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FIXGLOBAL.COM

Q1 • 2018 • Issue #65

G LO B A LT R A D I N G

Bringing Finance Back To The Forefront Of Innovation Kenneth McLeish, Global Head of Equities Trading Technology, J.P. Morgan Asset Management In support of

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GlobalTrading’s Editorial Think Tank Dear Readers, Finance has a deserved reputation for pioneering technological innovation and for developing sophisticated networks and assembling complex, extensive data systems.

However, in recent years its pre-eminence has been superseded by more agile new technology companies. Silicon Valley has led Wall Street.

There is now an increasing recognition that trading desks can only be successful if they incorporate and prioritise technology. If applied properly, technology will ensure a firm’s survival and gain it a competitive edge. Regulatory headwinds, such as the Markets in Financial Instruments Directive II, are an important catalyst for improvements that are creating new data sets and the opportunities to use them. The proliferation and fragmentation of liquidity and how to use it is a key factor for change.

Bill Hebert Co-Chair, Global Member Services Committee, FIX Trading Community

Too often in the past, technology has been applied like sticky plaster, patching up gaps in systems and salving deficiencies. Instead, future proofing technology needs a clear sighted integration of the business strategy with the technology architecture.

If a developer is sitting beside a business user, the feedback loop tends to become instantaneous. In the event that a business user encounters problems with a particular application, having technologists on standby to ascertain and fix the issue quickly enhances the overall ecosystem.

Moreover, in a new era of artificial intelligence (AI), big data and automation, there are big rewards for finance firms that can innovate quickly. The global ecosystem around AI in particular is making it a tool that is growing very fast in its capabilities and it is becoming cheap to apply AI at scale.

Carlos Oliveira Brandes Investment Partners

Greg Lee Barclays

Firms that put technology at the core of their businesses, use agile development processes, and leverage resources such as the cloud will be much better off in the long run.

Indeed, many companies now hire systems rather than own them which means that they can be more flexible to advances in technology and the imposition of future, unknown regulation. This characteristic is likely to predominate among the younger generation entering the financial industry that is more comfortable with the concept of renting and sharing.

Best Regards,

Emma Quinn AB

Michael Corcoran ITG

Bill Hebert Co-Chair, Global Member Services Committee, FIX Trading Community

GlobalTrading Publisher Edward Mangles

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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.

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CONTENTS 7

FOCAL POINT

7 Bringing Finance Back To The Forefront Of Innovation - Kenneth McLeish, J.P. Morgan Asset Management

INSIGHT

11 An Urgent Need For Artificial Intelligence At Chief Investment Offices - Gaurav Chakravorty, Qplum 15 Future Proofing Trade Execution Systems - Rupert Walker, GlobalTrading

11

PRODUCT OVERVIEW

26 Quantitative Brokers

23

INDUSTRY 35 A World Without FIX - Tim Healy, FIX Trading Community

ASIA 38 FIX Trading Community Members 28 FIX Protocol Enables Pre-Trade Allocation - Damian Bierman, FactSet and FIX Trading Community EUROPE

MY CITY

40 Hong Kong - Damian Bierman, FactSet and FIX Trading Community

30 Measuring MiFID II: The Right Way To Judge Its Success - Mark Northwood, Bips Global AMERICAS

OPINION 19 Improving Standards In The FX Market - Brad Bailey, Celent 23 Vendors Find Synergies For Merger - Torben Munch, Itiviti

32 The Transparency Evolution - Michael Beth, WallachBeth Capital

32

HIGHLIGHTS “Innovative companies tend to operate in a different fashion to more traditional ones whereby how things are developed is as important as what is developed. Innovative firms tend to have three themes in common: they see technology as core to their business, they use agile development processes, and they use the cloud.” P.7 Kenneth McLeish, Global Head of Equities Trading Technology, J.P. Morgan Asset Management

“Future proofing involves selecting technology where you are not limited to what is available off the shelf, but where you can also apply your own intellectual property to be in control of a changing business.” P.15 Jonas Lindqvist, Principal Trading & Trade, Itiviti

“The legal ramifications from past scandals have altered communication methods within the FX market, and are one of the factors driving a new wave of tools such as secure messaging, compliance-friendly instant messaging platforms, and voice capture systems.“ P.19 Brad Bailey, Research Director, Celent

“As new regulations are being considered by markets throughout the world, streamlining pre-allocation information via FIX has the potential to gain additional traction.” P.28 Damian Bierman, Global Co-Chair, Asia Pacific Technical Committee, FIX Trading Community

“It should be possible to build a sound, quantitative judgement of the impact of MiFID II on investors: best execution should get better. Everyone from the chief executive officer and chief investment officer down should be curious to know the actual verdict.” P.30 Mark Northwood, Principal, Bips Global

FOCAL POINT | 7

Bringing Finance Back To The Forefront Of Innovation

By Kenneth McLeish, Global Head of Equities Trading Technology, J.P. Morgan Asset Management

Q1 • 2018 | GLOBALTRADING

8 | FOCAL POINT

Financial firms that put technology at the core of their business, use agile development processes and leverage the cloud will gain a competitive edge.

“I hope our feathered messengers will have brought you in due time our good prices…A B in our pigeon dispatches means: buy stock, the news is good; C D…means sell stock, the news is bad”, Nathaniel de Rothschild, Paris, August 1846 Finance firms have long been at the forefront of pioneering new technology to give them an edge. From Baron Rothschild’s innovative use of carrier pigeons in the 1800s to improve the timeliness of information coming from the Battle of Waterloo, to hedge fund managers of the 2000s who could benefit from the millionths of a second differences between sending messages over microwaves rather than via optic fibres.

During the 1990s and 2000s technology investment in finance soared and technology talent flocked to join finance firms. Finance was at the forefront of technological innovation and home to some of the biggest data centres, most sophisticated networks and most complex software ecosystems.

Yet, during the past decade, newer firms such as Google, Facebook and Netflix appear to have overtaken investment firms as the ones pushing the boundaries of innovation. This is a trend that delegates at last December’s Equities Leaders Summit in Miami recognized.

Building more resilient systems has tended to require more than one data centre and the doubling of equipment (which tends to higher quality in nature to reduce the risk of component failure) while having to keep everything in sync. With the ever-growing threat to cybersecurity, maintaining a bigger estate has become an increasingly expensive exercise. Multiply this by a large number of systems and one can begin to see what’s been consuming the technology budgets of many finance firms.

Cultural change The increasing cost of delivering technology coincided with the financial crisis of 2007-2008. Technology budgets came under pressure, with many firms struggling to do much beyond meeting regulatory requirements. As a result, many firms looked to reduce technology costs by outsourcing or offshoring which, over time, has become harder to manage from a distance. To compensate, management processes have become more rigorous with distinct phases of analysis,

“Many firms looked to reduce technology costs by outsourcing or offshoring which, over time, has become harder to manage from a distance.”

How did finance fall behind and what can be done to bring finance back to the forefront of innovation?

Technical debt Technical debt is a term frequently used by technologists. Simply put, it is avoidable complexity which, if allowed to build up, will eventually slow things down and become burdensome. Many finance firms were good at building new systems but less efficient at removing dated ones. The result has been large and complex ecosystems composed of tens, or even hundreds, of applications that are expensive to maintain or change, slowing down a number of finance firms quite considerably.

Regulation Increased regulatory reporting, cybersecurity and resiliency requirements have had a profound impact.

GLOBALTRADING | Q1 • 2018

build, test, release and support, often done by separate teams in separate locations.

What can be done to increase innovation?

Innovative companies tend to operate in a notably different fashion to more traditional ones whereby how things are developed is as important as what is developed. Upon closer inspection, we’d argue that innovative firms tend to have three themes in common: they see technology as core to their business, they use agile development processes and they use the cloud.

Core Within finance, business and technology were, for a very long time, typically viewed as distinct functions. They sat in different locations, had different

FOCAL POINT | 9

Kenneth McLeish, Global Head of Equities Trading Technology, J.P. Morgan Asset Management

“By investing in automated testing, systematic release processes and a flexible architecture, releasing becomes easier and more predictable.”

