the moment is a social media insight platform. We want to look at how financially relevant social media might be useful to us, but rather than deliver the platform as a fully developed solution to our

FOCAL POINT | 19

traders, we have set up a small trial group. We will see how they progress, write up the findings and keep the dialogue open during the assessment. Social media content, particularly Twitter, has elements that are relevant to short term trading but less relevant for our fundamental investment process, which is much longer term. The idea of getting something off Twitter really quickly and then trading off the back of it isn’t something that works for us. However, when the analysts come and talk to the trading team about ideas, we could certainly learn something from what’s going on in social media: maybe that’s where trading could partner with research? There is certainly an opportunity to use some of the social media tools that we use in our personal lives to enhance the way we collaborate in our business life to make communication more efficient. Prioritisation remains one of the biggest challenges. When we started looking into the topic we realised that we didn’t want to focus on fixing/mending short term workflow issues around our existing technology. We already have a pretty robust process for attending to these requirements and for dealing with the immediate challenges thrown at us by regulation and market structure. Our purpose is to challenge technology with a vision of where trading wants to go. Still in the very early stages of pushing this vision through to realisation, we acknowledge that the process will be a three to fiveyear road with many bumps along the way. We do at least now know what trading wants. We have a vision we can point people towards and a viewpoint that we’ve carefully articulated to provide some structure around the ways to approach things going forward. Hopefully the days when the business dictates which platform to use are gone. In this new partnership, we’re going to acknowledge that technology and technologists will be better equipped and able to respond to the challenges presented to them. We can say: this is your area of expertise, here is the vision of where we want to go but we want you to assess the technologies available and come to us with solutions rather than trying to shoe horn in solutions that the business is giving you.

doesn’t stop there. Both groups need to work together towards finding the best solution. The next step is for technology to take away the ideas generated and start to come back to the business with suggestions. These ideas will be assessed using small flexible teams across both trading and technology and the results and lessons learnt fed back into the wider group. The vision we developed will be used as a roadmap to ensure that we remain on track but there will also be flexibility within the governance structure to reassess the goals periodically and check they are still relevant. Collaboration, both internally and externally is going to be key to making all of this a success. We hope to have open discussions regarding our progress and use those discussions to find the people who can help us to learn. By using the platform that we used for the “Livefeed” we are already having conversations with a much wider group of individuals that we ever could have using e-mail and we aren’t cluttering up anyone’s inbox. Some of the design principles we agreed on also help us address this issue. Going forward we plan to deploy small pilots, test and learn and make development more of an iterative process. Implicit in all of this is a willingness to fail occasionally and use those failures to improve solutions going forward. There is also a commitment towards more effective data architecture and reducing complexity. This should help us make solutions more modular and stop them becoming bloated and inflexible. Data management and big data are where the real challenges lie. This is very much on the longer term horizon and clearly going to be a technology-driven project but here trading can provide some impetus and support for the process. We work with a large number of different sources of data: there’s definitely a place for some kind of aggregation of that data and once you start thinking about getting data into one place or just getting data together, then you can start thinking about imaginatively tying it all together.

Because of this there has to be a much more committed approach from trading towards technology. So far, trading has helped developed the vision, but it

Q4 • 2014 | GLOBALTRADING

20 | FOCAL POINT

The Data Horizon

With Daryl Bowden, Partner and Head of Equities, Sunrise Brokers

Daryl Bowden, Partner and Head of Equities, Sunrise Brokers We are increasingly driving towards the idea that there is no such thing as coincidence in how brokers deal with their clients – so much of what we do is data driven, and with the right systems the effort can be stripped out and replaced with as much automation and evidence as possible. The sales trader function is being pushed up the value chain, and buy-side dealing desks are becoming internal specialist sales traders. There is an inevitability to the movement of systems and people to the buy-side and they need to prepare for the challenges that they will soon face. They can learn from the mistakes that the sell-side made when implementing their systems, and ensure proper collaboration and control systems are designed into the technology, rather than tagged on afterwards. With the ongoing shift to HTML5 and the cloud, technology should be more bottom-up, with the view that users of the system are ultimately those who decide what the system is and what characteristics it has. Developers also need to have more information about their users’ use patterns – we believe that all forms of content are ultimately alerts; users need to be able to interact with, and share, the information that they

GLOBALTRADING | Q4 • 2014

find important regardless of source and form. And by structuring this with tags it gives the client the ability to select sources of brokers and stocks: it allows them to cut the noise from their networks. Another important theme is contextualisation, in that relevant alerts have to be rolled in with known market information that the user may not have linked together. Our work focuses on the creation of knowledge from data; by a process of organisation; enhancement and analytics. Data services alone will not be enough in the future. Computer systems will soon be capable of answering questions that haven’t even occurred to the user. This supports decisions and reaffirms the network of information, which is

“With the ongoing shift to HTML5 and the cloud, technology should be more bottom-up, with the view that users of the system are ultimately those who decide what the system is and what characteristics it has.” then further enhanced through the sharing of this information with peers and colleagues. Systems and technology are changing; there is a great network of technology firms coming together, but the challenge for the buyer and developer is making sure that those pieces of software work together, maximise functionality and are agnostic to which networks you want to plug into the hub. Our mantra is “Delivering your Content in Context on Demand”, as we know this is different for each and every user. Change and disruption to extant technology structures in financial services is a key dynamic that requires further examination. The question must be asked; can smaller firms compete and disrupt the standing incumbents? Ultimately I believe yes, but it is a long road.

FOCAL POINT | 21

Plugging Social Media Into Financial Services By Oli Freeling-Wilkinson, CEO, Knowsis There is a whole world of conversation that is occurring in social media and online that people in finance are not effectively plugging into. It is starting to become a problem because social media is increasingly relevant to financial services, especially with regards to how regulators now view social media, and are accepting it as a distribution point of data. More and more types of people are disseminating information through social networking, and it is becoming an increasingly important part of the jigsaw – not answering questions in and of themselves, but as a tool for monitoring information, and for depth and breadth of knowledge. A lot of organisations have no social media strategy or engagement to extract value from new technologies. There are examples like Carl Icahn who use it very carefully and well, but they’re only the tip of an iceberg – financial services and trading need to think about how they use the data, and what else is out there that they should be thinking about in the future – sources of data that haven’t been factored in and that haven’t been taken advantage of by other firms. A change is in the air when it comes to social media because of its increasing relevance – if you’re in a trading department that covers a given sector, the fact that companies can disclose information through social media networks makes them vital channels of information – the regulator has opened the door and firms will charge through it, and traders and PMs have to follow that information flow.

People haven’t been able to effectively deliver a solution that takes the wider social media universe and makes it applicable, and compliance ready, for investment banks and asset managers – there is a balance and a challenge but solutions are out there.

“People haven’t been able to effectively deliver a solution that takes the wider social media universe and makes it applicable, and compliance ready, for investment banks and asset managers...” There are plenty of challenges in the market right now, but there is always a greater need for information, inspiration and analysis, and those wider sources of information can be found in social media.

Q4 • 2014 | GLOBALTRADING

IS BANCA IMIâ&#x20AC;&#x2122;S MULTI ASSET CLASS ELECTRONIC EXECUTION PLATFORM. Market Hub clients can trade Equities, Fixed Income, Listed Derivatives and FX. Market Hub offers Best Execution through its smart order routing service in both Equities and Fixed Income. In Fixed Income it accesses multiple market venues and provides clients with liquidity on its systematic internalizer RetLots Exchange. Market Hub clients trade over 20,000 bonds through a fully transparent and efficient electronic platform. For more information: www.bancaimi.com/markethub e-mail: info.markethub@bancaimi.com

Advertising message.

MARKET HUB. BRINGING YOUR VALUES TO WORLD MARKETS.

INSIGHT | 23

Efficient Access To Emerging Markets; The ETF Conundrum

By Jesse Sherman, Portfolio Manager, RenAsset Management

The debate over the most efficient way to access emerging markets has intensified with the development and diversification of ETFs. The ETF value proposition is to provide easy and cost effective access for investors to a specific asset class, sector and/or geographies. While we do not dispute that ETFs provide an easy and low cost solution, the question remains whether the basket is attractive when applied to emerging markets. ETFs for emerging markets remain inefficient relative to actively managed funds due to existing structural issues, which could potentially ease but only over the long term. Since the first ETF was launched in the early 1990s the industry has experienced phenomenal growth to over $2 trillion in assets as the product offering has evolved, providing access to significant portions of global markets and increasingly specific geographies and segments. The push of ETFs into emerging markets has sparked similar growth, with ETFs now over $330 billion in assets and representing 25% of EM Equity Assets Under Management (AUM) and 7% of EM Bond AUM based on JP Morgan data. The key structural issue for emerging markets is that liquidity is scarce and as such emerging market ETFs, in order to have mass appeal, are liquidity seeking, resulting in more concentrated benchmarks and potentially lower sectoral or geographic diversification. Emerging markets, due to their earlier stage of market development, tend to be market cap and liquidity

dominated by larger state and former state enterprises. Indices which are often created using market capitalisation and liquidity metrics are primarily constituted of these lower quality or less interesting investment opportunities . Often this means ETFs capture a smaller portion or miss completely the more interesting sectors under development and growth. In contrast active managers have the opportunity to sift through a broader investment universe and therefore potentially capture the returns from the more attractive segments of these markets. As a result diversification can become a serious issue for ETFs, for example the MSCI Russia 10/40 index has reduced to just over 20 securities from over 30 a few years ago and there are current concerns that Saudi Arabia if included in Frontier indices would likely comprise over 60% of the index. One of the disclaimers often mentioned on ETFs is that performance can differ from the underlying markets that it is attempting to replicate, even when it is physical holding, because the ETF might have differences in holding weights; often because of liquidity constraints. Even when you compare ETF performance to the underlying market it is replicating, you see dramatic differences in performance. The Egyptian, Greek and Turkish ETFs have already underperformed the markets by over 12% in their short histories, while the Indonesian, Argentine and Taiwanese ETFs are already over 65% behind their respective indices. While ease of investment cannot be disputed, the performance differential is stark.

Q4 â&#x20AC;˘ 2014 | GLOBALTRADING

24 | INSIGHT

Emerging Markets are economies with relatively low income per capita facing rapid market development, regulatory change and growth. In such a dynamic environment active management is able to add value through identifying not necessarily the biggest businesses, but rather those which will evolve and exploit the every changing environment best. Active managers are able to add value through the hands on fundamental research approach spent meeting management teams, understanding their business models and strategy which can deliver superior levels of growth and profitability over the medium term. This is in contrast with Indices and ETFs which by definition are more limited to current liquidity and market capitalisation. An example of this dynamic is Magnit in Russia, absent for a long time from indices, which has seen its revenue increase over 7x and earnings rise nearly 20x since 2006 and gone from an off benchmark stock to up to a 9% weighting in major indices currently.

Turkey

Greece

Egypt

Taiwan

(20%)

Indonesia

(0)%

Argentina

ETF underperformance vs. underlying market since ETF inception

(40%) (60%) (80%) (100%) (120%) SOURCE: Bloomberg, as at 30 September 2014.

â&#x20AC;&#x153;As emerging markets evolve the market depth and liquidity should continue to improve, but in our view this will be a gradual trend which means active strategies should continue to provide a better efficiency in accessing emerging markets than that of ETFs.â&#x20AC;? GLOBALTRADING | Q4 â&#x20AC;˘ 2014

Jesse Sherman, Portfolio Manager, RenAsset Management

As emerging markets evolve the market depth and liquidity should continue to improve, but in our view this will be a gradual trend which means active strategies should continue to provide a better efficiency in accessing emerging markets than that of ETFs. As fundamental investors, we focus on cash flow generating businesses with minority alignment and solid corporate governance within our strategies which we believe can deliver sustainable growth, profitability and returns. While these companies are not always exclusively non-state enterprises, the majority tend to be and often are largely under represented or nonexistent from benchmarks. ETFs in our view are efficient only in markets where the depth and liquidity extends deep into the small and midcap universe which today remains a largely developed market phenomena. In the absence of this investors are better served to seek out the leading actively managed funds in order to maximise the efficiency of their investment.

