FiNETIK – Asia and Latin America – Market News Network

Asia and Latin America News Network focusing on Financial Markets, Energy, Environment, Commodity and Risk, Trading and Data Management

September 30, 2009 • 2:52 am 0

Chi-X Global alleges ‘fear card’ move of ASX (Dark Pool)

The head of Chi-X Global, the equities trading platform, on Wednesday accused the Australian Securities Ex­change of playing the “fear card” after the exchange’s chairman spoke of the dangers of allowing multiple share trading venues.

The development is a sign of frustration over the absence of government approval of licences that would allow rivals to challenge the country’s incumbent exchange.

At the same time, regulatory scrutiny in the US and Europe of certain off-exchange venues has emboldened exchanges such as the ASX to become more vocal in criticising alter­native trading platforms.

Tony Mackay, Chi-X Global chairman, hit out at the “extraordinary” comments made by ASX chairman David Gonski, who told shareholders at an annual meeting that Canberra should carefully consider whether to allow new entrants into the country’s markets. He claimed that it was unclear how multiple market operators benefited investors. He said Mr Gonski was playing the “fear card” that competition was bad for Australia.

Chi-X Global, controlled by Nomura of Japan, has been in talks with Canberra for more than a year about securing a market licence to offer equities trading. Its sister company, Chi-X Eur­ope, already operates a pan-European equities platform.

Mr Mackay added: “The … ASX operates a regulated monopoly. It has an average operating margin of about 80 per cent when the average for the companies quoted on its exchange is about 25 per cent.”

He said the average cost of executing a trade in Australia was close to five times higher than in Europe and North America.

“They are fighting to keep their monopoly,” he said, adding that the ASX should discuss with government, regulators and new market entrants Australia’s role as a leading securities market in the region.

Source: FT, 30.09.2009

FT.com

Filed under: Asia, Australia, Exchanges, News, Services, Trading Technology, , , , , ,

September 30, 2009 • 2:32 am 1

London Stock Exchange to leave FESE. Dark Pool disputes?

The London Stock Exchange plans to withdraw from the Federation of European Exchanges (FESE), dealing a blow to the trade association for the region’s established bourses as its steps up its lobbying efforts on issues such as “dark pools”.

John Wallace, LSE spokesman, told FT Trading Room: “We are reviewing a number of our memberships across the organisation. We have decided to leave FESE and will seek to work more directly with regulators, legislators and the markets we serve across Europe.”

Mr Rolet sent a letter to FESE secretary general Judith Hardt with the LSE’s decision on Tuesday. Ms Hardt said: “It came as a surprise. There was no reason given and we would of course want to talk before taking any steps. We will definitely try and see what we can do to keep them on board.”

The LSE declined to say why it had decided to leave the organisation, which was founded in 1974 and has over 43 members, including Deutsche Börse, Euronext and the London Metal Exchange.

But the move is a sign that a recent criticism by some of the world’s largest exchanges of the large banks’ off-exchange activities is not shared by some exchanges, which see their interests increasingly aligned with those same banks.

It is also a sign that medium-sized exchanges like the LSE can not afford to antagonise their biggest customers – the banks – at a time when they need their co-operation on key new initiatives, such as clearing.

Xavier Rolet, a former Lehman Brothers and Goldman Sachs trading expert, has spent time since he took over in May repairing damaged relations with the LSE’s 15 biggest customers, mostly banks.

He has redesigned the LSE’s dark pool, Baikal, as a joint venture with the banks. Under his predecessor, Dame Clara Furse, the project was designed as a way of accessing directly the asset and investment manager clients of the banks, bypassing the banks.

Last week, FESE launched an attack  on the proliferation in Europe of dark pools run by banks. FESE did not name any banks but such facilities are operated by most big banks, including Goldman Sachs, Credit Suisse and JPMorgan.

It said such venues, also known as “crossing networks” are not properly registered under rules laid out by the Markets in Financial Instruments Directive (Mifid). Mifid launched competition in European share trading in 2007, leading to an explosion of new type of trading venues.

In a letter to Eddy Wymeersch, chairman of the Committee of European Securities Regulators, Ms Hardt said FESE believed the banks’ dark pools were “unregulated venues” operating with “full opacity”. The European equities market was “becoming a dealer market”.

The LSE is engaged in a cost-cutting drive. Annual membership of FESE costs €180,000. The UK exchange remains a member of the World Federation of Exchanges.

Source: FT, 30.09.2009

FT.com

Filed under: Exchanges, News, Services, , , , , , ,

September 29, 2009 • 9:52 am 0

World Bank warning on status of the US Dollar

World Bank president Robert Zoellick has given the United States a warning over the future of the dollar as the world’s key reserve currency.

He said: “The United States would be mistaken to take for granted the dollar’s place as the world’s predominant reserve currency. “Looking forward, there will increasingly be other options to the dollar.”

Mr Zoellick will deliver the warning as part of a speech at the John Hopkins University in Washington DC later today (Monday September 28th 2009).

In the speech, he will say that the huge economic changes of the last two decades, which started with the breakdown of Communist economies in the Soviet Union and across Eastern Europe, have seen the emergence of India and China as economic powers thanks to the reforms they made.

Mr Zoellick, who replaced Paul Wolfowitz as World Bank president in 2007, will also call on the G-20 to work as a steering group for international economic co-operation.

He will suggest that countries with emerging economies should be treated as responsible stakeholders by the G-20, while recognizing that many developing nations face the challenge of bringing millions of their citizens out of poverty.

Source: Worldbank, 28.09.2009

Filed under: News, Risk Management, Services, , , , , , , , ,

September 29, 2009 • 7:13 am 0

Nassim Nicholas Taleb points to the black swan

It’s you and me, and everyone else gathered last night at the Grand Hyatt to receive his lecture on why the financial crisis is far from over.