If a developer is sitting beside a business user, the feedback loop tends to become instantaneous. In the event that a business user encounters problems with a particular application, having technologists on standby to ascertain and fix the issue quickly enhances the overall ecosystem.

reporting lines and were often poorly represented on operating committees and in boardrooms. Limited comprehension of emerging issues and misaligned goals (typical by-products of such segregation) would often drive both functions even further apart.

Agile Traditional software development would often be run like a construction project. Phases were divided into requirement gathering, analysis, design, build, test and release. The process was lengthy and often led to results that didn’t necessarily match expectations. But iterative and incremental development processes have grown in popularity, especially since being formalized as “agile” in the early 2000s.

But, as was later learned, when technology is integrated into the business, efficiency gains arise and it creates an environment that’s generally more conducive to innovation. Having technologists sit alongside their business users can, for example, lead to these efficiency gains:

Technologists are widely regarded as natural problem solvers. Being exposed to daily business activities, they often build a deep understanding of the business which, in turn, increases their overall effectiveness and leads to new and innovative solutions.

Delivering a little and often enables teams to get feedback, learn and amend along the way. With small steps and multi-skilled technologists working in close

Q1 • 2018 | GLOBALTRADING

10 | FOCAL POINT

“Finance firms adopting cloud strategies are becoming more nimble and tending to overtake more traditional players.” becomes easier. Teams then spend less time resolving problems and more time adding value. The pace of change and ability to innovate is accelerated.

proximity to the business, layers of business analysts and project managers have often been replaced.

Coupled with automated testing and deployment processes, the need for manual testers and release managers has also reduced.

A modern development approach results in a higher proportion of technologists producing code. In an agile team, more than 80% can code. That’s a doubling of producers. In traditional finance firms, one might expect to see less than half of technology teams writing code.

With the efficiency gains of automation and continual feedback, the time spent producing also increases.

By way of comparison, Amazon releases new code to production every few seconds. While this degree and pace of change may feel uncomfortable in the highly regulated world of finance, it is possible and can potentially be advantageous. In reality, a periodic release bundles a number of changes together, which increases complexity and the risk of something going wrong.

By investing in automated testing, systematic release processes and a flexible architecture, releasing becomes easier and more predictable. When releases are easier and more predictable, changes can be introduced incrementally. The risk of each release is reduced, impact is minimized and diagnosing the issue

GLOBALTRADING | Q1 • 2018

Cloud In large financial organisations the lead time to order and install new servers can take many months. This can have a direct impact on the speed of building out new services. On the flip side, innovative firms have tended to flock to the cloud. The most profound effect of moving to the cloud is the extent to which it alters how systems are designed and run.

Rather than building software that is dependent on bespoke infrastructure, engineers instead design systems to run on generic infrastructure and standard components. Cloud based infrastructure can be set up programmatically making it possible to create new environments on demand.

While regulatory concerns make using external cloud providers challenging for many finance firms, it is possible and becoming increasingly common. A simpler alternative is using cloud platforms within a finance firm’s firewall. Internal cloud platforms are gathering momentum. Finance firms adopting cloud strategies are becoming more nimble and tending to overtake more traditional players.

What innovation is this leading to?

Just as Amazon overtook Barnes & Noble and Netflix overtook Blockbuster, in a new era of artificial intelligence, big data and automation, there are big rewards for finance firms that can innovate quickly.

Firms that put technology at the core of their business, use agile development processes, and leverage the cloud will be much better off in the long run.

INSIGHT | 11

An Urgent Need For Artificial Intelligence At Chief Investment Offices

By Gaurav Chakravorty, Co-Founder, Qplum

The only way the investment industry can deliver high quality returns at low recurring cost is by using artificial intelligence.

Adoption of artificial intelligence (AI) is happening faster in the institutional investment community than many asset managers want to believe.

Proprietary trading firms and family offices have been the innovators and early adopters.

Hedge funds also fall into this early-adopter group; and lately we have seen a strong shift away from discretionary and a resistance to “pedestrian

quant” strategies among hedge funds. Even individual investors (typically “laggards” in the asset management industry) are embracing AI-based methods, as speakers observed at the Equities Leaders Summit held in Miami on 4-6 December 2017.

However institutional investors, such as pension funds, endowments and insurance companies are stubbornly sticking to old data-less methods. In this article I will show the trajectory of evidence-based or model-based investing and why chief investment officers should reinvent their processes using AI.

Q1 • 2018 | GLOBALTRADING

12 | INSIGHT

“There is a ten year cycle of changing quant trades due to changes in cheaply available technology.”

It follows a recent podcast with Nvidia, a leading maker of GPU cards, who invited me to explain why deep learning promises to package the best algorithmic investing knowledge into a system that works and is universally accessible to all of us.

Evolution of data-driven trading The earliest instances of data-driven systematic trading are value investing and trend-following. However, among these I am focusing on trend-following since it was a method where the outcome of the model was not filtered by human intuition. Trend-following was the original quant success in the Crash of 1987. Ten years later statistical arbitrage (StatArb) became the quant trade, and trend-following had a crash of its own in 1997. Another decade later, on 6 August 2007, StatArb crashed and high frequency trading (HFT) emerged as the top quant trade.

Now, the overwhelming consensus is that HFT isn’t

GLOBALTRADING | Q1 • 2018

profitable any more apart from the for biggest firms.

There is a ten year cycle of changing quant trades due to changes in cheaply available technology.

The dominant quant trade has changed over time due to the availability of new technology.

New technology is why trades crest and fall.

This brings us to the exponential growth of quant we see today.

No mandate for guesswork anymore: allocators are overwhelmingly choosing systematic/quant A partner in an institutional allocator summarized the current view: “There is no mandate to invest in anything discretionary unless it is activist investing.

We feel the need to invest in strategies that are substantiated by research, by a scientific method.”

Allocations to quant funds are set to exceed $1 trillion. That would be about a third of the net allocation to hedge funds.

“Pedestrian quant” strategies don’t work: allocators need to stop chasing the past Neal Berger and I described in a recent Opalesque CIO roundtable why “pedestrian quant” strategies aren’t working any more. However, the machinery of relationship-based consultants and outsourced CIOs set up for institutional investors makes them very slow to react to this change. The dominant institutional investing approach is still to make an

INSIGHT | 13

asset allocation pie chart and shove everything remotely data-driven into a small allocation to “alternatives”. A flat CIO structure would be an improvement, and help provide investors with what they really need: solutions not products.

In a panel I led with Michael Weinberg and Michael Dziegielewski, Weinberg tried to differentiate between quant and autonomous learning.

“Where we are now is far more revolutionary for asset management than simple AI-driven quant.

What we have now in investment management is the equivalent of AlphaGo Zero, but for investing.

Just like AlphaGo Zero generates its own new ideas, so do Autonomous Learning Investment Strategies (ALIS). We think that this disruption to the asset management industry will come from outside discretionary and even quantitative managers. These so-called ‘third wave, ALIS managers’ exploit the confluence of data, data science, machine learning and cheap computing: their brains are wired differently.

“These so-called ‘third wave, ALIS managers’ exploit the confluence of data, data science, machine learning and cheap computing: their brains are wired differently. They are often hackers and computer gamers with a healthy disrespect for convention.”

They are often hackers and computer gamers with a healthy disrespect for convention”, he said.

Weinberg also mentioned the fact that allocators need to spend a lot of time understanding the approach of the manager and their competency in deep learning and AI. It is not just about chasing returns.

Gaurav Chakravorty, Co-Founder, Qplum This brings us to the multidisciplinary nature of AI today.

AI is learning from many fields not just finance.

The progress we see in AI today is very multidisciplinary. Every time we make a breakthrough in speech recognition technology, the same can now be directly applied to portfolio management. Every time we go up a notch in computing power and big data technology to support AI algorithms, we can use the same in portfolio management. In a recent article, ITG’s Ben Polidore mentions how cheaply available computing power is growing to a supercomputer level.

Let me show you a few instance of how trading has learned from AI research in other fields.