G lobalT rading Reach your clients across the electronic trading community

Mat Gulley, Global Head Of Trading, Franklin Templeton Investments

Chris Rice, Global Head of Trading, State Street Global Advisors

sales@fixglobal.com subscribe@fixglobal.com

Mark Northwood, Global Head of Equity Trading, Fidelity Worldwide Investment

Paul Squires, Head of Trading, AXA Investment Managers

% Americas

Global Readers

Buyside Readers

Online Readers Monthly

www.fixglobal.com

% EMEA % Asia

26 | INSIGHT

IOIs Evolve As Buy-side Demands Greater Specificity Capital Group’s Christopher George lays out the case for improved IOIs and the technology upgrades required. Indicators of Interest (IOIs), a staple on buy-side trading desks, are due for an upgrade. Across buy-side trading desks, the IOIs traders interact with, either through Bloomberg or older OMS systems, were not meeting traders’ needs. Our head trader and a few of lead traders from multiple regions met to figure out what made the current IOIs less desirable and what we could do systematically and procedurally to make them more useful: in other words, to actually provide clear indications of interest. The FIX Protocol currently allows for some generalisations or ambiguity. For examples, small, medium and large size labels without a definitive price were not particularly useful to buy-side traders. At a minimum they were noise. At their worst, they were outright fishing. We constructed some in-house rules of engagement, outlining the messaging requirements

GLOBALTRADING | Q4 • 2014

that would allow IOIs to be shown in our OMS, thereby dictating which IOIs could be viewed and acted upon by Capital Group traders. Our goal was to make this as seamless and as painless as possible, leveraging the FIX Protocol’s standard tags and the existing Bloomberg IOI specification for sell-side firms. Essentially, we required pieces of information the FIX Protocol deemed optional, and more rigidly defined them. In particular, we drew up very stringent rules around categorising whether IOIs are a true natural, a principal-natural hybrid or a true principal IOI offering. We also set fairly rigid rules around pricing to support tagged or limit-priced IOIs. Lastly, we wanted the sell-side to provide as much colour as possible, so within our rules of engagement, there are ways the sell-side could indicate the IOI’s

INSIGHT | 27

Our trading partners around the world support and understand the broader buy-side’s need for greater transparency and accuracy around IOIs. While most are enthusiastic about working with us to tailor the flow coming to our traders, other firms are concerned about being left behind in terms of exploring this as an opportunity to engage. The firms we reached out to or at least conversed with have all seen the need and been willing to partner with us.

“We encourage sell-side brokers across the globe not only to meet the minimum standard outlined, but to provide us as much rich detail as they can because the more information they can provide to buy-side traders, the more likely traders are to engage.” The response depends on the amount of transactions they want to expose to us. Based upon our definitions of the type of flow, some firms send IOIs for anything they can. Others are only willing to send indications of interest for pure natural orders. The engagement is cautious but the sell-side understands the need and that is most important. The main impediment we have encountered is technological. In a lot of cases these firms adapt their EMS, OMS and IOI systems to adopt a different set of business rules. Willingness, however, does not remove

Christopher George, Senior Business System Analyst, Capital Group technology and budgetary constraints, which has made some roll-outs more lengthy than others. Initially this was something Capital Group was driving for our needs, as well as to leverage other firms to clean up the IOI messaging flow and make it a more meaningful tool on “the street”. The FIX Protocol IOI sub-group is spinning up, and as a member, we espouse a philosophy of IOIs and improved IOI transparency among the sell-side and more broadly among our peers. Better IOI transparency can only improve trading opportunities and streamline the location and execution of block trades. This is truly a global effort for the buy-side. It is more mature in North America, but we are beginning to implement it both in Asia and Europe. Some sell-side firms may follow our suggestions in North America but legacy systems in other regions and the regulatory constraints around markets make it a little more challenging. Capital Group built our IOI systems in-house, but we engaged other sell-side partners. We are beholden to whatever technology solutions they offer, and depending on the size of the firm and the technology choices they made, in some cases they have direct control over their platforms. In other cases we must engage with vendors.

Q4 • 2014 | GLOBALTRADING

Buy-side Working Group

origin, the desk or type of transaction we are handling as well as pre-formed comments. We encourage sell-side brokers across the globe not only to meet the minimum standard outlined, but to provide us as much rich detail as they can because the more information they can provide to buy-side traders, the more likely traders are to engage.

28 | INSIGHT

Indicators Of Trust UBS’ Ross Hutcheon Explains How Redesigned IOIs Help Modernise Liquidity Distribution Indicators of Interest (IOIs) were one of the first things traders used the FIX Protocol for, long before automating trades. It has been around the longest, but development has slowed the last few years. In the interim the focus switched to the order execution process: orders, execution reports and ultimately, trading algorithms. Historically brokers sent out high volumes of IOIs, both naturals and also those indicating a willingness to trade. There was a large amount of resulting ‘noise’ and as a result the buyside had struggled to gain as much value from IOIs as originally hoped for. As a result, some firms like Capital Group decided to turn off the traditional IOIs. However, IOIs have more to offer. Investment banks and brokers are working out the best way to distribute merchandise and attract the other side of the trade. More than redesigning IOIs as a product, considerable effort has been given to the liquidity distribution infrastructure, with the goal that each IOI contains more information that is useful to our clients. To this end, we developed our centralised risk book (CRB) to centralise and hedge our risk and subsequently distribute liquidity to our clients. We are live with aspects of our CRB in all regions (Asia, Europe and the US) and we are piloting the use of aIOIs in the US, with plans to extend further. This covers the spectrum from: a. Natural IOIs – traditional order: a buy-side order in one hand the broker wants to match, b. Risk unwind actionable IOIs (aIOIs) – the broker is showing liquidity that they are trying to unwind, c. Brokers sending aIOIs, quoting risk/stop prices – the broker is making a market; taking

GLOBALTRADING | Q4 • 2014

Ross Hutcheon, Executive Director – UBS Direct Execution

on risk and unwinding it (e.g. subsequently trading out of). The three scenarios above are treated differently by the buy-side. No single type of IOI is necessarily better than the other, but providing the added information empowers the buy-side trader. This concept ties in to what some of our more forward thinking clients are doing with their internal processes. This can help clients determine, on an order by order basis, if they would benefit from interacting with that liquidity.

INSIGHT | 29

“No single type of IOI is necessarily better than the other, but providing the added information empowers the buy-side trader. ” believe that is something the buy-side wants. Any process we put in place does not replace the trust and relationships developed over the years, but rather helps to systemise the process. The last two scenarios, where the broker is making an automated risk price and unwinding risk, can be automated. In the first, where brokers actually have a traditional order in hand, those IOIs are always going to lead to a conversation. We would typically not send out an IOI showing the full size of an order, but typically show part of the order, to start a conversation. Net result is that we could end up trading substantially more than what the IOI shows. Bottom line, you can augment that human relationship with technology but not replace it.

In addition to the brokers who help us flesh out this approach, we work directly with NYFIX, Fidessa, various EMS providers and a few others groups in the middle to get all the hoops connected together that they need to get this to work right too. It has been rather a daunting, challenging road that we only recently walked down from end to end. When dealing with brokers that have a third party relationship with their platform providers, it becomes a game of telephone. Buy-side traders are actively involved with the sell-side in this approach, and I am actively engaged in dealing with the business and the technology provider on the other side. The sell-side then funnels our rules of engagement to their third party providers, who then interpret and implement what they received. Simply meeting a timeline has been a challenge. Like any other IT businesses, these vendors are spread thin and have multiple demands, and this is just one of many. But once these third party providers are certified, economies of scale will appear fairly soon and future engagements with the vendors should proceed much quicker. One step I take in this process is to ensure our trading desks are in conversations with their peers on the sell-side. Before we do anything with a new partner or region, I want to know the traders sitting on our desks in their respective regions are talking to their peers and everybody understands the process and flow. That way, the sell-side talks to their IT partners and makes sure they have the collective understanding and we’re all executing in the same way. All parties involved should have a mutual understanding of the type of IOIs that will be sent, what happens when we respond, and who to work with when questions or issues arise (both business and technical). From an IT standpoint, we can point to this effort with pride and say this is providing real value to our business partners. On the sell-side I have engaged with, they all seem to be operating in concert.

Q4 • 2014 | GLOBALTRADING

Buy-side Working Group

An IOI is a mechanism to distribute liquidity to your key partners; it is not a product in itself. Conveying more information in IOIs better enables the buy-side to decide whether to interact. The fundamental business of stock broking is still the same; matching buy-side traders with the liquidity they want. The aim of the new infrastructure is to efficiently centralise liquidity and provide more transparency; we

30 | OPINION

The Growing Importance Of Securities Markets By Shane Worner, Senior Economist, IOSCO

It is an interesting time for the financial markets. As the impacts of the most recent financial crisis recede into the background, regulators globally are still in the process of reforming the financial system. Additionally, markets are in an unprecedented position; awash with liquidity. No longer are prices for some asset classes set by the economic principles of supply and demand, rather, central bank operations now act as a market-clearing price. Many jurisdictions continue to maintain a highly accommodative stance on monetary policy. In the US and Europe, the central bank policy rates remain at levels close to zero. While this accommodative monetary policy is great news for bank profitability, unfortunately loan provision

GLOBALTRADING | Q4 • 2014

to the real economy, characterised by loans to non-financial corporations, has been declining. Obviously, liquidity is not a ‘silver bullet’ if it does not reach where it is needed the most - the real economy. It is not all bad news, however. The recently published IOSCO Securities Markets Risk Outlook 2014-2015 highlights that much of the funding slack has been taken up by securities markets, with the importance of equity and debt funding markets growing. Globally, equity markets have shown strong growth in initial and special public offerings; in debt markets, corporations have been increasingly tapping bond markets for operational purposes. In 2014, the level of corporate bond issuances is expected to double that of 2005.

OPINION | 31

“In effect, investors are showing a willingness to trade away credit hierarchy protection for increased returns. ” Additionally innovation is taking place through such funding initiatives as crowdfunding and peerto-peer lending. Funding volumes through such platforms stand to exceed US $12 billion by end 2014. Although a drop in the ocean when compared to the scale of bank lending, crowdfunding is an example of innovation that is able to channel funding to where it is needed in the real economy. This extraordinary liquidity is also flowing into more traditional asset classes. Equity market levels have been trending well in many economies. Traditional valuation measures, such as CAPE and Tobin’s q, indicate that US stock valuations are above historical averages and Europe is at fair value, while Asian indicators show an undervaluation by historical standards. In corporate bond markets, spreads to US treasuries are compressed to historical low levels. Not surprisingly, given the liquidity effects on the return in interest-bearing assets, there is a search for yield or ‘disregard for risk’ phenomena taking place in markets. Issuances in products such as high yield bonds; sub-ordinated bonds; convertible capital (CoCo’s) covenant-lite loans and payment-in-kind (PIK) bonds are at all-time time highs. In effect, investors are showing a willingness to trade away credit hierarchy protection for increased returns.

Shane Worner, Senior Economist, IOSCO

in hedge funds, which is also slowing creeping up. Since the onset of the crisis many hedge funds have chosen to retain unencumbered cash on their own account rather than placing it with prime brokers. In debt markets, there is an increase in both financial and non-financial bond issuances. Interest in securitised products remains the main story in Asia, where issuances have increased since 2008. Although securities markets have stepped in to substitute the reduced bank-led funding of the real economy, many questions remain. One of the concerns expressed in the IOSCO Securities Markets Risk Outlook is how resilient the financial system is when interest rates inevitably increase.

This is coupled with increased levels of leverage and complexity in the system, which is becoming apparent in equity, bond and securitised markets. Margin debt is at an all-time high as participants leverage their positions into equities. Some of this can be explained by the level of financial leverage

Q4 • 2014 | GLOBALTRADING

32 | OPINION

MiFID II, Transparency and European Corporate Bond Markets By Jim Rucker, Global Head of Operations Services, MarketAxess

A clear goal for European regulators is to increase preand post-trade transparency in fixed income markets. We have always supported post-trade transparency, which we believe has had a positive impact on the size and liquidity of the US corporate bond markets. We see potential risks to liquidity, however, in introducing mandated pre-trade transparency for less liquid products such as corporate bonds. What is liquidity? A critical piece of the MiFID II regulation will depend on how liquidity is defined and measured. In the US we have conducted regular research, using data from FINRA’s TRACE consolidated tape, to analyse and quantify liquidity and trading costs in the US markets over time.

