GlobalTrading 2014 Quarter 1

FIXGLOBAL.COM

Q1 • 2014 • Issue #49

G LO B A LT R A D I N G

Collaboration Across The Buy-Side FIX Trading Community Investment Management Working Group Schroders • Fidelity Worldwide Investment • IOSCO • ASIC • T Rowe Price AXA Investment Managers • BNP Dealing Services • Kames Capital • EFG Bank Baring Asset Management • J.P. Morgan Asset Management • AllianceBernstein INSIDE :

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GlobalTrading’s Editorial Think Tank Dear Readers, The FIX protocol was officially introduced to the industry exactly 20 years ago this year. At that time there was much anticipated excitement of what it meant to a trading community utilising various proprietary or common, but not universal standards. The rest, as they say, is history. Today the FIX Trading Community enjoys well earned bragging rights for the success of a volunteer, collaborative organisation that has changed the nature of trading in various asset classes at the global level. Nothing exemplifies this cooperative effort more recently as well as the increasing involvement and contributions of the various buy-side and investment management working groups and their respective activities.

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

John Goeller Bank of America Merrill Lynch

Betsy Anderson Ignis Asset Management

Greg Lee Deutsche Bank

Carlos Oliveira Brandes Investment Partners

The buy-side in particular has undergone a dramatic metamorphosis in the last 20 years, spurred in large part by global FIX connectivity and the changing roles of traders at investment management firms. Much of the technology once available primarily to sell-side traders has migrated upstream or is provided directly to their buy-side clients, including algorithmic and smart order routing products, execution and quality of markets measurement and so on. With the buy-side doing more in the electronic space, the sell-side has also found opportunities to explore and develop more creative service options such as commission sharing arrangements (CSA’s) and the next generations of algorithmic and liquidity seeking technology.

In this current edition of GlobalTrading you will be hearing much about developments in the buy-side space and more specifically the initiatives being undertaken by the FIX Trading Community Buy Side & Investment Management Working Groups. We will also gather some perspectives on global surveillance, central counterparties, CSA arrangements, algos in Asia, T+2 settlement, trends in risk management and several other global and regional topics.

Please join us this year in celebrating the 20th anniversary of the FIX protocol.

As always we appreciate your interest, support and contributions to GlobalTrading and the FIX Trading Community.

Best Regards,

Emma Quinn AllianceBernstein

Rob Laible Macquarie Group

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

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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.

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.

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All Rights Reserved © 2014

Contents 4

FOCAL POINT

4 Collaboration Across The Buy-Side - Stuart Baden Powell, FIX Trading Community - Neil Joseph, J.P. Morgan Asset Management - Adam Conn, Baring Asset Management - Michele Patron, AllianceBernstein - Paul Squires, AXA Investment Managers 8 CSAs: Getting In The Loop - Lee Bray, J.P. Morgan Asset Management

Unbundling Commissions - Carl James, BNP Dealing Services

- Adrian Fitzpatrick, Kames Capital

13 Global Surveillance - Greg Yanco, ASIC

Market Surveillance - Alexandru Gomoiu, Misys

INSIGHT 18 Central Counterparties (CCPs): Who, What, Where, When… Why? - Thomas Krantz, Thomas Murray Advisory Services - Alex Harborne, Thomas Murray Data Services

CCPs and Collatoral - Shane Worner, IOSCO

44

13

24 The Reformation: All Change For OTC Derivatives

- Braian Szwarcberg-Poch, GreySpark Partners - Malavika Shekar, GreySpark Partners

- Fred Ponzo, GreySpark Partners

OPINION

28 ‘Tea For Two’ - Brian Godins, HSBC

34

Buy-Sides Unlocking Business Value Through Technology - Michel Balter, CameronTec Group

ASIA

47 The Changing Nature of Algos In Asia - Matt Saul, Fidelity Worldwide Investment

The Evolution Of Asian Algorithmic Trading - Murat Atamer, Credit Suisse - Jacqueline Loh, Schroders

- David Pearson, Fidessa

- Roy Saadon, Traiana

50 Broadening Horizons - David Lawrence, Asia Pacific Stock Exchange

34 Capping Dark Pools – Plumbing New Depths - Alexander Neil, EFG Bank

Transparency - Alasdair Haynes, Aquis Exchange

Blurred Definitions; Broken Models - Clive Williams, T Rowe Price AMERICAS

40 Risky Business - George Rosenberger, ConvergEx Group EUROPE 44 The Future Of The Buy-Side - Carl James, BNP Dealing Services

PRODUCT OVERVIEW

53 Transparency Through Latency Analysis - Markus Löw, Eurex Exchange - Vassilis Vergotis, Eurex Exchange - Fabian Rijlaarsdam, Eurex Exchange 56 Trade surveillance is more than simply having access to data - FIXFlyer FRAGMENTATION 58 European Fragmentation

RESOURCES

62 Company Profiles

MY CITY

64 London - Tim Healy, FIX Trading Community

4 | FOCAL POINT

Collaboration Across

The Buy-Side With Neil Joseph, Co-chair of EMEA FIX Trading Community and Senior Trader J.P. Morgan Asset Management; Stuart Baden Powell, Co-chair of EMEA FIX Trading Community; Adam Conn, Co-chair Investment Management Working Group (IMWG), and Head of Trading, Baring Asset Management; Michele Patron, Co-chair IMWG, and Senior Quant Trader AllianceBernstein; Paul Squires, Co-chair IMWG, and Head of Trading at AXA Investment Managers.

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FOCAL POINT | 5

Neil Joseph (NJ): The group has developed extremely well so far. As one of the newest groups within the FIX Trading Community in EMEA, it is encouraging to see that the membership has already grown to 33 firms.

This is helping the buy side have a consolidated view on standards for communicating trading related data as well as prompting the group to address relevant industry wide issues. By having a single voice in all matters relating to standards, we can save replication of efforts across the buy-side and also hopefully for brokers and vendors, as considered and uniform decisions can be made more effectively. Being led by three co-chairs appears to have really helped the group gain traction. Michele, would you like to expand on some areas that the group is currently focusing on and the progress to date?

Michele Patron (MP): As Stuart said, the group was officially formed in early 2012, during the FIX Trading Community EMEA conference. The current leadership structure (Adam, Paul and I) was finalized later that year. From the start we tried to understand which areas we should focus on to bring some added value to the industry. What we’ve typically seen is that, while sell-side representatives are very good at coming together around a table to find solutions to business problems they share, the buy-side has been much less active in that regard. Of course, there had already been some opportunities for the buy-side – either sell-side driven or (semi) independent – to sit down and discuss problems, especially on the regulatory side; but our thinking was that we needed to merge the business interests of our group with the technical pedigree of the FIX Trading Community. So we concentrated on workflows where standardisation can bring benefits to the market participants. Current working streams are: potential use of FIX Protocol for Initial Public Offerings, led by Adam; developments in fixed income trading, driven by Paul; and adoption of execution venue reporting standards in the EMEA region, on my plate. As far as the latter is concerned, we recently ran a buy-side survey in partnership with the Investment Management Association. Some of the early results will be briefly

shared below and the rest along with further actions are going to be shared during the 2014 EMEA Conference.

“The work on standardisation of venue data, for instance, has clear benefits to users, end clients and regulators alike.”

Adam Conn (AC): The attraction to me of being involved with the FIX Trading Community is that whilst there are already some very good forums/quorums established to share experiences; formulate and onwardly communicate opinion; this is an opportunity for all the interest groups within our industry, some maybe with different end objectives, to work together on specific initiatives (as highlighted by Michele) that we identify to do the right thing to enhance market structure.

The work on standardisation of venue data and the better identification of the capacity in which a counterparty has acted, for instance, with the caveat that it does not expose fundamental investors to picking off by proprietary trading systems, has benefits to users, end clients and regulators alike. Pushing against the accepted manual norm for IPOs and other new issue applications would also create an openness and transparency to one of the last impenetrable allocation procedures without the need for an imposed solution. The advantage of having co-chairs with diverse day to day responsibilities is we have been able to look at issues affecting both quantitative and fundamental investors across asset classes. As electronic trading accounts for a growing share of fixed income trading; the need for early adoption of a standard language/protocol is in all participants’ best interest.

The multi-asset angle Paul Squires (PS): Adam and I both head up multiasset class trading desks and I think this ‘extended mandate’ is a trend that is likely to continue to develop as regulatory reform drives change to market structure and operational efficiency becomes a more central focus.

That is why we wanted to include fixed income in this predominantly equities-focussed working group (which is equally reflected in the broader FTC global scope).

We are already witnessing a high number of industry initiatives emerge (over 30 at our last count) in anticipation of what are likely to be fundamental changes to the way fixed income is traded and we welcome such innovation on the basis that it increases the choice of

Q1 • 2014 | GLOBALTRADING

INVESTMENT MANAGEMENT WG

Stuart Baden Powell (SBP): Neil, Fix Trading Community EMEA has a number of working groups across the region. Along with other reasonably recently created teams such as the regulatory and the fixed income groups is the Investment Management Working Group.

The EMEA IMWG has developed well since its start around 18 months ago and at full strength it has over 10 trillion US Dollars in AUM represented – what is your take on how the group has developed so far?

6 | FOCAL POINT

execution strategy. It does, however, come at a cost to the buy-side as liquidity becomes dispersed across multiple venues that the trader needs access to. These channels may take a number of different formats (executable quotes, crossing networks, order books, streamed price aggregators) but if we can use a common language like FIX the connectivity is harmonised.

“Whilst the vast majority of the participants think the information coming from those tags is insightful, there is a chunk which is unable to process the tags internally.”

As has previously been mentioned, FIX underpinning such a network would reduce costs for all market participants. The real benefit, of course, is if this standardisation of protocol helps to unlock the inventory of bonds that have increasingly been sitting dormant in fixed income asset managers’ portfolios (97% is one estimate we have recently seen).

Onto the year ahead we have already identified some areas that we think FIX can assist with as the buy side adapts to the ever-changing market dynamics. Stuart, perhaps you would like to mention some of these?

MP: Back in 2012, the FIX Trading Community published the “Execution Venue Reporting Recommended Best Practices” document. As you said, that provides a comprehensive protocol to communicate to buy siders where and how each single fill has been executed. We have always felt that the topic is quite relevant, both from a strategic and regulatory viewpoint. Therefore, since the very beginning, we have been dedicating a portion of our periodic meetings to covering different aspects of execution reporting. To have a picture as detailed as possible about implementation of the reporting mechanisms and usage on the buy side, the IMA and the FIX Trading Community have recently distributed a brief survey, the response to which was quite wide and enlightening. In general terms, it does appear that – whilst the vast majority of the participants think the information coming from those tags is insightful, there is a chunk which is unable to process the tags internally, or relies on counterparties/third parties to provide analysis around that. For sure, part of the problem is that a full standardisation of reporting has not happened yet: for example, figure 1a shows that 90% of the respondents stressed that Tag 30 does not always contain a MIC code – as advised by the best practices document – and a fair amount of additional work is required to make this nonstandard information usable. In our opinion, the highlight of the survey are shown in figure 1b. This is the consensual need (95.2% of the participants!) for an extra flag in Tag 29 to classify explicitly riskless principal trades. This gives us a clear action point, and we have started working to make this happen.

Buy-side survey SBP: Thanks Paul, you are spot on about the multiasset component and this is adding additional value due to a cross-fertilization of ideas within the group and the wider FIX Trading Community that can only be a benefit to the various asset classes. With regard to some of the other areas, the IMWG recently worked in partnership with the Investment Management Association (IMA) to construct a buy side survey on the specific topics of Tag 29 (capacity), 30 (last market) and 851 (posting or taking). The aim was to build on previous legacy work in this area and take stock of where things are today and what we can do for tomorrow. The survey was distributed to the members of the IMA and the IMWG alike. Michele, would you like to take us through some of the key findings?

GLOBALTRADING | Q1 • 2014

IMWG and IMA Survey Responses A. Does Tag 30 Contain MIC Codes?

B. Tag 29 – Is a flag for Riskless Principal needed?

AC: Another advantage of doing this work within an organisation with global reach is the ability to make this an all-encompassing rather than just regional initiative.

With this collegiate approach we hope that Regulators and

From left to right: Stuart Baden Powell, Neil Joseph, Michele Patron, Paul Squires, Adam Conn

other Market Authorities will view FIX Trading Community as a resource to achieve beneficial changes in market practice. The more we meet it is clear there are many areas we could eventually work together on that could be enhanced without the need for prescriptive rule making.

Response to FCA paper (CP 13/17) PS: Back to equities and one of the most immediate topics that needs attention is delivering a response to the FCA’s paper (CP 13/17) on the use of clients’ dealing commissions. While each asset manager will, inevitably, have their own table of commission rates, what is clear is that simply applying a standard commission rate for all clients and all types of execution strategy is no longer appropriate. Again, regardless of the well-intentioned objectives, the practicalities of precisely capturing the full matrix of required rates on each individual trade (bundled or execution-only, dependent on market or execution strategy etc) is not straightforward. Furthermore, identifying the correct commission rate on each trade may be one thing but efficiently transmitting that detail to your counterpart is another (particularly when many trades are now More Buy-side Interviews matched at block level).

The FIX Tag 12 (commission rate) is a means by which we think a lot of these operational problems could be mitigated so we are looking to see how we can promote its use and support amongst our community

and its systems. As before, any progress we can make will only additionally benefit our sell-side colleagues so there is a common interest and this reflects how we – as a group – can react to market developments as they emerge.

Global Collaboration NJ: Yet, another example of new work to be progressed this year and as Michele has already mentioned with Tags 29 and 30, it’s not just the introduction of new tags and standards but also the promotion of usage and possible changes to usage that are often a large part of the work. Further supporting Adam’s point regarding the benefits of the FIX Trading Community being a global organisation, is the IMWG now working so closely with its equivalent group in the US and with Asia as well as also forming the Global Buyside Committee which provides Adam, Michele and Paul a seat on the Global Steering Committee. So in summary, the relatively new group has grown quickly and benefited from its diversity of membership. The areas covered so far and including, last market and last capacity and the work to use FIX or IPOs are seen as having direct benefit to many desks including my own. With numerous initiatives underway and planned for 2014, we expect to see further benefits across a range of issues covering multiple asset classes.

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INVESTMENT MANAGEMENT WG

FOCAL POINT | 7

8 | FOCAL POINT

CSAs: Getting In The Loop Lee Bray, Head of Equity Trading, Asia Pacific, J.P. Morgan Asset Management, discusses the development and drive towards Commission Sharing Agreements (CSAs)

The development and use of CSAs is well established in Hong Kong given the existing history and culture of CSAs in the region. This is in contrast with somewhere like Japan where CSAs are not explicitly prohibited but they are just not generally used. It appears that the industry needs to seek clarification with the regulators in Japan to establish whether CSAâ&#x20AC;&#x2122;s are possible or not.

At J.P. Morgan the ideal scenario would be to have a platform that we can run multiple brokers on. We try to

GLOBALTRADING | Q1 â&#x20AC;˘ 2014

manage everything internally so we would use our own business model with respect to CSAs. From a systems perspective there are benefits in having interaction with a third party in terms of paying firms, research etc, but managing it all internally is our principal aim.