Long short-term memory network, a specific recurrent neural network architecture, had been developed for speech recognition and semantic analysis. It is breaking new ground in time series prediction in finance. Use of unspecified auto-encoders was the reason for the initial success in deep learning. Prior to that prediction networks used to be shallow.

Q1 • 2018 | GLOBALTRADING

14 | INSIGHT

“Long short-term memory network, originally developed for speech recognition and semantic analysis, is breaking new ground in time series prediction in finance.”

We are now finding auto-encoders much more effective than factor models were in StatArb. This global ecosystem around AI is making it a tool that is growing very fast in its capabilities and it is becoming cheap to apply AI at scale. If I were to compare the merits of the AI-based portfolio management to hiring and training whiz kids to find alpha, I think: (a) AI will be cheaper! (b) There will be less specification risk with AI. By that, I mean the risk that the model works today but with minor changes in the trading environment it stops working. (c) An AI based approach is somewhat selflearning and the ongoing costs will be lower.

THE ONLY PLATFORM FOR ALL YOUR SECURITIES CLASS ACTION RECOVERY NEEDS GLOBALTRADING | Q1 • 2018

This brings us to: why AI; why science; why the shift to method away from experts.

A scientific approach to the problem of investing In 1952, Benjamin Graham wrote a paper “Towards a Science of Security Analysis”. In 1952, computers were scarce, but Graham wrote about “a trustworthy tool”. The last lines of the paper are “security analysis may begin - modesty, but hopefully to refer to itself as a scientific discipline.”

This is the problem we are trying to solve.

Globally, the asset management industry manages more than $164 trillion. Investors spend more than a trillion dollars, just in fees, but we aren’t getting close to solving the problem. The only way we can deliver high quality investing at low recurring cost is by using AI. In summary: • Instead of championing traders, we need to make better machines.

• Instead of growing expert networks, we need to appreciate collaborative research.

• Instead of seeking access to top funds, (Links the references in this article will be in the online version on we to need to seekmade scientific methods. the GlobalTrading website)

http://battea.com

+1 (203) 987-4949

INSIGHT | 15

Future Proofing Trade Execution Systems

By Rupert Walker, Managing Editor, GlobalTrading

left-to-right: Lars Wiberg, Itiviti; Matthew Coupe, Barclays Investment Bank; Irina Sonich-Bright, Credit Suisse; Robert Barnes, Turquoise; Salvador Rodriguez, Instinet; Mark Northwood, Bips Global; Kristian West, J.P. Morgan Asset Management; Jonas Lindqvist, Itiviti

Regulation, technology advances and behavioural changes mean that trade automation will increase, and systems and their providers need to be agile, agree speakers at a GlobalTrading roundtable. But, the degree of standardisation and the merits of outsourcing are controversial.

The technology and business functions within buy- and sell-side firms can no longer be siloed; they are interdependent. A trading desk can only be successful if it incorporates and prioritises technology that, if applied properly, will ensure a firm’s survival, agreed speakers at a GlobalTrading thought-leadership roundtable sponsored by Itiviti and hosted by the LSE on 22 November 2017.

Regulatory headwinds are an important catalyst for technology improvements that are creating new data sets and the opportunities to use them. The proliferation and fragmentation of liquidity and how to use it is a key issue for dealing desks.

For instance, the restrictions on dark pools imposed by the Markets in Financial Instruments Directive (MiFID) II will propel the automation of block trading to find alternative sources of liquidity and firms will need a cost-effective way to do this - which means making technology core to their businesses. Without the

adoption of technology in a central role, firms will struggle to compete.

Furthermore, there is a danger that firms might re-invent the wheel for different asset classes, so it makes sense to move towards multi-asset platforms and integrated operations. Avoiding duplication reduces costs.

But, too often in the past, technology has been applied like sticky plaster, patching up gaps in systems and salving deficiencies. Instead, future proofing technology needs a clear sighted integration of the business strategy with the technology architecture. It might be expensive for smaller firms to implement, and consolidation within the industry might be an inevitable consequence. Clearly, those firms that have already invested in technology as a key component of their business strategies are at an advantage.

Most topically, if a firm implements MiFID II correctly, then it should be well-positioned to adjust to new technologies and future regulations. This means applying the requirements of the legislation diligently across asset classes to ensure accurate transaction cost analysis and best execution. As data is fundamental to achieving best execution, greater automation is inevitable in order to tap into new

Q1 • 2018 | GLOBALTRADING

16 | INSIGHT

sources of information and optimise processing. The scalability of data collection is essential.

Some asset managers have already unequivocally embraced an automated trading process. This includes integrating platforms and aligning data processing facilities in a systematic way with the objective of enhancing access to liquidity and maximising operational efficiency. The result, within just a few years, will be almost no human involvement in the process which instead will be managed by artificial intelligence and machine learning, according to a speaker.

However, even if this were an established trend, inertia would likely prevent its unanimous adoption within the industry, noted another speaker.

Of course, there is a danger that the perspectives of business strategists and technical experts gets lost in translation. Their disciplines have different languages, so perfect integration and mutual-understanding is perhaps an ideal benchmark rather than an attainable target.

Standardisation and customisation Some speakers argued that firms should build internally the systems that give them a competitive advantage, such as data analytics, trade algorithms and content distribution, but buy - or more accurately rent – systems for their more basic activities. Another way of expressing the model is “to customise round the edges but install a core provided by vendor”. Basically, the firm has a standardised workflow system surrounded by smart algorithms.

However, the distinction between what should be proprietary and what is generic is not always clear. For example, some firms, especially if they are large and complex, might build their order management system in-house, others might conclude that it can be standardised. Vendors need to make various predictions about the direction of automation, and there can be logistical and cost problems trying to align those bets.

A significant insight that arose from discussion about the buy/build or hybrid models was recognition that the “buy” option is now more often a “rent” option. Firms

Robert Barnes,

Global Head of Primary Markets and CEO Turquoise, London Stock Exchange Group

“

Search for growth is driving demand for equities, funds and fixed income. Efficient execution requires significant technological investment.

Successful systems will have to deliver more automation, compliance, and connectivity to new trading and settlement models for best result.

”

Jonas Lindqvist,

Principal Trading & Trade, Itiviti

“

Future proofing involves selecting technology where you are not limited to what is available off the shelf, but where you can also apply your own intellectual property to be in control of a changing business.

GLOBALTRADING | Q1 • 2018

”

INSIGHT | 17

Salvador Rodriguez,

Head of Electronic Trading EMEA, Instinet

“

Change brought on by regulation is an opportunity, a chance to innovate, to be different and provide unique solutions for our clients. To be able to do this effectively, we need to ensure that there is integration between business and technology teams - with a requirement for heuristic, adaptable technology and people that can work together to achieve common goals.

”

Lars Wiberg,

VP Strategic Research Trading & Trade Execution, Itiviti

“

With system consolidation and standardization in place, largely thanks to MiFID II efforts, the next frontier is regarding automation. All available data makes it possible not only to automate mundane tasks, but also to automate investment and trading decisions

”

Mark Northwood, Principal, Bips Global

“

Since the future is increasingly about monetising the data that firms have available, the first to be bold enough to junk legacy systems in order to properly enable the transition to a digital business model will gain the advantage from leading this charge.

”

Q1 • 2018 | GLOBALTRADING

18 | INSIGHT

increasingly hire systems rather than own them, which allows them to be more flexible to advances in technology and the imposition of future, unknown regulation. This characteristic is likely to predominate among the younger generation entering the financial industry, who are more comfortable with the concept of renting and sharing, but still causes nervousness among veteran industry participants uncomfortable without fixed, secure data centres and copyrightprotected trading systems.

Their concerns are legitimate to some degree. For instance, the increasing use of cloud technology raises issues of jurisdiction, the requirement for audit trails implies specific responsibility, and future proofing systems competitively suggests ownership rights and licensing agreements.

Indeed, liability and risk containment is a major factor for future proofing trade technology. If under pressure, then brokerages and asset managers tend to choose in-house solutions for their technology needs, because they have more confidence in their success. It is a natural tendency to manage risks internally.