We looked initially at three key measures: • Overall trading volumes • Turnover rates (defined as the total amount traded, divided by the volume outstanding for the bonds that traded) • And overall size of the markets Trading volumes We observed some interesting differences. According to Trax estimates1, total trading volume for Eurodenominated debt in 2013 was only $1 trillion, just a third of the $3 trillion traded last year in US dollardenominated debt according to TRACE data (Fig. 1). Figure 1 2013 Total Volume by Market and Currency 3,500 3,000

USD Traded (BN)

With the release of ESMA’s Consultation and Discussion Papers on MiFID II the industry is much closer to understanding what these far-reaching rules might look like once finalised, and the changes they are likely to entail for market participants.

2,500 2,000 1,500 1,000

More recently, we have conducted a similar analysis to understand the key differences between the liquidity characteristics of the US and European markets.

500 -

EUR

USD (TRACE)

1Trax estimates it captures approximately 65% of all fixed income transaction reporting to the UK FCA. Estimates are based on this data sample.

GLOBALTRADING | Q4 • 2014

OPINION | 33

Turnover rates We also found that bond turnover for US dollar debt was approximately 60%, compared to just 41% for Euros. This means that US$-denominated bonds were trading about 1½ times more frequently than Euro-denominated bonds (Fig. 2). Figure 2 2013 Bond Turnover by Market and Currency 70%

Corporate debt outstanding A similar picture can be seen for the total debt outstanding in each region. In Europe, high-grade debt outstanding has increased just 20% in the last five years, from $2 trillion to $2.4 trillion. Yet, during the same period, US high-grade debt outstanding has almost doubled, from $2.7 trillion to over $4.5 trillion, according to FINRA (Fig. 4). Figure 4

5,000 4,500

50%

Total Amount Outstanding ($BN)

Turnover Percentage (Annualized)

Total Amount Outstanding by Market and Currency

60%

40% 30% 20%

4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 -

10%

Euro

USD 2008

EUR

USD (TRACE)

As a point of comparison, prior to the financial crisis, turnover in the US corporate bond market was running at over 130%, meaning that each bond, on average, was both bought and sold more than 1.3 times per year (Fig. 3). Figure 3

2013

Source: MarketAxess Research, TRACE

What does this mean for European markets? In short, the US markets are larger and more liquid than the European markets. And we can make some assumptions about the reasons why. The introduction of TRACE in the US in 2002 represented a new era of increased post-trade

“In short, the US markets are larger and more liquid than the European markets. And we can make some assumptions about the reasons why. ”

Source: MarketAxess Research, TRACE

transparency for the credit markets, which helped to increase competition. Access to regular and consistent pricing data for US high-grade and highyield corporate bonds has enabled a much broader group of participants to enter the market, resulting in tighter spreads, which has, we believe, been

Q4 • 2014 | GLOBALTRADING

34 | OPINION

one of the key drivers for the larger, more liquid US market. Furthermore, the depth of market has made funding in dollars very attractive not just to American companies but to foreign issuers as well. All of these combined variables have created a robust and liquid market with a large investor base and strong new issuance, as indicated by the growth in US dollar-denominated bonds outstanding. Transparency: achieving the right balance The corporate bond markets are highly fragmented and the majority of bonds trade infrequently. As the chart below shows (Fig. 5), in the 13 months from 1 July 2013, 51,000 fixed income instruments traded in Europe. On a typical day, the majority of instruments – approximately 45,000 – didn’t trade at all. On average, approximately, 6,000 instruments traded once and only 300 instruments traded more than 10 times per day. Figure 5

Jim Rucker, Global Head of Operations Services, MarketAxess

Frequency of fixed income trading in Europe Count of bonds (#000s), 1-Jul 2013 to 31-Jul 2014 60 Traded 10+ times 50

Traded 1 to 9 times

30 Not traded 20

1-Jul 2013 to 31-Jul 2014

Source: Trax Note: Scope includes fixed income instruments reported via Trax, where Trax reported at least a single trade during 1-Jul 2013 to 31-July 2014 1. Includes IG and HY Corporate bonds, Agencies & Supranationals, EM, ABS, & Munis; Excludes Government and Sovereign bonds 2. Average of sample is assumed to be typical

As our data demonstrates, we believe that increased post-trade transparency is good for the market. Conversely, given the level of fragmentation in the corporate bond markets, requiring an overly granular level of pre-trade transparency (such as public disclosure of individual responses to institutional RFQs

GLOBALTRADING | Q4 • 2014

for less liquid instruments, as is currently possible under MiFID II) is likely to harm critical market liquidity. This will result in worse execution prices and ultimately impact returns for European investors. European regulators have a tough job ahead of them. Today’s European credit markets are much more complex and fragmented than the US markets were twelve years ago, when TRACE was first implemented. It is critical, however that the rules achieve the right balance. An appropriate level of post-trade transparency will promote competition and help boost liquidity in fixed income markets. Too much pre-trade transparency which is not sensitive to the nuances of the institutional fixed income market, however, will have the opposite effect and is likely to hinder the growth of markets that are critical to the long term health of European economies.

unbundling | 35

The FCA And Unbundling An edited conversation between David Lawton, Director of Markets, FCA and Edward Mangles, Regional Director, Asia Pacfic, FIX Trading Community The FSA introduced a new regime for what dealing commissions could be used for in addition to execution back in 2006. We have reviewed it a couple of times since then and are presenting a further round of review this year with . There are three elements to this; • The first is that in response to industry questioning, we have clarified in our guidance precisely what research can be bought using commissions. • The second is that we have done a thematic review of how both buy-side and sell-side firms are complying with our rules and we’re presenting that back to the industry. • Thirdly, given that in Europe we are in the context of introducing some new legislation , the FCA are keen to put forward some thoughts on what the more ideal longer term arrangements for dealing commissions in the market for research might look like. While this is a scenario that will remain at the forefront of our agenda, we have no concrete plans for doing another thematic review. There are a number of issues that we want to follow up on with the individual firms who are in our sample but no further review should be required because, as I noted earlier, this is something that has been a big part of our wholesale conduct agenda for the last few years. It’s an important part of how the market works and I’m sure it’s something that will remain at the forefront of the FCA’s mind.

and put a value on the research that they want to pay for with commissions. We accept that there isn’t really a free market in research yet and that brokers currently provide a bundled service, so we are encouraging fund managers to have a dialogue with brokers to get them to price research. If that is not happening, fund managers can also look at benchmarking against other valuations that they can find. We do recognise that it’s a challenge and that’s one of the reasons we think a longer term better arrangement would be unbundling in this market and seeing research provided and priced for separately. Our paper surmises two things: the first is that we expect firms to be doing more within the context of the current regime to comply with our rules than they are now. In our survey of 17 buy-side firms, we only found two that were delivering something that we think is fully compatible with our rules. The second point is that we recognise that there are some structural issues across the entire marketplace that need to be looked at. Our goal is to have a marketplace in which the end investors are best served: in which fund managers are acting as good agents for their clients in terms of the use of their funds and seeking and securing research which is in the best interest of the end investors. The key concern we have about the current arrangements is that the incentives and the market structures don’t drive us to that conclusion.

Self assessment We have published the results of our thematic review setting out what we found in terms of good practice and less good practice as a means of communicating to the firms that weren’t in our sample our expectations as to how the rules should be complied with. We are now looking for all firms to benchmark themselves against that material.

CSAs During the thematic review, the firms that were following better practices tended to be the firms that were using CSAs. However, they are not a universal panacea because they still they’re associated with payments to research linked to the volume of trading. CSAs need to be used with care; they’re not mandated by our regime but they are a helpful tool.

One of the challenges in this space is that research is being bundled up with execution. Our regime is designed to incentivise buy-side firms to identify

Smaller firms In regard to longer term structural arrangements for smaller firms, our key conclusion is that we think

Q4 • 2014 | GLOBALTRADING

36 | unbundling

in the European debate about what the final method rules should look like and recognise the importance that there is a level playing field across Europe.

that the market would be improved if there were some unbundling of research from commissions. We think that a market for research that was separate from commissions could in fact be to the benefit of all brokers both large and small and it would enable smaller brokers to focus on commissioning the research that was particularly tailored to their fund management strategy. We want fund managers to do more in terms of transparency and accountability: I think it is right that conceptually we can see the benefits of separating research from commissions. That links us back to the European debate where under the revised method, the legislation places greater restrictions on what fund managers can receive in return for commission and the European Securities and Markets Authority’s consultation on what limited benefits might be acceptable associated with the payment of commissions. So monetary and non-monetary benefits are allowed but anything more than that is not, so the gap between that and full unbundling in our view is relatively small. And our analysis suggests that this produces a marketplace that is more competitive. It reinvigorates the market for research which benefits the industry as a whole. One of the questions that we’re often asked in this debate is whether the UK is planning to change the rules unilaterally. The answer is that we are not proposing any rule changes at this stage. We are very keen to engage

GLOBALTRADING | Q4 • 2014

A better functioning market for research and commission arrangements would in fact provide competitive advantage to the fund management industry. We think it will be beneficial to be more transparent and open to end investors about how the funds are being used.

“We want fund managers to do more in terms of transparency and accountability: I think it is right that conceptually we can see the benefits of separating research from commissions.” Global conversation There is already a very lively debate in Europe around finalising the rules and we’re fully engaged in that. Globally I think this topic remains of interest to markets and securities regulators as an important structural feature of how the marketplace works. Aspects of it are already under discussion in IOSCO. We’d be very supportive of global discussions and it’s something that comes up regularly in our bilateral discussions with other key markets regulators.

unbundling | 37

Unforeseen Consequences Rudolf Siebel, Managing Director of German Investment Funds Association BVI questions whether the FCAs recent CSA proposals will improve or harm continental asset managers’ service.

The Financial Conduct Authority’s (FCA) recent announcements about Commission Sharing Agreements (CSAs) affect asset managers on the continent just as much as their UK counterparts, according to German asset management association, BVI’s Rudolf Siebel. Continental asset managers were surprised that the ESMA is addressing the subject of unbundling. Given that the Level 1 directive does not discuss research, but speaks in general terms about inducements, we were surprised by the direction the ESMA took. Our members are now investigating what is driving the FCA in this discussion. We previously introduced a Code of Conduct which also covers soft commissions and research stating research must be used for the benefit of the client, e.g. the investment fund. However, the recent focus on unbundling urged us to send a letter to the FCA. It is not our policy to comment on a purely UK consultation, but because of its wider European reach and its possible impact on the discussion at ESMA level, we sent a letter. The FCA is correct to improve the pricing of research, but better pricing can be developed in different ways. One way which has not been tried before is to set a dedicated budget for research to make this budget transparent. That would have the effect of formally adding pricing to research, requiring asset managers to scrutinize the implicit cost of research in the execution of fees. If asset

managers disclose their research budgets, this would facilitate client scrutiny of that spend. Beyond research pricing, the FCA identified certain problems such as the overconsumption of research but does not provide any evidence in this regard. The FCA also suggests the quality of research and trade execution is lower than expected. We believe that these alleged inefficiencies should be dealt with by regulation and in any case do not require the action proposed by the FCA. General pricing of research would help mitigate any inefficiencies. Moreover, we strongly disagree with the claim asset managers are incentivized to trade excessively in order to receive more research, as it is described in Point 5-26. The claim that asset managers disregard the existing obligation to act in the client’s best interest is incorrect. Again, this allegation lacks any evidence. Further it contradicts the FCA’s claims that there is overconsumption and lack of quality of research. It is unlikely that asset managers would create an order to procure research if that research lacks quality. In that case, asset managers would just as soon order and pay separately for specific, recognized, high-quality research. If the FCA’s proposals are implemented, there may be a number of negative consequences, as other industry bodies and buy-side firms have explained. The first is reduced research and decreased competition between research providers. The proposed rules

Q4 • 2014 | GLOBALTRADING

38 | unbundling

to provide more long-term financing for these entities. Finally, less exhaustive research inhibits the market’s effectiveness in pricing stocks and other securities.