Nassim Nicholas Taleb of “Black Swan” fame reminds me of the court jesters of medieval Europe. What made them comedic was not their slapstick or bawdy antics, but their ability to speak truth to power. The jester, dressed in his clown suit, might have looked ridiculous, but he told the king the plain truth — truth that was so overpowering, so obvious and so tragic, that the king and his courtesans could do little but laugh.

Taleb addressed a full-capacity crowd at the Hong Kong Grand Hyatt last night as the speaker for the Asia Society’s annual gala dinner. He noted in his erudite and often piercingly funny remarks that he was the only male in the room not wearing a tie — this jester preferred a Chinese mandarin collar.

And, like the jesters of yore, he told truth to power. The room was Power incarnate, full of glitterati. Investment bankers of course, but also central bankers, big-time private equity and fund managers, government officials and diplomats — and even a few journalists, another favourite whipping post of Taleb’s.

Power heard the truth — overpowering, obvious and tragic. And it laughed at his wit, it nodded at his wisdom, it even spent yesterday evening writing up his words, and this morning as you read this, it is going about its business as usual.

Power did not take it all sitting down. The Q&A with Taleb saw quite a few brave bankers challenge his arguments. A bond underwriter and a high executive from a Tarp recipient both argued that debt is necessary to economic prosperity. But the jester would have none of it. While he did make the distinction that he appreciates the role bankers should play, he was not about to accept the argument that debt or bailouts are in any way healthy to society at large. In fact, he skewered these representatives – flunkies – of Power.

Taleb has written two famous books. The first, “Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets”, was a tour de force of incisive logic (and egotism) that exploded many of the myths behind asset management. It introduced the concept of the black swan event — an event beyond the usual measurement of expectation, but which has a high impact, like the subprime mortgage-fuelled credit debacle in America.

The second book, “Fooled by Randomness: The Impact of the Highly Improbable”, came out in 2007, just in time to make Taleb one of the intellectual stars of the global financial crisis. He had seen it coming. (This second book, by the way, is twice as long and half as interesting as the first.)

He drew upon a set of 10 lessons outlined in “Fooled” that must be implemented to avoid further breakdowns such as the collapse of Lehman Brothers. Ominously, it seems that policymakers, particularly in the US, have failed to meet a single one.

Here’s a flavour. What is going on in America today is not capitalism. Bailing out banks that are ‘too big to fail’ is socialising losses and privatising profits. It is the bastard spawn of capitalism and socialism, taking the worst aspects of both systems.

If an organism is fragile, it’s best to break it yourself, early, before it poses a systemic threat (by becoming ‘too big to fail’). The US government (and those in Western Europe) have helped the ‘too big to fail’ banks become even bigger. For every cry that a bailout is ‘un-American’, Taleb can point to a litany of bailouts that have continuously set a precedent, even under Ronald Reagan’s presidency (Continental Illinois, Chrysler).

Taleb repeatedly compared economic activity to nature. In nature, there’s no such thing as too big to fail. Nature can’t tolerate overly large organisms, and if one dies, the rest of the herd isn’t doomed to die with it. Why? Because nature doesn’t believe in myths. It doesn’t care about ‘value at risk’ or other misleading metrics. It doesn’t have an ideology. It just has natural selection and a uniform impulse among organisms to reproduce, to survive via competition.

That’s capitalism. Taleb can denounce big-bank statism with one breath and praise California tech entrepreneurs with the next, as examples of what is and what is not capitalism. He also praises hedge funds, which fail by the thousands every year without a whimper of complaint or public money — unless they are run by fools with Nobel prizes, in which case a government bailout is then required.

Death is necessary to make capitalism work — death, and a lack of debt. Taleb has no patience for a hint that debt can help society. He’s heard it all before — the velocity of money, the uses it has in helping ordinary people buy a home.

He has no time for Ben Bernanke. Bernanke is among the trio of failed bureaucrats (he says) running US economic policy (along with Larry Summers, ex Citi, and Tim Geithner). Bernanke’s academic claim to fame is having understood the Great Depression. “Any grandmother who remembers the Great Depression knows you shouldn’t have debt,” Taleb says, dismissing the academic career of the chairman of the Federal Reserve System in a single line.

He has no time either for bonuses, particularly when there’s no punishment for people like Robert Rubin — ex Citi, ex Treasury — who got paid $120 million in bonuses, initially from Citi shareholders and now by US taxpayers, retrospectively. And he has no time for complex financial products, risk metrics or economic policy that is about propping up models of indebtedness rather than allowing for failure.

Much of what Taleb had to say last night was familiar. We’ve read about it all year long. But it was Taleb who was often the first to say these things, and it took time and a horrible crisis to get others to repeat his warnings and his prescriptions.

If policymakers did adhere to Taleb’s principles, society would be better off, but Power would not be. How many of you in the Grand Hyatt ballroom, who applauded him so profusely, would really like to sell simple, vanilla financial products? How many would really like to see indebted consumers convert to equity-only means of saving and investment? How many would prefer to see MBAs and trained economists all fired and ignored? How many would like to have their bonuses tied to future performance? How many would like to see the bank you work for (or is your client, or your custodian, or your financier) collapse rather than be propped up by Uncle Sam? And if all of this came to pass, would you want to pay AsianInvestor for our content or our advertising or our conferences?

Overpowering, obvious, tragic. Prepare for more black swan events. We’re breeding them.

Source: AsianInvestor, 29.09.2009

Asian Investor

Filed under: News, Risk Management, Services, , , , , , , ,

September 29, 2009 • 6:37 am 0

Bulging QDII fund pipeline faces launch delays

Excitement over the launch of a local Growth Enterprise Bourse in China is diverting investor interest away from QDII funds.

Asian Investor

It’s too early to call China‘s qualified domestic institutional investor (QDII) programme a success or a failure. But it is not entirely without merit, say leading players in fund management, legal and custody attending AsianInvestor‘s second institutional investment conference, which drew a crowd of 240 from the institutional and fund management world in Beijing last week.

New opportunities are opening up in the QDII market, and more focused funds will help the market to diversify, but product launches may be delayed due to interest being diverted to the launch of the local Growth Enterprise Bourse, according to QDII market participants.