Arguably, vendors will soon be more tightly regulated - and perhaps some should be already - as their role gains more importance, especially if they create and install standardised systems. It would be ideal, buy- and sell-side speakers agreed, if they could outsource to a vendor and have confidence that it will automatically upgrade to comply with any new regulatory changes. Nevertheless, some systems are especially sticky, so renting could turn out, in practice, to be a purchase for life.

Hence, the momentum towards standardisation can often be checked by the necessity of a market place that offers purchasers with alternative, flexible systems. Besides, too much standardisation can stifle innovation.

Although technology is automating market convention, standardisation requires collaboration to ensure legitimacy and authority, and there is a continuing conversation within the FIX industry about standardisation of systems that confers the former, and a dialogue with regulators that bolsters the latter. The merits include easier compliance, lower costs and increased revenues.

GLOBALTRADING | Q1 • 2018

New world challenges Re-skilling is a major aspect of the financial industry.

For example, visualisation techniques are being imported from gaming, while research and development departments are recruiting more and more staff from non-financial backgrounds. Everyone has to think more laterally about the expertise they can deploy – in fact one speaker pointed out that their firm had recently hired a molecular biologist to calibrate data from a different perspective to a traditional financial quant, and another said that their best technical analyst was an environmental scientist.

In fact, quantitative analysts in all their many forms increasingly “own” the trading process. In a sense, outsourcing is taking place within a firm.

It can be difficult for both vendors and in-house technology teams to recalibrate their systems quickly to changes in regulation. That is not because they are not flexible or agile – quite the opposite; rather, large firms have to spend time checking the adjustments and back-testing their efficacy in order to satisfy the regulators. In future, perhaps artificial intelligence can bridge the time interval.

Technology is transforming from a product into a service. Meanwhile, the behavioural revolution underway led by the younger generation means that the financial industry requires much more investment in technology that can maintain orderly markets and ensure security.

In addition, the longer-term macro-outlook indicates an escalating demand among defined contribution pensions scheme for equities that earn growing returns. This trend will need significant investment in technology frameworks, especially if asset classes and their individual securities are rationalised and consolidated.

OPINION | 19

Improving Standards In The FX Market

By Brad Bailey, Research Director, Celent

The wave of legislation governing global securities markets has raised expectations for greater regulation and better surveillance of the foreign exchange industry.

Regulators and securities market infrastructure providers throughout the world are upgrading their internal surveillance capabilities and demanding more from their market participants. Meanwhile, trade surveillance is expanding into new instruments and asset classes, including foreign exchange (FX). Many firms are responding to the challenges, not least by deploying new technologies to improve oversight and ensure best execution for their clients.

The markets in financial instruments directive (MiFID) II and the market abuse regulation have set new standards in the European Union that will increasingly influence the behaviour of global sell- and buy-side firms. MiFID II, in particular, sets standards on the pursuit of best execution, requiring that all sufficient steps must be taken to obtain the best possible result for clients. It has driven a focus on transaction-cost analysis (TCA) technology for

best execution, portfolio analytics, and pre- and posttrade analysis across the financial markets.

MiFID II has also been the impetus for operational, logistical and technology changes as firms prepared for how they will be trading FX products. They are forcing firms to remap workflows, build more robust connectivity, find personal information for trade tickets, and consider the geographical implications of all their counterparties.

Meanwhile, in the US, the Securities and Exchange Commission and the Financial Industry Regulatory Authority, and CFTC are also strengthening oversight.

The CFTC has spoken about the fragmentation of liquidity in FX. Several cases of misconduct have tightened scrutiny, and in part led to the publication of the FX Global Code of Conduct in May 2017. Arguably, this principals-based (rather than rules-based) code will struggle to prevent future market abuses because it lacks punitive remedies. National jurisdictions do possess legal powers of varying scope and severity,

Q1 • 2018 | GLOBALTRADING

20 | OPINION

but there is still a heavy reliance on self-regulation within the industry FX market evolution However, the future of regulation of the FX market must be discussed within the context of the evolution of electronic trading and the growth of new platforms and channels for sourcing liquidity and executing transactions.

Since the launch of the first electronic platform, EBS in 1992, the spot market has gone from 100% voice to 80% electronic. The FX technology space has seen considerable changes as a broad range of participants, from private individuals to central banks, continues to increase their electronic presence.

“The future of regulation of the FX market must be discussed within the context of the evolution of electronic trading and the growth of new platforms and channels for sourcing liquidity and executing transactions.�

Yet, different market participants have diverse priorities, determined by the client base they serve. A firm that primarily transacts cross-currency payments for a corporate treasury department has a different perspective than one that is acting for a global fund manager making geographical asset re-allocations and from a firm competing with fast-trading dedicated FX funds.

Similarly, there is no single model for FX trading.

Instead, participants can choose between orderand quote-driven models, single- and multi-dealer platforms, banks and non-banks: all are part of an increasingly fragmented ecosystem that offers

GLOBALTRADING | Q1 • 2018

Brad Bailey, Research Director, Celent

alternative venues and trade strategies. As trading volumes are being dispersed, so there is a need for better and easier connectivity, aggregation, and access to co-location.

The market is faced with further technology demands as trading fragments and adapts to new obligations prompted by regulatory pressures on industry conduct. These trends are generating an ecosystem characterised by strong growth in data collection and analysis, and in new ways of measuring, transacting and accessing liquidity, as well pressures to reduce complexity and costs in middle and back office operations. It is essential to have analytics to understand exactly how counterparties are providing liquidity, their fill rates, time to fill, their risk positioning policies and its impact. Expectations on fair costs for execution and services and the type of

OPINION | 21

“The evolution of algorithmic trading and high frequency trading has revealed that significant information on potential misconduct can be found in order level data.” markets expected by market makers remain a crucial theme for examination.

Innovative techniques In addition, firms are looking at their technology choices in innovative ways. They are merging historically separate liquidity, protocols, and functionality, which should create opportunities for cross-FX product leverage and the merging of liquidity sources. And if the explosive growth in FX trading of the past two decades continues, then the market is likely to create new efficiencies to spot, forwards, options, and swaps, and drive better executions and cross-margining, while reducing costs along the operational cycle.

Moreover, as the FX market structure develops and the share of liquidity provision continues to be divided up between banks and nonbanks, greater intelligence is required by type of currency, time of day, and the fluctuations in workflows.

Liquidity constraints and fragmentation, combined with regulation in FX, are driving more firms to use TCA in order to determine which liquidity providers have risk-taking capacity and provide quality execution. We are seeing innovation in the delivery methods as well as the move from check-the-box compliance to real, actionable insights on trading performances for both internal staff and external counterparties. Best execution, and its demonstration, is the biggest driver of TCA.

Moreover, the legal ramifications from past scandals has altered communication methods within the FX market and is one of the factors driving a new wave of tools such as secure messaging, compliance-friendly instant messaging platforms, and voice capture systems. The legacy will continue to drive investment in more sophisticated and third generation surveillance.

In fact, firms already conduct surveillance across multiple channels, incorporating rapid electronic trading with human voice transactions within a structured, disciplined process. Firms want to know how their traders are interacting with clients, and avoid liability for misbehaviour. That means prevention and, if that fails, catching transgressions quickly.

“Artificial intelligence, machine learning and robotic process automation technology provide opportunities to significantly bolster surveillance operations by offering new insights through advanced analytics.”

Individual FX trading firms are solving many of the problems, such as front-running, price fixing and “last look” exploitation, both internally and in partnership with third-party technology vendors.

Extending surveillance Banks have traditionally focused surveillance efforts on executed trades in liquid instruments. But the evolution of algorithmic trading and high frequency trading has revealed that significant information on potential misconduct can be found in order level

Q1 • 2018 | GLOBALTRADING

22 | OPINION

“Developed solutions in electronic communication have already emerged, and the next frontier of innovation will involve analysing voice.� data - for example, layering, spoofing, quote stuffing, multi-legged orders, high order to execution ratio.