“A reduced market for research would negatively affect competition between research providers, favouring market participants with larger trading books, who can subsidise research.” Rudolf Siebel, Managing Director of German Investment Funds Association BVI would place asset managers under pressure to reduce their demand for research in order to balance costs. A reduced market for research would negatively affect competition between research providers, favouring market participants with larger trading books, who can cross-subsidise research. It is unclear how independent research providers would benefit from such a situation. On the sellside, smaller, independent researcher firms are likely to suffer, as would smaller asset managers that would find it financially difficult to build their own research departments. There is a separate concern that small and mediumsized enterprises will receive less market coverage. Already, large research providers essentially focus more on large and medium caps instead of small and medium-sized caps because these entities are more important for trading. Many companies in the DAX 100, for example, could see reduced coverage, which obviously constrains their access to capital contrary to the intention of European and German politicians

GLOBALTRADING | Q4 • 2014

If the FCA goes forward as proposed, it would exceed any ESMA rules. We hope that the FCA is not considering unilaterally requiring UK unbundling, but we recognise that they are promoting this option at European level. If these rules are tightened both in Europe and in the UK, the asset managers providing active portfolio management would have to re-price their services. This may nudge the market toward nonEuropean managers both in North America as well as in Asia to offer their services cheaper and thereby gain a competitive advantage over European-based managers. We see no plans in the US, Hong Kong, Singapore or Australia to unbundle research and execution. The potential competitive situation for European asset managers vis-a-vis their international counterparts is not just a theoretical exercise. Major non-European firms, such as Capital Group, Wellington Management, Fidelity and Pimco, are very active in Germany. For local managers, the competition is often on a basis point by basis point level, and if research would become more expensive, that could sway some of the mandates as a lot of German investors are very cost sensitive.

unbundling | 39

The Changing Use Of Client Commissions Joe Kassel, Global Head of Dealing & Exposure Management at AMP Capital, outlines the effects of the FCA’s proposed rules for the usage of client commissions on the buy-side. Recent joint statements from the UK’s FCA and Europe’s ESMA have re-focused attention on Commission Sharing Arrangements, asking the buy-side to revisit their relationships with research and execution providers across jurisdictions. In recent years the uptake in usage of CSAs has allowed asset managers flexibility in implementation, to meet their best execution obligations but has still not fully satisfied regulators that client commissions are being managed to maximum effect, nor fully resolved concerns about conflicts of interest. The FCA in their most recent discussion paper on this topic appears to be distancing itself from its principles-based approach in favour of a far stronger view. The FCA are arguing that the only way to eliminate any conflict between managers

and their clients, as it relates to usage of client commissions, is to more or less eliminate using commissions for any research purposes with a limited exception for minor non-monetary benefits. Our view is if buy-side firms act ethically by managing and making transparent any perceived conflicts arising from turnover and ensure any use of client commissions for research meets a specific standard, and that brokerage fees are commercial and market based then this is in the client’s interest to do so. Where there are concerns pertaining to market conduct, they should be closely regulated in a transparent way to ensure information is available to all investors at the same time.

Q4 • 2014 | GLOBALTRADING

40 | unbundling

Joe Kassel, Global Head of Dealing & Exposure Management at AMP Capital How to pay Considering the usage of client commissions, the test should be whether the use of those commissions accrues directly to the client whose commissions are paying for that trade. The commissions that buy-sides pay to brokers for execution and research are known, but more importantly, they are an explicit component of the investment performance of funds in our portfolios. The buy-side must give account directly to the customer whose commissions they use for that purpose. The FCA’s proposal is that investment managers must pay for research using their own resources, and then seek to recoup through increased investment management fees. What has not been fully acknowledged is that in practice this is already occurring. For example, if a firm is 90-100% reliant upon their own internally generated research, then the commission rate they pay for executing trades should be an execution only rate. If another firm uses varying degrees of third party research, which they pay for using client commissions, then that

GLOBALTRADING | Q4 • 2014

should be reflected in an incremental commission rate. Those numbers are all known and are provided to those firms’ clients. The money management model is part of a firm’s client strategy. It is worth noting we differentiate between soft dollars and commission sharing arrangements. AMP Capital does not participate in soft dollar arrangements because it carries very specific connotations which we are strongly against e.g. paying for hardware or raw data. For value adding research we do currently use commission sharing agreements, and as a percentage of total firm commissions they account for approximately 15-20%. We consider this key to being able to meet our best execution obligations by only dealing with brokers which meet required execution capability criteria. To pay for third-party research, the research must meet certain criteria, such as being capable of triggering an investment decision, representing original thought, having intellectual rigour and involving analysis to reach meaningful conclusions.

unbundling | 41

The application of those principles varies, but the principle is now well understood, certainly in Australia, that to qualify for payment, research has to be original and value adding and most specifically, for the direct benefit of the particular client whose commissions are being used to pay for that research. The big point that should not get lost is the need for strong regulatory oversight to prevent the misuse of client commissions because in the past there have been clear examples of misuse. The very simple test should be that the use of a client’s commissions is in that client’s best interest.

“The very simple test should be that the use of a client’s commissions is in that client’s best interest.” Global conversation The ideal solution is for globally agreed standards and requirements regarding CSAs because of the operational efficiencies of not having to create rules for every jurisdiction’s requirements. For example, IOSCO or various regulators could frame workable measures while honouring the original marketbased, competition-friendly objectives they value. The FCA and ESMA’s comments received so much global attention because they spoke collectively on the topic. After a period of silence on this topic, it is appropriate for the industry to have consistent guidance from all regulators. The quality of the measures they choose will determine the uptake of similar rules in other regions.

At one extreme, where the usage of client commissions to pay for research is completely prohibited, that will impact trading commissions because the conversation is about the bundled commission rate. That application of technology has brought the real cost of trading down. For example, commission rates in Australia in the last ten years have arguably dropped the better part of 15-20 basis points in terms of a blended rate to the current single-digit level. The point should not be lost that to the end investor, a significant outcome has actually been achieved in the form of lower costs and streamlined research requirements from investment managers, as well as the service research providers can afford to provide in a low commission rate environment. Amongst the bulge bracket firms, the provision of research is more differentiated than in execution services. The idea of any one firm being better at execution can change quite quickly. No one firm has a natural advantage on execution services on a stand-alone basis, and if the industry moved to a place where execution was the only input as with whom buy-sides deal then it could be less stable than it is now. As an industry we have come a long way. Our most recent internal review, conducted this year, focused on our role as a global asset manager rather than just Australia, and our approach was to find the highest common denominator. In that context, we leaned closely on the FCA’s previous CSA guidance from 2006, when they started clarifying what client commissions can be used for in terms of execution and research. Their principles-based approach anticipated that the industry itself would agree and standardise, and we still believe this can happen.

The technology gap Historically, CSA’s were openly promoted by the regulator, particularly by the then-FSA, to encourage independent research and foster diversity in place of the investment banks’ oligopoly on the provision of research. However, it has not had success creating a single delivery mechanism to enable the proliferation of independent research.

Q4 • 2014 | GLOBALTRADING

EMEA Trading Conference 2015 10 March | Old Billingsgate | London Created by the Industry, For the Industry The EMEA Trading Conference, now in its 7th year, is one of Europe’s largest one day trading conferences, delivering a high quality, educational and debate focused conference in the heart of the City of London. 950+ senior market participants are expected to attend the EMEA Trading Conference where they will benefit from the detailed insight of 50+ expert speakers, carefully selected based on their extensive industry knowledge to discuss the critical issues, challenges and opportunities facing the region.

RE GI

ST ER DA Y!

"FIX Trading Community's events provide a very open and constructive forum for the community. The content comes 'from the market, for the market'" Stephen McGoldrick, Co-Chair EMEA Regulatory Subcommittee, FIX Trading Community, Vice President, Director, Market Structure, Deutsche Bank AG

REGISTRATION NOW OPEN! FREE passes are available for representatives of Buy-Side firms and Regulators. An allocation of FREE passes is available for all FIX Trading Community Member firms. Additional Member Passes: £199+VAT | Non-Member Passes: £549+VAT

OTHER SPONSORS:

Sponsorship opportunities still available - contact kelly.harding@fixtrading.org To view full event information and for details on how to register please visit:

www.fixtradingcommunity.org/EMEA2015

“FIX Trading Community provides a valuable forum where all members of the trading community, from buy and sell sides, to platforms and technology providers, can tackle real trading issues in the heart of the City of London.” Neil Joseph, Co-Chair EMEA Regional Committee, FIX Trading Community, Vice President, JP Morgan Asset Management European Trading Desk, J.P. Morgan Asset Management

unbundling | 43

Retailing Research:

From Big-Box to Farmer’s Market? Asia Independent Research Providers’s (AIRP) Ed Stockreisser and Shan Han discuss the market for research, their new solution SeedAlpha, and predict how regulatory and economic pressure will reshape buy-side consumption. As institutional investors and the bulge bracket brokers who service them discuss the ramifications of potential unbundling rules in the UK, independent research providers see an opportunity to gain market share providing a diverse, specialised analysis. There have been four key developments in research provision over the last five years: the decline in commissions; the decline in payment for research; an arguable decline in the quality of the sell-side research; and a decline in the hard dollars used to pay for research, handle/corporate access and related services. Quality analysts are more likely to leave the sell-side for the buy-side or to become independent as sell-side firms downsize senior analysts positions. A central theme in the regulatory discussions is the inherent conflict of interests in bundled models and subsidised research models, which has begun to sway buy-side opinion. Lack of cost transparency and reduced service quality explain the current pressure on research models, including those from the FCA. Many of the managers we speak to are wholly unprepared to assign a value to research. The buyside focus is largely on how they use research in their investment activities, effectively ignoring the research that is being discarded. The Boston Consulting Group estimates that as little as 10% of research is read. A ban on using client commissions to pay for research and corporate access entirely from 2017 opens up a new paradigm for the consumption and creation of research. With the fragmentation of the research market, the cost to get research in front of the right consumers, or the cost for the fund managers to go out and access this research, is increasing. This is an opportunity for technology to shorten that gap and make it more efficient. Our aim

Shan Han, AIRP and SeedAlpha is to increase the value of research from the way that it’s used across the team. The problem the buy-side has is with assigning value to research, but the more people that use one piece of research, the more you can actually justify a higher valuation. Once a firm has established some sort of budget or spend on research, it will change the way that they consume research. Creating a research price index provides an indicator as to what a piece is roughly trading at in the market, bearing in mind that research has no value until it is read and that it has a different value for each reader. Compliance audit trails are also built in to track research budgets from the CIO down to individual analysts and teams. One of the biggest buy-side pain points is that there is so much research on offer that even if they take research from five bundled brokers, they still receive

Q4 • 2014 | GLOBALTRADING

44 | unbundling

“All the buy-side really wants is: A) a way to find the best research from existing and best-in-class providers and B) to manage that in one platform without having to go through broker portals, search emails, use Bloomberg and a range of external different sources.” Ed Stockreisser, AIRP and SeedAlpha 400 emails a day: something like an unlimited buffet of junk food. All the buy-side really wants is: A) a way to find the best research from existing and best-in-class providers and B) to manage that in one platform without having to go through broker portals, search emails, use Bloomberg and a range of external different sources. In an effort to reflect a higher value of research consumption, we are charging the buy-side to join the platform instead of the research providers because ultimately what we care about is investors having access to better research. This may mean sell-side research, but as fragmentation occurs, investors want the best research on behalf of clients and we leave it to the regulators to determine how that is paid for. Long-term A more diverse research ecosystem is a hoped-for outcome, as many independent research providers (IRPs) do not have sales teams as is true for some regional brokers. If their research can be purchased sideby-side with larger firms’ research, it can potentially create a competitive advantage within their niche. Despite bundled financing, large research providers face cost pressures, which will likely discourage

GLOBALTRADING | Q4 • 2014

exhaustive coverage in favour of specialised focus on core competitive advantages. With the exception of the biggest brokers, who will continue to fund quality research in all areas despite unbundling, the majority of research providers will likely become specialists. These disparate providers will need a glue to bind them together – a table for everyone to sit at. More than ever before, there must be a justification to spend client commissions on research, yet rarely does one piece of research lead to an investment decision. Over the course of reading possibly hundreds of pieces analysts eventually form an investment idea. Manually tracking that process is virtually impossible, but we can technically automate much of the tracking to justify how the idea develops. At present, there is pressure on fund managers from the regulators, clients and economic forces. In turn, the sell-side will be pressured into changing. Eventually, perhaps in 10 years’ time, investors will look back at how research was being done now and be grateful it is not done that way anymore.