With regard to further development and use of CSAs, here in Asia we are only just beginning. Europe developed a process that firms had to go through, and I think we will gradually move towards something

FOCAL POINT | 9

based outside of the region, are a lot more evolved in their questioning about CSA and commission spend, although I still think there is a learning curve.

With the global nature of the business it seems a natural progression that asset managers in the region will have to grow according to the rules and regulations that are coming in across the globe. For example UK based clients investing in the region could well have certain expectations around CSA’s given their home regulators’ focus on it. Of course, the whole process is taking time to get established given the long developmental period involved. I know from my experience in the business that these questions probably wouldn’t have been in focus 15 years ago but they are certainly important now.

Lee Bray, Head of Equity Trading, Asia Pacific, J.P. Morgan Asset Management similar in Asia. The industry is getting up to speed and we need to better understand how CSAs work including their implementation and any issues or problems that can potentially arise. This is particularly relevant to the global asset managers who are working towards a global best practice in many instances.

I think some firms will choose between research or execution on the sell-side although I can foresee a number of brokers who will make the step and be able to maintain both top tier research and execution. It will be helpful to see how the sellside business model evolves in the UK to give us a better insight into how things might work in the future here – if the regulators ultimately feel the need to follow the same route.

Given the multiple markets and regulatory nature of the region it is even harder to work with CSAs – when you’re dealing with different legal entities it becomes difficult to administer.

“The change to the overall industry is a fundamental one and we must be cautious as it works its way through.”

Recently there has been a trend for regulators to focus on topics that have been under examination in other regulatory areas, for example the dark pool issues in Australia. It does make sense to try to keep up today with what’s going on in, say, London, regardless of the regulatory environment here in Hong Kong as you never know what could come along.

It will take time to work through however and is the best indicator of what’s going to happen – the bigger firms in the region are ready for it simply because they have experience in other regions, nevertheless it will take a bold step, if and when the regulators become involved for firms to make that move.

Do you think clients are becoming more switched on about CSAs? Given how well it has been publicised, there has been a big push recently with the focus on trading costs and use of commissions, and clients are certainly becoming more focused. Clients themselves, particularly those

I think global firms will move towards the more stringent global rules and regulations, regardless of local regulation. That might not be the case for the more localised firms where it’s not such regulations pressing issue due to differences in global regulations.

Q1 • 2014 | GLOBALTRADING

10 | FOCAL POINT

The aims of the regulator In the UK, it seems that regulators are aiming for a fixed amount of commission to be put into research. Whether or not that is viable is yet to be determined, but it is good for us to be taking a view from here to see what happens in the UK and to give us an idea of how it affects the industry.

The change to the overall industry is a fundamental one and we must be cautious as it works its way through. It could be that because of the structures here in Asia, that it might not significantly change anything. APAC is very different to other regions and must be taken in its own context.

there. However, we would need to consult the regulator to see if this is a viable option.

It is a priority but there are limited resources available to the regulators to be looking into these things.

It is high up on our agenda but then we have to balance that against the regulator’s own agenda.

I think that the discussion on this issue has only really just started.

Considering what’s been happening recently in Japan, it will be good to implement a CSA programme

Unbundling Commissions With Carl James, Global Head of Fixed Income and FX BNP Dealing Services and Managing Director of Dealing Services UK. On the equity side, brokers have experienced a collapse in margins. Asset managers are now increasingly regulated with the focus on the asset managers explaining how they spend clients’ commissions, and having to justify their research and execution spend.

The Financial Conduct Authority (FCA), in its previous life as the Financial Services Authority (FSA), looked at ‘unbundling’ also known as CP176. This was driven by the Myners report that put trading costs under scrutiny. The Financial Services Authority (FSA) undertook a survey in 2000, and found that institutional investors paid brokers a total of £2.3B in execution commission. It was clear from the Myner’s report that most pension schemes had no idea of this cost.

Following this report, commission sharing agreements (CSA) were put in place. The idea behind CSA’s was to separate out what was paid for through execution commissions. Previously execution commissions, which let us not forget are the clients’ monies, were used to pay for a wide variety of third party services, which included research. With the implementation of CSA’s there

GLOBALTRADING | Q1 • 2014

Carl James, Global Head of Fixed Income and FX, BNP Dealing Services was an explicit split made between execution costs and research costs. Transaction costs now have more clarity, as they are better understood and this has meant they have fallen.

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Adrian Fitzpatrick, Head of Dealing, Kames Capital The FCA paper on commissions is a significant issue.

Firstly it will happen as the CEO/CIO’s are now on the hook for the commission spend. Most institutions are looking at their commission budgets, and it will have to be more budget than target. Brokers ahead of target/ budget will receive execution only commissions and I suspect this will be done on a rolling basis.

“The worry there is if the market really unbundles then whoever pays the most will receive the platinum product.”

Commissions for research will drop, but execution commissions may increase if we get the Great Rotation from fixed income into equity. It looks like the pot will only get smaller; and that is not necessarily a bad thing.

The buy-side will start to look at menu pricing for research and try to quantify the value of that service.

They can reverse engineer the same service from pure third party research providers and then apply that number to the bulge bracket’s research. So if the third party research is your number one then you are not going to pay more for it from your other brokers.

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Obviously this is not something the bulge bracket firms want, but the report is effectively using the buy-side to unbundle the sell-side to a certain degree. The sell-side may create a separate research service but the worry there is if the market really unbundles then whoever pays the most will receive the platinum product.

The bigger houses or largest hedge funds could benefit.

You could see a time where research is distributed first to the big payers then distributed over a period of days to the rest of the buyers who pay a lower fee, which has potentially large unintended consequences.

Corporate access is done and the market has to deal with that. I suspect that new access to this product will be created, probably through third parties or separate fee payable services from the sell-side. I also think the research departments of the sell-side will go through the same pain that sales trading has gone through, and will be savaged over the next one to two years.

I also see no reason why the equity market does not go NET and remove a lot of the regulatory burden; ADR’s and GDR’s used to be NET. The sell-side loses money on equities and makes it in opaque NET markets like fixed interest and FX. The final point is that the UK could be hugely disadvantaged if it is the only market to apply these strictures.

FOCAL POINT | 13

Global Surveillance Greg Yanco, Senior Executive Leader, Markets &Participant Supervision, Australian Securities & Investments Commission.

We are really excited to have the market surveillance technology that allows to take control of our destiny. It is much more flexible than our old system in terms of parameters and it is also more dynamic. We have people trained in using the language that the system uses which enables us to generate our own alerts and reports.

The system is being developed by First Derivatives.

Their ‘bread and butter’ clients are high frequency traders so we are now applying the same technology and capabilities as people who are using our markets (in terms of putting a lot of the orders on). This is an exciting development and enables us to carry out more flexible intensive analysis which goes beyond real time supervision, beyond waiting for alerts to pop out.

We could do some of these things with the old system but the new system does seem much quicker and more flexible. We are bringing ourselves up to the same standard of capabilities already being exhibited by other markets and we’re still only part of the way into looking at the new system.

The next stage will be the development of more sophisticated data analytics and data mining capabilities. This means not relying so much on real time supervision but looking back at patterns over time. We have a real time system that pops up alerts in place. For example, say someone had traded before an announcement was made. We can find out who could have had access to that information and whether we might have overlooked that person previously. We want to be able to look

“We want to be able to look back and discover historical patterns of behaviour as we are then in possession of much more powerful information.”

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14 | FOCAL POINT

back and discover historical patterns of behaviour as we are then in possession of much more powerful information. It’s the same with manipulative activity.

What we are working on now is post-trade analysis where we go back over time and look for serial misbehaviour. We have been able to find patterns in trading previously. It took an incredible amount of work to actually figure out that patterns occurred elsewhere and it would have been good to be able to tell the system to go back and look for a particular pattern. These are the sorts of things that have brought us up to the front of the curve in terms of capability.

The new system gives us some of that capability but we are also getting access to other less structured data and relationships. We have one of the biggest databases in the region and so have direct access to a lot of information needed rather than us having to constantly pester brokers for information. We are using whatever we can find that we already access to identify relationships and matching that to the trading. This is a somewhat more sophisticated than just the new surveillance system.

Regulators tooling up A new system is all very well but it will only operate efficiently if it is staffed by people who understand what is going on. We have been building our skill set and now have ex-traders, ex-electronic traders, market makers, and real rocket scientists. We are developing staff with skills to understand the industry, the trading, to know who they are dealing with and the ability to use those tools appropriately. We have been concentrating on scaling up the staff skill set in the same way as we have the technology.

We also spend time working with other regulators discussing the capabilities that we have that we can share.

Understanding the market What we do is spend time talking to people in the market so they know that we are observing the market.

We talk to the electronic traders so we get a really good understanding of who their clients are and what they are doing. This gives us an understanding when something goes wrong of what the problem might have been; we might have understood the strategy behind that sort of execution. We quite deliberately communicate regularly with the industry; we publish

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Greg Yanco, Senior Executive Leader, Markets & Participant Supervision Australian Securities & Investments Commission statistics on referrals we have made, enforcement actions. We put out quarterly statistics on the shape of the markets, including order to trade ratios and a six monthly market supervision report. We are talking on a daily basis about what is going on in the market, particularly with regard to electronic clients.

The HFT and dark pools review We were pretty happy with the outcomes of both the HFT review and dark pools discussion. We use analytics as the basis of how opinions are formed and the decisions that are made. We think our expertise, particularly with regard to HFT, has given the market confidence. In our opinion HFT is not the problem everyone thinks it is. In fact, there was an issue with the quality of some of the buyside algorithms and the ‘noise’ they were creating.

Essentially the algos were more of a problem than the HFT firms, who were generally pretty efficient, apart from a few who might have been guilty of not having the appropriate filters etc. But in general, I think we were fairly happy with the outcome.

The new system and its capabilities enables us look at market replays – it might take us a little time, but we can look at replays of markets right

16 | FOCAL POINT

down to the micro-second level; it is as though it were just normal trading. There are some systems attempting to influence other systems and we have spoken to high frequency traders who are having to defend themselves against these sorts of things.

But currently, I think they are pretty much there, however tomorrow may see something else that blows everything out of the water so we need to keep up to speed with the market and ensure everyone is doing their bit to maintain market integrity.

Global regulatory cooperation We are involved with inter-market surveillance group meetings where we talk about the different types of behaviour we have witnessed. We might spend a few hours discussing one particular alert type in detail. We are in regular discussions with FINRA, IIROC and FCA with whom we share much of our thinking. We benefit from their experience as they have been in this business much longer than us.

This dialogue is important to us particularly with regard to how the processes work and trading patterns etc; these are ideas that FINRA, IIROC and FCA have shared with us. They have also alerted us to people that have been misbehaving in their markets.

For example, we had an online broker hacking incident recently through three brokers in one day.

We had been discussing this at the inter-market surveillance group so as soon as we saw it, we knew what was happening. One of the regulators was able to help us track the money flow, all the way back to somewhere in Eastern Europe and the behaviour was stopped immediately. So it was through those relationships that, firstly we knew what was going on, and secondly we were able to follow the money trail.

This can happen because there’s an established network of relationships at the regulator level.

The key message is that we are moving from real time identification of one person who might have done something once or twice to a more structured integration between real time surveillance and daily, weekly, quarterly, annual, thematic work. This is where we go back over the database and look at what is going on, look at the pattern and ask “where else is this happening?” We look at absolutely everything now – every transaction, every order is looked at by the system – and this will happen more regularly and more rigorously in future.

GLOBALTRADING | Q1 • 2014

Market Surveillance

By Alexandru Gomoiu, Regional Director Solution Consulting Treasury Capital, Misys.

Background The continuous changing regulatory environment, the challenges of dealing with increasing volumes of big data as well as the important role of compliance within financial institutions have had a significant impact on current market surveillance systems as well as the technology requirements behind them.

What do we mean by “real-time”?

There is some debate about the exact definition of the term “real-time” surveillance because of the variation in the accepted or expected latency period between detection, investigation and action.

Is real-time when an event happens or should we use the term “pre-trigger”, i.e. before an event actually happens?

This leads us to two main approaches. Firstly, looking at the challenges from a technological perspective, how do we balance coverage capability and the scope of surveillance so we can identify the “triggers” before they actually happen?

Secondly, letting the technology follow front-office behaviours and techniques. The challenge is that front-office behaviours are constantly evolving and you need to have sufficient funds to ensure that the technology is moving in the right direction.

Challenges for market participants Market participants fall under two categories: Regulators and exchanges which seek to ensure a fair and orderly market for sales and traders, as well as regulatory bodies or acts, including Dodd– Frank Act in the US and MiFID II in Europe. There are also participants who are more focused on issues such as price manipulation and accuracy.

FOCAL POINT | 17

The primary challenge for regulators and banks is to believe that real-time surveillance is possible, and therefore feasible to manage. The other major challenge faced by compliance officers is increasingly high trading volumes and limited time to monitor and manage it.

Using technology to trigger, support and enforce real-time market surveillance The aim for regulators is to be able to perform market surveillance and monitoring in as close to real-time as possible.

Increasingly, surveillance technology is being rolled out by exchanges to monitor the market, guarantee transparency and fairness in the marketplace, and increase investors’ trust and confidence when trading.

In an ideal world, the technology would be deployed across all trading and electronic systems so that one can analyse and act upon the market in real-time.

“In an ideal world, the technology would be deployed across all trading and electronic systems so that one can analyse and act upon the market in real-time.”

Real-time surveillance can be applied in a number of different ways; the most popular is complex event processing (CEP), which involves understanding multiple complex events, achieved by programming the CEP tool to recognise meaningful events which it flags to be acted upon in real-time. This gives you the ability to support multi-threading; use more advanced techniques represented by an efficient combination of CEP tools with in-memory processing analytical capabilities; and handle “big data” and related analysis in a “what if” or real-time mode.

We need to ultimately ask whether this high security and up-to-the-minute analysis is achievable. Should we consider real-time triggers and operations as being a role model for banks to follow?

One would think that predictability and “what if” capabilities are more efficient than real-time “post” operation. The drawback is that predictability would be able to offer only a partial view of what a real-time system provides.

Source: Waters Technology

Alexandru Gomoiu, Regional Director Solution Consulting Treasury Capital, Misys

Q1 • 2014 | GLOBALTRADING

18 | INSIGHT

Central Counterparties (CCPs): Who, What, Where, When… Why? Thomas Krantz, Senior Advisor Capital Markets, Thomas Murray Advisory Services; and Alex Harborne, Senior Analyst - CCP Risk Assessment, Thomas Murray Data Services, look at incoming regulation around CCPs, and what we know of these entities. the Basel Committee, and national regulators. The formulation of the questionnaire was a substantial project in itself, and it was necessary to make it very comprehensive. This was due to the fact that CCPs themselves would be reporting to their regulators, as well as making information available to their clearing members, so that they and their clients would be able to calculate the regulatory capital requirements.

The questionnaire was made up of the broad categories of information that are representative of a Thomas Murray financial market infrastructure risk assessment; these were then adapted to the specific workings of a CCP. The questions focused on the following risks: counterparty, treasury and liquidity, asset safety, financial, operational, and governance and transparency.