With the proliferation of order types and trading strategies in all asset classes, including FX, banks also have to understand how these can be used to identify and prevent misconduct.

However, few banks have adequate policy and governance structure in place to handle the scale and complexities of the challenge. This is because surveillance operations are often driven by how trading desks, asset-class based operation, or lines of business have already been organized in the front office; these are often siloed with each having its own systems and processes.

Artificial intelligence, machine learning and robotic process automation technology provide opportunities to significantly bolster surveillance operations by

GLOBALTRADING | Q1 • 2018

offering new insights through advanced analytics, as well as by improving costs and efficiency through automating parts of the alert investigation process.

The cloud, with its low-cost storage and flexible computing capabilities, can be another potent tool for helping in surveillance.

The real revolution is likely to come in communication surveillance. Developed solutions in electronic communication have already emerged, and the next frontier of innovation will involve analysing voice.

More advanced firms are moving toward a holistic approach, overlaying trade information on top of communication data and even other data that gives them a better view of employee behaviour and understanding of intent.

It seems clear that the FX industry is making significant efforts to improve standards of internal surveillance and self-regulation. The threat of legal sanctions within individual jurisdictions for misconduct is costly not only in terms of monetary loss, but also on reputations. Most of all, client expectations, reinforced by the availability of new technologies, are forcing FX firms to curtail opportunities for misconduct, increase transparency and ensure best execution.

OPINION | 23

Vendors Find Synergies For Merger With Torben Munch, CEO, Itiviti

As financial firms outsource more technology, there is pressure on service providers to compete.

Itiviti, backed by Nordic Capital Fund VII, announced its intention on 28 November to combine with Ullink to build a full service technology and infrastructure provider for global and regional financial institutions.

The deal is likely to be closed within the first half of 2018 after it has gained anti-trust approvals.

GlobalTrading spoke with Itiviti’s CEO, Torben Munch.

What is the business logic behind the merger?

It is a merger of equals, with each firm providing complimentary areas of expertise and commercial penetration. Basically, Itiviti and Ullink are approaching the financial trading community from two different angles, but with the same underling objective. It is a partnership that should create a onestop shop for global market participants, and which will build on a subset of clients who are already using Itiviti and Ullink products and services.

Describe Itiviti’s key activities and core strategy.

Itiviti has developed its business activities

substantially during the past five years, moving from an emphasis on futures and options trading to cash equities, then to foreign exchange. Its client base has evolved, shifting from a fairly exclusive focus on proprietary traders and market makers within banks to offering DMA and DEA services to the wider financial trading industry. It is becoming an increasingly electronic trading world, especially in cash equities, derivatives, foreign exchange and commodities. We aim to capture that growth.

The trading space is like a race track for fintech software, but not everyone needs a race car. Some clients are, of course, less latency sensitive and we will continue to facilitate their order routing and trade execution.

More recently, the firm has also invested in the technology and skills that provide its clients with more efficient FIX messaging systems and, most significantly, connectivity. We have been expanding our focus, and that growth will be augmented by the merger.

Q1 • 2018 | GLOBALTRADING

24 | OPINION

“It is a merger of equals, with each firm providing complimentary areas of expertise and commercial penetration.”

Torben Munch, CEO, Itiviti

“Extensive connectivity, data, transparency and integration into the investment process are vital to driving optimal outcomes.”

How does the merger with Ullink enhance your strategic objectives?

Ullink is preeminent in high touch and low touch order management systems and supplies the world leading NYFIX network that provides clients with hub-and-spoke connectivity. Ullink has 1500 clients, of whom about 800 are buy-side firms largely using the company’s connectivity services. Itiviti’s 360 clients are mostly banks and brokerages, so there is huge potential for expansion for the company’s trade execution technologies among asset managers and trading platforms. The merger will be defined by its complementary synergies rather than any business duplication or overlap.

GLOBALTRADING | Q1 • 2018

Do you see a rising trend among buy- and/or sell-side firms for outsourcing technology and systems?

Definitely – and there are four main aspects of this trend: First, tier one and tier two financial companies recognise the flexibility of outsourcing software to third parties; second, more and more institutions want to consolidate disparate trading platforms, both by functional and asset class, into fewer platforms; third, after implementation of MiFID II there will be an increasing demand to match technology capability with regulatory requirements – so called, RegTech; and fourth, the trajectory towards greater trade automation is undiminished. Underlying these four forces that are driving the move to greater outsourcing are the expectations of cost-savings.

What are the toughest challenges when working to meet a client’s technology goals?

Legacy systems, typically developed in the 1990s, are often cumbersome, sometimes expensive to maintain and usually inflexible. Financial firms increasingly need systems that are more lightweight and nimble.

However, it can be a difficult process to dismantle them and transition should be gradual to prevent damaging disruption to commercial operations.

Both Ullink and Itiviti have large, well-trained customer services staff to help ease the migration of legacy systems to more efficient processes. Introducing new systems not only requires engineering expertise, it is also means consulting skills and offering the capacity to tackle difficulties as they arise.

Created by the industry, for the industry Americas Trading Briefing 2018

Monday 9 April | Goldman Sachs Offices | New York REGISTER TODAY for the Americas Trading Briefing 2018 in New York on Monday, April 9th. The event is formulated 100% by senior representatives from firms active across the Americas.

Topics featuring on this year's agenda include: Electronification in the Fixed Income Markets – Developments, Challenges & Opportunities The Cryptocurrency Wave in the Financial Markets MiFID II — Lessons Learned in Q1 & Looking Forward Top Priorities for OMS/EMS Platforms

• • • •

Briefing facts and figures: • 300+ people in one location • An agenda created by senior industry experts • A true industry event without sales pitches • Great learning and networking opportunities • An allocation of FREE passes to FIX members Kindly hosted by: 2018 Briefing Sponsors include:

S p o n so r s h i p o p p o r t u n i t i e s s t i l l a v a i l a b l e - c o n t a c t d e b r a . h e f f e r a n @ fi x t r a d i n g . o r g

To view full event information and for details on how to register please visit:

www.fixtrading.org/nycbriefing2018

26 | PRODUCT OVERVIEW

We hide your footprint in the market, but we don’t hide anything from you.

QB is a financial technology company that provides execution strategies for Futures and US Cash Treasury markets. QB provides advanced agency algorithms and data-driven analytics to reduce implicit trading costs for clients.

BEST EXECUTION ACROSS WIDE-RANGING MARKET CONDITIONS

TRADE ON SCHEDULE AND ATTEMPT TO CAPTURE SPREAD

QUANTITATIVE TECHNIQUES TO MANAGE LEGGING RISK

TRADE OPTIMALLY INTO THE CLOSE

Best Execution Algorithms & Analytics for Futures and Fixed Income QB_FixGlobalAD_V3.indd All Pages

GLOBALTRADING | Q1 • 2018

PRODUCT OVERVIEW | 27

Quantitative Brokers | Algorithmic Engineering & Best Execution

Alastair Hawker, Head of North American Sales at Quantitative Brokers, discusses the background of the company, its business model and products, and the company’s plans for expansion.

What are the origins of Quantitative Brokers (QB)?

The company was founded in 2008 by Robert Almgren and Christian Hauff, and launched in 2010. Robert and Christian first met when they were both working in Electronic Trading at Bank of America. They formed QB in 2008, becoming the first fully independent firm to engineer a better approach to trade execution through more advanced algorithms than were available in futures and fixed income markets. Based in New York and with offices in London and Chennai, QB has since evolved to offer strategies that allow many of the world’s leading asset managers, hedge funds, fixed-income arbitrage funds, CTAs, and banks to achieve better execution and spend more of their time focused on alpha generation.

How do you differentiate your model from others?

QB is a fully independent, agency-only, institutional fintech company with deep expertise in providing best execution algorithms for global futures and US cash Treasury markets. We are an NFA and FINRA-registered broker dealer that offers trading technology available through more than 20 OMS/EMS providers and 19 execution and clearing firms. We solve specific order placement complexities tailored to the unique characteristics of various central limit order books on exchanges, such as CME, EUREX, CFE, TMX, ICE US, ICE Europe, BrokerTec and Nasdaq.