According to statistics from the State Administration of Foreign Exchange (Safe), the scale of the programme has been extended to a total of $60 billion in terms of foreign exchange quotas. In particular, QDII funds have managed to raise up to $12 billion.

Among the existing nine QDII funds, the huge variance in fund performance is alarming. Jeff Schoenfeld, a partner and co-head of institutional fixed-income management at Brown Brothers Harriman, says the variance has mostly been driven by the timing of the launches, and further widened by the currency management strategies adopted by fund managers.

Only two funds were launched in the teeth of the bear market, and they were the only ones of the nine that managed to gain positive returns since their launch. Yet timing fund launches aside, Schoenfeld says fund managers often neglect the potential returns they could gain from hedging the renminbi.

Strangely, most fund managers still do not take a view on the appreciation of the renminbi. As one of the leading overseas custodians partnering with ICBC on QDII fund services, Schoenfeld observes that judging FX rates right has meant a 10-20% difference in fund returns.

While most QDII funds are marketed as active global strategy products, in reality most of the first-generation QDII funds were positioned to gain upside from Hong Kong-listed H-shares and red-chips. This is set to change, says Hubert Tse, head of international business at Yuantai PRC Lawyers. (His house has advised four QDII fund players, leading some of the more notable launches by Southern, ICBC Credit Suisse, Yinhua and Bocom Schroders.)

Tse reveals his firm is working on getting another batch of such funds approved. He says there are some 10 to 15 products Yuantai is working on that have already been approved by the China Securities Regulatory Commission (CSRC), and are only awaiting a further forex quota from Safe. Yuantai is advising another five out of 12 funds awaiting CSRC product approval.

In the forthcoming batch of funds, product strategies will further diversify from the current dominance by H-share-themed equity products to include more fund-of-fund, balanced-portfolio and even fixed-income strategies.

Tse speculates with the continued strong sentiment for A-share stocks and launch of the Growth Enterprise Bourse this year, fund houses will most likely work on related products and divert attention away from the still-weak demand for overseas products, making a launch for QDII mutual funds this year less likely.

Tse says that since his clients Southern and ICBC Credit Suisse’s split with their original foreign investment advisers, more Chinese fund houses will internalise their resources to come up with their own QDII offerings. However, for small- and medium-sized houses without the capability and expertise to build on such teams, the desire to work with foreign advisers remains strong.

More such advisory opportunities may open up for global houses following the CSRC’s Qingdao meeting earlier this year. The CSRC has been encouraging both domestic and, in particular, foreign joint ventures to shop around for the best capabilities before opting for a foreign shareholder as adviser by default, says Tse.

Zhang Houyi, deputy general manager at China Asset Management, says the QDII industry will need to upgrade its investment and research capabilities. For one thing, the CSRC has created new opportunities for fund houses by making QDII segregated accounts available to investors. This new area of business looks set to further differentiate the competition.

For QDII mutual funds, meanwhile, Zhang says the industry will see more focused products appearing in the market. US equities, single-country products and sector funds in tech stocks or medical themes will soon surface, while more fund investors will tilt towards passive offerings.

As Chinese investors mature, the market appetite for value-based investments is set to deepen. Even though the QDII programme has been around in China for three years, the makings of a fully functioning QDII market has only just begun and Chinese banks are poised for this unique expansion through partnerships with overseas custodians.

Cui Yan, director for the overseas custody business at ICBC, says China’s development pattern is likely to mirror that of Taiwan. There, demand for offshore products was slow for the first decade or so, then it shot up from 2003 onwards, she says. Offshore investments from Taiwan more than doubled from $20 billion to $50 billion between 2003 and 2006.

Yet as more of these products become available, Chinese banks are tasked with the dilemma of handling hedging, cash and liquidity management, issues that the industry has never dealt with. Dealings with more complex passive products may become particularly challenging, making partnerships with sophisticated overseas players ever more important, as Chinese custodians draw on their experience.

Source: AsainInvestor, 28.09.2009

Filed under: China, Exchanges, News, Services, , , , , , , ,

September 29, 2009 • 1:17 am 1

Chinese insurers clear to invest in real estate

Chinese insurance companies will be allowed to invest directly in commercial real estate for the first time under new regulations that are set to trigger a huge influx of cash into the country’s high-end property market.

New regulations allowing insurers to invest in real estate go into effect on Thursday, although details on investment limits and what types of property insurers can buy will not be released for another month at least, according to regulatory officials.

Conservative estimates put the amount of potential new investment by Chinese insurers in commercial real estate at $34bn (€23bn, £21bn), according to Jones Lang Lasalle, the real estate consultancy.

Based on current average capital values, $34bn is equal to more than twice the value of the Shanghai Grade A office market.

China’s high-end, investment-grade market has seen average investment of just $8.5bn in each of the last two full years, and has been falling since the end of last year as a result of the financial crisis.

The new regulations were “a key step in a process that has already seen a marked shift from a foreign-dominated real estate investment market to one where domestic players have assumed pre-eminence”, said David Hand, head of investments for Jones Lang Lasalle China.

China’s insurers had combined assets of $540bn at the end of August and given the suitability of real estate as an investment to match long-term insurance liabilities, analysts say they are likely to invest as much as they are allowed.

Considering the Chinese government’s record on liberalising insurers’ investment scope in the past it is likely the insurance regulator will move slowly and allow insurers to invest only about 5-8 per cent of their assets in real estate at the initial stage.

Chinese insurers are currently allowed to invest up to 10 per cent of their total assets directly in equities and another 10 per cent in equity investment funds. Before 2006 they were not allowed to invest directly in equities at all.

The expected influx of insurance investment to China’s commercial real estate will provide a huge boost in leading markets such as Beijing, where one-third of the office space is empty, prices are falling and total floor space is expected to double between 2007 and 2011.

It also comes at a time when foreign interest in the Chinese market has dried up as a result of the financial crisis and the bursting of property bubbles across the world.