Thomas Krantz, Senior Advisor, Capital Markets, Thomas Murray Advisory Services Just over two years ago, six of our global banking clients came to us and said, essentially, “It’s been two years since the G20 2009 Pittsburgh Declaration. New regulation and laws are coming into effect subsequent to the implementation of the Dodd Frank Reform Act (Dodd Frank) and European Market Infrastructure Regulation (EMIR). Can you help us to anticipate the type of commercial and capital requirement environments that we will be facing?” The reports focussed on due diligence and risk assessments.

A working party was subsequently formed, and SWIFT was approached to join as an observer. A questionnaire was put together with input from IOSCO,

GLOBALTRADING | Q1 • 2014

There were about 400 questions designed to enable each entity to demonstrate how it goes about fulfilling what we believe the requirements are for a CCP. The main sources of information were publicly available. To fill that in, we had help from many CCPs, as well as the bank working party. These clearing banks offered corrections and some sense of how they experience day-to-day life working with these institutions, once the trade transaction has taken place.

By the summer of 2012, we ran three pilots: SGX-DC in Singapore, CC&G in Italy, and SIX x-clear in Switzerland. The selection of these three enabled Thomas Murray to cover all asset classes that CCPs clear globally. We are nearing the point where the firm has a comprehensive body of information covering 30 CCPs; meanwhile, the risk assessment programme went live with the first 26 reports in September 2013.

In addition to the online reports, if there is an event, for example a decrease in a default fund

INSIGHT | 19

size, then that would be published for the CCP in question and “flashed out”. The firm sends out three flashes a day on infrastructure news, some 10,000 messages in all on 80+ jurisdictions.

We do not have static reports; our clients need reviews that are evolving online. If there is an event that is “for information only,” it will be broadcast. If something happens to one of those CCPs that we believe positively or adversely affects one of the six aforementioned risk criteria, that news will be published. We then explain why the risk assessment is being adjusted, and how the impact is felt.

“In sum, a very diverse group of generally small enterprises is being charged by the G20 with solving a good part of the OTC derivative problem.”

What we do know?

Having brought in all these data and continued to grow the information base, we are now normalizing this knowledge base. One of the things we have found, despite all that we know, is the lack of information in certain areas. For example, not every CCP has employees – some exist as legal shells and contract out work to other parts of the exchange group. Some CCPs are not legally separate entities; they may share a balance sheet with the exchange or exchange group. We cannot tell what the capital base is at some of the largest CCPs. This includes Chicago Mercantile Exchange and the Korea Exchange – both major players in derivatives clearing – but neither of them has a separate capital base.

With such notable absences, there is no sectorwide total figure, either, only general estimates.

At the time of the Pittsburgh G20 summit, the authorities thought to use CCPs to net down the exposures created by OTC derivatives; exchangetraded derivatives were already centrally cleared.

We assume that the partial understanding of the workings of this segment that the firm must deal with in its assessments was an equivalent handicap for officials writing the Pittsburgh Declaration.

Alex Harborne, Senior Analyst - CCP Risk Assessment, Thomas Murray Data Services What we can say from looking at our individual reports is that the capital bases of CCPs are all over the place, and some are very small. The Options Clearing Corporation for exchangetraded equity derivatives in the US has a paid-up capital base of $12 million, as of 31 December 2012, which strikes us as being tiny given that this one institution centrally clears all traded US equity options. It has lines of credit available to draw on, but this is still a very low level relative to its peers in much smaller markets.

Other clearing house capital bases have hundreds of millions of euros/sterling paid in. For example, last year the Singaporeans, in order to meet the Basel III requirements and to affirm their attainment of the status of “Q” for qualifying CCP under Basel III, paid up an additional 100 million Singapore dollars to recapitalize. The South African exchange is recapitalizing its CCP; the London Stock Exchange increased LCH’s capital when purchasing their majority stake. We are seeing some reaction to these global regulations in the form of recapitalization, but it is irregular.

As the capital bases are either unknown or varied, it is impossible to get an industry-wide meaningful

Q1 • 2014 | GLOBALTRADING

20 | INSIGHT

figure for return on equity, and so there is no general sense of how profitable the business is.

We do see that some are indeed very profitable.

In sum, a very diverse group of generally small enterprises is being charged by the G20 with solving a good part of the OTC derivative problem. They are instructed to take on the contracts which can be “standardised.” For the institutions that transact OTC and then centrally clear their trades, the counterparty risk does go away, but in a way that takes the form of a transfer to an obliging – or obliged – entity to calculate the value of the instrument now on its books, and how to request margin in a reasonable amount to cover that exposure.

Individualistic approach CCPs have many different operating models. SIX x-clear, for example, charges very little for clearing, but funnels collateral to its sister company, SIX SIS, a CSD. CC&G earns its living by taking a cut of the interest earned on collateral posted by their clearing members – it does not take much to make decent money on a 9 billion portfolio.

As regards interpretation of the regulations for individually segregated accounts, in particular those in the European Union’s EMIR, what we find is that the CCPs all interpreted it in their own specific ways, resulting in at least 15 different models which, according to each CCP, meet the required standards. This is part of the confusion that exists.

Where certain markets (such as Brazil and Japan) are consolidating their CCPs to cover all asset types, other markets (eg Hong Kong and China) are continuing to use a fragmented model whereby different products clear at different CCPs. There are benefits to this approach, in that it separates the risk from one asset class to another, though it does lose out in terms of efficient use of collateral.

As to risk position management, the separate clearing means that it is hard to get a sense of overall institutional positions, so one must rely entirely on the margin provided contract by contract.

This differentiation of approach should not be entirely surprising. Clearing houses grew up with very different exchange products. The idea of central clearing began with commodities, then was deemed essential for financial derivatives as they were developed in the 1970s, before progressing on to cash

GLOBALTRADING | Q1 • 2014

market securities. Compared with the exchangetraded and listed products, OTC is very hard to get a feel for, and there is some very understandable defensiveness on the part of CCPs to take on the risks of instruments that are harder to value.

Why CCPs? One question we have been asked is this, “Why did the G20 in Pittsburgh in 2009 turn to CCPs as a solution to the OTC derivative problem?”. We do not know why this small group was identified by heads of government, and it caused considerable surprise that autumn on the exchange side, the most common owners of clearing houses. If the people creating these instruments were unable to price them, and it was clear to all that they could not, particularly during 2007/2008, then how could the CCP be certain of what it was taking onto its books and the margin posted against it?

There is a public policy mystery as to how this happened. Be that as it may, we are now four years and more on, and we have entered into the policy implementation phase of Dodd Frank and EMIR.

“There is considerable resistance to the EU telling non-EU third-country CCPs that they must submit themselves to EMIR or be cut off from the very big European marketplace.”

This leads to the next point: there is today the further problem of policy conflicts. There are the somewhat differing positions taken by Dodd Frank and EMIR on market infrastructures, which are also in conflict with certain global norms.

The global authorities, particularly IOSCO, tried to keep everybody at the table in order to write consistent and coherent global public policy, as was its charge post-Pittsburgh. But their effort did not work, for various reasons, to the extent we would have hoped – this is a

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22 | INSIGHT

CCPs and Collateral

With Shane Worner, Senior Economist, IOSCO If we look at the issue of collateral management, the one area that will need more attention is collateral transformation. By putting in stringent requirements for OTC derivatives and other regulatory reforms, we are moving the risk back into those entities that are undertaking the transformational process.

For example, take someone with high value corporate bonds who wants to swap them for triple A sovereign debt. The risk differential between those two products needs to be transferred elsewhere. The other person is not holding it anymore. The person is doing the transformation. We need to shed more light on that actual practice in order to make it more transparent.

Shane Worner, Senior Economist, IOSCO With regard to ongoing issues in the next year or so, I have identified two main areas of concern â&#x20AC;&#x201C; CCPs and collateral transformation.

We are essentially moving risk from banks into CCPs. The fundamental question is whether CCPs are able to price the risk as well as banks can. We are therefore creating an issue that will ultimately become too big to fail.

matter of real regret for us. We do have the Principles for Financial Market Infrastructures, but principles do not have the full effect of law.

The EU Commission has begun to cordon off the European banking industry, aiming to be as comprehensive as they can in order to avoid any potential future contamination by hard-to-value OTC instruments, forcing all to use recognized CCPs as evaluated by ESMA. This does not just concern those in the EU, but affects also those outside the EU that

GLOBALTRADING | Q1 â&#x20AC;˘ 2014

In the wake of the financial crisis, CCPs were mandated to help with the promotion of financial stability. If you believe that financial stability is a public good then these entities ideally would be government owned, but at a minimum should be a not-for-profit entity with a natural market monopoly.

Currently, they are private entities with a profit motive and face competition in their respective markets. Basic economics would predict that this could cause significant issues, especially if CCPs compete on eligible collateral and move collateral investment down the maturity ladder to take business away from competitors.

Even a profit based entity with no competitors extracting a monopoly rent might be the tax the market has to pay to increase financial stability.

clear for European institutions or require approval for participation in the clearing of those trades executed

by EU-based banks on non-EU products. This push towards extraterritorial effect of national regulation has been causing resentment on the part of many outside Europe who find themselves caught up in this.

To elaborate on some of the pressures that these CCPs are feeling, there is considerable resistance to the EU telling non-EU, third-country CCP s that they must submit themselves to EMIR or be cut off from

INSIGHT | 23

the very big European marketplace. We are aware of a couple of clearing banks where a CCP outside the EU did not apply to ESMA by the September 2013 deadline for recognition under EMIR, and subsequently clearing for these banks has been suspended.

We have had positive discussions with global and some national political authorities. The question we all want answered is whether there is any way to successfully handle the OTC derivatives problem by using the regulated capital markets space? We have been back over the Pittsburgh Declaration, and particularly the paragraph stating that the G20 move begins with OTC (because the exchange-traded derivatives were already centrally cleared). There were no problems with regulated exchanges and their clearing in 2007- 2009; the exchanges traded through the turmoil, with the minor exception of circuit-breakers kicking in. That was a normal part of emergency planning. The only markets that stopped for longer periods were those where the government stepped in to close the exchange.

It is relatively easy to argue that CCPs should be clearing OTC contracts; you just have to be more circumspect when you are making an argument for how this should happen.

Aligning CCPs It will take time for the industry to digest all these regulatory changes. It is important that, over time, we do not simply continue to go through round after round of regulation and re-regulation.

It is to be hoped that CCPs that are uncomfortable with taking a particular instrument onto their books will be able to tell the counterparties making the request that they do not think that instrument is sufficiently standardised to merit taking on the risk. This does of course open up the question of “what is standardised?” OTC is bespoke, so how do we work this? We have only some sense of this.

Another area of concern relating to CCPs that has come into effect in the US - and will shortly do so in the EU - is that of trade repositories for both exchangetraded and OTC derivatives. We feel this is a major distraction, because all trades are supposed to be reported; this is not the clearing, it is the reporting.

People are working out what they need to report at the end-investor level, to whom they need to report it, and in what form that information should be transmitted.

Our firm’s only dedicated project for trade reporting is

guiding asset managers to an appropriate institution.

Beyond that, it is not clear if these repositories will last long enough in their nascent form to make any other project worthwhile. CCPs have, however, been around for a while; they have proven their worth, and are being tested rigorously these days by so many reforms.

Basel III has set the global “Qualifying” CCP capital requirements. We have done some work with the CCPs that announced that they meet this central requirement – but the problem is that they have been doing so in different ways, using various hypotheses, and with or without the capital market or banking supervisor confirming this status, as is supposed to happen.

The Principles for Financial Market Infrastructures (“PFMIs”) are the other global standard for financial market infrastructures, set by CPSS-IOSCO. They are not yes/no answers, they are qualitative in nature; IOSCO and CPSS have begun to write out a quantitative supplement to them with respect specifically to CCPs. They have just completed a public consultation in this regard.

The way central clearing functions and is regarded is undergoing profound change; mainly, as far as we can see, to accommodate OTC, in some manner, rather than to have these actors use regulated marketplace options and futures to the same economic effect for their business needs.

Ultimately, looking back to 2009 and since, our main regret is that the world’s authorities did not say to enterprises and banks using OTC instruments for position management, “You are welcome to conclude private financial contracts between yourselves.

That’s what the market is about. If you choose not to do so within the perimeter of capital markets regulation, it is at your risk.” Bank capital set against those positions would have been the better route.

Thomas Murray is a private firm based in London, specialising in market infrastructure assessments and advisory.

Q1 • 2014 | GLOBALTRADING

24 | INSIGHT

The Reformation: All Change For OTC Derivatives Braian Szwarcberg-Poch, Managing Director and Malavika Shekar, Senior Consultant, GreySpark Partners.

The OTC derivatives market is characterised as anonymous and opaque. Entering into an OTC derivatives trade means that risk exposure is to the other counterparty as much as it is to the market. Therefore, if one side of a trade is in the money, then counterparty risk increases. Counterparty risk increases because the opposite side to the trade is less likely to pay what is owed.

Prior to the global financial crisis, it was not common knowledge that the risk management function covering counterparty risk was a mere ’gentlemen’s agreement’ between some counterparties because Credit Support Annex documents covered trades but margin was not always called in a timely manner, if at all. It was largely viewed as unlikely that a counterparty to an OTC derivatives trade would warn an investment bank active in the market – like Lehman Brothers, for example – on their losing trades because doing so could potentially impact a future trading relationship.

But, in 2008, Lehman Brothers filed for Chapter 11 bankruptcy when liquidity became severely squeezed in the market. Suddenly, market participants trading with Lehman Brothers at the time found they held toxic portfolios of debt trades, and that everyone in the market was suddenly a creditor. The collateral damage of Lehman’s default was widespread and triggered the start of the global financial crisis.

In 2009, G20 leaders sought to mollify these failures of the largely unregulated OTC derivatives markets by agreeing to better regulate said markets. Crucially, the G20 agreed that: • by the end of 2012, OTC derivative contracts were to become more standardized so that they could be: • traded on exchanges or on electronic trading platforms; • cleared through central counterparty clearinghouses; • and by requiring that OTC derivatives trade data be reported to electronic trade repositories overseen by national regulatory bodies like the US Commodity Futures Trading Commission and the EU’s European Securities and Markets Authority.

GLOBALTRADING | Q1 • 2014

INSIGHT | 25

Braian Szwarcberg-Poch, Managing Director, GreySpark Partners The goal of these regulations is to make the OTC derivatives market more similar in form to a market for futures. One crucial factor driving this G20 initiative is that, before 2008, up to 70% of all OTC derivatives trades were already largely standardised.

What are the key variations in regulations between regions?

Although the G20 regulations aim to achieve the same end goal, the legislators and regulators in each country where the new rules apply differ in their approach to implementing the plans.

Long term, the regulations that govern OTC derivatives trades will be consistent across all G20 nations and, eventually, also across developing countries. In the near-term, however, the main difference so far between the extent of new regulatory oversight and its practice was the timing of the implementation of the new rules.

The US was the first to move on this regulatory call to action with the passage of the DoddFrank Act (DFA) in 2010. The law was widely considered optimistic in terms of its implementation deadlines and, unsurprisingly,

Malavika Shekar, Senior Consultant, GreySpark Partners

“Long term, the regulations that govern OTC derivatives trades will be consistent across all G20 nations and, eventually, also across developing countries.” some of these deadlines were pushed back.

For the US, being a first-mover on the G20 proposals came with some disadvantages and issues around extraterritoriality began to brew.