We do not engage in proprietary trading, so there is no conflict of interest. In fact, some of our clients think about us as their outsourced algorithmic engineering team. We closely represent the buy-side as an unconflicted and broker neutral solution, optimizing their execution.

We also provide extensive analytics (or Transaction Cost Analysis - “TCA”). We have state-of-the-art visual analytics and reports that provide full transparency on the execution story and statistics of each order. We like to say to our clients that “we hide your footprint in the market, but we don’t hide anything from you!”

In addition, we offer a highly realistic, real-time trading

simulation environment. The QB Simulator lets you take a no-risk “test drive” of what it’s like to execute with us.

Describe QB’s four specialized algorithmic strategies.

Our suite of algorithmic strategies help our clients to minimize their transaction costs, hide their footprint, and improve their productivity. This is across outrights, listed spreads and synthetic (intercommodity) spreads. We accomplish this through our proprietary microstructure research, real-time analytics, event tracking and short term pricing signals. “Bolt” facilitates best execution across wide-ranging market conditions, benchmarked to arrival price. “Closer” provides optimal trading into the market close (settlement price benchmark). “Legger” intelligently manages legging risk for multi-leg orders. “Strobe” attempts to capture the spread within a client’s defined time schedule, tracking a VWAP or TWAP benchmark.

It’s not just the powerful analytics and infrastructure we offer, but also the market and execution experience built into our algorithms. This is evidenced to our clients through our superior execution quality and slippage reduction.

What are QB future strategic plans?

We have a business model that has been proven with our client base in North America and Europe. We are now demonstrating to more clients in Europe and also in Asia, how they can deploy our technology and benefit from our service. We intend to migrate to other asset classes, add new exchanges and expand our geographical footprint. Specifically, we are opening a Sydney office to handle Asian markets and take us to full 24/6 coverage.

The FIX Community has a key role to play in this mission, and should help extend our connectivity. The FIX protocol is a very important part of what we do. As an EMS neutral and broker neutral service we manage FIX connections with more than forty industry partners as well as direct connections with many clients.

Americas: +1 646 293 1888 Europe: +44 (0)20 3714 5831 Asia: +61 (2) 8074 3154 www.quantitativebrokers.com

Q1 • 2018 | GLOBALTRADING

28 | ASIA

FIX Protocol Enables Pre-Trade Allocation

By Damian Bierman, Global Co-Chair, Asia Pacific Technical Committee, FIX Trading Community, and Head of Asia-Pacific, Portfolio Management & Trading Solutions, FactSet Regulators should recognise the properties of the FIX protocol in their discussions about the merits of introducing pre-trade allocation rules.

There are already established standards and processes in place for buy-side firms to communicate share allocations to their brokers. Most fund managers should be able to send instructions in their native jurisdictions using the FIX protocol, which is well-equipped to channel and manage the information efficiently.

Moreover in several markets, such as Taiwan, there are regulations that stipulate that allocation information must be communicated on a pre-trade basis. Buy-side institutions need to show accurate allocation details when sending their orders across so that brokers can check if they have sufficient funding to make a purchase or enough shares to make a sale.

In some cases, institutions will have an omnibus agreement in place whereby their broker can use an agreed-upon allocation scheme to handle the requirement, and in such cases, typically an omnibus ID suffices, and individual account and allocation details need not be sent.

GLOBALTRADING | Q1 • 2018

In other instances, where it’s determined that there is a need to send individual account allocations to the broker, the responsibility usually falls to the trader to communicate this information. If it’s not transmitted electronically at the time of trade, that is, directly from the trading system via FIX, then it has to be sent by some other means, and usually this means via email or chat. While this is understandably less complex from a

“Pre-allocation information can be sent electronically via FIX today using the Tag 78/79/80 repeating group.” systems integration standpoint, it means that the job is essentially a manual one, and therefore requires more time, focus, and effort on the part of the trader.

ASIA | 29

“Additional quantity can be added to the upstream parent order at any time throughout the day, and this will have to be taken into account when sending updated allocation information across in new child slices.”

In today’s world of rising trade volumes and increasing complexity, there’s a good case to be made for streamlining manual processes when possible. Indeed, the Securities and Exchange Board of India is, it seems, discussing the merits of introducing regulations similar to those already in place in Taiwan, so it is apposite and timely to consider how FIX can help bring further efficiencies to workflows.

Pre-allocation information can be sent electronically via FIX today using the Tag 78/79/80 repeating group. By specifying the underlying account and share allocation information through these tags in the new order message, buy-side traders can be freed from having to communicate the information manually, and brokers can run their pre-funding checks in a more systematic fashion.

Complications Nevertheless, as with most matters pertaining to electronic trading, it is wise not to oversimplify, because the devil is always in the details. There are a number of factors which can add complexity to the workflow, and it is the role of the industry’s trading technologists to work through the various scenarios to make sure that the nuances are being accounted for.

Damian Bierman, Global Co-Chair, Asia Pacific Technical Committee, FIX Trading Community, and Head of Asia-Pacific, Portfolio Management & Trading Solutions, FactSet

Another complicating factor comes with handling order amendments. Additional quantity, potentially with new or different account information, can be added to the upstream parent order at any time throughout the day, and this will have to be taken into account when sending updated allocation information across in new child slices.

Despite these (and other) complexities, having the ability to transmit pre-allocation information natively via FIX is already creating efficiencies in the order-execution lifecycle. As new regulations are being considered by markets throughout the world, the practice of streamlining this workflow via FIX has the potential to gain additional traction in the near future.

For instance, at a given firm there could be internal requirements that stipulate that pre- and post-allocation information match perfectly. In such cases, the trader needs to be able to control whether the account information is sent, and this can impact how the resulting child orders are traded.

Q1 • 2018 | GLOBALTRADING

30 | EUROPE

Measuring MiFID II:

The Right Way To Judge Its Success

By Mark Northwood, Principal, Bips Global

A rigorous analytical approach is essential to quantify the impact of MiFID II on trade execution.

should begin figuring out how to assess whether or not the changes have achieved their objective.

Much has been said and written about the challenges that all firms have had to overcome to comply with the numerous articles, technical standards and ongoing clarifications of the Markets in Financial Instruments Directive (MiFID) II, as well as the enormous implementation cost borne by the industry.

The European Commission’s primary goal was to improve things for investors: the individuals, funds and other entities that put up the capital that the issuers of equity and debt securities need. Therefore, the cleanest approach is to measure the impact MiFID II has had on the investment outcomes for these investors, and ask: Was it worth the collective cost and effort in terms of measurable benefits to them?

But that is only half the story, and now that we are in the post-MiFID II world, the European Securities and Markets Authority, the national competent authorities in each country, and the industry itself

GLOBALTRADING | Q1 • 2018

One area where it should be possible to build a sound, quantitative judgement of the impact of

EUROPE | 31

“The answer will be found in each firm’s trade cost data, and is simply expressed as the change in average implementation shortfall for each order segment.”

MiFID II on investors is in trading. Best execution should get better. Everyone from the chief executive officer and chief investment officer down (as well as investors themselves) should be curious to know the actual verdict. Traders will need to be ready to provide it, but how?

Analysing trade data The answer will be found in each firm’s trade cost data, and is simply expressed as the change in average implementation shortfall for each order segment. However, these numbers will only be valid if the data collection and analytical approach is rigorous and sound.

For equity investors, this will be about ensuring that any comparison of implementation costs before and after MiFID II is statistically robust. This means having a sufficient sample size and controlling the execution process so that similar orders are executed in a similar way. In practice, this is only likely to be achievable at those firms that have adopted a systematic approach to their order handling, which provides a consistent strategy selection based on the characteristics of each order, thus narrowing the number of variables.

For other asset classes the analysis will be more dependent on the extent to which those firms have been collecting quote data in the securities they have traded in recent years, because the arrival price is the key reference data point that is required.

Beyond that the analytical approach will be similar to equities and requires that the characteristics of each security and the individual order drive the sampling approach for building the cost comparisons.

