“Greenspan lays into Dodd Frank in the FT”


The ex-Chairman of the US Fed, Mr Greenspan lays into Dodd Frank here and here (sorry may be password protected-but free access)

He may well be right, but it’s sort of rich coming from one of the chief architects of the credit crisis, in the sense that Greenspan was responsible for setting a lax US Fed policy for too long, which over stimulation of the US economy, leading to the property bubble and subsequent crash!

Mr Greenspan said that when, as Fed chairman, he declined to advocate regulating credit default swaps – derivatives that have been blamed for worsening the crisis – he had been following the will of Congress!

Hence the 2008 FT headline:  ‘I made a mistake,’ admits Greenspan Oct 2008

or here on YouTube


Single Dealer Platforms: Harder, Better, Faster, Stronger (Part 1)


This is the first of a series of posts about the multitude of ways in which single-dealer platforms are currently evolving.

The past couple of years have seen an unprecedented surge of SDP activity. Every single Tier One bank has embarked on a major upgrade of its legacy Web trading systems, while a large number of Tier Two firms have started building their own full-service SDPs. We are in a period of rapid product innovation.

Why? A common theme is that as spreads become ever more compressed and markets more transparent, “soft” factors come to the fore when competing for client flow. In a market where leading banks all offer similar pricing, multi-dealer platforms become less important and clients go for whoever provides the best user experience — which means the best SDP.

And yes, trading in liquid swaps is going to migrate to SEFs (though possibly not in FX). But most banks see that as one more reason to focus on providing great UX, so that when the time comes they can provide an effective and compelling service combining OTC and SEF-based trading.

This explosion of activity has been accompanied by a rapid expansion of the SDP space in several dimensions. The expansion is  most noticeable along five axes:

  • Geography — SDPs are now being developed and rolled out by banks almost everywhere
  • Asset class — SDPs are spreading from their roots in FX into many other products
  • Provider — SDPs are no longer the preserve of the largest investment banks
  • Client segment — there is now an SDP offering targeted at almost every category of trading end user
  • Functionality — SDPs are moving way beyond just execution

Over the next couple of months I plan to post articles exploring each of these topics, looking at what’s happening in the marketplace and where it’s heading.

Follow-up posts:

The Geography Axis

The Asset Class Axis

The Provider axis

The Client Segment axis

The Functionality axis

ISDA paper: SEFs Can they improve the Structure of OTC Derivatives Markets?


ISDA Press release here about new paper they have just published, outlining their views on The role, impact and optimal structure for SEFs in the OTC derivs market.

ISDA position is that SEFs should:

  • Provide maximum choice in trade execution to market participants;
  • Provide pre- and post-trade transparency while maintaining liquidity;
  • Have reasonable, tailored and product specific block trade exemptions that reflect the risk of a transaction instead of a “one size fits all” approach;
  • Grant access to a broad range of qualified market participants. Access rules should be objective and applied impartially;
  • Be flexible enough to allow business models to evolve over time;
  • Products required to be traded in SEFs should be limited to liquid, mature products;
  • Rules should not be simply imported from other, fundamentally different markets but should take into account the liquidity, average trade size and average trade frequency of the derivative products and the relative sophistication of the market participants.

The full paper is here: SEFs “Can they improve the Structure of OTC Derivatives Markets?”

Tabb SEF barometer – worth taking part


Great idea from TABB’s Kevin McPartland to run a “What impact will SEFs have” poll here.

Despite all the news (or noise), comment and good analysis from the likes of Kevin, I am sure many market participants are still very unsure of the longer term impact that SEFs will have on their business.

Can’t wait to see the results (perhaps weekly as the mood changes)!

Is Regulatory Arbitrage for trading inevitable?


In the ACI Square Mile debate in February, a significant portion of the debate was on regulatory arbitrage. Whilst the panel thought it would be short-lived, I recall David Clarke saying that it would be a big issue.

I have just seen an article in the FT, “US and Europe divisions emerge on derivatives”, which describes the complications ensuring harmonisation between Dodd-Frank & MiFID II. More details here (subscription required). In addition, the FSB document “Implementing OTC Derivatives Market Reforms” dated 25 October 2010 (here) clearly states in Annexe 9 that both Hong Kong and Japan have no plan to move OTC derivative trading to either an exchange or electronic trading platform.

It seems certain that different regions will have different views with respect to trading of OTC derivatives. I guess the question is whether these views are compatible with the original 2009 G20 guidelines. where the key statement is “All standardized OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012 at the latest.”

…… Of course, it is the local regulator who will decide what contracts are appropriate.

HTML5 on iPad: conspiracy or cock-up?


The Register published a rather breathless report today on an alleged sneaky trick by Apple.

Apparently, with Apple’s latest release of its mobile operating system (iOS 4.3), HTML5 apps running on an iPad or iPhone run slower when “installed” on the home screen than they do in the browser.

After you open a Web page on an iPad or iPhone, Apple allows you to save a shortcut to your home screen. If the page is a Web app, the result is something virtually indistinguishable from a native app, except it’s written in HTML5, and you don’t get it through the App Store but direct from the publisher over the Web. HTML5 apps run really well on the iPad — at Caplin, we’ve already written some proof-of-concept trading apps in this way, and the functionality and performance are surprisingly good. Continue reading

Single-Dealer Platforms to retain multiple execution sources


Comments on:

Bank of America looking to whittle 50 trading platforms down to one

Noticed this interesting article regarding the potential consolidation of trading platforms in investment banks FX and derivatives today. http://news.efinancialcareers.co.uk/newsandviews_item/newsItemId-31341.

The suggestion here is that Single-Dealer Platforms have been used to sit across these multiple, somehow duplicating, execution services as a perhaps less efficient way of unifying these capabilities.

However, my experience has been that investment banks often have good reason to concentrate systems on particular execution work flows and that having these as independant areas of electronic trading manufacturing allow a more responsive approach to market demands. The single-dealer platform is a distribution and service layer for this manufacturing, allowing for a an increasingly important decoupled architecture.

Of course, if a common framework can be used for related trading systems it would help with integration of the execution pieces but most succesful single dealer platforms now encompass execution for multiple products and asset classes to go with pre and post trade content and serving all this from one trading system is not going to happen for a long time to come.

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