AMERICAS | 45

Fixed Income In Brazil – How FIX Can Help Organise The Market By Dr. Christian Zimmer, Head of Quantitative Portfolio Management, Itau Asset Management

Brazil is a tropical country with fruits that can’t be found in most other countries in the world. The jabuticaba is one of these fruits. The thing that makes the jabuticaba interesting is that it grows on the trunk of the tree and not on the branches. This fruit is often used to represent an interesting part of Brazil’s culture when it comes to IT and financial solutions: things are done differently than in other main international markets. And sometimes the jabuticaba analogy is used to justify a statusquo. Change is never easy, and we can see this in the fixed income markets in Brazil.

The actual fixed income market is obviously more liquid for government bonds than corporate bonds. The average daily number of transactions from Jan/14 to Oct/14 of government titles was 2,680. This is equivalent to an average daily financial volume of ca 22.5Tri BRL. Compared to the same period in 2013, this represents a decrease of around 13.5% All public papers are cleared at Selic, a unit of the Brazilian Central Bank. Private titles are not registered at Selic although private entities may receive permission to do so. However, corporate bonds are registered with Cetip, the local depository

Q4 • 2014 | GLOBALTRADING

46 | AMERICAS

for OTC, private securities and derivatives, which as of Sept 2014, housed 5Tri BRL, representing 97% of the Brazilian market. The BM&FBovespa is their biggest competitor. When it comes to trading, actual liquidity represents only a small fraction of overall volume. With the use of the Delivery for Payment principle, it is fundamental to have access to the registration of the paper’s owner. This explains why, contrary to the equity market, the electronic platform for bond trading of the BM&FBovespa does not show any liquidity. As alternatives, one might trade public and private bonds either on the 2013 created Cetip Trader platform, or the TSOX interface from Bloomberg.

“The trading situation in Brazil, until now, has been characterised by direct buyside interactions. This is partially caused by the fact that a big part of the volume is traded by bank-held asset managers and moved via their own treasury firms.”

Throughout 2013, starting from March when Cetip Trader went live, 100Bi BRL were traded at this facility. During the first nine months of 2014 93BiR$ were traded, thus showing signs of stability. Observe that this is not daily volume, but accumulated, thus representing a very low fraction of the overall market. Trading activity with the Bloomberg interface is higher, showing about 60Bi BRL in the last three months – equivalent to an estimated 180Bi BRL for nine months.

Cetip’s platform has mainly flow from local Brazilian players. Regulation for Brazilian funds demands publishing trades of private bonds at the REUNE system from Anbima, the local fund regulator. The objective is to obtain more transparency on prices. Cetip Trader is, right now, the only trading platform certified for direct integration with REUNE.

Curiously, the FIX Trading Community (FTC) best practices document for cash bonds – as of version 5 from May/2014 – interprets Brazilian bonds, as well as venue to buy-side connection as out of scope. Why is this so? Having Brazil not on the global landscape is not surprising, but the communication between venue and buy-side is a relevant practical issue in Brazil.

Bloomberg’s TSOX solution has a better insertion in the international market and thus shows mainly north-south flow. Most of their clients are not subject to Anbima regulation so the integration with REUNE is not an issue for them.

The trading situation in Brazil, until now, has been characterised by direct buy-side interactions. This is partially caused by the fact that a big part of the volume is traded by bank-held asset managers and moved via their own treasury firms. Within this

GLOBALTRADING | Q4 • 2014

Dr. Christian Zimmer, Head of Quantitative Portfolio Management, Itau Asset Management

AMERICAS | 47

The Cetip platform shows the dealers’ offers and not the final counterparty. This is an expected behavior. But, how can the buy-side be convinced to

“As this FIX interface is still new and now being promoted in the local market, it is this flexibility of custom tags that can and should be used to further promote liquidity.” use a dealer when the actual buy-side to buy-side trading avoids any kind of brokerage fees? The flow at Cetip Trader is mainly caused by manual entry on Cetip screens giving the buy-side direct access. Recently, Cetip released a FIX interface. It is expected that this helps to get more flow from electronic trading and portfolio management systems. The solution for Cetip Trader uses FIX 4.4 and is based on the ICE technology also used for Creditex Realtime and ICE Swap Trade. The two latter platforms are actually on FIX 4.2. For trading at Cetip, the custom tag 9883=IDB can be specified. The 4.4. FIX connection for bonds allows us to trade different instruments, identified by the custom tag 9802 for the trading sector: Brazilian Bonds (9802=BZD), Brazilian Casadas (CSD), Brazilian Corporate Bonds % DI (DDI), Brazilian Corporate Bonds DI+ (DIS), Brazilian Corp. Bonds price traded (DPU), inflation linked corporate bonds (IDI),

prefixed corporate bonds (PFA), inflation indexed Brazilian Govt. Bonds (PIC), indexed Brazilian Govt. Bonds Long (PIL), prefixed Brazilian Govt. Bonds Long (PPL) and Short (PPC), and post-fixed Brazilian Govt. Bonds (PUP). The 9801 tag defines the code of the instrument type, thus should be “B” for bonds. Finally, the 9701 tag has an interesting feature that might be used for contemplating the necessity of direct buy-side accesses versus dealer-intermediated trades. It is used to represent the trade source and can have, among others, “K” for block trade, i.e. an already arranged trade between two buy-sides. As a result of low liquidity in the secondary market, position adjustments are often made by direct fund transfers. One possibility to achieve this is with RFQ, message type R. The quote request type would be “FundTransfer” (303=99). In general, it can be observed that the Cetip FIX solution is making massive use of the custom tags in order to specify all the details the bond market has to offer. As this FIX interface is still new and now being promoted in the local market, it is this flexibility of custom tags that can and should be used to further promote liquidity. For example, it may be of help to converge the different interests of dealers to be the intermediator at the trading venue versus the buy-side interest to work on pre-defined counterparty position transfers. With the help of the international standard from FIX, based on the ICE FIX-engine used for other markets, expectations of the local participants are that fixed income trading will not result in a new Jabuticaba tree. During the 2014-FIX Trading Community conference in São Paulo, it became clear that the strong and focused local community is highly inclined to plant something more like a coconut tree.

Q4 • 2014 | GLOBALTRADING

Latin America Sub-Committee

universe, individual counterparty restrictions apply. The typical broker task of facilitating access to the exchange is thus not obligatory. The setup is more like in an FX market where the final counterparty is exposed. The possibility and necessity to define which counterparties can be traded with is a functionality that should be configurable within the platform.

48 | AMERICAS

Standardising Execution Reports Linda Giordano and Jeff Alexander, Principals, TABB Group further examine their efforts to standardise execution venue reporting, and look at how it can help both the buy-side and sell-side. Since we last contributed to the GlobalTrading journal, we came to realise that a single broker was not the right place for us to continue with our programme to bring transparency to execution routing and venue analysis. As a result, we moved into the TABB Group organisation, helping create a TABB METRICS product called Clarity. We believe that we are now better able to analyse data from brokers of all sizes. The July 2014 move to TABB has made us more effective, which has been much better, more interesting and more valuable to clients. Currently, we’re taking all the routing data from brokers, whether things are filled or not, driving a big push for standardisation, including areas around FIX tag 851 and other related initiatives, such as the standardisation of time stamps. As the data comes in, we process it and issue reports for clients. However, we’re going to be moving to an industrial strength platform soon that could potentially lead to daily processing. This could be a little overkill, but it’s a move in the right direction. Industry feedback Our data has shown clients what’s going on across multiple brokers. There’s always a delicate balance between cost and execution. For example, is a broker being too cost sensitive, too aggressive, or are the broker and investor aligned to provide truly best execution? To accomplish this, we look at strategy in terms of what is the client’s intention and what order types are being used. We want to see broker and client alignment and how investment strategies are implemented, which is not easy because strategies are very different when a broker is providing or taking liquidity. The first step is to get a very high level of review of where the broker is routing to and where they’re

GLOBALTRADING | Q4 • 2014

Linda Giordano, Principal, TABB Group getting filled. We take a look at a sample and see that the broker is trying to route through agency pools. We have charts and tools that split the orders out into lit and dark, and we’ve actually classified them into more granular categories, including a broker’s own dark pool; agency pools; consortium pools; blotter scrapers; and lit, inverted and electronic market maker liquidity pools. We have learned that when you begin to analyse the data, you discern definite trends. If a broker has a cost sensitive model, they will begin trading in the free or inverted markets first, which means they are taking from broker venues, consortium-type venues and electronic market maker type venues. These are free places to execute, so you can start seeing that this type of broker has a very cost sensitive philosophy in routing.

AMERICAS | 49

For the most part, these pools are not offering protection from information leakage. Nor are they offering size or anonymity. This is because they are prepaid. It’s for the broker’s economic benefit and that can be seen through our analysis. The broker has to be as cost effective as possible but still ensure that they are protecting their client and that is where the line has become muddled: the buy-side wants to make sure that brokers are not doing things to their detriment. Drive for transparency It is important to say here, it is not always that the sell-side has to pay more for execution and the buyside just gets better prints. Sometimes the buy-side gets a little too aggressive in cost cutting and the broker is forced into more cost-effective routing strategies. If the buy-side are constantly pushing

“The result of standardisation is that brokers can focus on key metrics and improving execution, eliminating the need to have a discussion around definitions.” their broker on costs – don’t forget you’ve got research to be paid for, too – the end result is that routing starts to look unbalanced. In some cases, if the buy-side wants more aggressive, costly routing, they have to look very hard at commission rates they’re paying and consider increasing them. Standards The intent is for the buy-side to have a more meaningful discussion with their brokers and work together. One problem is that everybody has their own definitions. Items like commission rates are defined differently on each broker report. There are also areas that are less well-known, such as time stamps being calculated differently on broker

Jeff Alexander, Principal, TABB Group reports, meaning that even the items that people think are clear vary between broker to broker. Examining the difference between a router-based time stamp and an actual time stamp, we found that the router-based time stamp happens when the broker gets a fill from the market and then stamps reflect the time they got the fill – rather than the time it filled on the exchange. The difference can be significant, so if a buy-side firm gets a report from one broker based on their router-based time stamps, and another broker gives actual market time stamps, you are obviously not looking at the same thing. The result of standardisation is that brokers can focus on key metrics and improving execution, eliminating the need to have a discussion around definitions. Buy-side firms know how the numbers are calculated because Clarity is completely transparent in terms of how everything is calculated. Long term The conversations around standardising FIX tag 851 and time stamps are first steps to allow people

Q4 • 2014 | GLOBALTRADING

50 | AMERICAS

Standardising Execution Data With John Cosenza, Co-head Electronic Trading, The Cowen Group can look at all the places which we route orders to, normalise the data and then draw meaningful conclusions on our routing practices to these third party liquidity venues. The firms that are venueneutral and approaching it this way are driving for more transparency and standardisation. For the camp that provides electronic products but also manage their own dark pool, the data could be a little bit more daunting, in that they have electronic products which route to liquidity venues and their venue is one of them. For this type of provider, if the data comes out to show that there is an extremely disproportionate amount of volume going to their internal pool, a detailed explanation is in order. John Cosenza, Co-head Electronic Trading, The Cowen Group One of our bigger value-adds to customers is the fact that we are venue neutral. We do not operate a dark pool. We have no electronic market making. We have no prop trading within the organisation. As a result it is imperative to our business model that we maintain proficiency in analysing liquidity venues and understanding which venues we should route to in various situations; how, when, and where. Data and analytics on liquidity venues serves as both a driver and feedback loop to this core competency. The venue and routing component of the execution equation is extremely important given the complexity associated with fragmentation and lack of transparency in the marketplace. Having residential expertise in optimising routing and analysing liquidity venue data, our hope and what we believe in is that this focus will translate into better execution quality for our customers. The push for standardisation We don’t have a dark pool so it’s very important for us to have a consistent framework where we

GLOBALTRADING | Q4 • 2014

“For the camp that provides electronic products but also manage their own dark pool, the data could be a little bit more daunting, in that they have electronic products which route to liquidity venues and their venue is one of them.” In such a scenario, it could be reasoned that there are tangible benefits to internalisation, rendering the data as a positive outcome. And if there are scenarios where it can’t be reasoned that there’s a tangible execution benefit of internalisation to the end customer, then it probably requires some adjustment to routing. Either way, this increased transparency is only going to be good for the marketplace.