Mark Northwood, Principal, Bips Global

“The analytical approach requires that the characteristics of each security and the individual order drive the sampling approach for building the cost comparisons.”

Some data is of course better than none, and a judgment based solely on “feel” will no longer be sufficient.

Q1 • 2018 | GLOBALTRADING

32 | AMERICAS

The Transparency Evolution

By Michael Beth, Vice President, Equity & Derivative Trading, WallachBeth Capital

Regulatory changes have created the need for increased execution transparency.

Execution transparency has been a common preoccupation for most trading desks in recent years. Whether it is in order handling, exchange fees or transaction cost analysis (TCA) there is always information perceived to be missing or unclear.

Technology is one answer to the lack of transparency between the sell-side and the buy-side and their clients. With the advent of the FIX protocol, exchanges have been able to send specific information on where and how an order is was executed, while order audit trail system (OATS) reporting sends detailed information on how orders are handled once received. The sell-side, in particular, has spent a lot of resources and time working on this.

However, although proven useful, these methods are “old� technology and new ways to disseminate data are being developed. The major drivers

GLOBALTRADING | Q1 • 2018

of these advancements have come from both regulation and commercial necessity.

Of course, the most recent regulatory initiative to improve transparency is the markets in financial instruments directive (MiFID) II, devised by the European Securities and Markets Authority. MiFID II introduces guidelines on how firms receive pricing, report transactions, quantify best execution, and pay for research. Estimates for the overall cost of this initiative reach well into the billions of dollars. This initiative has forced vendors to create new systems, as well as enhance existing platforms to enhance trade transparency.

In the United States, a similar trend is emerging with Consolidated Audit Trail (CAT) reporting, and the first group of exchange members are expected to start sending data from November 2018. The amount of investment in technology required for compliance with CAT is also likely to be similar to the level of resources allocated to meeting the requirements of MiFID II. For the first time, both

AMERICAS | 33

“True innovators will be able to supply required data in real-time, and consumers of this data will be able to adjust their trading immediately to meet their best execution requirements.”

Financial Industry Regulatory Authority members and other market participants will be obliged to report audit trail information across multiple asset classes.

Both MiFID II and CAT have generated a dire need for smarter technology and more trade transparency. Old T+1 TCA metrics and execution data are no longer as relevant to traders who are increasingly concerned about how they are performing, rather than how they performed. The market has moved to the idea of “T+Now”.

Real-time data True innovators will be able to supply required data in real-time, and consumers of this data will be able to adjust their trading immediately to meet their best execution requirements. Moreover, those who are most successful at creating new technologies will incorporate both artificial intelligence and machine learning. Deploying these techniques allows an application the capability of enhancing itself over time. At WallachBeth, we have created a T+Now portal that not only giving users access to TCA in real-time, but also incorporates machine learning techniques into a proprietary pre-trade model.

Michael Beth, Vice President, Equity & Derivative Trading, WallachBeth Capital

“Monolithic architecture and physical servers are not easy to maintain.”

The future is bright for firms who take this evolution in their stride. The demand is here, and all that is needed is for the first few innovators to take a leap of faith.

Older systems will have trouble adjusting. Monolithic architecture and physical servers are not easy to maintain. That is why more technologists are offering cloud computing and micro services frameworks.

Both of these allow creators of applications to be agile and better able to adjust their capacity, as well as build and update individual pieces of code.

Q1 • 2018 | GLOBALTRADING

FIX | 35

A World Without FIX

By Tim Healy, Global Marketing and Communications Director, FIX Trading Community The FIX Protocol has transformed trading by increasing speed, reducing errors and improving efficiency. It also brings market participants together within a ruthless industry.

As someone of a certain age, I can indeed remember a world without FIX. I can remember quite clearly receiving faxes from clients with lists of orders and having to decipher what they said, calling back the client to confirm the details and then the small matter of trading them. I can also remember trading a new issue on the day of issuance and having multiple tickets spread across my desk and trying to allocate shares and price traded across multiple accounts. That was a late night!

I remember the errors – you never tend to forget those.

That gut wrenching moment when you realised you had misheard the client and their ticker comment, and had traded something completely different.

You see, a world before FIX was not easy. Phone and fax were the means of communication with the odd telex thrown in for good measure.

So, it is with these memories that I and many others can say with great confidence that FIX really has transformed and revolutionised the way the world trades. FIX’s origins lie in an attempt to solve all these pitfalls from the past. Fidelity and Salomon Brothers wanted to communicate orders and executions to each other electronically to reduce errors. Out of this

Q1 • 2018 | GLOBALTRADING

36 | FIX

initial conversation spawned the FIX Protocol, which then expanded as both parties realised the potential benefits of using the same protocol with other clients and counterparties.

“It is with these memories that I and many others can say with great confidence that FIX really has transformed and revolutionised the way the world trades.”

Global reach of FIX That was 25 years ago and the use of FIX is now widespread across all market participants and across multiple asset classes. Statistics are difficult to come by. FIX Protocol is open-source which effectively means that anyone can use it and there is no centralised database of FIX usage. However, looking at stock exchange data, and making some assumptions, over $8 trillion in value is traded on a monthly basis on global stock exchanges. A vast majority of this would be transmitted using FIX. Imagining a life without FIX is not just a simple case of going back to the days of voice trading and broking. It would be safe to say that even without FIX, there is a high probability that other messaging languages would have been developed and used by market participants.

This brings me on to another scenario of a world without FIX. What if there were multiple messaging protocols, all competing with each other? What if they were split geographically?

One of the most important facets of the FIX Protocol is its widespread use, both geographically and by asset class. The protocol is owned by the members of the FIX Trading Community. Any changes to the protocol are reviewed and approved by a technical committee and made available for all market participants.

GLOBALTRADING | Q1 • 2018

Tim Healy, Global Marketing And Communications Director, FIX Trading Community

“It would be safe to say that even without FIX, there is a high probability that other messaging languages would have been developed and used by market participants.”

The benefits to market participants are plain to see in the same way that both Fidelity and Salomon Brothers saw them 25 years ago. One protocol available to all enabling the world to communicate in a very cost efficient manner.

Collaboration in a competitive world If FIX is at the heart of trading, the FIX Trading

FIX | 37

Community is as important to the market. The FIX Trading Community is the non-profit, industry-driven standards body at the heart of global financial trading.

The Community owns the FIX Protocol in trust, which effectively means all initiatives are pursued in response to market participant requests.

This work is organised through a global network of committees, subcommittees and working groups that attract colleagues, peers and competitors who work together in a collaborative manner, free from commercial conflict, and in a way rarely witnessed in the capital markets to address core industry challenges. In a world where competitive advantage is key, FIX brings market participants together. Why? Because the cost efficiencies are clear.

MiFID II working groups A great example of the collaborative nature of the Community has been the work the members have done to address Markets in Financial Instruments Directive (MiFID) II and the added regulatory requirements. Initially, the efforts focused on specific regulatory technical standards where it was felt that the use of FIX and standards could help market participants. A number of MiFID working groups were formed, calls for participation were made and co-chairs put in place.

“In a world where competitive advantage is key, FIX brings market participants together because the cost efficiencies are clear.�

MiFID has been ongoing for over two-and-a-half years now and we have seen a number of best practices and guidelines documents and extensions to the FIX Protocol released in that time. Regulators and market participants alike recognise that the use of standards has never been more relevant.

FIX Trading Community continues to operate due to members and their annual membership fees as well as the global educational events that are held each year.

If you are using FIX and are not a member, we urge you to find out more and join the effort. Without FIX, the world of trading would be a very different place.