The EU has followed the US through its current drip-feed implementation of the second iteration of the Markets in Financial Instruments Directive (MiFID) in an attempt to learn from mistakes made in the US promulgation of the DFA rules.

More importantly, the EU’s slower approach to implementation of the G20 rules benefitted the 28-member state bloc as OTC derivatives trading volumes increased when market

Q1 • 2014 | GLOBALTRADING

26 | INSIGHT

participants tried to avoid being caught under the extraterritoriality clauses of the DFA, trading instead via Europe-based entities. The rules under the EU’s European Market Infrastructure Regulation – which is a piece of legislation under MiFID – are still fluid and developing, with mandatory trade reporting starting in February 2014 and with deadlines for central clearing not yet announced. Meanwhile, the nations within the Asia-Pacific region are benefitting from third-mover advantage in the implementation of OTC derivatives trading reforms. However, as a region, Asia-Pacific is a fragmented regulatory landscape, and regulators in each country there are setting OTC derivatives reform deadlines independently of one another. For example, in Australia, OTC derivatives trade reporting is mandated using a phased approach while the central clearing of trades is not yet compulsory.

“Preparing to centrally clear the majority of OTC derivatives trades is not a quick process, and all firms affected by the rules should take steps as early as possible to ensure they are not caught out by the requirements of their national regulatory regimes.”

How should sell-side and buy-side firms look to respond and be ready for national deadlines?

Globally, the sell-side and the buy-side alike should look to respond to the onset of new regulatory regimes governing OTC derivatives trading by preparing for their implementation as early as is possible. The trade reporting mandates in the EU and US require counterparties to produce a daily report to national trade repositories; these

GLOBALTRADING | Q1 • 2014

reports must include previously unreported data and include unique trade identifiers.

Compliance with these new rules is equally difficult for a wide range of counterparties outside of traditional sellside market makers and their buyside counterparties, and the new rules also apply to a range of other markets and products outside of the scope of OTC derivatives markets. Large investment managers are expected to increase staff headcount and upgrade risk management software to prepare for the mandates. Small investment managers will equally and proportionally need to make the same changes to continue trading. In Australia, anyone with an Australia Financial Services License must comply with some new regulations that, on a broad scale, would cover any party trading OTC derivatives barring corporations.

Preparing to centrally clear the majority of OTC derivatives trades is not a quick process, and all firms affected by the rules should take steps as early as possible to ensure they are not caught out by the requirements of their national regulatory regimes. Establishing clearing relationships and testing systems early, but then not putting live trades through until mandated is the ideal option. However, only a small number of OTC derivatives market participants globally have taken these steps so far.

Presently, trading in uncleared OTC derivatives is triggering extra capital requirements for banks under the Basel III accords, which they are – in turn – passing on to clients in the form of less competitive pricing. Buy-side firms can avoid these higher fees by complying with central clearing mandates as early as possible.

INSIGHT | 27

The third tenet is to move most of the counterparty risk onto clearinghouses. The reality is that mandating the central clearing of OTC contracts does not necessarily reduce systemic risk. Instead, by concentrating counterparty risk within a handful of fit-for-purpose institutions, such risk can be accurately accounted for and, therefore, adequately managed. This is a significant improvement from the previous belief that risk would naturally spread out across the universe of investors, making the market as a whole more resilient. This assumption was proved wrong when, in 2008, the London-based trading arm of US insurance giant AIG was found to be at the end of the majority of CDS contracts in the market, leading to an eventual $85bn US government bailout of the company using taxpayer cash.

Fred Ponzo, CEO, GreySpark Partners Capital markets reforms crystalised in the US Dodd-Frank Act and in its EU counterparts that are also being similarly implemented by a growing number of other countries like Australia and Canada, for example, have a single aim: to reduce systemic risk in the global financial system.

As such, three tenets underpin the new architecture devised by legislators. First is the management of market and counterparty risk, both of which historically were commingled and buried within bank balance sheets.

These risks must now be segregated and dealt with independently from each other.

The second principle of the financial markets reform is the steep disincentive now applied to banks regarding risk-taking activities. It takes the form of punitive capital charges on uncleared or uncollateralised trades (Basel III), as well as through outright bans on proprietary trading (e.g. the Dodd-Frank Act’s Volcker Rule). The intent of these rules is clearly to nudge investment banks to fall back into their place within the global financial system as intermediaries, instead of behaving like supercharged hedge funds. Lawmakers in the EU and US favour a world wherein the provision of market liquidity is assumed by shadow banking outfits instead of deposittaking banks. In short, this change will push market risk onto firms that do not need bailing out by taxpayers if their bets backfire.

“The reality is that mandating the central clearing of OTC contracts does not necessarily reduce systemic risk.”

In this spirit, central counterparties (CCPs) should be, in essence, public utilities, operating as insurance schemes in a manner akin to mandatory, universal healthcare coverage. All clearing members to a CCP should be treated equally and should contribute premiums that are pooled to cover the risk of a default by market participants. In practice, clearinghouses are an oligopoly of competing commercial organisations in which clearing members take an equity stake. This equity cushion is meant to absorb potential losses incurred by a default.

In my view, the capital structure of CCPs represents the Achilles heel of the new market architecture. A single large default event could wipe out the capital of the CCP, triggering its nationalisation to safeguard the whole system. Maybe this is what is required to return clearinghouses to their original form of mutualised, non-profit infrastructure. I cannot help thinking we could have spared ourselves the thrill of having to look into the abyss once again in the not-so-distant future.

Q1 • 2014 | GLOBALTRADING

28 | OPINION

‘Tea for two’ Brian Godins, Global Head Equities Operations, HSBC, looks at the incoming T+2 regulations, and its consequences for market participants.

At the time of writing there were twelve European countries focused on moving from a T+3 to a T+2 settlement cycle on Monday 6 October 2014.

Another dozen or so European countries are considering a similar shortening of settlement cycles either at the same time, or at some point in the not too distant future. Markets such as Germany, Slovenia and Bulgaria already trade on a T+2 basis, as do other markets around the world, so just how revolutionary is this change?

A number of articles have been written over the last year in which T+2, Central Securities Depository Regulation (CSDR) and TARGET2-Securities (T2S) have been commented on in the same breath.

Clearly the industry is moving forward in its thinking and approach to the clearing and settlement

GLOBALTRADING | Q1 • 2014

operating model. That said, one could argue that T+2 is yet another initiative in an already congested regulatory arena, that will eat away at Operations and Technology resources in 2014, and leave the discretionary budget pot for each participant relatively bare. Each participant has a ‘shopping list’ of revenue-enabling, revenue-protecting, clientfacing, operational risk and strategic transformation programmes of work. As T+2 looms how much should we worry, and does T+2 actually complement some of those ‘shopping lists’ and the wider demands of the community? Could T+2 be a catalyst and a vehicle for creating mutually palatable benefits?

Sizing the challenge The size and scope of T+2 implementation cover many different areas; varying in complexity

OPINION | 29

require more detailed scrutiny and analysis of their operating models to understand the implications and functional requirements for their underlying client base; driven by reporting, transparency, regulation and general client demand.

Another challenge will be the global implications of T+2. The global client base of European markets means that this really is an initiative that has far reaching implications. Nowadays most broker dealers offer distribution channels where their executing entity is often very different from the contracting entity. Managing these cross border transactions, with the obvious time zone challenges they present, definitely puts extra scrutiny on the ability to settle these trades only two days after the trade date. This puts the spotlight on the quality of the trade date processes. and difficulty depending on the weighting an organisation gives any one of a number of drivers. The following are the most pertinent, but do not represent a comprehensive list.

What type of market participant are you? The answer to this question defines the implications of T+2, and the next steps that need to be taken.

The range of participants includes broker dealers, custodians, third party outsourcers, exchanges, central counterparties (CCPs), prime brokers, and a host of different buy side institutions; including asset/investment managers, funds, corporates, banks, retail, private and wealth management clients. There is a general consensus that the change to T+2 will be easier for broker dealers, CCPs, exchanges, Central Securities Depositories (CSDs) and custodians; whereas for the remainder there will be an increased level of complexity based on the DNA of those participants and client requirements. They will

Clarity on product scope is another current focus for participants. As mentioned, T+2 is not a new concept and given we have CSDR text to lean on, you would think that the clarity on which products are in scope for shorter settlement cycles would be clear. However there are still multiple views as to what is in scope, or potentially in scope; as well as questions around dual-listed securities, fixed income cash bonds, and clarity on whether an over the counter (OTC) client transaction has to be T+2. The last point is an in interesting one. From a purist’s perspective for cash equities traded on a RIE/MTF or OTF from 6 October, these will be executed on a T+2 basis. An OTC client transaction on the back of this is expected to settle with the same cycle. CSDR and harmonisation are words often used in the same sentence. A fragmented market side versus client side settlement cycle is not one that lends itself to harmonisation.

We can say with some confidence that the focus

Q1 • 2014 | GLOBALTRADING

POST-TRADE WG

This is not the time to breathe a sigh of relief if you are in the first group however, as this will not be as easy as ‘simple configuration and static data changes’. It is painfully obvious that all broker dealers, exchanges, CCPs, custodians and CSDs will need to play an important and leading part in influencing, educating and helping all participants make T+2 a seamless implementation.

This is not a programme of work we can all do in isolation, and its success will be determined by the collective sum of the parts working in unison.

30 | OPINION

that does have some credence and does resonate with most participants in some shape or form.

Whether it is a â&#x20AC;&#x2DC;big bangâ&#x20AC;&#x2122; or a phased approach, each market has made its own decision that the 6 October works for them. The markets in scope will definitely be looking on in interest at any guidance from the European Central Bank (ECB) working group or other bodies around the comfort level and viability.

Brian Godins, Global Head Equities Operations, HSBC and communication will be on settling all these European in scope settlement market transactions on a T+2 basis. Experience has shown us that in existing T+2 markets, it is not unusual to get a fair number of mismatches between a marketside T+2 trade and a T+3 client-side trade.

The wider European market focus on T+2 will hopefully add additional scrutiny on these nonstandard settlements and push the market to treat these client-side transactions as very rare.

There is much open discussion in forums, announcements and FAQs, which raises these and other questions in sizing the challenge and impact T+2 presents for firms and the industry.

One of the most commonly raised questions is the potential operational risk with so many European countries going live on the same trade date, 6 October 2014; and more significantly the concern around 8 October as the last T+3 settlement date and the first T+2 settlement date.

Operational risk in the form of liquidity concerns, failures, operational resource bottlenecks across participants are all genuine concerns, although difficult to quantify in the grand scheme of things.

They tend to take on a subjective tone although one

GLOBALTRADING | Q1 â&#x20AC;˘ 2014

The opportunities that T+2 presents Over the past 18 months I have had the pleasure of working with the Association for Financial Markets in Europe (AFME) as part of the Post Trade division, chairing the Transaction Management Committee (TMC). At the time I joined the broker dealer committee they were already actively working on a set of deliverables in the post trade services space. More specifically, they were working on a set of standards and documentation around same day affirmation (SDA), matching, allocation and confirmation for the securities product; with a focus on cash equities and CFDs. The aspiration was, and is, to influence, guide and move the industry forward in addressing the inefficiencies and lack of completeness in the T0 processing space. The percentage of trades being affirmed, matched, allocated and confirmed on trade date with executing/prime brokers and buy-side participants was too low.

At the time there was general acceptance in the market that a good chunk of essential trade date processing would happen on T+1. If you were trading with a counterpart in another time zone, affirmation may not even happen until T+2.

If we pause for a second and think about the real drivers for a change in mindset and approach to SDA, there were two heavily-focused agendas.

Firstly, the broker dealers wanting to address and reduce their average and marginal cost of doing business in a revenue challenged environment.

Secondly, and unsurprisingly, to mitigate/eliminate any trading or operational risk as soon as possible in the trade lifecycle, namely trade date. By working as a broker dealer community to create standards and expectations, it allowed the industry to focus on collaboratively and actively pushing the creation of a mature set of trade date securities processes, protocols, message formats and engagement.

OPINION | 31

â&#x20AC;&#x153;T+2 is a key part of this evolution, and should, for the securities industry, allow us to take another leap forward in the maturity of our operating models.â&#x20AC;?

On the face of it we think about T+2 as a settlement change. In reality for a large number of the participants impacted, if we get the trade booked (and booked correctly) on trade date, enriched with the appropriate data attributes in the right format, then allocated, affirmed, matched and/or confirmed on trade date, the challenge of meeting and adhering to T+2 becomes significantly easier. In essence it is predominantly about the quality of the trade date process across the industry. Get it right and settlement efficiency is one of the rewards.

To add one point on data attributes, historically we tend to think about matching of trade date fields as being focused on financial-related attributes.

Naturally it would make even more sense if the level of settlement instruction matching also increased on trade date as well. Mitigating trading risk is clearly a key requirement, and if we can mitigate settlement risk at the same time then that is a pretty impressive trade date process. The

quality of settlement instructions, and access to settlement instructions, has come into sharper focus in the industry over the last year, and it is taking its rightful place at the top table as a key driver of efficiency and risk mitigation. Each broker dealer and custodian runs its inventory and depot management processes with varying degrees of capability and forward-looking functionality. The need to look ahead, or react quickly to mismatches in ICSD versus CSD choices for settlement, for example, places an unnecessary pressure on operations and the stock loan (and repo) desks of our firms. Getting this right on trade date will benefit a number of participants and reduce the noise and pain that would naturally arise if T+2 does not coincide with higher trade date matching rates across a number of trade attributes including settlement instructions.

Needless to say, this also dovetails nicely with the harmonisation and opportunities that T2S will bring to the market from 2015.

Tea for two The wide range of regulatory programmes spanning several geographies and asset classes is sure to make this a fascinating year. T+2 is a key part of this evolution, and should, for the securities industry, allow us to take another leap forward in the maturity of our operating models.

As an optimist, I tend to see these initiatives as opportunities to help push the marketplace forward with one approach; a consistent set of priorities and expectations from all participants and the opportunity to leverage the current environment to access funding to improve processes and platforms that otherwise may not get the investment spend that operations continue to require. Yes, some discretionary initiatives will not see pen committed to paper for functional requirements and design, but I wonder whether all the current investments in platforms and solutions would have materialised without the backdrop of the current environment.

Q1 â&#x20AC;˘ 2014 | GLOBALTRADING

POST-TRADE WG

If we fast forward to today, we find ourselves at the start of 2014 with significantly higher SDA, matching, allocation and confirmation rates.

The standards put forward gave opportunities to vendors and industry utilities to fill a gap, as it allowed them to know with relative clarity what the community was demanding at a service level.

There is always room for improvement and the time zone challenge will always be there, but the momentum is such that we are moving in the right direction. One could argue that T+2 has arrived at the perfect time to provide the added stimulus to remind us that the drive for trade date processing excellence has never been more important.

32 | OPINION

provides the best possible foundation for the post-trade process.

The critical areas that prevent timely settlement include the on-boarding process when dealing for a new account requires a combination of due diligence and risk assessment, and data gathering and storage.

The availability and accuracy of the data comes sharply into focus for the brokers when they will have just one day to get everything in order. Timezone differences between buyer and seller can also delay the receipt of vital data and delivery instructions.