Most Chinese insurers are directly owned by the state and some, including the People’s Insurance Company of China, have said they intend to invest in low-income housing when the new rules come into effect.

The largest insurance companies have been positioning themselves for at least three years in anticipation of eventually being allowed to invest in real estate.

Most have bought large office buildings in the centre of big Chinese cities that are ostensibly for their own use but in reality far exceed their own corporate office space requirements.

Source: FT, 29.09.2009 by Jamil Anderlini in Beijing

Filed under: Banking, China, News, Risk Management, Services, , , , , , ,

September 29, 2009 • 12:51 am 0

China’s fund regulation reform may lose its bite

China’s hard-hitting overhaul of the investment management industry looks set to be watered down.

The supposed overhaul of China’s investment fund regulations, intended to be the most important revision of its kind in a decade, will most likely be a flop, say sources with close ties to the China Securities Regulatory Commission (CSRC). Two key culprits are to blame: one is the CSRC’s lack of resources; the other, weak political appetite for an all-encompassing reform at the National People’s Congress (NPC) level.

The original plan was for a complete overhaul that would see the CSRC’s power massively expanded to include supervisory oversight of China’s vast and murky underworld of private funds. But the eventual reform may be toned down to just a few tweaks addressing immediate problems besetting the fund industry.

Talk behind the scenes suggests the existing draft of new laws that has been submitted to the NPC will be drastically watered down to cover just a few key areas that had been exposed over the past two years of turmoil in China’s financial industry. These areas include investment manager compensation, realignment of responsibilities and obligations between fund managers and product distributors, and better recognition of investors’ rights and trading restrictions.

A CSRC source who requested anonymity says that in fund distribution, the new rules are likely to require distributors to take on a fiduciary role, making them conscious of and partially liable to investor losses. This particular detail, while important, is out of the CSRC’s control, but will be spelled out by the NPC’s financial committee. The source does not believe the move will make distributors discriminate against smaller or newer managers, nor limit the number of fund houses they will take onto their distribution platforms.

The private fund world will need to be reined in. The sector now likely holds the same or twice as many assets as the mutual fund sector. However, the CSRC has a full roster of issues to tackle, so it’s unlikely the commission will have enough resources to start looking into private funds’ activities, let alone start regulating them.

The source sees next year’s NPC meeting as the earliest window for the draft rules to be passed. There are areas of the draft that remain controversial, and it is expected to be some time before a consensus will emerge. Subject to final NPC approval, implementation will probably be another few years away, as there is little urgency for the rules to pass.

Meanwhile, ongoing reform of fund rating rules and qualified domestic institutional investor (QDII) regulation will not be covered in the current draft. These areas appeared to have moved down the CSRC’s list of priorities and will be covered in separate regulations.

The problem of talent retention in China’s investment universe remains deeply disturbing. Over the past few years, top-performing managers have been deserting their posts at fund houses to join the rising league of so-called private funds. Such firms offer managers prospects of better pay, higher tiers of AUM sourced from high-net-worth clients and less stress, because private funds have no obligation to disclose portfolio performance or positions publicly.

Deserters have included chief investment officers of chart-topping houses, including Southern, Bank of Communications Schroders and JP Morgan. The latest rumour in the industry concerns Wang Yawei, whose record-defying fund, which has seen positive returns for a straight 11 years, is likely to beat Warren Buffett’s best after this year.

Top fund bosses in the industry have been lobbying the CSRC since 2007 for permission to start handing top fund managers equity options. Particularly vocal advocates of such a move have included China Asset Management Corporation’s Fan Yonghong, China Southern’s Gao Lianyu and Bosera’s Li Quan.

And the talent war is not exclusive to fund management. A director from the China Insurance Regulatory Commission quips that, in China, first-rate talent heads for private funds, second-rate talent stays in fund management, and third-rate players are in insurance asset management.

Meanwhile, the draft regulations include proposals that would tie fund managers’ interests more strongly to their performance and to the interests of their investors.

The CSRC has already shown a willingness to open up new business that allows fund managers to compete with private funds on an equal footing. How this will eventually be implemented depends on the political will at the NPC level.

Source: AsianInvestment.net, 29.09.2009

Asian Investor

Filed under: Asia, China, News, Services, , , , , , , , ,

September 27, 2009 • 1:05 am 1

BMV Bolsa Mexicana de Valore: Information on relationships and discussions with CME

Bolsa Mexicana de Valores, S.A.B. de C.V. (BMV: Bolsa), informs that in connection with certain information that has been circulating in the public regarding a possible transaction between the BOLSA MEXICANA DE VALORES, S.A.B. DE C.V. (“BMV”) and CME Group Inc (“CME”), BMV informs the public that it is conducting discussions of a preliminary nature with CME that encompasses a number of commercial arrangements and a possible minority equity component. No preliminary or definitive agreements have been executed and there is no assurance yet that an agreement will be reached between the parties.

Source: BMV, 08.09.2009

FiNETIK comments:
As FiNETIK understands form confidential sources in CME and BM&F BOVESPA, The two exchanges agreed to splitted and access the world according to a certain formula. The two exceptions, where both exchanges could compete agains each others will be Mexico and China.

Other news:

MexDer Weighs CME Partnership With An Eye Toward International Growth 16.09.2009

Market Comments:
Bolsa Mexicana de Valores, the owner of Mercado Mexicano de Derivados (MexDer), has entered talks with CME Group, which could involve selling a minority stake in the BMV Group to the Chicago exchange. BMV said in a statement today (September 8) that it was conducting discussions of “a preliminary nature”.

The talks centre around a number of “commercial arrangements” and “a possible minority equity component”.
“No preliminary or definitive agreements have been executed and there is no assurance yet that an agreement will be reached between the parties,” BMV said in a statement.

The talks centre on the derivatives arm of BMV – MexDer, a common ground for BMV and CME.