AMERICAS | 51

In order to be meaningful, firms will of course need to accumulate significant sample size, but the initial steps that Tabb are putting in place are important. If you can normalise data through an independent source not involved in the execution process, a level playing field for meaningful comparative conclusions can be drawn. Similar to traditional TCA, an important part of the evolution of venue and routing data starts when there are no more issues questioning the source of the data, which has historically been a concern when brokers calculated and individually provided their own data. Hopefully, down the road, if there is a consistent standard and streamlined process everyone in the ecosystem will benefit. While some of the larger institutions have dedicated resources and teams to do this themselves, the overwhelming majority do not. For the customers that don’t have the team or resources for big data, this is a great way for them to receive data in a comprehensible way and make good decisions for their firm with their counterparties. There still has to be a tieback into how this improves execution quality. Optimisation of Routing to Liquidity Venues is an important piece of the overall puzzle. With an agreed upon standard between the customers, brokers and venues, data on routing and venue analysis can serve to assist the overall optimisation of execution performance, translated into minimisation of risk-adjusted execution costs. Fundamentally, how do we navigate a marketplace that is complex, extremely fragmented and lacks transparency in some critical areas? Transparency is moving in the right direction but is not ideal. It is our job to use data and context to combat these gaps in transparency with the end goal of getting better execution quality for the end customer. It’s not going to happen overnight but I think we’re going down the right path.

to standardise a lot of these other conversations and to drive cross comparability of data. Moving forward, we have to encourage the sell-side to open up and the buy-side so they’re all able to understand it and implement the solutions to manage a lot of the data. Regulators have been looking at areas like these but it is unclear if they want to come up with a standard. If they were to drive a standard report, each would have the same matrix and each client would have a very simple and easy-to-digest report regarding their routing practices. The standardised reports that the regulator has put into a trial so far are not particularly complicated but also not very illustrative. This could be an area where the regulators have seen industry solutions to the problem but there does not necessarily need to be a regulatory-enforced level of reporting. However, some areas obviously do have a much greater need for regulatory involvement, especially if commercial solutions are unable to meet the needs of the industry. Trading needs to be driven by execution quality purposes, not by payment for the flow purposes and it’s something that some firms are not grasping. There are firms that exist solely because of payment for flow arrangements, but they’re not good enough from a quality perspective. This is an issue that shouldn’t be too difficult to put right. The tradition in the United States has been that the market has come up with its own solutions. As we see it, this is not always the best way because market solutions at different times are biased. Whoever has the loudest voice and whoever has the most money is going to sway things. Problem is, the buy-side has not been in the driver’s seat and that’s been to their detriment.

Q4 • 2014 | GLOBALTRADING

52 | EUROPE

Let There Be Dark

By Huw Gronow, Head of Equity Trading, Europe and Asia, Principal Global Investors

Sometimes an industry adopts mysterious-sounding labels to add to the intrigue of its complexity. It may well be that market historians will regard the use of the term “dark pools” as an error of PR. “Dark pools” burst into the public consciousness not with the adoption of Regulation ATS in the US, nor with MiFID in Europe, but with the publication of Michael Lewis’ “Flash Boys” in April this year. Whereas “non-displayed liquidity traded in an exchange-like venue under a pre-trade transparency waiver” may not sound as sexy (few would argue against that) the negative connotations surrounding the venues have reverberated through to regulators and law makers alike, we believe to the potential detriment of the end investor. For institutions such as Principal Global Investors1, with USD326bn under management2, being able to transact large positions with minimal market impact is critical to managing the risk transfer associated with portfolio implementation.

photo

In Europe, non-displayed liquidity can be most simplistically categorised into either “small dark” or “large dark”, that is, small executions either in public dark books (MTFs) or private broker crossing networks (BCNs). Then there are “large in scale” blocks transacted in institutional pools where the trade sizes are many multiples of the average trade sizes in the lit venues (and indeed the dark MTFs and BCNs, for the most part). The choice of “dark” or “lit” environments, or a combination of the two at any time, and indeed the way you interact with a dark environment, is chiefly dependent on your catalyst for trading. Trade urgency dictates how much you use the dark, not only in relation to your desire for certainty of execution, but the way you interact in the dark is also a function of your urgency to trade. In short, it is not as straightforward as either “lit” or “dark”. Many, as we do, interact with both for differing catalysts and at different stages in the trade cycle, and this nuance does not seem to be well understood when regulation is being considered. Fundamentally, the main benefit of the nondisplayed environment to institutions like us is that

GLOBALTRADING | Q4 • 2014

EUROPE | 53

“The choice of “dark” or “lit” environments, or a combination of the two at any time, and indeed the way you interact with a dark environment, is chiefly dependent on your catalyst for trading.” we’re able to place large orders out for execution, at the time of our choosing, that would otherwise send a clear signal to the market of our intent. Indeed, even if those large orders are atomized to reflect the microscopic size of the trades in the modern ecosystem, predictability is the enemy. Smart usage of dark pools protects us to some extent (not totally in our view) from that.

Huw Gronow, Head of Equity Trading, Europe and Asia, Principal Global Investors

MiFIDII looks like it is going to potentially change the landscape radically however. The policy makers seem keen to increase transparency in the market, with concerns over impact to the price discovery process if too much trading volume is in the “dark”. We argue that the ability to transact without publicly showing our hand provides real and quantifiable benefits to institutional portfolios, which are ultimately often held by retail investors, the persons whom MiFID was designed to protect. There is hope, however. The Large in Scale Waiver under MiFID remains unaffected by the dark pool “caps” that are proposed to limit the percentage of smaller trades that take place under the Reference Price Waiver and it is already apparent that the buy-side are looking to take control.

a forward-thinking exchange-like venue not only to likely changes in regulation but designing a system geared towards the benefit of the end investor – the public investing for their retirement. And it does not sound nearly as sinister. Maybe that’s the point? 1Principal Global Investors is the asset management arm of the Principal Financial Group; including both its internal and external boutiques globally, notably (amongst other entities): Principal Global Investors LLC, and Principal Real Estate Investors, LLC. 2Correct as of September 30, 2014.

The name “dark pools” implies something bad? It has been said already that it may be high time to call them something else. The concept of the buy-side driven Turquoise Block Discovery Service is a great example of the right response by the buy-side, sell-side and

Q4 • 2014 | GLOBALTRADING

54 | ASIA

Technology On

The Thailand Exchange With Kesara Manchusree, President of the Stock Exchange of Thailand

Bringing markets together onto one platform The Stock Exchange of Thailand recently changed our trading platform for the equities and derivatives markets. We changed equities two years ago, and we brought derivatives onto the same platform this year. This is a reflection of the cash equity market size and our desire to unite across our platforms. We were using an in-house platform, but we decided to buy the new system because we believe that technology has become more developed and we need to be at the forefront of that. The new system, called SET CONNECT, supports a higher throughput and has lower latency together with greater functionality to support new products and new connectivity. It also includes another API set that we are going to offer to clients.

with them for almost two years around this implementation. Market participants in Thailand mostly use the local ISP but after we introduced the new system, we found out that they are increasingly using international ISPs to come into Thailand. So thanks to the new platform we are seeing new names enter Thailand and their feedback has been very good.

We have been working closely with our market participants during this period of change and their reaction has been positive. We have about 40 market participants and we have been working

The effects of Shanghai-Hong Kong Connect We have been listening to the plans for the Connect between Shanghai and Hong Kong with interest and I have personally visited both

GLOBALTRADING | Q4 â&#x20AC;˘ 2014

Around the region many other markets have been very busy, because a lot of exchanges have been changing their trading platforms. We have been working very closely with both the local and the regional brokerage houses to keep track of their technology updates and to ensure that we are aligned with their needs and the changes happening region-wide.

ASIA | 55

Shanghai and Hong Kong recently. There are clear benefits for both exchanges, but I think the real positive consequences will be for brokers in Hong Kong to access the Chinese market very easily. In term of the effect on the Thai market and other regional exchanges: I think that they are at the beginning of a long journey. While we will keep watching what happens with interest, there is little real interest from the Thai market to invest in the Chinese market. There are however definite opportunities to extend our market into China and for China to extend their investment into Thailand.

â&#x20AC;&#x153;We have been working very closely with both the local and the regional brokerage houses to keep track of their technology updates and to ensure that we are aligned with their needs and the changes happening region-wide.â&#x20AC;? The Thai market has been doing a lot of marketing to Chinese investors, with returns this year so far on the index of 21%. Listed companies in Thailand are very attractive in terms of our returns. Regional co-operation Each regional market uses different systems and has different characteristics. In term of the connectivity, in terms of technology, everyone has their own API that can connect to each other. As long as we can connect to each other, trading will happen and there is every possibility to build on this connectivity. But there are many complications when you have to take into account the different rules and regulatory jurisdictions throughout the region. We are looking to develop our relationships between the Thai market and other regional markets along the lines of the ASEAN link we

Kesara Manchusree, President of the Stock Exchange of Thailand currently have between Malaysia, Singapore and Thailand. This cooperation will keep growing because every exchange is working on expanding their market. For example, the Thai market is working with Deutsche Bourse on the cross trading of derivative products. What we do need to ensure is that we have proper monitoring technology to manage these growing markets. We just bought a new surveillance system, called SET WATCH and now we have our own in-house surveillance. This also means that we are working on defining all our data to standardise. Our regulator is also involved and has their own monitoring system, so there are definitely developments in this area throughout Thailand and more to come.

Q4 â&#x20AC;˘ 2014 | GLOBALTRADING

56 | ASIA

Evolving Emerging Markets

Andy Maynard of CLSA outlines the development of Asian markets and the dynamics that will drive further innovation.

Exchange-traded volumes on emerging Asian markets have increased dramatically over the last ten years, but their full potential will not be realized without change in domestic regulations and global buy-side allocations. Europe, the US and Japan have been the biggest markets for some time and as a result, they clear trades independently. Within developed Asia, Taiwan to a certain degree, trades independently but now it is included in investorsâ&#x20AC;&#x2122; China exposure. ASEAN went through a euphoric run based on ballooning GDP

GLOBALTRADING | Q4 â&#x20AC;˘ 2014

growth, with similar stories in individual markets such as Indonesia, Thailand and the Philippines. If you take the Philippines, for example, ten years ago that market traded USD5 million a day, and now it trades half a billion. It has become a bona fide market compared to what it was, as have Malaysia and Thailand, but they have been in a second tier. Within global portfolios, exposure to emerging Asia has either been a relatively small part of the overall allocation, or contained within a country-specific fund.