David Pearson, Strategic Business Architect, Fidessa, and Co-chair, Global Post-trade Working Group, FIX Trading Community The oft-quoted statistic for post-trade operations is the percentage of trades that fail at T+3, and for EU listed securities this is often below 0.04%. What this hides, however, is the cost to the business of maintaining this level of settlement. The focus for the operations manager is to allow the business to take advantage of the opportunities that T+2 brings, whilst improving post-trade efficiency and lowering operational costs. Not much to ask then.

At a time when operating costs are under the microscope as never before, operations managers find themselves looking not only at the cost of the exceptions management process, but also at driving down the price of success. The availability of open standards can allow rapid and accurate post-trade processing and leverage the investment in technology made in the front office. This then makes the persistence of data from the front office into the post-trade workflow achievable, and

GLOBALTRADING | Q1 â&#x20AC;˘ 2014

The benefits of T+2 to the EU market are significant, however. The harmonisation of the settlement period gives investors and traders greater certainty for cash management when modifying portfolios and managing risk. The ability to forecast the cash flows is paramount to an investment manager when portfolio performance is being closely scrutinised and the margins between success and failure are so narrow.

Reduced counterparty exposure will lower the business risk and increase capital availability for market participants and will benefit all.

â&#x20AC;&#x153;The focus for the operations manager is to allow the business to take advantage of the opportunities that T+2 brings, whilst improving posttrade efficiency and lowering operational costs.â&#x20AC;?

A consistent, and lower risk, trading environment for all investors is a primary goal for the EU market as it seeks to attract inward investment from around the globe. There is no doubt that T+2 will bring benefits to the investor; it is up to the market participants to make the most of the opportunity.

OPINION | 33

A key question will be: was the financial community able to tether all the disparate changes into a cohesive effort that contained cost and allowed them to meet the regulatory time lines?

Let’s return to the present and analyze where we are, as well as the separate yet tightly correlated regulations. EMIR has a new T+1 window. The harmonisation efforts across Europe have introduced a tighter T+2 settlement window (from the current T+3), which in Asia is being put into a regulatory framework. CSDR is relying on the same successful T+2 window. And let’s not forget MIFID II and the yet-to-published clearing aspect of EMIR. The list of motivations and benefits is well discussed – risk management and transparency in case of a repeat Lehman Brothers scenario, distribution of risk by clearing, as well as cheaper

processing using the CSDR framework. Some have clear cost savings, and some have come as a result of a regulation momentum which, while it may one day decrease, unfortunately cannot currently be challenged.

The question that the Operations and IT departments have to address is: can we move from bespoke asset-specific and regulation-specific solutions to a cleaner, more efficient process?

The answer relies on breaking down the key processes: matching and exception management.

The heart and soul of all of these regulations is to achieve data that is clean, non-disputed, and ready for clearing/settlement. This has a direct correlation to how quickly you can find and resolve breaks – which brings us back full circle to how efficiently you can match trades.

Matching in a T+1 (or even T+0) environment is not a trivial exercise. The shortened timeframe forces a change of negative affirmation processes that are unique in each asset class, and the disappearance of two days to resolve breaks. A complete STP and transparent model is required for a single party to match and raise exceptions same day versus all counterparts across all assets.

Banks will attempt to consolidate all trade flow to a central, client facing platform, which will be measured by its ability to highlight and manage breaks in real time, and have high STP rates.

Solutions that sit in a web browser with functionality via a cloud will enable banks to keep their infrastructures up to date going forward, without the need for rip-and-replace tactics.

Roy Saadon, Co-Founder and General Manager EMEA, Traiana

If EMIR drives back-office matching (because that is where I generate my UTI), while that same trade is also matched at the middle office due to client portals, then we will reinvent the wheel for each asset, and the markets will have failed in harnessing the momentum for change. Banks have never had a bigger focus and budget allocated for operation reinvention. Let’s make sure we grab this window to leave a lasting change by looking at the big picture and focusing on the key components – world class matching and exception management.

Q1 • 2014 | GLOBALTRADING

POST-TRADE WG

When we look back at the 2013-2015 timeframe, it will be to review a period marked by landslide change in banks’ behaviours, driven primarily by regulation.

34 | OPINION

Capping Dark Pools – Plumbing New Depths Alexander Neil, Head of Equity and Derivatives Trading at EFG Bank examines the regulatory changes facing dark pools, and the consequences for the buy-side. traded, I believe MiFID II presents the opportunity to build upon and, indeed, ‘clean up’ the existing market structure in order to maintain choice of execution venue and order handling, rather than to introduce further complexity.

Alexander Neil, Head of Equity and Derivatives Trading, EFG Bank As part of the European Commission’s review of the equity trading landscape, a proposal has been made to impose artificial caps on the amount of trades done against the Reference Price Waiver that was introduced in 2007 (otherwise known as caps on Dark Pool trading), whilst simultaneously fine-tuning the RPW to allow only mid-point executions. At the same time, the Commission is aiming to introduce higher regulatory supervision on Broker Crossing Networks (including those BCNs that operate Dark Pool books) by asking them to register as Multilateral Trading Facilities (MTFs). Whilst transparency remains of the utmost importance, its blanket application across all cases and asset classes is not the way to go; a specific concern is that the Dark Pool limits may have a detrimental effect on Equity trading and will end up raising the implicit costs of investing in Europe. Instead of dictating how and where orders are

GLOBALTRADING | Q1 • 2014

Lit/Dark Equilibrium already found?

First of all, the proposals to cap Dark Pool volume appear to have been set at a seemingly arbitrary level of 4 per cent on any given venue and 8 per cent across Europe. Although there is a genuine lack of data on the subject, the latest figures seem to suggest that Dark Pool trades represent roughly 11 per cent of the European landscape (and makes up only a small part of overall OTC volume…which also includes give up trade reports, delayed block trade reports, ‘administrative’ trade reports, etc).

Dark pool volume has indeed grown over the years, and is now made up of roughly half Exchange or MTF-operated pools and half broker-operated pools. Admittedly, the original mid-point crossing rule has largely been bypassed, but many investors still prefer a Dark Pool print thanks to the pre-trade protection it offers. Notwithstanding this, the growth in Dark Pool volume, and even venues, seems to have stopped. This would suggest that, given European trading rules, the market itself seems to have found a natural equilibrium of Dark Pool volume vs Lit .

The sell-side may well have offered access to these venues, but it is those of us on the buy-side who continue to choose to route there, both on price-improvement and marketimpact grounds. Neither of these two trading criteria can be seen as working against transparent markets, therefore, does the EC need to intervene at all to limit Dark Pool volume?

The much-awaited new OTF category will not now be available to BCNs and, thus, they will have to register as openmodel MTFs. Besides the fact that it was thanks to MiFID I that these were created, it also seems counterintuitive, as broker-operated Dark Pools offer the ability to exclude certain toxic volume factions. There is a risk that remaining dark pool quality ends up suffering (throwing the BCN baby out with the dark pool water). Surely, we must maintain the choice of working in both order books in parallel, ensuring the best possible trading outcome.

OPINION | 35

A Dark Pool by any other name The proposal to limit dark pool volume could almost be seen as an attempt to stem the very competition that MiFID I originally set out to promote. The aim of the proposal is ostensibly to make markets more transparent, and clearly any reference to the word ‘dark’, was always going to come under scrutiny (in fact, a rebranding exercise might well have gone a long way in calming fears!). If lawmakers genuinely believed that dark pool trades were detrimental to price discovery and the overall investment process, they would have banned them altogether. What conclusion are we to draw from this when midpoint/price improvement is recognized as beneficial, but only in small amounts and only for investors with the most advanced Algo’s? Moreover, since in any given trading day there will only be so many dark pool prints available, only the most technologically advanced or wellconnected investors will be able to get in first, resulting in a daily race to fill the quota. Several brokers that I have spoken to have suggested that a gradual lifting of minimum trade sizes could ensure that only the most ‘deserving’ trades get filled on dark pools. My concern with this solution would be that smaller sized trades (i.e. smaller investors) will not be eligible for mid-point price improvement. Sometimes it’s the 10bps+ price improvement that’s attractive; in other cases (illiquid stocks), its containing signalling risk.

Keeping options open Let’s not forget that Dark Pool trading came at a perfect time for the industry, where the ability to contain signalling of trading intentions was made more difficult by a perfect storm of an overall drop in volume; buy-side cost pressure; sell-side services being reduced due to drop in revenues and a drop in average trade size owing to fragmentation.

It made sense to route orders to dark venues as the most cost-effective way of trading, and continues to do so.

What seems strange to me is that despite a consultation process with the buy-side, and despite many buy-side interest groups widely calling for Dark Pools to be kept in place in their current form, Brussels seems to be intent on strongly encouraging us all to bring our trades back onto the lit markets. Surely the buy-side has no ulterior motive in this debate other than achieving better overall execution for end clients. Thus, why not simply let us vote with our orders, and keep our options open.

New rules, but old questions remain unanswered: The problem is that, even if the caps are implemented, there is still no proper ECT in place yet. The EC continues to take a light approach in galvanizing once and for all a global post-trade trail; surely it would

Q1 • 2014 | GLOBALTRADING

36 | OPINION

have made more sense to get the CT in place first and then use it to make decisions on where to trade.

Helping the industry come together to contribute to a rich and reliable post-trade CT ,and creating uniform print flags across Lit and Dark venues, would have gone a long way to make European Equity Markets more transparent. Instead, my concern is that we are being distracted by a larger debate over which provider (Exchange; MTF; Broker) should have the upper hand.

Perhaps the EC could have taken a less prescriptive approach and mirrored the Australian or Canadian regulators: There a minimum price-improvement rule was introduced across existing market structure, and this eventually led to a drop in Dark Pool volume, whilst still leaving the buy-side several attractive routing options.

As with any long-term and wide-sweeping legislation, there is the risk that by the time it becomes law, the issues and the goalposts may have moved: For example, Brussels is acting on dark pools now because they are worried that they have grown too much. But that growth has already subsided (or, at least, paused). Perhaps there isn’t any need to intervene on dark pool growth but, rather, simply to ensure that it is adding value to the investment process. It would appear more credible if lawmakers imposed a cap of say 30 or 40 per cent (which is the proportion of Dark trades in the US), but to try and cap it so close to the current level seems almost futile. Secondly, the most growth in Dark Pool volumes occurred after the financial crisis, at a time when volatility was very low. This is normally a time when traders are prepared to forgo immediate execution in an attempt to capture price improvement (less risk of prices moving away from you)… Volatility is unlikely to stay low for very much longer, and so it is entirely possible that dark pool volume will drop without regulatory intervention as investors become more willing to pay the spreads on the lit books.

It is also a shame to think that, just as the European buy-side is coming to grips with how and when to use Dark Pools (which, indeed, we now widely consider complimentary to the lit venues), the regulator may well change the rules and limit our choices. I don’t know a single buy-side firm or investor who views the growth of Dark Pool trading as detrimental to their execution quality.

Will volume really get ‘lighter’, or will OTC grow?

I don’t think that volume will migrate overnight to the lit book as intended, but, rather, there is a risk that overall OTC volume actually ends up growing as investors elect to go back to bilateral Phone block trading and the trades are reported back to the exchange with a considerable

GLOBALTRADING | Q1 • 2014

delay. Surely, this cannot be preferable to electronic dark pool trading, where at least the trade reporting element is automated, and the buy-side has greater control over the order. My other concern is that if the EC mandates full use of the LIS waiver (already in place, but often supplanted by the RPW), overall volume quality will suffer, as traders may elect to let orders build up on their blotters until they have a large order and then work it in the dark pool, thus harming lit order book quality. Neither one of these outcomes feels like a better choice than that on offer today.

An even worse outcome could be that we see volume migrate to venues domiciled outside of the scope of the regulation. This eventuality could truly lead to a lack of transparency and accountability in our domestic trading.

If we have to allocate trades more selectively, our trading behaviour will adapt, but we’ll be losing the flexibility of simply parking a large chunk in the dark pool, safe in the knowledge that we can work on the lit whilst also not missing a crossing opportunity. Whilst working a chunky order on a Swiss midcap for example, if suddenly I can’t do that, I’m going to have to dedicate all my time to making sure that the market doesn’t figure out my full size, which may well include phoning a few trusted brokers to try and find natural blocks. This doesn’t seem like the most efficient use of a buy-side desk, and it’s something that we could be doing with our own OMS. Maintaining buy-side choice Ultimately, the new rules should be there to promote greater transparency and greater competition (wasn’t that what the original rules set out to do in 2007?) but, inadvertently, they might limit buy-side choices. Lawmakers should not forget that the buy-side works on behalf of the investing public, not against them, and that any rules that explicitly limit our trading choices could raise the implicit costs of investing. The argument that retail investors are unfairly treated in the modern market structure seems to run counter to the reality that most of the investing public are already represented by pension funds and asset managers.

The choice to route orders to a dark pool should and must always be taken by the buy-side only, and I believe most investors are grateful for the opportunity to do so.

OPINION | 37

Transparency With Alasdair Haynes, CEO, Aquis Exchange Crossing networks play an enormously important part in market micro structure. They are where orders can be matched to each other and so reduce market impact. We believe the proposals to restrict dark flow would be a huge mistake and we are sure the regulator doesn’t deliberately intend to remove this very valuable part of the business. Natural crossing is something that brokers have been doing for hundreds of years and they should be able to continue.

There does appear to be a problem in the industry with regards to transparency. The market should be fair, inclusive, simple in nature and, of course, transparent. Transparency should be the main aim of anybody creating a market.

“If dark pools have a simple process, are easily understood and try to match orders of size so as to reduce market impact, it can be hugely beneficial.”

Transparency is particularly important with regard to price. There has been much discussion about the structure of exchanges and what is charged for trading. If you look at the pricing policies of many of the national exchanges, you see how complicated and difficult the pricing descriptions can be, which is hardly transparent.

We think subscription pricing is the solution.

When the buy-side considers what they are

Alasdair Haynes, CEO, Aquis Exchange paying for trading, the answer should be very simple – $X per month. This is good for both the buy-side and the sell-side. We think we can help expand the margins of the sell-side and that the buy-side will benefit too.

If dark pools have a simple process, are easily understood and try to match orders of size so as to reduce market impact, it can be hugely beneficial. We all know about the problems of maker/taker pricing and that there were issues from the buy-side who weren’t comfortable with it. There was no transparency and a duopoly in the market.

In general we believe the regulator likes the concept of subscription pricing because it is fair; a big user will pay more, a small user less. And subscriptions allow markets to grow without the complexity experienced under maker/taker pricing models.

We are not expecting the other exchanges to love us and what we do, but we do think we have good support from the buy-side and the sellside and we have the support of the regulators.

Q1 • 2014 | GLOBALTRADING

38 | OPINION

Blurred Definitions; Broken Models With Clive Williams, Global Head of Equity Trading, T Rowe Price The exchanges are also increasingly becoming more like technology companies, they’re not trading companies; data is where they make their money which is counterintuitive.

It’s been tried before, but maybe now is the time for the buy-side to get together and have their own exchange. We haven’t seen that yet, but anything is possible.

Clive Williams, Global Head of Equity Trading, T Rowe Price

Everyone comes up with a more complex answer to solve the same issue but not so long ago that market structure was relatively simple. Why do we need 50 dark pools and 13 different exchanges?

They say its competition. I struggle to see that.

