New investment banking models: ‘capital-lite’, ‘agency’ and ‘client-clearing’


Regulation is driving change in capital market structure, and as highlighted in the future of investment banking, banks continue to move towards a ‘capital-lite’ business model, as they seek to ‘optimise’ use of and return on capital.

The introduction of mandatory trading and clearing for standardised swaps (SEFs in US and OTF and MTFs in Europe) has resulted in higher capital charges for OTC bilateral trades, and reduced the appetite of banks to warehouse and hold inventory which is moving more banks towards a ‘capital lite’ model.

This is the backdrop to the announcement that JP Morgan the setting up a 150 strong fixed income agency execution desk called JP Morgan Execution Services (JPMES), to run alongside its principal trading operations.

At first sight, it looks as if JP Morgan is simply hedging its bets and backing both agency and principal business models. However,
Continue reading

European Market Liquidity Conference – thoughts and comments


Last week I attended the Association for Financial Markets in Europe (AFME) 9th annual European Market Liquidity Conference.

As always with AFME, there had some thoughtful speakers and topical panel discussions, as well as providing good forum for networking opportunities (including providing for the conference iPad’s pre-loaded with delegate names allowing you to reach out to them and make contact).

This year’s agenda focused on the new emerging market structures

  • Liquidity in the new regulated market – the changing market structure
  • Keynote address -Verena Ross, Exec Dir, ESMA
  • Foreign Exchange:
    The renminbi and other Asian currencies
    Impact of regulation on development of the FX market place
  • Fixed Income:
    Development of exchange capabilities
    Liquidity issue, what liquidity issue?
  • Funding European economic growth: the obstacles and opportunities

Below are my notes and some comments from the sessions that I attended: Continue reading

What next after SEFs?


Just finished listing to an interesting webcast on Global OTC market reforms, and where next after the US and SEFs?

Celent analyst Anshuman Jaswal, gave overview of market, SEF volumes to date, and possible differences in regulatory treatment and approach in Europe and Asia.

Some key points form slide deck and a couple of slides below.

SEF and OTFs are critical components in evolution of the market from OTC non-standardised bilaterally cleared to standardised electronically traded and centrally cleared swaps.

SEF-OTF shift to standardised swaps

Celent slide on shift to standardised swaps

In terms of SEF volumes Continue reading

TradeWeb SEF is 3rd to submit MAT List


TradeWeb TW SEF joins Javelin and TrueEX  in submitting the list of swaps they wish to Make Available to Trade (MAT).

Last week, Javelin submitted a long list of MAT Swaps, whilst TrueEX submitted a list of actively trade benchmark swaps.

TradeWeb recognising market sensitivity, also goes for the benchmark listing for their MAT determination, stating that:

“It is in a unique position to observe and quantify market participants’ electronic trading behavior. Due to the breadth of institutions participating on our platforms and the metrics that we can capture from the activity on our platforms, we have been able to develop a very clear picture of the electronic execution of swaps, which allows us to quantify the trading experience of both liquidity takers and liquidity providers”. Continue reading

MAT request to CFTC


Last Friday, Javelin one of the 18 newly registered SEFs, become the first SEF to apply to the CFTC for determination of products to be Made Available to Trade.

This mean that the CFTC has up to 90 days to review the application, and make their determination. The application covers GBP, USD and EUR Interest Rate Swaps, and should it be approved, then these products would need to be traded on SEFs by all platforms.

In the 18 page application, Javelin notes that the CFTC recognizes that SEFs have:

“sufficient expertise and experience with respect to swaps trading to make an initial determination and to submit that determination to the Commission under the part 40 procedures.”

The Javelin application further states Continue reading

SEF volumes according to Kevin


Over at Kevinonthestreet, Kevin McPartland has a very good post on why SEFs volumes really don’t matter at this stage.

Some key points from his post are:

17 SEFs now registered whilst enforcement of rules delayed of 1month


The CFTC continues to push through the remaining few SEFs ahead of the 2nd October deadline, the number of SEFs gaining temporary SEF Status has now risen to 17. With the only major application still pending, being that of the CME.

Whilst SEF registration deadline remains at 2nd October, the CFTC has agreed to delay the implementation of certain enforcement rules for participants until 1 November, following requests from a number of SEFs.

The letter states that the Division of Market Oversight (DMO):

“emphasizes that while this letter relieves SEFs from certain enforcement responsibilities with respect to participants in their markets, this letter does not relieve SEFs from their current regulatory responsibility to establish and maintain the rules, systems and procedures necessary to carry out those enforcement responsibilities full letter here

Here is the list of SEFs that have gained temporary registration:

Continue reading

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