Bernardo Mariano, an analyst at the Equity Research Desk, an investment advisory firm in Greenwich, Connecticut, said the announcement was “an excellent move” for Bolsa Mexicana.
A relationship between the two exchanges could mean an order routing agreement or cross-listing of their products.

“For Bolsa Mexicana it’s an excellent deal, because CME has about 150,000 terminals around the world and that will provide MexDer with an audience. For them to achieve 150,000 terminals can take many years if not even decades,” Mariano said.

For CME Group the deal could mean being able to provide more products to its existing clients or charging fees to distribute the Mexican products, Mariano said. It could also reach new customers in Mexico.

In October 2007, CME Group agreed a deal with São Paulo-based BM&F Bovespa, whereby the US exchange acquired a 5% stake in the Brazilian exchange, which received a 1.7% stake in the CME Group.

The deal has involved a mutual order routing agreement, so that BM&F Bovespa’s contracts are available for electronic trading through CME’s Globex platform, while CME’s contracts can be traded on the Brazilian exchange’s system. The two groups have also jointly developed new products.

Under the exclusive agreement with BM&F, CME is not allowed to invest in other central and south American exchanges. However, according to ERDesk, it is indeed allowed to reach an agreement with BMV as an exception.


Filed under: News, Exchanges, Latin America, Mexico, BMV - Mexico, BM&FBOVESPA, , , , , , , , , , , , ,

September 26, 2009 • 11:38 pm 0

Market and Reference Data Converge; A united front in Data Management

It is widely acknowledged that the complacency of recent years in the approach to trading activities, managing investments, and their related risks cannot continue. The fallout is impacting the structure of financial institutions, the regulatory oversight of the banks, and their approach to risk management. But the constant underlying factor that all financial institutions need to get right is the quality of data and its efficient management.

Down load: Market and Reference Data Converge – A United Front for Data Management 09.2009


There has been, to date, a real disconnect between the management of market data (real-time pricing and historical time series and derived data) and reference data used in post-trade support functions. But this is changing as banks scramble to get their houses in order. And it has to. Without a holistic approach to data management across the enterprise, financial institutions will continue to struggle to obtain an accurate picture of their investments and their true risk position, or to fulfill the associated requirements of regulatory compliance, client reporting, and other applications reliant upon accurate data from across the enterprise. Without a consolidated view of their data, the businesses are unable to expand product lines or adapt existing products quickly enough for client demand. .

Why has integrated data management not been more widely employed before now? What are the benefits of such a coordinated approach to data management? And how are solutions adapting to meet this new demand for integrated data management?

Source: A-TEAM, September 2009

Filed under: Data Management, Data Vendor, Library, Market Data, News, Reference Data, Risk Management, Standards, , , , , , ,

September 26, 2009 • 3:24 am 0

HKEx to list flexible options, says chairman Arculli

Ronald Arculli says Hong Kong Exchanges and Clearing intends to introduce listed options that allow some degree of tailoring.

As efforts in the US seek to move derivatives trading from over-the-counter markets onto exchanges, Hong Kong is also looking at ways to improve transparency and reduce counterparty risk.

Hong Kong Exchanges and Clearing (HKEx) intends to introduce listed equity options with flexible payment structures by the end of the year, said HKEx chairman Ronald Arculli last week at a conference on market infrastructure organised by Citi.

Arculli cites US efforts to standardise credit-default swap contracts and enable them to be centrally cleared as a reason for Asian exchanges to host more transactions that are currently done OTC.

The exchange is having a pretty good year. Investor risk appetite has returned, helping boost daily average turnover from $6.4 billion at the start of 2009 to $9 billion as of the end of August. Hong Kong has become the most lucrative venue worldwide for IPO and post-IPO fundraising, and the Hang Seng Index is up 40% year-to-date, making the listed HKEx the third-largest exchange in the world by market capitalisation.

The main goals are to streamline the process for attracting H-share listings, particularly in the mining and resource sector; facilitate mainland China’s qualified domestic institutional investor (QDII) programme by hosting mainland exchange brokers in Hong Kong; and list more exchange-traded funds, including possibly ones covering Greater China markets.

What he didn’t mention in his speech, however, was an effort to reduce trading spreads, which remains a priority for many fund managers.

The exchange is closely monitoring what happens in other markets and is well aware of how competition in the US and elsewhere is changing the landscape. Arculli notes that the American regulation NMS (for ‘national market system’ plan), requiring all stocks to trade at the best price regardless of venue, has seen NYSE’s market share in total equity turnover fall from 78% in 2004 to 28% last year.

The same proliferation of alternative trading venues will not occur in Asia, due both to tighter regulation and the vertical silo model of integrated trading, clearing and settlement that is typical throughout the region.

But Arculli says tie-ups — such as Bursa Malaysia’s deal with the Chicago Mercantile Exchange to list palm oil contracts or Singapore Exchange’s decision to form a JV dark pool with Chi-X Global — are changing the playing field. He adds that Australia’s recent decision to shift supervision of market participants from its stock exchange to its securities regulator is the first step to allowing rival exchanges to set up shop there. “This may have implications for Asia,” Arculli says.

He is aware that institutional investors want better services from exchanges for computerised trading, which has led to new methods such as dark pools, high-frequency or flash trading, and co-location of trading servers physically near to the exchange.

However, such developments raise questions that exchange officials and regulators need to consider, Arculli warns. These uncertainties include whether such trading methods create asymmetric information, a risk due to opacity, heightened volatility or other unfair advantages.

Arculli says exchanges provide unique advantages, by helping companies raise capital via listings, which create liquidity and boost market depth. Exchanges also mitigate counterparty risk by providing central clearing and a single location for access to information on market participants’ potential liabilities.

Alternative venues, he suggests, are opaque and tend to fragment liquidity. Arculli acknowledges market demand for best execution and pre- and post-trade services, but he wants to see them done on the exchange. For buy-side traders hoping to see Hong Kong open to direct competition to drive down costs, Arculli offers no sign that he would support such a move.