It’s just about a different pricing model? Again, that all pertains to the maker/taker model where the biggest clients are the high frequency traders.

They’re not looking after the investors and are not interested in fundamentals or even risk taking.

They are just sand in the machine.

People are very much aware of dark liquidity and what it means. But what I think people are probably unaware of is that if you add up all the volume in the fragmented dark then the true volume number is closer to 55%, and not the 40% that is commonly quoted. So it’s the minority of trading that actually is used to develop price formation; price discovery is being impinged by dark flow, which is a challenging situation.

An exchange is supposed to be a facilitator for companies that want to raise money, help the economy and grow jobs. We seem to have lost sight of that; companies no longer want to come and list in the market. They’re happy to stay private longer as financing of private companies is much easier today. Increased regulation may have possibly played a part in the reduction of listed companies but it’s nowhere near the full answer.

Brokers are increasingly indistinguishable from exchanges, and vice versa, both want to be each other. For example, NASDAQ tried to launch algorithms to try and compete with the sell-side. It becomes accepted behaviour.

The arguments that we hear from the sell-side, namely that exchanges are too expensive; the simple way to solve this is to reduce the exchange fees, and that’s the access fees, which is all part of the maker/taker model. Ban maker/taker and a lot of issues would be solved.

GLOBALTRADING | Q1 • 2014

We suffer as an institution as these small, growth companies are no longer serviced by research analysts; approximately 40% of all listed stocks globally don’t have any research coverage.

This lack of research and promotion is because there are no incentives for brokers to pick these things up. They’re busy spending their money on technology and trying to interconnect with the dark pools and venues; they’re forgetting what they were about, namely helping companies raise capital and grow.

40 | AMERICAS

Risky Business George Rosenberger, Managing Director and Head of ConnEx, ConvergEx Group, examines the current trends in risk management, and trade-away flow.

What does the risk management landscape currently look like?

Over the past three years, clients and vendors have been increasingly focusing their efforts and resources on pre-trade risk management due to changing regulations. Broker-dealers that provide market access are required to have pre-trade risk/suitability checks in place for their clients. Inadequate checks can result in a dislocation in the market. Even worse, it can potentially result in financial and regulatory peril for brokerdealers. And, at the end of the day, broker-dealers may be responsible for orders that their clients execute, even if a client goes out of business as a result.

For the most part, executing broker-dealers have some basic pre-trade risk management checks in place. Many of them have their orders stop at the desk for evaluation. Others have more straightthrough DMA-like order types, but have some pre-trade controls in place for aggressively priced or oversized orders. One segment that has been underserviced in this space has been correspondent clearing firms. Market Access Regulations have largely focused on executing broker-dealers. But, clearing brokers may also have a responsibility and be exposed to risk if they donâ&#x20AC;&#x2122;t have the appropriate

GLOBALTRADING | Q1 â&#x20AC;˘ 2014

pre-trade risk/suitability checks in place. Many correspondent clearing firms have risk settings in place with their executing broker counterparties, but not with their mutual underlying clients.

What is an existing scenario that would be of concern to clients/prospects?

Letâ&#x20AC;&#x2122;s look at the following scenario. ABC Securities is an executing broker for Smart Asset Management.

Smart Asset Management clears with Wall Street Brokerage. ABC Securities and Wall Street Brokerage have a clearing relationship in place. ABC Securities delivers executed orders to Wall Street Brokerage via several industry utilities including 9a/9b, QSR and ACT. In certain situations, Wall Street Brokerage can set buying power/share size thresholds for ABC Securities in aggregate, but not for their mutual underlying clients. This puts Wall Street Brokerage at risk for client default. If ABC Securities does not have adequate pre-trade risk management checks in place, not only are they exposed as the executing broker, but as a result, Wall Street Brokerage is exposed. If Smart Asset Management sends an oversized order to ABC Securities and that order makes it through to the market, either because of weak or no risk checks, both ABC Securities and Wall

AMERICAS | 41

Street Brokerage are then scrambling knowing that Smart Asset Management cannot cover the trade.

“Ideally, advanced pre-trade risk management systems can be put into place at executing broker-dealers as well as at clearing firms to set appropriate limits at the client/order level.”

There is also a risk gap on the prime brokerage side. Prime trades, where an IBD introduces a client to the clearing firm and that buy-side entity trades away, are not being appropriately managed to account for risk. Clearing firms need this information in orders to see the total capital usage for the IBD. Most clearing platforms look at the underlying accounts after the trade

is booked. This is okay from a buy-side client leverage perspective, but does not provide the clearing firm with the full picture of the IBD’s capital usage. Risk systems clearly need to perform risk checks for executing brokers vs. prime brokers or vice versa in the near future.

How are practices shifting and adjusting?

Until recently, a firm like Wall Street Brokerage had little to no control of their clients’ traded away order flow, meaning that when the underlying client executed with a third-party broker-dealer either to pay for research or a soft dollar commitment as examples, Wall Street Brokerage didn’t manage that flow. There is a shift in the marketplace by larger clearing firms to change that practice. Increasingly, top clearing firms are mandating that clients who trade away go through the clearing firm’s pretrade risk checks first. This gives each clearing firm control of orders on a pre-trade basis even though they aren’t executing the orders for clients.

Ultimately clearing firms may be responsible for clearing and settling trades even if the order is oversized due to a fat-finger error on the client side. They could fail to deliver and that then also becomes an issue for the clearing broker.

Q1 • 2014 | GLOBALTRADING

42 | AMERICAS

Ideally, advanced pre-trade risk management systems can be put into place at executing broker-dealers as well as at clearing firms to set appropriate limits at the client/order level. Implementing risk controls at the FIX gateway level and in front of a broker hub is the optimal solution for all parties involved. It is tremendously difficult for firms to properly identify their underlying clients in order to set risk levels.

Some of the more advanced risk systems identify underlying clients, but also offer brokers the ability to group like clients into risk groups (e.g. longonly clients versus hedge funds, stat arb clients versus manual trading desks, etc.). Audit trail is another critical component of risk. Understanding the needs of the broker-dealer community is very important. With that said, robust risk management systems offer reports and MIS packages that show which clients hit risk checks, which risk profiles were updated, and by whom and which new profiles were created by underlying clients.

Regardless of the solution chosen, broker-dealers are realising that it is much easier to implement a third-party risk management solution then try to build one of their own. In 2014, we expect to see two or three major clearing firms enter the pre-trade risk management space, and mandate that their clearing clients route through their risk gateway prior to the executing broker receiving the order. The space is certainly changing and industry players are taking notice and shifting priorities.

Do you see a lot of risk systems catering to this segment today?

No. In fact, this segment is very much underserviced in the marketplace. However, we are having more and more conversations with clients and prospects about it. As risk departments at larger firms expand their internal risk analysis, they are realising that there is serious exposure from trade-away business.

Some solutions allow broker-dealers to combine trade-away order flow with order flow that routes through their execution systems so that they can have a more comprehensive view of the exposure by client, regardless of the executing broker-dealer.

Is it challenging for broker-dealers to segment their clients into different risk groups?

We constantly hear about the challenges that brokerdealers encounter when setting up the appropriate risk levels for clients. Good risk systems allow

GLOBALTRADING | Q1 â&#x20AC;˘ 2014

George Rosenberger, Managing Director and Head of ConnEx, ConvergEx Group broker-dealers to group clients into specific risk groups. These risk groups classify and group clients with each other based upon their risk profile.

What is the next major enhancement coming to the risk software space?

In the next year, we will begin to see risk software that will capture and profile clientsâ&#x20AC;&#x2122; trading patterns over time. It will create benchmarks to allow risk managers to refine their risk settings for individual clients. These new trading profiles will make a risk managerâ&#x20AC;&#x2122;s job a lot easier. It will take the guess work out of what the appropriate buying power level is for a client or how a client uses their buying power throughout the day. It will also take into account clients who cannot short sell due to charter reasons, what the average trade size is per client and other relevant factors.

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44 | EUROPE

The Future Of The Buy-Side Carl James, Global Head of Fixed Income and FX BNP Dealing Services and Managing Director of Dealing Services UK looks at changing technology, and changing skills, on the buy-side desk.

In the past, when trading was mostly manual, traders could handle between five and eight orders at any one time.

Advances in technology have meant that today, thousands of orders can be processed at once through the use of FIX connectivity, small order routers and algos. The workload has simply moved from the sell-side to the buy-side.

There are, however, benefits for the buy-side as the industry matures, due to the powerful technology now available, through increased regulation of the industry and changes in market infrastructure. These benefits include increased transparency and increased choice on how and where to execute. In additionfar less people are actually required for trading today, as the traders role is more to do with overseeing the process, through technology.

Multi-asset trading It is too early to have a full multi-asset trading desk because the operational processes are not aligned enough. Equity is one asset class; whether you’re trading a German small cap or a program trade of many hundreds of lines, you are trading one asset class and therefore the functionality and the market infrastructure you go through is the same.

However, fixed income, for example, is made up of multiple instruments that have very different structures and trading methodology; money market trading requires a very different skill set to the trading of rates, which again uses a different skill set to trading high yield credit.

Currently, if you become a multi-asset trader, you would have a more a generalised skill-set. It is unlikely that you would be able to add the most value to your underlying client. So, I don’t think that the market infrastructure; technology or skill-set is sufficiently established for people to be able to trade seamlessly across asset classes.

However, we are seeing implementation of electronic trading across the various different instruments within fixed income. Cash rates being the most advanced, which now utilise FIX connectivity.

There are key differences between equity and fixed income instruments, which is why I think it will take

GLOBALTRADING | Q1 • 2014

longer to establish multi-asset trading. There was some research carried out back in 2007 that looked at market liquidity which found that European equities had 9,000 listed instruments, which on average traded between 450 and 650 times a day. On the fixed income side, at that time there were 300,000 bonds and on average they traded one and a half times a day. A distribution curve of this would be hugely skewed to the side of cash rates. You might have some high-yield credit, some ABSs, some NBSs, that just won’t trade. They would be issued and then just held to maturity. There is therefore a clear difference between how these markets operate.

“There are key differences between equity and fixed income instruments, which is why I think it will take longer to establish multi-asset trading.”

There are of course key differences between equity and fixed income which are nicely highlighted in TABB Group’s research from July 2012, ‘MiFID II and Fixed Income Price Transparency’. It highlights, that ‘one equity share is exactly the same as another (within its voting class), bonds issued by one entity are not necessarily all the same. Even bonds issued by the same entity can have very different features, such as issue and maturity dates, coupon rates, call and put features (if the bond can be redeemed early), and whether payment is secured by an individual or pool of assets’.

In addition, TABB studied ‘Xtrakter data, by examining a representative slice of European debt traded during Q4 2011 and Q1 2012. We examined five of the most frequently traded European companies: France Telecom SA, Belgacom SA, Deutsche Telekom AG, Koninklijke KPN NV and Vivendi SA. An equity investor would have two or three choices in the common stock of any one

EUROPE | 45 of these (because all of these companies had issued equity in more than one denomination). However, between the five firms, investors had the choice of a significantly greater number of fixed-income products.

• A total of 147 corporate bonds existed.

• One firm had issued six corporate bonds (Belagcom SA), while France Telecom SA had 55 bonds to choose from.

• The total number of fixed-income debt alternatives amounted to 207 products to choose from.

• The number of equity trades during the same data period dwarfed the debt transactions by 167 to 1.

• Deutsche Telekom executed almost 3,500 equity trades for each corporate bond trade.

• The size of the average debt transaction was 845 times larger than the average equity order.

• The average size of Belgacom’s debt trades was almost 2,600 times larger than their equity trades.

In essence it highlights that equities are one asset class, and trade relatively frequently, whereas fixed income have a higher number of bonds being issued but are traded far less frequently.

Since the 2007/08 financial crisis, there has been complete collapse in principal pricing and inventory levels are at an all-time low. This means that the market has shifted more to an agency-driven model. With regulatory issues prevalent, particularly MiFID II, pre-trade and post-trade transparency, there is some sense of the unknown with fixed income. We are in a rapidly changing environment and the direction of that change has yet to be fully determined.

Keeping the desk relevant On the buy-side there has been a lot of focus on trade cost analysis to benchmark the buy-side trading function. In my view a broader metric is more appropriate to measure the added value, and therefore the relevance of the buyside desk. For example through professional, experienced dealers; sophisticated technology and best practices.

Asset managers, hedge funds, asset owners that have a dealing function, have varying views of the value added of this function. Some houses put a huge emphasis on trading – it’s part of their DNA, and see trading as a crucial part of their overall investment process. There are other houses that see research as the main driver and execution as a minor detail, almost an administrative function.

Carl James, Global Head of Fixed Income and FX BNP Dealing Services and Managing Director of Dealing Services UK One of the challenges for buy-side dealers is the maturing of the process of execution, through technology. This means that more trades have the ability to be executed automatically, with no intervention by a dealer and that the dealer needs to adapt his/ her skill-set, so that their offering is still relevant.

This significant change in the buy-side dealing landscape is becoming of more and more interest to CEOs, CFOs, and COOs. They are questioning what value their buy-side desk can bring to their process, what cost is this to the business, and can it be justified.

This is what has changed the nature of the buy-side dealer’s relevancy. It’s about investing in technology and ensuring that the dealers have the required skill set. Technology will be leveraged to process the small liquid trades. Whereas the dealers will be required to have a skill set to enable them to pick up the illiquid, intellectually challenging, difficult trades where they can add the most value.

Dealing Services provides a dealing platform for any buy-side house, to cater for these varying views. We offer the ability for fund managers to send their orders, to be traded, to specific geographic regions and within that, specific asset class desks.

Q1 • 2014 | GLOBALTRADING

46 | EUROPE

Buy-Side’s Unlocking Business Value Through Technology A FIX backbone has become the standardisation layer to the sell-side trading community, empowering the buy-side and equipping them with the agility and flexibility to swap and change trading partners to realise greater value in their business.

Michel Balter, Chief Strategy Officer for CameronTec Group, says the market trend over the past five years is a transformation in the way firms perceive their investment in technology. “No longer are buy-and sell-side’s rationalising technology as a cost centre, instead the thinking has shifted to ‘profit centre’ and ‘profit enabler’. This is opening up new opportunities to deliver connectivity infrastructure for buy-and sell-side’s to unlock the value of their business.”

“In the past buy-side’s relied on the sell-side to provide their trading connectivity technology, a sub-optimal strategy given they could be trading with multiple sellside partners and so required to manage many trading solutions.”

Michel Balter, Chief Strategy Officer, CameronTec Group of-breed technology to offer execution services to buyside peers for both optimal FIX connectivity to sell-side destinations and FIX hub access for their external clients.

In doing so, buy-side’s acting as externalised dealing desks are changing the trading landscape by competing directly with sell side trading partners to attract order flow.”

In the past buy side’s relied on the sell side to provide their trading connectivity technology, a sub-optimal strategy given they could be trading with multiple sell side partners and so required to manage many trading solutions. Take this scenario and multiply it by asset class traded, and it quickly adds up to a large operational constrain for any buy-side firm.

“A FIX technology backbone is the ultimate business enabler, giving firms the ability to flexibly switch between platforms by plugging and unplugging a variety of solutions,” adds Balter. “The advantages of a FIX entry hub and FIX exit hub are clear. Firstly a reduction in connectivity cost, followed closely by the reduction of time to market, combined with a greater capacity to trade many assets on the one technology.