ASIA | 57

As the growth story evolved, so did the equity markets, but the economic backdrop has also changed. The exchanges as well as the regulators are still very independent in each jurisdiction. More cohesiveness amongst the regulators, especially as regards technology and new exchange technologies would help brokers. Using Japan as a case study, the exchanges have changed themselves to compete in modern trading, including merging the exchanges to narrow spreads. They have done much to ensure the main board is

“If the exchanges do not think they need to innovate or the regulator is not producing a legal framework for change, usually the market participants have not been asking for it.” as competitive as it can be and limit the proliferation of exchanges/venues/pools. Expanding it to Korea and Taiwan, the markets are relatively efficient and evolved. Taken together, developed Asia (Singapore, Hong Kong, Australia, New Zealand, Japan, Korea, Taiwan) has critical mass, as the exchanges evolved and the regulators produced a playing field for all participants. In the rest of Asia, including India, the myriad nuances of exchange rules and regulations mean the majority of a broker’s work is on market microstructure. Our client offerings in places like Indonesia, Thailand, and the Philippines are all materially different, so the best execution suite differs market-by-market. Because these markets

Andy Maynard, Global head of trading and execution services, CLSA

have gone from famine to feast relatively quickly, volumes have increased and market participants, whether international, retail, institutional or mutual, are more diverse. The progression in the Philippines is amazing considering how quickly the Philippines went from the smallest Asian market in the 1990s to where most buy-sides now have a few stocks in their portfolio that are listed in Manila. A growing domestic community trades actively and has begun to look outside the Philippines. By default, the exchanges tend to play catch-up. Not long ago the Philippine Stock Market closed for technical glitches on a relatively frequent basis. Now, with international interest in the market, market failures due to technical glitches have an unacceptable effect on investor confidence, so they will have to upgrade their whole exchange system at some point. Asian markets will evolve at their own pace, but the overall direction is very clear. The lines between

Q4 • 2014 | GLOBALTRADING

58 | ASIA

emerging, frontier and developed markets in Asia are blurring. They will retain idiosyncrasies, but interactions in and out of the market will slowly homogenize. Malaysia’s market structure is well developed in so far as brokers know what the regulator does and does not allow. To this day, many governments are the principal owners of the national exchanges, which is viewed as a crown jewel. This complicates the necessary exchange modernization that investors are looking for. Innovation and increased functionality are requirements to be internationally competitive. India is a huge market, but it lags behind the evolution of similar markets because market activity and structure are impeded by the regulator. These domestic developments often come back to whether there is a need for it. In those markets where the government owns or operates the exchange, the regulator is frequently prohibited or discouraged from introducing competition. The burden is on the domestic community to request change. If the exchanges do not think they need to innovate or the regulator is not producing a legal framework for change, usually the market participants have not been asking for it. When these markets evolve and their international presence grows there is a tipping point where portfolios start to include local names. Then, almost by default, the exchange will upgrade to continue to attract flow. In the last few years, we received numerous requests from a range of big buy-sides for frontier market access, from Mongolia to Pakistan to Sri Lanka. Investors want to know who is on the ground, who offers comparable services/structures across markets, and who has the heavy lifting in these smaller markets. As a result, we now have a daily order pack for the smaller markets in the region and a dedicated team covering frontier markets. The overarching trend is buy-side firms offering dedicated global frontier funds. The money associated with them does not compare to the larger emerging funds, but most asset managers have some level of frontier activity. Investors see the upside versus the risk of investing in markets,

GLOBALTRADING | Q4 • 2014

so the conversation is shifting to formerly obscure places such as Laos and Mongolia. The outlier in all of this is China, which despite its size remains an anomaly. The Chinese market is massive in its own right such that any mention of innovation in the market, either from the exchange or the regulator, makes everyone jump. The market is still cheap relative to its global peers, and the

“In those markets where the government owns or operates the exchange, the regulator is frequently prohibited or discouraged from introducing competition.” Stock Connect is already showing investor attraction. Moreover, the influence coming out of China through Hong Kong could eventually outweigh the northbound flow. 20 years ago a global portfolio meant investing in an Aussie banker and a handful of Asian brokers. Today, it means stocks in Taiwan, car manufacturers in Korea, and a range of regional firms in your investable universe. At some point it will include names in Malaysia, Thailand, Indonesia, the Philippines and India. That matrix of pressure on markets, exchanges and regulators is going to continuously grow as Asia takes a bigger share of the GDP pie. Regulators and exchanges will have to evolve.

ASIA | 59

Emerging Markets – Risks And Opportunities By Rohini Tendulkar, Economist, IOSCO

Over the last decade, emerging markets (EMs) have, on average, grown almost as fast twice as advanced economies (AEs). Recently, accommodative monetary policies and low interest rates in the developed world have triggered a search for yield, encouraging investors to the door of EMs, where expected returns are generally higher. Furthermore, Chinese demand has fuelled ‘south-south’ lending and supported growth across the EM regions. These developments mean economic and financial activity is less concentrated in AEs, providing new global investment opportunities elsewhere.

impact exchange and interest rates, resulting in significant asset price devaluation. Currency depreciation could translate into inflationary pressures and complicate the servicing of debt.

However the ‘taper tantrums’ of mid-2013 and beginning-2014 and the impact of this on capital flows to EMs, raises the spectre of ‘boom-bust’ cycles and reveals the heterogeneity of these markets in terms of economic, financial and institutional conditions – and their varied ability to withstand shock.

Recent quantitative easing by the Japanese Central Bank, and hints of the same from the European Central Bank, has continued market expectations of liquidity. However the subsequent devaluation of the Yen, especially against the South Korean Yuan and the Chinese Renminbi, has implications for China’s slowing growth, from 10.4% in 2010 to 7.4% in 20141, and South Korea’s export competitiveness. By extension cross-border flows to EMs in Latin America, Asia, Europe and Africa that rely on trade with and lending from these two large economies, are vulnerable to volatility.

The IOSCO Securities Markets Risk Outlook 2014-15 (The Outlook) explores these developments and the potential risks from a securities markets perspective. It points out that in recent years the proportion of cross-border flows of non-bank credit has increased, rendering a more diverse global financial ecosystem. More conservative bank lending practices in developed markets caused by regulation such as Basel III may be responsible, in part, for this shift, though it could also be a symbol of financial and economic maturity. However, while securities markets in EMs are generally increasing in size, they remain relatively illiquid compared to AEs and in some cases heavily reliant on cross-border flows. In this context, two factors to take into account when considering risk include: (1) shifts in global economic conditions; and (2) technological integration. (1) Shifts in global economic conditions The continuing unwinding of monetary stimulus in AEs, particularly the US, in combination with lower Chinese growth rates, increased perception of political risk in some countries, and more recently, falling commodity prices, has implications across EMs. A reversal of capital flows could

While some EMs weathered the turmoil of the ‘taper tantrums’ relatively unscathed, others - such as Brazil, South Africa, Indonesia, India and Turkey – felt impact on their currencies, interest rates and slack in their equities and bonds markets.

Falling commodity prices, in part spurred by China’s slowing growth and also idiosyncratic factors such as political risk in the Middle East and Russia, impact flows to exportdependent EMs. Particularly vulnerable to these developments are EMs with high current account deficits, low total reserves as a percentage of external debt and steep credit build up. For example, in Brazil the current account deficit increased to -3.5% of GDP compared to -2.2% of GDP in 20102. Total reserves as a percentage of external debt fell to around 48% in 2014, compared with 62% in 20103. Domestic credit to the private sector as a percentage of GDP grew 30% between 2010 and 2013, reaching 70.7% of GDP in 20134. Meanwhile, in the last two years, Brazil has experienced currency depreciation and increased official interest rates. In 2014, GDP growth fell back to just 0.3% compared to 7.5% in 20105. The inflation rate grew to 6.3%

Q4 • 2014 | GLOBALTRADING

60 | ASIA

in 2014 (compared to 5.0% in 2010). At the same time, ‘boom-bust’ cycles are not alien to EMs. A string of crises, triggered by volatile capital flows (the Tequila crisis 1994-1995, the Asian crisis 1997 and RussiaBrazil in 1998, etc) have led a number of EMs to introduce macro prudential policies and capital controls aimed at stemming the effects of a sudden reversal of flows. Nevertheless, given the increasing importance of securities markets as a financing channel, the Outlook points to the importance of building robust domestic and international securities markets in EMs – through a focus on nurturing

“But while technology offers a host of new opportunities for development and expansion for EFE financial markets – it also introduces new risks.” market development, mitigating risks (both systemic and firm level), setting up market structures to improve efficiency and access, and integrating technology. (2) Integration of technology The integration of technology into emerging and frontier economies (EFEs) is a particularly salient topic. Technology is changing the financial landscape in unprecedented ways with implications for the way we access, use, finance and invest our money and assets. Processes and transactions are faster, smarter and more automated. Technology is also a facilitator of global integration and financial access. In Kenya, M-PESA, an advanced mobile money system is used by more than two-thirds of the population6, even while local financial markets remain underdeveloped. But while technology offers a host of new opportunities for development and expansion for EFE financial markets – it also introduces new risks. One of these risks is cyber-crime. In an IOSCO/WFE staff working paper7, it was revealed that around half of the world’s exchanges had suffered a cyber-attack. Cyber-crime can not only choke, disrupt and manipulate financial services and processes but also undermine confidence in the financial system of a jurisdiction, making it a potential systemic risk. Since

GLOBALTRADING | Q4 • 2014

Rohini Tendulkar, Economist, IOSCO cyber-space is not limited by national borders, cyber-crime is a truly global risk – one that can affect developed and emerging markets alike. Thus this is a risk that requires both local and global mitigation efforts. Mitigation efforts include not only prevention and detection/monitoring of cyber-threats but also robust recovery and communication protocols in the case of a large cyber-attack. Furthermore, cyber-crime is not something that can be dealt with by financial firms in isolation. Information sharing mechanisms can assist individual financial actors and regulators in building a clearer and broader picture of the cyber-crime landscape, identifying current cyber-threats and anticipating future cyber techniques so that resources can be allocated efficiently. 1

IMF estimates IMF estimates 3 IIF forecast, Reserves excl. gold. 4 World Bank data 5 IMF estimates 6 “Why does Kenya lead the world in mobile money?”, The Economist, May 27th 2013 7 Rohini Tendulkar, “Cyber-crime, Securities Markets and Systemic Risk”, IOSCO Staff Working paper, July 2013 2

62 | Fragmentation

GLOBAL FRAGMENTATION AT A GLANCE

LIT VALUE BREAKDOWN (Q3, 2014)1

1 2

Venues with a market share lower than 0.01% are not shown on the diagrams but are included in the calculations Borsa Italiana trading after hours

GLOBALTRADING | Q4 â&#x20AC;˘ 2014

Source: Fidessa

Fragmentation | 63

Fragmentation of liquidity on US exchanges Fragmentation in the US has remained stable over several years, with only minor fluctuations in the past year. In the three month period August to October 2014, there has been a steady upward trend in average daily volume (ADV) and the number of trades on major indices such as NASDAQ 100 and S&P 500.

S&P 500 Top US stocks by FFI and value traded (Oct ’14)

NASDAQ 100 Top US stocks by FFI and value traded (Oct ’14)

Note: ADV and number of trades have been calculated on lit exchanges only and exclude ATS volumes.