Source:AsianInvestor.com, 25.09.2009

Filed under: China, Exchanges, Hong Kong, News, , , , ,

September 25, 2009 • 2:14 am 0

Exchanges in a Race to Zero Latency

Nasdaq OMX Group said earlier this month that upgrades to its technology have made it the fastest exchange in the world. That may or may not be true but regardless, the exchange operator’s announcement highlights a drive this year by market centers to reduce the latency of their systems.

Behind the trend is the desire to appeal to such latency-sensitive traders as direct market access and algorithmic players. These folks which include high-frequency traders, bulge bracket prop desks and the electronic trading departments of large broker-dealers want their orders processed as quickly as possible.

“If we’re not building a low latency competitive exchange, we’re just not going to be in the game,” Brian Hyndman, senior vice president for transaction services at Nasdaq, said at last week’s Aite Group conference on high-frequency trading.

Nasdaq reported on September 9 that upgrades to its INET platform and other parts of the technology that underlie five of its trading venues have given Nasdaq an average latency of less than 250 microseconds. That’s faster than BATS Exchange, which pioneered low latency trading. BATS announced in June it executes 80 percent of its orders in under 400 microseconds.

The upshot, according to Hyndman, is that latency has gone down, throughput has gone up and order acknowledgement times are more consistent. “We eliminated the outliers,” Hyndman said. “That’s very important to a lot of Nasdaq’s customers.”

This means, Hyndman explains, that a trader won’t get an order acknowledgement in 250 microseconds on one trade and three milliseconds another time. “There will be no big spikes in standard deviation,” the executive said.

(One millisecond equals one thousandth of a second. One microsecond equals one millionth of a second.)

Besides the changes to INET, whose main feature is the order-matching engine, Nasdaq also upgraded its network to 40 gigabits per second from a 10-gigabit connection; upgraded its hardware; and made a variety of other changes.

Nasdaq’s announcement was just the latest. Ever since June, all five of the major U.S. trading venues as well as one in Canada have put out notices describing the steps they have taken to cut their processing times.

On the same day Nasdaq made its announcement, Chi-X Canada ATS, owned by Instinet, claimed it was the fastest market center in Canada.

The ECN said it boosted its capacity to be able to handle 175,000 messages per second, a 500 percent increase from previous capacity of 30,000 messages per second. Chi-X Canada has benchmarked its average response time for marketable immediate-or-cancel orders at about 350 microseconds. That’s at least 10 times faster than any other major Canadian market center, it contends. Previously, Chi-X Canada’s internal latency was pegged at 890 milliseconds.

“We need to keep up with our customers,” Tal Cohen, Chi-X Canada’s chief executive, said. “The drive for latency is not slowing down anytime soon.”

Chi-X Canada, based on the same technology as Chi-X Europe, launched in February 2008. Cohen said part of Chi-X’s strategy to drive latency lower is to run the system on “commodity” hardware. That way, the ATS can simply plug in the newer and faster boxes once they become available.

Both BATS and NYSE Arca also announced latency reductions this summer. BATS cut its average latency, or the amount of time it takes to execute an order, by 50 microseconds to 395 milliseconds. It also announced that it can now convert an order into a quote for transmission on its market data feed in 631 microseconds.

NYSE Arca, a unit of NYSE Euronext, announced that its order acknowledgement time, the time it takes to confirm receipt of an order, had been reduced to under one millisecond for Tape A and Tape B names and under 650 microseconds for Tape C issues.

Perhaps the summer’s most symbolic announcement came from NYSE Arca’s sister exchange. The New York Stock Exchange said in July it scrapped its 33-year-old SuperDOT platform order delivery and processing system, as well as an internal routing system called Post Support System. In its place, the NYSE installed its Super Display Book system, technology based on NYSE Arca’s trading engine.

The move cut the time it takes to execute an order from 105 milliseconds to five milliseconds, according to the exchange. That’s down from 350 milliseconds in 2007. NYSE customers now get order and cancellation acknowledgements in two milliseconds, the NYSE added.

Five milliseconds is a far cry from Nasdaq’s 250 microseconds, and NYSE executives acknowledge they still have work to do. Still, the rollout this summer of the Super Display Book system was the culmination of an 18-month project that saw the Big Board completely reengineer its underlying hardware and software architecture using technology it acquired with the purchases of Euronext, Wombat Financial Software and Archipelago. The NYSE completely replaced its order entry, order database and routing systems, market data systems and pieces of its post-trade system.

The move to revamp its dated infrastructure potentially opens doors that were previously shut to the NYSE. At least one bulge shop refused to send any of its algorithmic flow to the NYSE because it was too slow, an NYSE exec told Traders Magazine.

On the other side of the Hudson River in Jersey City, N.J., technicians at DirectEdge ECN have also been ripping out old and installing new technology.

DirectEdge has seen its share of trading volume shoot from about 5 percent a year ago to about 12 percent today. To deal with the increase in messages flowing through its systems and prepare for the future, the ECN chose to replace its messaging middleware, TIBCO. It chose faster technology from 29West, a relative newcomer to the business. DirectEdge says installation of 29West’s technology has produced a “dramatic reduction in overall system latency” and increased its throughput.

“It allows us to use persistent messaging without the penalty,” said Steve Bonanno, DirectEdge’s chief technology officer. Persistent messaging is typically slower than non-persistent messaging, but offers guaranteed delivery. No messages are lost as they can be with non-persistent messaging. 29West’s technology eliminates that latency “penalty,” Bonanno explained.

DirectEdge is now able to guarantee its customers an order response time of 300 to 500 microseconds. That’s measured from the time the order enters DirectEdge’s gateway to the time the acknowledgment hits the gateway. Previously, response times of DirectEdge’s three trading platforms were in the 1.2- to 1.5-millisecond range.
Although DirectEdge needed the changeover to 29West primarily for throughput, it couldn’t ignore latency. “Speed is the toll you have to pay to be in this business,” Bonanno said. “Being fast is a given. That has to be there.”