One thing to note is that FIX Trading Community is an inclusive organisation. By that I mean that buy-side, sell-side, exchanges/venues, vendors and consultants are all welcome to join and be involved. The work on

Q1 • 2018 | GLOBALTRADING

38 | FIX TRADING COMMUNITY MEMBERS

FIX Trading Community Members *Premier Global Members marked in bold

360T Asia Pacific 42 Consulting Pte Ltd Actuare AFME- Association for Financial Markets in Europe Alcova AM Algomi AllianceBernstein American Century Investments Ancoa Software Appsbroker Fintech Aquis Exchange ASIC Association of International Wealth Management of India Australian Securities Exchange AXA Investments Managers Ltd B2BITS EPAM Systems Company Baillie Gifford Banca IMI SpA Banco BTG Pactual S.A. Banco Itau S.A Bank of America Merrill Lynch Barclays Barings Baymarkets AB Beijing RootNet Technology Co., Ltd. Berenberg Bank BlackRock, Inc. Blitz Trading Bloomberg L.P. Bloomberg Tradebook BlueBay Asset Management BM&F BOVESPA BNP Paribas Bolsa de Valores de Colombia Bolsas y Mercados Españoles (BME) Brandes Investment Partners LP Brook Path Partners, Inc. BT Global Services BVI Cameron Edge Cantor Fitzgerald Capital Group Companies, Inc. Cboe Global Markets Cedar Rock Capital Charles River Development Chi-X Global Inc Cinnober Financial Technology AB Citi CL&B Capital Management Clearing Corporation of India Ltd

CLSA Limited CME Group Colonial First State Global Asset Management Colt Technology Services Connamara Systems LLC Cowen Corvil Credit Suisse Crown Jewels Consultants Ltd Daiwa SB Investments Daiwa Securities Group Inc. Danske Bank DATAROAD DataArt Dealogic Delta Capita Deutsche Bank Deutsche Boerse Group Dimensional Fund Advisors Drebbel DTCC DXC Technology Eastspring Investments (Singapore) Limited EBS BrokerTec EDMA Europe Egypt For Information Dissemination Emagine Consulting Esprow Pte. Ltd. ETLogic Ltd Etrading Software Ltd Eurex EuroCCP Euronext Paris SA European Venues & Intermediaries Association (EVIA) EuroTLX Exactpro Systems Exane BNP Paribas Eze Software Group EZX Inc. Federated Investors FIA (Futures Industry Association) Fidelity Management & Research Co Fidelity International Fidessa Group Financial Information Forum First Boston Group FISD Fiserv FIS Global FIX4wards FIX Flyer LLC FIXSOL FlexTrade FpML Franklin Templeton Investments Gamma Three Trading, LLC

Premier Global Members

GLOBALTRADING | Q1 • 2018

GATElab GETCO Asia GMO Goldman Sachs GreySpark H2O Asset Management Haitong International Securities HCL Technologies Higher Frequency Trading Hilltop Securities HM Publishing Hong Kong Exchanges & Clearing Limited Hong Kong Investment Funds Association (HKIFA) HSBC HSBC Global Asset Management ICMA (International Capital Markets Association) IG Group Ignis Asset Management Incisus Capital Partners Indata Recon LLC Indian Association of Alternative Investment Funds Informagi AB Infoware Infront AS ING Bank Instinet InstrumentiX Intercontinental Exchange (ICE) ITG Ipreo IPC Systems IRESS

ISITC ISO Itiviti Janus Henderson Investors Jefferies J.P. Morgan JP Morgan Investment Management Jordan & Jordan KB Tech KCG Holdings Kotak Securities LCH Linedata Liquidnet LiquidMetrix LIST Group Lloyds Banking Group London Stock Exchange Group M&G MACD Macquarie Securities MAE - Mercado Abierto Electronico S.A. MarketAxess

FIX TRADING COMMUNITY MEMBERS | 39

Marshall Wace Asset Management Mawer Investment Management MDSL Metamako MFS Investment Management Mizuho Securities Morgan Stanley Investment Management Morgan Stanley MTS SpA Nasdaq Nasdaq Nordic National Physical Laboratory Newton Investments NEX Group Nikko Asset Management Nomura Asset Management Nomura Nordic Growth Market (NGM) Norges Bank Investment Management Northern Trust Global Investments Ltd OCBC Securities Private Ltd. OMERS OMG (Object Management Group) Omniex On Budget and Time Ltd Ontario Teachers’ Pension Plan Board Onix Solutions [OnixS] Options Clearing Corporation Options Technology Ltd Orbis Investment Management Limited Oslo Bors ASA OTC Exchange Pantor Engineering AB Peresys (IRESS) PIMCO Pioneer Investments Portware Primary E Trading Principal Global Investors Putnam Investments QuantHouse Quendon Consulting R Shriver Associates Rabobank International Rapid Addition Raptor Trading Systems, Inc. RBC Capital Markets RBC Global Asset Management Research Exchange Santander Global Banking & Markets SASLA (South African Securities Lending Association) Schroders Shanghai Stock Exchange Shield Finance Compliance SimCorp Singapore Exchange SIX Swiss Exchange

Skandinaviska Enskilda Banken AB Sloane Robinson smartTradeTechnologies Societe Generale Softsolutions! Srl Southeastern Asset Mgmt Spectracom SS&C Technologies Standard Chartered Bank Standard Life Investments State Street Global Advisors State Street Global Markets State Street Technology Zhejiang Sumitomo Mitsui Trust Bank Swedbank Robur Fonder AB SWIFT Systemware Innovation Corporation (SWI) Taiwan Stock Exchange Tata Consultancy Services Technistock Telstra Global The Continuum Partners The Investment Association The London Metal Exchange The Nigerian Stock Exchange The Realization Group The Technancial Company The Vanguard Group Thomson Reuters Tokyo Stock Exchange TORA Tower Research Capital India PVT Ltd TP ICAP TradeHeader, S.L. Tradeweb Trading Technologies TradingScreen Tradition Traiana (ICAP) Transaction Network Services (TNS) TransFICC Trax Turquoise TWIST UBS ULLINK UniCredit Vela Trading Technologies Velocimetrics VOEB Warsaw Stock Exchange Wellington Management Company Winterflood Securities XBRL XLP Capital Xetra (Deutsche Börse) Zeopard Consulting

New Member FIX Trading Community wishes to welcome the following companies to its growing worldwide membership.

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Q1 • 2018 | GLOBALTRADING

40 | LAST WORD

My City

Hong Kong

By Damian Bierman, Global Co-Chair, Asia Pacific Technical Committee, FIX Trading Community, and Head of Asia-Pacific, Portfolio Management & Trading Solutions, FactSet

Best thing about your city?

Its thrilling juxtapositions: the way that gleaming, ultra-modern spaces live alongside traditional markets in alleys that are 150 years old; the hectic versus the serene; the energy you feel from a city where everything is in such close proximity, measured against the ease with which you can escape it, with nothing more than your own two feet and a bit of altitude. It’s what hooked me on Hong Kong all those years ago, and it has still got me to this day.

Worst thing about your city?

Those days when the air is like pea soup and you don’t want to breathe. Thankfully there aren’t too many of those, but they do happen, and when they do, you just want to be somewhere else.

Getting to work?

I always loved being able to say I

GLOBALTRADING | Q1 • 2018

commuted to work via escalator. But, not anymore. Now it’s by bus or MTR or car, and that’s fine by me. There’s an entire world of podcasts out there that I probably wouldn’t know about if my commute were still 10 minutes downhill.

View from your desk?

Central, SoHo, Mid-Levels, The Peak – and the occasional window-washing contraption. No bamboo yet, but you never know. Have you seen how quickly they can cloak a 50-storey building head-to-toe in bamboo in this town? It’s unbelievable!

Where to take guests to dinner?

For sheer inventiveness, Ho Lee Fook on Elgin St. is tough to beat, though be prepared to wait. If you’re aiming upscale and want to keep it in the heart of the CBD, then La Rambla in IFC is a knockout!

Relaxed spot with family or friends?

There are amazing hiking opportunities throughout Hong Kong, so you’re never far from some hidden gem of a place that feels worlds away. Or hire a junk and hit the water - but watch out for the jellyfish!

Best place to stay when visiting?

If you’re new to Hong Kong and want to explore, then the serviced apartments at Shama Central are a great choice. Heart of the wet market which is bustling by day, and adjacent to SoHo which will keep you entertained well into the night.

Best tourist site?

It’s way out there, but if you’ve got the time, head to Tai O. It’s like nothing you’ve ever seen.