Source: Fidessa

Q4 • 2014 | GLOBALTRADING

64 | FIX Trading Community MEMBERS

FIX Trading Community Members *Premier Global Members marked in bold

360 Treasury Systems AG ABN Amro Clearing Actimize Inc Actuare AFME- Association for Financial Markets in Europe Albourne Partners Ltd Algomi Algospan Ltd AllianceBernstein Alpha Omega Financial Systems, Inc American Century Investments Ancoa Software Aquis Exchange ASIC Australian Securities Exchange AXA Investments Managers Ltd B2BITS EPAM Systems Company Baader Bank Aktiengesellschaft Baillie Gifford & Co. Banco BTG Pactual Banca IMI SpA Banco Itau S.A Bank of America Merrill Lynch Barclays Baring Asset Management BATS CHI-X Europe Baymarkets AB Beijing RootNet Technology Co., Ltd. BlackRock, Inc. Bloomberg L.P. Bloomberg Tradebook Blue Ocean Company BM&F BOVESPA BNP Paribas Bolsa de Valores de Colombia Bolsas y Mercados Españoles (BME) Borsa Istanbul A.S. Brandes Investment Partners LP Bridline Brook Path Partners, Inc. BSE Limited BT Bursatec SA de CV BVI C24 Technologies Cameron Edge CameronTec Cantor Fitzgerald Capital Group Companies, Inc. Charles River Development Chicago Board Options Exchange Chi-X Global Inc

CIBC World Markets INC CIMB Securities Cinnober Financial Technology AB Citi CL&B Capital Management CLSA Limited CME Group Commerzbank Compagnie Financiere Tradition Connamara Systems LLC Convergex Corvil CQG inc Credit Suisse Daiwa SB Investments Daiwa Securities Group Inc. DATAROAD DealHub Deutsche Bank Securities Deutsche Boerse Group Dimensional Fund Advisors Eastspring Investments (Singapore) Limited Ecodigi Tecnologia e Serviços Ltda Edelweiss Securities Limited Egypt For Information Dissemination EMCF- European Multilateral Clearing Facility N.V Enmetrica Orion K.K. Japan Equinix Espirito Santo Securities India Esprow Pte. Ltd. ETLogic Ltd ETNA Software Etrading Software Ltd Etrali Trading Solutions EuroCCP Euronext Paris SA EuroTLX Exactpro Systems EXTOL Eze Software Group EZX Inc. FIA (Futures Industry Association) Fidel Softech Pvt Ltd Fidelity Management & Research Co Fidelity Worldwide Investment Fidessa group First Boston Group First Derivatives FISD Fiserv FIX Flyer LLC Fix8 FIXNETIX Forex Capital Markets, LLC FpML Franklin Templeton Investments Fubon Securities Ltd Gamma Three Trading, LLC

Premier Global Members

GLOBALTRADING | Q4 • 2014

GATElab GETCO Asia GFI Group Inc Goldman Sachs & Co. Greenline Financial Technologies, Inc. GreySpark Guosen Securities Ltd Hatstand HM Publishing Hong Kong Exchanges & Clearing Limited HSBC Bank PLC ICAP ICMA (International Capital Markets Association) IG Group Holdings PLC Ignis Asset Management Informagi AB InfoWare Infront AS Instinet Integral Development Corp. Intelcheck Services Inc. Interacciones Interactive Data Intercontinental Exchange (ICE) International Securities Exchange (ISE) Investment Management Association Investment Technology Group (ITG) IPC Systems IRESS Limited IS Investment ISITC ISO J.P. Morgan Jordan & Jordan JP Morgan Investment Management (J.P. Morgan) JSE Limited K & K Global Consulting Ltd (K&KGC) KB Tech Knight Capital Group Kotak Securities LCH Clearnet Linedata LiquidMetrix Liquidnet London Market Systems LSEGroup M&G MACD Macquarie Securities Limited MAE - Mercado Abierto Electronico S.A. MarketAxess Market Prizm Markit M-DAQ MFS Investment Management Mizuho Securities MOEX

FIX Trading Community MEMBERS | 65

Morgan Stanley Investment Management Morgan Stanley MTS SpA NASDAQ OMX Newedge Group Nikko Asset Management Nomura Asset Management Nomura Nordic Growth Market (NGM) Norges Bank Investment Management OCBC Securities Private Ltd. Omada Capital OMERS OMG (Object Management Group) OTAS Technologies Omgeo On Budget and Time Ltd Onix Solutions [OnixS] OpenSettlement GmbH Options Clearing Corporation Options Technology Ltd Orc Group Oslo Bors ASA Pantor Engineering AB Patsystems Peresys (IRESS) Perseus Telecom PFSoft Portware Pravega Financial Technologies, Inc. Primary E Trading PropelGrowth Proquote Putnam Investments Quendon Consulting Quod Financial R Shriver Associates Rabobank International Rapid Addition Ltd. Raptor Trading Systems, Inc. RBC Global Asset Management REDI Technologies Robin Associates Royal Bank of Scotland RTS Realtime Systems S&P Capital IQ Real-Time Solutions Santander Global Banking & Markets SASLA (South African Securities Lending Association) Sberbank CIB Shanghai Stock Exchange SIFMA SimCorp Singapore Exchange SIX Swiss Exchange Skandinaviska Enskilda Banken AB smartTradeTechnologies Societe Generale Software AG

Spotware Systems Spring Securities International AB Squawker Limited SS&C Tradeware Standard Life Investments State Street eExchange Solutions State Street Global Advisors State Street Technology Zhejiang Sumitomo Mitsui Trust Bank SunGard SWIFT Systemware Innovation Corporation (SWI) Taiwan Stock Exchange Tata Consultancy Services Technistock Philippines, Inc. Telstra Global The Continuum Partners The LaSalle Technology Group, LLC The Nigerian Stock Exchange The Technancial Company The Vanguard Group Thomson Reuters TickSmith Corp TMX Atrium Tokyo Stock Exchange Tora Trading Services Tradeflow AB TradeHeader, S.L. Tradeweb Trading Technologies TradingScreen Traiana (ICAP) Transaction Network Services, Inc. Transatron Systems trueEX Group LLC TSX Inc. (Toronto Stock Exchange) Tullett Prebon Group Ltd Turquoise TWIST UBS Investment Bank ULLINK Velocimetrics Versitrac Systems Corporation Volante Technologies Volta Data Centres Wellington Management Company Winterflood Securities XBRL Xetra (Deutsche Bรถrse) Yambina Limited Yieldbroker Zeopard Consulting

New Member FIX Trading Community wishes to welcome the following companies to its growing worldwide membership. For more information, please visit: www.fixtrading.org Banco BTG Pactual www.btgpactual.com

Bloomberg Tradebook www.bloombergtradebook.com

Connamara Systems LLC www.connamara.com

Euronext Paris SA www.euronext.com/en/markets/nyseeuronext/paris

Options Technology Ltd www.options-it.com

Santander Global Banking & Markets www.santandergbm.com

The Vanguard Group www.vanguard.com

Premier Global Members

Q4 โ ข 2014 | GLOBALTRADING

66 | RESOURCES

Industry Resources Bank of America Merrill Lynch Trader Instinct®

The Global Trading and Consulting Platform When you execute with Bank of America Merrill Lynch, you

FIX Flyer

With over 180 clients worldwide, including UBS, Barclays, Berenberg Bank, GBM, Larrain Vial, Bank of America Merrill Lynch, Goldman Sachs, and JP Morgan, FIX Flyer develops advanced technology for managing complex, multi–asset, institutional securities trading using highly scalable software and network technologies. FIX Flyer provides the

Fidessa group

Exceptional trading, investment and information solutions for the world’s financial community. 85% of the world’s premier financial institutions trust Fidessa

GLOBALTRADING | Q4 • 2014

have a global platform of trading professionals and tools to help you access the natural liquidity provided by one the world’s largest private client and institutional networks. Our Trader Instinct® platform helps you to achieve high quality execution by drawing on our expansive market presence, knowledge and experience, trading acumen and strategies, financial

capital and liquidity destinations. All continually adapting to realtime market signals to align your trade objectives and conviction. Contact details: Email: dg.apes_et@baml.com http://ba.ml.com/instinct/ Asia +852.3508.7550 Europe +44 20.7996.4521 U.S. +1.212.449.6090

high performance Formula One Risk Gateway; Exchange Adapters built for global DMA; fully outsourced Managed FIX services; the Daytona trade monitor and compliance surveillance platform; Flyer Online web-based connectivity for multiasset trading. The Flyer Engine is the first FIX server designed to manage high volume, ultra low latency trading networks, easily scaling to thousands of connections. FIX Flyer provides 24 hour support, and partners with Equinix, the leading

global data center provider and network–neutral connectivity. FIX Flyer is an IBM Business Partner with real world experience on the high performance Power platform. FIX Flyer has headquarters in New York City with offices in Boston and Hyderabad India. Visit fixflyer. com for company information and to request a free demonstration. Follow us on twitter.com/fixflyer.

to provide them with their multiasset trading and investment infrastructure, their market data and analysis, and their decision making and workflow technology. We offer unique access to the world’s largest and most valuable trading community of buy-side and sell-side professionals, from global institutions and investment banks to boutique brokers and niche hedge funds. $15 trillion worth of

transactions flow across our global connectivity network each year.

Contact Details: www.fixflyer.com

Fidessa’s unrivalled set of missioncritical products and services uniquely serve both the buy-side and sell-side communities. Contact details: info@fidessa.com www.fidessa.com/contact

RESOURCES | 67 to FIX and proprietary protocols.

CameronTec Group is the global standard in financial messaging infrastructure and tools for the Capital Markets industry that today powers the largest user base among financial institutions.

CameronTec’s flagship offering Catalys is underpinned by marketleading connectivity technology and engineered on the widely acknowledged standard in FIX engines, CameronFIX. Catalys Market Access offers FIX-powered gateways to more than 60 equity, derivative and FX markets across the globe, as a locally deployed or managed / hosted service.

Uniquely positioned as a software and service provider for enterprise, hosted and managed platforms, our dedicated professional services team ensures optimal integration and deployment performance.

Complementary FIX integration, testing and management solutions, including VeriFIX, build out a complete offering to provide end-to-end global connectivity solutions for any electronic trading environment, using or migrating

Contact details: www.camerontecgroup.com

We configure connectivity for clients, tailoring infrastructure to meet business goals and requirements including cost reduction, connection engineering and FIX customization. Clients receive access to sophisticated tools that monitor their orders, while a web-based dashboard provides transparency into the onboarding lifecycle. Connex technologies and knowledgeable support group helps ensure that interfaces remain connected.

expenditures and minimize risk. Outsourcing connectivity allows clients to focus on core business objectives and worry less about upgrades, hardware changes, scalability, redundancy and FIX customization. Connex also offers a pre-trade risk management module that helps clients address regulatory requirements.

CameronTec Group

Convergex Connex

Connex is Convergex Group’s fullymanaged technology solution for broker-dealers. Streamlining the onboarding life cycle for clients, our experienced professionals are committed to helping to reduce clients’ connectivity-related expenses. As a third-party, broker-neutral managed services provider, we act as an intermediary between brokerdealers and their network partners.

GlobalTrading

Thought leaders’ perspectives pack the GlobalTrading journal with the latest in industry trends, buy-side insight and global electronic trading news, however, it is only the tip of the iceberg of our offering.

Managing operations for customers, Connex helps firms save on capital

www.fixglobal.com offers our entire searchable archive of industry contributions, meaning that over 10 years worth of leadership commentary and content is available in an accessible format, entirely for free. We are also pushing out the latest industry-led thought leadership through our

CameronTec’s solutions are tested and trusted by the world’s best firms in over 50 countries, on all five continents, representing the broadest cross section of tier 1 and 2 investment banks, brokers, fund managers, exchanges, regulators, and members of the ISV community.

Contact details: For more information, contact George Rosenberger at 212.468.7726 or via email at grosenberger@convergex.com

Twitter feeds (@FIXGlobalOnline) and our LinkedIn group (GlobalTrading journal). These are forums for free-flow debate and to engage with industry peers on the burning issues of the day. Contact details: yulia@fixglobal.com www.fixglobal.com

Q4 • 2014 | GLOBALTRADING

68 | LAST WORD

My City

Baltimore By John Radle, Global Head of Trading Campbell & Company

Best thing about your city? We’ve got all the benefits of other big cities on the US east coast like Washington DC, Philadelphia and even a bit of New York City, but with the attitude and mentality of a small blue collar town. Worst thing about your city? Traffic...this is one of the big city aspects that I really wish we didn’t have. Getting to work? Campbell & Company is in a really great location just north of the city. This means that almost everyone who works at Campbell can get here without jumping on the highway and dealing with much of that aforementioned traffic. View from your desk? We actually overlook Quarry Lake,

GLOBALTRADING | Q4 • 2014

which is, as its names suggests an old quarry that has since filled with water and become one of the deepest lakes in Maryland. We are lucky to have such a beautiful location.

to downtown, Federal Hill offers many great places to eat and relax as well as a great park on the actual hill that provides phenomenal views of the city and a nice spot to unwind.

Where to take your clients/brokers for dinner? The Harbor east neighborhood downtown offers a really wide variety of great fine dining restaurants. We’re particularly fond of Cinghiale, Ouzo Bay and Charleston.

Best place to stay when in town? We’ve got a great new Four Seasons downtown and we also often have our clients stay in the Royal Sonesta which is also downtown and overlooks the harbor.

And a relaxed spot with friends and family? One of the best ways to relax in our area is to get out on the Chesapeake Bay to go boating or fishing. If you prefer to stay on dry land and close

Best tourist spot? The Inner Harbor is really the prime tourist spot. It offers just about everything a tourist could want with shopping, dining, entertainment, etc. More adventurous tourists with a bit more time really should explore some of the neighborhoods throughout Baltimore if they want a true taste of the city.