All things are relative, of course, and speed is no different. Market centers are forever engaged in a ferocious battle with each other to win market share. In their desire to impress traders, they will often put out overly rosy latency numbers, critics charge. “There is a lot of confusion, and, in some cases, obfuscation about the actual latency at the venues,” said Donal Byrne, chief executive of Corvil, a Dublin, Ireland-based maker of latency monitoring and management tools. “It is impossible to make apples-to-apples comparisons.”

That applies to both the speed at which the venues disseminate market data as well as the speed at which they convert orders into trades, Byrne added. The problem is that the venues typically offer up an average number, which may be of little use. “If you measure it at one time, you get one number,” Byrne said. “If you measure it a few seconds later, you get another.” He believes trading venues should publish a schedule of numbers for all times during the trading day.

Doug Kittelsen, chief technology officer of execution management vendor FTEN, is also concerned. He believes exchanges should quote their latency data in the 95th percentile, or at the slow end of the spectrum, rather than the median or average, which is standard. “You want to see what the curve is like all the way through to the end,” Kittelsen said, “not just the middle.”

Source: Traders Magazin: 25.09.2009

Filed under: Data Management, Exchanges, Market Data, News, Trading Technology, , , , , , , , , ,

September 24, 2009 • 1:58 am 1

Dark Pools:New ideas fail to lift mood over dark pools

This week, Liquidnet, a US operator of “dark pools”, unveiled the latest device to emerge in European share trading, which it called “Supernatural”.

The company claims it will help European fund managers increase their chances of finding matches for large blocks of shares in Liquidnet’s dark pool by linking it up with other exchanges, brokers and alternative trading platforms such as Chi-X Europe.

Yet even as dark pools continue to generate eye-catching ideas, controversy is raging over their very existence. In Europe, the issue is pitting exchanges against big banks in a new battle over control of billions of dollars in share trading orders.

Dark pools allow the matching of large blocks of shares without prices being revealed until after trades are completed. Regulators on both sides of the Atlantic are studying them amid questions over their transparency.

Dark pools are not only run by companies such as Liquidnet; they are also operated by banks’ trading arms and exchanges. They have grown rapidly since first appearing in the US in the late 1990s, with at least 15 in existence in Europe.

The exchanges have launched an attack on the proliferation in Europe of pools run by the banks – such as Goldman Sachs, Credit Suiss, and Morgan Stanly – arguing they are operating outside the view of European regulators. 

Mifid launched competition in European share trading in 2007, leading to an explosion of new type of trading venues.

The Federation of European Securities Exchanges, whose members include Deutsche Börse  and Euronext , wrote this week to the Committee of European Securities Regulators in Paris, claiming banks’ dark pools were “unregulated venues” operating with “full opacity”.

It said that under Mifid, crossing networks were supposed to register under certain formal categories that would subject them to the same market surveillance and price reporting requirements as exchanges.

Yet many were not, FESE claims. “Practically all of this trading is outside the realm of European rules and thus beyond the reach of supervisors,” wrote Judith Hardt, FESE secretary general, in the letter to CESR chairman Eddy Wymeersch, a copy of which was obtained by the Financial Times. “As a result, more trades are being executed away from the public view, without interacting with other orders, and at prices that may not be optimal for clients.”

She argued that European equity markets “are becoming a dealer market”.

The banks are furious. They see the FESE move as exchanges exploiting post-crisis concerns over off-exchange markets to persuade policymakers of the benefits of channelling trading of stocks through regulated exchanges.

Dark pool trading accounts for about 4 per cent of all trading in Europe, according to consultancy Tabb Group. But it is growing, and with the proliferation of the types of “dark” trading venue unleashed by Mifid, bankers say exchanges fear trading could shift further away from them. “The exchanges are opportunistic, fear-mongering. And it’s pretty clear why: commercial interest,” says one.

The banks reject the notion that their crossing networks are unregulated, pointing out that broker-dealers are already regulated, and the banks’ clients – such as money managers – are regulated.

They also argue that their dark pools perform a legitimate function at a time when large orders are increasingly hard to execute on exchanges as complex electronic trading strategies slice orders into smaller and smaller sizes.

They reject the FESE view that investors are at a disadvantage by the alleged “opacity” of bank dark pools. They say that many of the block trades being carried out in them are placed by the banks’ asset manager clients, which in turn are handling funds placed with them by millions of ordinary investors.

The problem, industry experts say, lies with Mifid itself. Exchanges say that bank dark pools are not required to report trades in a coherent way, or even at the same time as those trades reported to the market by exchanges. Mifid is unclear on the issue.

Steve Grob, director of strategy at Fidessa, a trading technology company, says: “The reporting environment in the US is much more transparent. There needs to be some clear regulation about how they report what they do.”

Niki Beattie, managing director of The Market Structure Practice, a consultancy, says: “The thing is that brokers are governed by a certain set of rules and exchanges are governed by another. Mifid failed to move with the times.”

She believes, however, that Mifid has given brokers an “unfair advantage” over exchanges. “They are both trying to be liquidity pools and [Mifid] has given the brokers an unfair advantage,” says Ms Beattie, a former trading strategist at Merrill Lynch.

CESR is studying the issue. Last week Charlie McCreevy, European Union internal markets commissioner, said dark pools would form part of the European Commission’s planned review of Mifid. That would focus on whether the growth of those operated by broker-dealers gives their backers “unfair commercial advantages” in the market.

With dark pools under attack more broadly, banks may have a tough job making their case. Ms Beattie says: “The exchanges probably have some right to be out there questioning this.”

Source: FT, 24.09.2009 by Jermy Grant

Filed under: Exchanges, News, Risk Management, Trading Technology, , , , , , , , , , , , ,

September 24, 2009 • 1:13 am 0

Latin America Rebound to Be ‘Remarkably Strong,’ Barclays Says

Latin America’s economic recovery will be “remarkably strong,” bolstering currencies and spurring interest rate increases in 2010, Barclays Plc said.