It has not only been the advancement in technology but the tightening of regulations that is triggering greater buy-side investment in trading infrastructure. Balter says: “Today we are seeing a number of Tier 1 asset managers taking advantage of new regulatory constraints to leverage best-

At the same time, sell-sides are not taking the shift in buy-side reliance lying down. They are counter responding by leveraging FIX to offer more advanced services such as the leasing of algos to sell-side peers and of course the buy-side community itself.”

GLOBALTRADING | Q1 • 2014

ASIA | 47

The Changing Nature of Algos In Asia

Matt Saul, Head of Trading Asia ex. Japan at Fidelity Worldwide Investment looks at the changing technology of algos in Asia. although using this data to improve future trading outcomes has to date proved challenging.

Matt Saul, Head of Trading Asia ex. Japan at Fidelity Worldwide Investment How has increased algo trading affected market microstructure across Asia?

We’ve seen market microstructure changing partly as a result of algo trading but also as exchanges reduce spreads and change rules to facilitate growth in trading volumes (read HFT and general quantitative trading).

This in turn has triggered algo providers to further evolve their strategies, all of which seems to be resulting in less (and more ephemeral) displayed market liquidity.

Our usage of algos made a step change higher several years ago, it has been relatively stable since then, but still accounts for less than half of our total activity. The nature of algos being used however has certainly evolved over the last few years, with more vanilla strategies being refined to suit our traders styles and greater use of what I guess you’d call opportunistic strategies. Tools for monitoring trading (algo and more traditional) have also greatly improved as has “live” TCA,

How this change affecting the trading desk decision process between self-directed flow, high touch and block trading?

As discussed, the ratios of our activity are relatively stable. Barring some radical new development the most likely trigger for a further sharp rise in share might be another marked downturn in markets. This would reduce market turnover, probably trigger further cuts from brokers “high touch” desks, further degrading their offering and making it more likely that we would not chose to pay the commission premium, instead relying on our own capabilities.

What comes next?

I think given the current high level of regulatory change, most brokers and clients are merely struggling to keep their existing strategies “compliant” and ensure that they adapt to changes in market microstructure. Developing markedly new strategies seems to be something for a more profitable time in the cycle.

The biggest open strategic question for the sellside, which has made tentative steps toward merging different channels, is as to whether they really embrace this change in a disruptive way and try to recapture some value of anonymity and liquidity access that they previously gave away (almost unwittingly) with the development of “low touch” desks in the previous decade.

My other forecast is for somebody to attempt more intermediated “dark” (grey) block crossing facilities.

Q1 • 2014 | GLOBALTRADING

48 | ASIA

The Evolution Of Asian Algorithmic Trading

With Murat Atamer, Head of AES Product, Asia Pacific at Credit Suisse How has increased algo trading affected market microstructure across Asia?

Market structure, regulatory environment, and advanced technology are the key factors promoting the use of algorithms. This is evident from the fact that a good trader uses drastically different algorithms in South East Asia from those she would prefer in liquid developed markets in our region. Spreads are the driving force as once they get smaller, displayed liquidity decreases and manual trading becomes difficult, resulting in an increased use of algorithms.

“Electronic trading platforms that provide feedback to designers as well as the users will naturally evolve to be superior to mechanical platforms that lack this capability. ” Over the past few years, we have seen a considerable increase in the portion of overall trading going through algorithms. This is evident in the data as volume curves across securities within a market look increasingly similar to each other.

The fact that VWAP and volume participation

GLOBALTRADING | Q1 • 2014

Murat Atamer, Head of AES Product, Asia Pacific at Credit Suisse algorithms have been the “go to” algorithms for most buy-side traders explains these patterns.

Recently we see a heightened interest from the buy-side on opportunistic algorithms that go beyond their predictable, yet very mechanical, predecessors. Traders want algorithms that “act” like a human trader by focusing on real-time market dynamics. There is also an increased focus on performance and a move away benchmarks that encourage high participation rates.

ASIA | 49

With the current amount of algo usage in the major markets in Asia, change in market microstructure is inevitable. That’s not necessarily a bad thing, it just means that users have to keep a very close eye on the workings on their algos and on how their algos affect markets. The float type algos have had most traction, although newer generation algos tend to be combination of algos e.g. Implementation shortfall and VWAP or float and VWAP. Our policy is (and has always been) best execution and acting in the best interests of our clients. Our focus is on minimisation of impact costs rather than ratios. We look at execution services in terms of high touch and low touch, and the final choice of venue will be the one in which total impact costs, inclusive of commissions, are the lowest.

Jacqueline Loh, Head of Asian Trading, Schroders

I actually think TCA provides the impetus for the next stage of algo development. As TCA reports provide more detail on the relative performance of algos, buy-side traders are in a position to objectively evaluate which ones work best for them. When a critical mass of buy-side traders do this and seek to enhance the algos they use, this will drive development on the sell-side.

What comes next for algo strategy and development, and who will drive the change – regulators restricting innovation, buy-side pushing for more control?

These are exciting times. The SFC’s regulatory drive forced traders to get a deeper understanding of the algorithms they are using. This has opened up a lot of debate between the algo users and the designers.

We have seen a decline in the number of algorithms used by a typical buy-side trader. All of a sudden safety measures available to brokers to protect buyside orders have taken the front seat. Traders were more interested in fat finger protections and on how broker circuit breakers work than getting another custom algorithm; and therefore, for the first time we have seen cancellations on custom algo requests from the buy-side. The regulatory push for safety has set the stage for less algorithm providers as well as less algorithms. This is likely to mark the beginning of a period for further specialisation by the traders as well as by brokers where they will focus extensively on bettering their existing algorithms. A much greater level of transparency between the buy-side and the sell-side is crucial for achieving this systematically.

Particularly, the traders have no visibility on the child slices sent to the market by the algorithms

that they are using, and, therefore, have been pushing the sell-side on fix tags that provide liquidity indicators, i.e. Tag851, which would provide this information real-time. Electronic trading platforms that provide feedback to designers as well as the users will naturally evolve to be superior to mechanical platforms that lack this capability. The feedback does not necessarily need to be real-time as long as it is available for in-depth analytics. In this regard, TCA can be a crucial tool to bridge this gap and provide the much needed transparency to the buy-side. Historically, TCA has offered little insight in terms of “selecting the right algorithm.”

With this in mind, we have been actively looking at our platinum client orders and have been closely working with them on their algorithm choices based on stock, market, as well as order characteristics to help them achieve better execution.

Q1 • 2014 | GLOBALTRADING

50 | ASIA

Broadening Horizons David Lawrence, COO, Asia Pacific Stock Exchange (APX) examines how new venues can differentiate and work for niche markets.

Capital movement between Australia and Asia APX was developed to bridge the gap between Australia and mainland China and other domiciled businesses. It aims to bring Chinese companies to the Australian market – particularly Chinese companies seeking access to western capital or who are sourcing products from Australia or who are looking for distribution channels. Essentially we are building an offshore Chinese market that will be an alternative to Hong Kong, Shanghai and Shenzhen.

At the same time, both our Sponsor partners and the corporate advisory part of the AIMS Group are working to bring listings into the APX. So it’s the combination of listings and investors which is bringing products and liquidity onto the market.

We are also building a trading platform which trades and settles in RMB. By bringing in Chinese or Australian companies that want China’s capital and Chinese investors who will be trading in RMB, we are taking the currency risk out of that capital raising. We are providing a platform which is, in many respects, Chinese-oriented, but offshore China.

Domestic capital flows APX also concerns itself with Australian companies looking to expand their network and business in Asia, a listing on APX is a great alternative and an opportunity to broaden their investor base and attract Asian capital.

APX is set to become an important new venue and catalyst for greater capital flows and business links between Australia and Asia. We want to ensure that there is global awareness of the emergence of APX in Australia and that with it comes a new way of doing business and a means of bridging the Australian and the Asia Pacific markets.

APX is a listing and trading market in Australia. Over the last couple of years we have been rebuilding the APX market into a new listing and trading platform. It has three main pillars of business: • Capital movement between Australia and Asia, particularly mainland China.

• Domestic capital flows, and • Niche market sectors.

GLOBALTRADING | Q1 • 2014

Niche markets There are currently markets that are not well serviced in Australia or that have a special relationship with Asia (and mainland China in particular). It is here that we can develop new products or a new way of bringing a listing to the market which will particularly suit the needs of those niche sectors.

Markets that we are currently looking at include special sectors in the mining industry, oil and gas, Agri business and real estate investment trusts. We think those areas can be improved upon and by working with those sectors we will develop frameworks to attract a new list of products, to meet the needs of investors and to facilitate capital flows.

We are aware of the challenges we face; we feel a bit like David against Goliath in the region as we are effectively competing with Singapore, Hong Kong and other big markets. Therefore, we have to look at doing things differently and I think the latest industry buzz is that we bring quality and expertise in our staff as well as experience in markets and data. We are focused on the future – not the past – and on what

ASIA | 51

can we do differently. That to a large extent creates excitement in what we are doing, and gives us a completely different angle on how we do things.

When you look at how western markets have tried to capitalise on working in China, one of the things they haven’t done very well is to understand Chinese culture and the Chinese community and the need to develop deep long-term relationships.

Where we differ is that we have already built up those long-term relationships through the connections that exist between AIMS and China. It is a long term process; China commits to us for the long term and we commit to China in the same way. Nobody wants to be in a situation where everything changes overnight. This business is built around a long-term commitment to building an exchange and a long term commitment to those relationships.

Market differentiation The key to the evolution of the model will be through the development of quality niche markets that attract companies with investors with an interest in that specific area and the development of flexible frameworks that are niche-oriented. The old model of ‘one listing framework suits all’ is no longer appropriate, although Australia developed that system quite well, particularly in the mining industry.

“We have focused on a market approach that is attractive to long term investors and which also focuses on the long term relationship aspect.“ We will be looking to develop a centre of excellence around the Agri-business sector. I can see other markets globally developing similar sorts of strategies to differentiate and position themselves against the major players. The smaller markets bring agility to the industry that the bigger players just don’t have.

David Lawrence, COO, Asia Pacific Stock Exchange (APX) From an Australian perspective, we are going against the tide too. We have focused on a market approach that is attractive to long term investors and which also focuses on the long term relationship aspect. We will discourage high frequency trading on our market because the feedback from long term investors is that they just don’t like it. They want a stable market and to be able to invest based on the fundamentals of the company, not on short term swings in market sentiment.

Long term investors don’t want high frequency small parcels switching in and out at the market as that is not the way they invest. We are looking at designing a trading market which suits the way investors or sectors of the market want to invest.

I think this is a model which will evolve. Globally there are the major exchange players, which can be difficult to compete against, but a market needs to be able to differentiate itself somehow.

Differentiating yourself on the trading side or through high frequency trading is not really going to be effective as a majority of trading technology has all been commoditised now.

Q1 • 2014 | GLOBALTRADING

Product Overview | 53

Transparency Through Latency Analysis

By Markus Löw, Head of Monitoring, Vassilis Vergotis, EVP & Head of Americas and Fabian Rijlaarsdam, Monitoring Analyst at Eurex Exchange.

Technology is one of the most important cornerstones of electronic markets and, more broadly, of today’s global markets. As technology allows for increasingly complex systems from a design standpoint, it is essential to get a clear view on each step inside a system to understand outcomes. Gathering data at discrete points and understanding the outcomes within such systems is a practical way to break down the complexity and deliver digestible information. Within the area of financial market technology, especially in the case of exchanges and alternative trading platforms, transparency is essential for monitoring the fairness and market structure of financial markets: • Data analysis on latency is important in this matter, as it provides insight into the technical infrastructure.

• Latency statistics are essential to provide users, operators and supervisory authorities detailed information on the performance and stability of technical infrastructure.

“Within the area of financial market technology, especially in the case of exchanges and alternative trading platforms, transparency is essential for monitoring the fairness and market structure.”

Markus Löw, Head of Monitoring, Eurex Exchange Despite the common perception that these statistics are valuable and important in understanding developments in market structure, two problems exist: • Data analysis on latency is important in this matter, as it provides insight into the technical infrastructure.

• Secondly, and perhaps more important, is that many people do not fully understand the data that is available.

The reason for this is the deep dependency on in-depth knowledge of the technical infrastructure that is used.

This article aims to increase understanding of latency statistics by expressing our view on latency, using Eurex Exchange’s latency statistics as an example. Our latency

Q1 • 2014 | GLOBALTRADING

54 | Product Overview

Achieving a common definition of latency As a starting point, we refer to latency as the time between the arrival of a message on our application space ’gateway’ and the send-time of the respective message-response, which is commonly known as the (exchange-) round-trip time.

Graph 1 represents the distribution of these exchangeround-trip times on Eurex Exchange’s T7. The graph depicts transaction latencies in microseconds. The probability density function of round-trip latencies is shown on the left Y-axis and the cumulated probability is shown on the right Y-axis. When analyzing the graph, one can look at a number of variables: the mean, median, standard deviation or tail (i.e. higher percentiles of the distribution).

Vassilis Vergotis, EVP & Head of Americas, Eurex Exchange monitoring tools are helping our Participants to optimize and adapt their trading strategies to the market and infrastructure available. Eurex Exchange’s latency, transparency as well as the detailed monitoring capabilities have been well-received by Trading Participants across the board and have helped the Exchange and its Participants to collaboratively solve problems. Most recently, these figures have proven that our new T7 trading architecture has drastically reduced latency and increased consistency in our technology.

Since the introduction of Eurex Exchange’s T7, latency statistics have demonstrated that T7 is significantly faster than the Exchange’s previous trading system.

Average (request to- response) round-trip latency has been reduced from approximately 3 milliseconds on the previous trading system, to approximately 250 microseconds on Eurex Exchange’s T7. According to a number of sources, including Automated Trader’s extensive 2013 Global Trading Trends Survey Report, many Participants in the market have taken the decision to withdraw from the “latency arms race”, judging incremental improvements in round-trip times to be just too costly. Against this backdrop, the consistency improvements triggered by Eurex Exchange’s T7 are more important to a wide range of market participants that deploy less latency-sensitive investment strategies.

GLOBALTRADING | Q1 • 2014

Graph 1: Round-trip latency distribution of Eurex Exchange’s T7

When looking at data, the average is an easy figure to grasp – and therefore often used. However, it can be rendered imprecise if the measurement cited is an average collected from a number of different products and/or time frames. Therefore, in the remainder of this article, we will mainly look at the tail of the latency distribution shown in graph 1, as these are the cases in which Participants run the highest risks due to being uninformed of the status of their transactions.

There are several plausible explanations with regards to the occurrence of such a tail: • On the one hand, a technical issue delays transactions coming in, causing Participants to unnecessarily run higher risks.

• On the other hand, if a certain market situation, e.g. a scheduled news event, causes Participants to behave in a correlated manner, the delays still imply extra risk for Participants, but this risk is introduced by the physical limits of the exchange system: the better the system, the less risk Participants run.

Product Overview | 55

Either way, latency figures or other data analysis on transaction traffic help both Participants and us to understand the robustness of latency in the system. From the graph we can see that, on an average day, over 90% of the transactions in Eurex Exchange’s T7 have a round-trip time latency of less than 400 microseconds.