“We expect a strong 2010,” Barclays analysts wrote in the bank’s emerging-markets quarterly report dated yesterday. “Robust growth prospects in Latin America bode well for capital inflows, equity prices and FX appreciation.”

The Brazilian real and the Mexico peso offer the most potential “to trade the region’s rebound,” the analysts wrote. They raised their estimate for Latin America growth in 2010 to 4.4 percent from 3.6 percent.

Barclays said the global economic rebound will be “sharper and last longer than we previously anticipated,” with all the regions contributing to expansion. The growth forecasts for the Europe, Middle East and Africa region, known as EMEA, was increased to 2.9 percent from 1.4 percent expected in the previous quarterly report.

Source: Bloomberg, 23.09.2009

Filed under: Brazil, Exchanges, Latin America, Mexico, News, , , , , , , ,

September 23, 2009 • 2:33 am 0

SunGard introduces ASP connectivity to BM&FBOVESPA

SunGard has launched new ASP-based market connectivity services that offer customers cost-effective access to trade on BM&FBOVESPA, the Securities, Commodities and Futures Exchange created in 2008 through the integration of the Brazilian Mercantile & Futures Exchange (BM&F) and the São Paulo Stock Exchange (Bovespa).

SunGard’s ASP-based market connectivity services already offer similar access to more than 80 exchanges and other market centers worldwide.

SunGard’s ASP-based market connectivity services allow BM&FBOVESPA exchange members to outsource the complex activities involved in procuring and managing the hardware, software and telecommunication links required for market access. Customers can benefit from 24/7 access to the Brazilian equities and derivatives marketplace. In addition, SunGard’s local presence in São Paulo can provide both local and international customers with service and support in both English and Portuguese.

The new ASP-based market connectivity services strengthen SunGard’s trading solution offering for customers in Brazil and will help them trade on both cash and derivatives markets from the same screen. Local brokers can use SunGard’s workstations and consolidated pre-trade risk management solution to trade simultaneously on BM&F and BOVESPA segments (equities and derivatives). They can also trade internationally via SunGard’s GL Net, a market data and order routing low latency network.

Cícero Augusto Vieira, chief operating officer of BM&FBOVESPA, said, “BM&FBOVESPA has been developing its direct market access (DMA) business since 2008: DMA order routing brought 156,262 trades in July, in comparison to 112,621 trades in June. We welcome initiatives that can help our members reach our markets more easily and cheaply. With its ASP-based market connectivity services, SunGard can help us gain new local and international trading customers.”

Yassine Brahim, president of SunGard’s global trading business, commented, “The Brazilian market is attracting more and more DMA orders. SunGard has been working with BM&FBOVESPA and its predecessors since the 1990′s to help provide DMA connectivity for both the equities and derivatives segments of BM&FBOVESPA. We’re demonstratingtrating that, through our ASP-based market connectivity services, SunGard can now respond to local and international demand for trading on the exchange while helping control the costs of market connectivity.”

Source: Finextra, 23.09.2009

Filed under: News, Exchanges, Latin America, Brazil, BM&FBOVESPA, Trading Technology, Data Management, Market Data, , , , , , , ,

September 23, 2009 • 1:51 am 0

TradingScreen launches TradeSmart X

New York, London, Hong Kong, Tokyo -September 23, 2009-  TradingScreen, Inc. (“TradingScreen”), the global leader in Execution Management Systems (EMS) announced today that TradeSmart X, the next generation version of its multi-broker multi-asset class flagship front-end will be showcased at the TradingScreen Tenth Year Anniversary Party on Thursday September 24th at the New York Nasdaq MarketSite and made available for release on September 25th.

TradeSmart X has been designed to provide a more intuitive and richer user experience. The new TradeSmart X integrates into a single interface major functionality enhancements for liquidity access; execution management; cross-asset class trading and reporting delivered with a new look and feel.

“TradeSmart X follows TradingScreen’s commitment to providing open, innovative and easily deployable trading solutions.  We have worked very hard at rethinking the trading interface concept and designed a product capable of meeting the ever growing challenges of liquidity fragmentation, strategy trading, low latency and workflow integration faced by traders today. TradeSmart X redefines the user experience through a complete modularization of the application, improved usability and offers a functionality to integrate the client’s own proprietary applications.

TradeSmart X also allows real-time upgrades and easier installation while adopting a very innovative use of the client’s desk top real estate”, commented Philippe Buhannic, CEO of TradingScreen, Inc. “Once again, TradeSmart sets the standard in the EMS space by bringing together speed, agility, simplicity, reach, power and stability. We are very proud to mark the tenth anniversary of the market’s first EMS by introducing our best version of TradeSmart to date”.

TradingScreen’s flagship product, TradeSmart, is a customizable front-end GUI (Graphical User Interface) that enables buy-side clients to trade a broad portfolio of financial instruments, around the clock, on any market and with a wide range of counterparties. TradeSmart is unique in its ability to aggregate multiple-dealers and multiple asset-classes (listed and OTC) onto a single screen format for electronic order routing. Its ASP (Application Service Provider) model enables very rapid deployment and activation of users into live trading and incorporates the most comprehensive and intuitive access to the proprietary algorithmic trading strategies offered by the leading global brokers. TradeSmart also makes available a number of modules that support other execution and order management activities such as Basket Trading, Pre and Post Trade Analysis, Allocations, Positions and P&L tracking. TradeSmart connects to all of the leading portfolio and order management systems to ensure complete integration into the workflow of the buy-side institution.

Over the past 10 years, TradingScreen has become the system of choice to equip the institutional buy-side trader across all client segments: Traditional Asset Managers, Alternative Investment Managers and Wealth Managers.

TradeSmart X will be introduced to the global trading community as part the TradingScreen Tenth Anniversary celebrations taking place in all the major global financial centers.

Source: Trading Screen, 23.09.2009

Filed under: News, Trading Technology, , , , , , ,

Follow

Get every new post delivered to your Inbox.