Monitoring tools at Eurex Exchange Eurex Exchange supports the goal of promoting system transparency in the industry. Our wide range of monitoring tools is designed to give users extremely granular and detailed timestamp information.

Furthermore, Exchange Participants do not only receive their own data, they also have access to the “best in class” data values for each measuring point in order to benchmark their performance.

Within the round-trip measurement discussed earlier in this article we implemented a series of smaller measurements on numerous points within our hardware and software, in order to provide as many independent measuring points as possible and practical. By doing so, we provide our users access to more data to enhance their own performance analysis.

“Since the introduction of Eurex Exchange’s T7, latency statics have demonstrated that T7 is significantly faster than the Exchange’s previous trading system. ” Transparency promotes trust as well as cooperation Wolfgang Eholzer, Head of Trading IT, explains that offering latency monitoring tools has benefitted market participants and their introduction has been immensely positive for Eurex Exchange. He says: “When we first introduced our monitoring tools, we quickly learned that empowering our Participants to monitor their own latency, was an immensely productive step. Our Trading Participants’ IT staffs proactively contacted us with questions and observations and some helpful constructive criticism.

As a result of our openness, we were able to work

Fabian Rijlaarsdam, Monitoring Analyst, Eurex Exchange together to solve both perceived and actual problems and optimize our respective networks in an extremely efficient manner. This teamwork continues today.”

A call to action for the industry Eurex Exchange believes that developments both in the industry and in technology will encourage a greater number of systems providers also to introduce more transparency into their systems. Eholzer opines that more openness from the industry is a forward thinking move. He states, “Sharing system data on latency is a practical step that many systems providers can take to enhance their customer relationships and do their part to create a more stable market infrastructure.” That trend will benefit the market place as “two eyes are better than one” in terms of identifying and correcting potential system issues.

For further information please visit www.eurexchange.com

Q1 • 2014 | GLOBALTRADING

56 | Product Overview

Trade surveillance is more than simply having access to data Data without context is a distraction. Data without validation is a liability. To meet the growing burdens of regulatory requirements, due diligence, business analysis, or even simply understanding missed opportunities, every firm at every level of trading technology needs meaningful insight into the data they already generate.

The requirements for a comprehensive trade surveillance system today are to: | Provide a single, consolidated view of all available data across platforms

| Intelligently highlight meaningful correlations and events in real-time

| Be agnostic to underlying architecture and systems

| Provide both context and detail for analytics and investigation

| Make use of extant data without the need for consulting work or custom integration

| Exist entirely independent of and in parallel to the workflows being monitored

Daytona is FIX Flyerâ&#x20AC;&#x2122;s flagship surveillance and analytics platform, providing a true, comprehensive, real-time trade surveillance solution. Designed to meet the growing demands of global trading, Daytona brings traders and operators meaningful insight into trading data - allowing them to discover new opportunities for their clients.

Drop-in Deployment Daytona monitors complex, heterogeneous environments with a simple, distributed, zero impact architecture. Gathering messages from logs, the network, or middleware, Daytona can be deployed quickly and safely in almost any environment without the need for lengthy consulting engagements or custom integration projects.

Heuristic Alerting Daytonaâ&#x20AC;&#x2122;s powerful alerting framework identifies areas of interest using a wide and complex array of factors.

Detect such nuanced events as quote stuffing, latency manipulation, self trades, or even runaway automated strategies. You can implement self-throttling, extensible, and tunable alerts with ease.

GLOBALTRADING | Q1 â&#x20AC;˘ 2014

Historical Archives Daytona provides an independent, searchable data warehouse of all transactions for arbitrary periods of time, including live analytics of massive datasets.

Real-time Analysis Daytona allows the live viewing of trades as they occur across all environments, organized not just by session or environment, but by counterparty or business entity (even across sessions). There is no reason to wait for T+1 to analyze a problem.

Data in Context Daytona provides deep context for all of your data, following order chains through cancel/replaces, looking up orders that later triggered alerts, and tracking multiple latency metrics.

Product Overview | 57

Daytona provides the tools for every level of analysis.

Inform the business, enable the expert.

Alerts bring critical, current issues to the immediate attention of your team.

Catch bad behavior as it’s happening, not the next day, while never needing anyone to stare at a screen waiting for something to occur.

Events allow interesting, useful, or problematic areas of interest to be spotlighted, reported, and brought to the attention of your in-house analysts, providing a jumping-off point for deeper investigation.

Heuristics intelligently define thresholds based on historical trends from your own data, removing the need to self-analyze and define hard thresholds for events and alerts.

Metrics aggregate data into useful historical trends. Are message rates rising or falling? Is the fill ratio today higher than the historical average for a particular entity? Does intraday latency rise over time?

Live data from FIX, binary sources, or middleware, fully contextual and available on-demand for deep analysis. Archived for historical reporting.

Dive deep only when you need to.

Daytona crosses divisions and empowers every aspect of the business.

Trading

Compliance

Sales

| Connectivity

| Order Tracking

| Audit Response

| Customer Activity

| Certification

| Trade Alerts

| Regulatory Compliance

| Missed Opportunities

| Troubleshooting

| Reconciliation

| Due Diligence

| Trending and Analysis

Operations

sales@fixflyer.com | +1 212 288 7935 FIXFLYER (349.3593) | fixflyer.com

© 2014 FIX Flyer, LLC 2014

Q1 • 2014 | GLOBALTRADING

58 | Fragmentation

GLOBAL FRAGMENTATION AT A GLANCE

LIT VALUE BREAKDOWN (Q4, 2013)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

Source: Fidessa

GLOBALTRADING | Q1 â&#x20AC;˘ 2014

Fragmentation | 59

FRAGMENTATION IN EUROPE FTSE All-Share Total consideration of the FTSE All-Share traded on dark pools has increased over the years. Whilst in January 2014 49.62% of the total value in that index was executed on lit order books - including LSE, BATS Chi-X and Turquoise - 4.8% was traded on dark MTFs and dark order books. This percentage has been increasing, as the charts below show.

Lit value breakdown (Jan ‘13 int., Jan ‘14 ext)

The average market share of dark trading on the FTSE All-Share varies between 4% and 6%, but a number of its constituent stocks trade over 10% on dark pools in any particular week.

Source: Fidessa

Q1 • 2014 | GLOBALTRADING

60 | 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 AllianceBernstein Alpha Omega Financial Systems, Inc American Century Investments Ancoa Software ANZ Aquis Exchange Arista Networks Armanta ASIC AUDITime Information Systems Australian Securities Exchange AXA Investments Managers Ltd B2BITS EPAM Systems Company Baader Bank Aktiengesellschaft Baillie Gifford & Co. Banca IMI SpA Banco Itau S.A Bank of America Merrill Lynch Barclays Bank of Montreal Baring Asset Management BATS CHI-X Europe BAXTER Solutions Baymarkets AB Beijing RootNet Technology Co., Ltd. BlackRock, Inc. Bloomberg L.P. Blue Ocean Company BM&F BOVESPA Bank of Montreal BNP Paribas Bolsa de Valores de Colombia Bolsas y Mercados Españoles (BME) Borsa Istanbul A.S. Brandes Investment Partners LP Brook Path Partners, Inc. BSE Limited BT Bursatec SA de CV BVI Calm Global Information Technologies Ltd Cameron Edge CameronTec Cantor Fitzgerald

Capital Group Companies, Inc. Caplin Systems 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 ConvergEx Group Corvil CQG inc Credit Suisse Daiwa SB Investments Daiwa Securities Group Inc. DATAROAD DealHub Depository Trust & Clearing Corporation/ EuroCCP Deutsche Bank Securities Deutsche Boerse Group Devexperts Eastspring Investments (Singapore) Limited Ecodigi Tecnologia e Serviços Ltda Edelweiss Securities Limited Egypt For Information Dissemination EMCF- European Multilateral Clearing Facility N.V Equinix Esprow Pte. Ltd. ETLogic Ltd ETNA Software Etrading Software Ltd Etrali Trading Solutions EuroTLX Exactpro Systems EXTOL Eze Software Group EZX Inc. FIA (Futures Industry Association) Fidel Softech Pvt Ltd Fidelity Capital Markets Fidelity Management & Research Co Fidelity Worldwide Investment Fidessa group Financial Technology Solutions First Boston Group First Derivatives FISD Fiserv FIX Flyer LLC Fix8 FIXNETIX

Premier Global Members

GLOBALTRADING | Q1 • 2014

Forex Capital Markets, LLC FpML Franklin Templeton Investments Fubon Securities Ltd Gamma Three Trading, LLC GATElab Ltd GETCO Asia GFI Group Inc Goldman Sachs & Co. Greenline Financial Technologies, Inc. Guosen Securities Ltd Hatstand HM Publishing Hong Kong Exchanges & Clearing 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.

Intel Corp Intelcheck Services Inc. Interacciones Interactive Data Intercontinental Exchange (ICE) International Securities Exchange (ISE) Interxion 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) Kanonkod KB Tech Knight Capital Group Kotak Securities Landesbank Berlin AG LCH Clearnet Linedata Liquiditybook LiquidMetrix Liquidnet London Market Systems London Stock Exchange Group M&G

FIX Trading Community MEMBERS | 61

MACD Macquarie Securities Limited MAE - Mercado Abierto Electronico S.A. Marex Spectron MarketAxess Market Prizm Markit MFS Investment Management Mizuho Securities MOEX Morgan Stanley Investment Management Morgan Stanley MTS SpA NAB NASDAQ OMX Newedge Group Nikko Asset Management Nomura Asset Management Nomura Nordic Growth Market (NGM) Norges Bank Investment Management OCBC Securities Private Ltd. OMERS OMG (Object Management Group) OTAS Technologies Omgeo On Budget and Time Ltd Onix Solutions [OnixS] OnX Enterprise Solutions Options Clearing Corporation Orc Group Oslo Bors ASA Pantor Engineering AB Patsystems Peresys (IRESS) Perseus Telecom PFSoft Portware Pravega Financial Technologies, Inc. PropelGrowth Proquote Putnam Investments R Shriver Associates Rabobank International Rapid Addition Ltd. Raptor Trading Systems, Inc. RBC Global Asset Management REDI Technologies Robin Associates Royal Bank of Canada Capital Markets Royal Bank of Scotland RTS Realtime Systems S&P Capital IQ Real-Time Solutions SASLA (South African Securities Lending Association) Sberbank CIB Shanghai Stock Exchange SIFMA

SimCorp Singapore Exchange Singapore Mercantile Exchange SIX Swiss Exchange Skandinaviska Enskilda Banken AB smartTradeTechnologies Societe Generale Software AG Spotware Systems Spring Securities International AB 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 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 TS-Associates TSX Inc. (Toronto Stock Exchange) Tullett Prebon Group Ltd TWIST UBS Investment Bank ULLINK V2G Limited Versitrac Systems Corporation Volante Technologies Volta Data Centres Wellington Management Company Winterflood Securities XBRL Xetra (Deutsche Bรถrse) Yambina Limited Zeptonics Pty Ltd

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

For more information, please visit: www.fixtrading.org AUDITime Information Systems www.auditimeindia.com

Blue Ocean Company www.blueoceanex.com

Fidelity Worldwide Investment

www.fidelityworldwideinvestment.com

MOEX

www.moex.com

OMERS

www.omers.com

Orc Group

www.orc-group.com

TickSmith Corp

www.ticksmith.com

Volta Data Centres

www.voltadatacentres.com

Premier Global Members

Q1 โ ข 2014 | GLOBALTRADING

62 | RESOURCES

Industry Resources Bank of America Merrill Lynch Trader Instinct™ The Global Equities Trading and Consulting Platform When you execute with Bank of America Merrill Lynch, you

CameronTec Group

CameronTec Group is the global standard in FIX connectivity incorporating trading technology and professional services that today powers the largest user base among financial institutions.

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

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 | Q1 • 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. deployment performance.

Catalys is our flagship offering, underpinned by our marketleading connectivity technology and engineered on the widely acknowledged standard in FIX engines, CameronFIX. The Greenline FIX integration, testing and management solutions, comprising VeriFIX®, CertiFIX®, MagniFIX®, MetriFIX® and Exchange Central, build out our offering to provide endto-end global connectivity solutions for any electronic trading environment using or migrating to FIX and proprietary protocols. 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. $12 trillion worth of

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/ Hong Kong: +852 2161 7550 Mumbai: +91 22 6632 8718 Singapore: +65 6678 0205 Sydney: +61 2 9226 5108 Tokyo: +81 3 6225 8398

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.

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

Contact details: Web: www.camerontecgroup.com

transactions flow across our global connectivity network each year.

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 | 63

FIX Flyer

With over 170 clients worldwide, including UBS, Barclays, Berenberg Bank, GBM, 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

ConvergEx Group

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 the FIXGlobal offering.

network technologies. FIX Flyer provides the high performance F1 Risk Gateway; Exchange Adapters; Managed FIX services; the Daytona trade monitor; the Ignition regression testing; certification and trade validation tool; Flyer Online OMS; and tools for commission and risk management. The Flyer Engine is the first FIX server designed to manage high volume, ultra low latency trading networks and Dark Pools, easily scaling to thousands of connections. FIX Flyer hosts

and partners with Equinix, the leading global provider of network– neutral data center. FIX Flyer is an IBM Business Partner with real world experience on System X and Power. 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.

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.

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

Contact Details: www.fixflyer.com

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 tom@fixglobal.com www.fixglobal.com

Q1 • 2014 | GLOBALTRADING

64 | LAST WORD

My City

London

By Tim Healy, Global Marketing & Communications Manager at FIX Trading Community

Best thing about your city?

London is an incredible city steeped in so much history and tradition. There is a lot of building work going on at the moment and some of the recent discoveries of burial grounds and Roman ruins are fascinating. I’ve worked in London for nearly 30 years and the change has been immense in that relatively short time. Its past defines the present and the future.

Worst thing about your city?

Other than some of the football teams, public transport can creak a bit if it rains, or snows, or is too hot or too cold or too windy.

Getting to work?

Overhead train from the Garden of England, Kent– 40 mins door to door on a good day.

GLOBALTRADING | Q1 • 2014

View from your desk?

The office is just a stone’s throw away from the Royal Courts of Justice. From the street you get a wonderful view East up Ludgate Hill to St. Paul’s Cathedral.

Where to take your clients/brokers for dinner?

The great thing about London is that there is such a huge choice of cuisine. I’ve had some great meals and evenings out at the Don Restaurant, St. Swithins Lane.

And a relaxed spot with friends and family?

With family I would probably shy away from central London and eat locally for a relaxed night out. There’s a great little Italian restaurant near where I live called Prima Donnas.

With friends in London, you can’t beat the Simpsons Tavern, just off Cornhill. Established in 1757 and serves monumental sized portions of food.

Best place to stay when in town?

I can’t remember the last time I stayed in London but I do like the atmosphere at Bonds which is part of the Threadneedle Hotel in the heart of the City of London and has a stunning stain glass dome in the reception area.

Best tourist spot?

In London, it would be the parks – St. James’s, Green Park, Regent’s Park.

Just wander around and take in the architecture and the atmosphere. If you’re feeling brave, venture south to Greenwich Park and enjoy the views over to Canary Wharf.

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

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