EU agree new trading reforms, introduce OTFs & curbs on HFT


* Establishment of Organised Trading Facilities (OTF)restricted to non-equities, such as interests in bonds, structured finance products, emission allowances or derivatives.

* Limits on Commodities trading net positions - limit the size of a net position which a person may hold in commodity derivatives

* Curbs on High-frequency algorithmic trading: would have to have effective systems and controls in place, such as “circuit breakers” that stop the trading process if price volatility gets too high.

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Agency broking – BNP ‘Smart Dealing Service’


Interesting to see BNP launching a Broker neutral cross asset agency execution service for buyside firms.

The outsourced dealing solution is designed to meet an industry trend towards outsourcing from asset managers and owners, as they seek cost efficiencies in the face of heightened regulatory demands and increasing technology expenditure.

Carl James, managing director of BNP Paribas Dealing Services UK, says:

“The raft of regulatory requirements has, and will have a dramatic impact on markets, market infrastructure and their participants. We continue to see the search for liquidity get ever harder as markets fragment and banks withdraw further from putting balance sheets at risk.”

I am sure we will see this trend continuing.

Story here and here

AFME: European Market Liquidity conference


The Association for Financial Markets in Europe (AFME) are holding their 8th annual European Market Liquidity Conference in London this Wednesday.

It’s an excellent networking event with great speakers and topics (see here for our comments on last year’s conference) ,which this year include:

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Trends in e-Commerce and Electronic Trading 2012 – GreySpark Report (plus my thoughts)


GreySpark has just released the results of their Annual e-Commerce Report: ” Trends in e-Commerce and Electronic Trading 2012″.

GreySpark outlines that propositions must now evolve, or sellside franchises will decline. The new regulations have a significant impact on the growth of e-commerce and electronic trading. Continue reading

Mifid could be modified to include Systematic Internalisers & thus Single Dealer Platforms


Risk.Net has an interesting article today (extract below), quoting MEP Kay Swinburne, talking about modifying Mifid to accommodate systematic internaliser (SI), which has implications for Single Dealer Platforms.

“We think we can make the systematic internaliser (SI) category work for single-dealer platforms,” she says.

“We thought this was the better way – rather than amend the multilateral element of OTFs, we will try to adapt the SIs.”

SIs allow trades to be executed against the owner’s proprietary capital, and are not required to involve multiple market-makers – but they are not recognised by Mifid as a platform on which standardised OTC derivatives can be executed. Swinburne hopes to change that.

Full article here, (or use this link for google reach, and select first article) and our previous comments on this topic here

Single Dealer Platforms in a ‘confusing (regulatory) world’


A recent Caplin white paper, Single-Dealer Platforms in a Cleared World, and here we examined how SDPs were evolving to meet the new regulatory requirements for OTC markets.

The conclusion of the paper, being that SDPs would continue to thrive, providing clients with access to liquidity, both on a bi-lateral basis, as well as providing some form of SEF/OTF liquidity aggregation, and smart order routing through to mandated execution venues, as required for cleared products.

In recent weeks, some concerns have been raised (misplaced in my opinion) that Continue reading

StateStreet eExchange business launches SwapEx (SEF)


StateStreet Corporation, owners of Currenex, FXConnect and GovEx, which they manage under the umbrella of the StateStreet Global Markets eExchange Suite of trading solutions has today announced the launch of their SwapEx (SEF platform).

The platform which will leverage the existing technology platforms in their portfolio, will include: Continue reading

AFME European Market Liquidity Conference – observations on today’s conference


Today’s AFME, European Market Liquidity Conference was very well attended, with a great program – each item could have done with its own full day session. Below are quick notes I jotted down during some of the sessions, although clearly I don’t do justice to the quality of debate at the conference.

There was a good mix of attendees, participants and panellists, across the spectrum covering buy & sell side firms, central bankers, regulators, clearers, policy makers and vendors. Views expressed were personal ones (ie no policy statements from the ECB – although Francesco Papadia wasn’t shy in promoting his book!).

So, what themes emerged:

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Celent on SEFs and OTFs & SDPs


Celent hosted an interesting WebEx yesterday on Dodd-Frank and EMIR Regulation, Derivatives Reforms and IT Impact.

They presented a risk analysis based on three potential scenarios that could develop, depending on how the final SEF and OTF rules fall out.

Amongst the key characteristics of the market structure they see developing include:

  • Two tier model for SEFs with separation between an interdealer and dealer-to-client SEFs
  • Single Dealer Platforms qualifying as OTFs/SEFs (due to loose definitions)

My view:

I certainly agree that SDPs can qualifying as OTFs, although according to an item in today’s FT, German and French regulators are questioning the need for OTFs .

However, I can’t see how Celent could imagine (under any scenario) that SDPs could also qualify as SEFs, as the 25% ownership limitation for SEFs would by definition preclude bank SDPs from becoming SEFs. Our view is that SDPs will become a major channel through which clients access SEF liquidity, through the use of SEF aggregation.

Below is one of the more interesting slides, which looks at possible market structures. Celent’s view is that scenario 2 is the most likely outcome.

Celent state that:

In a new report, Swap Execution Facilities and Organised Trading Facilities: A New Market Structure Emerges, Celent offers key insights into the likely future direction of SEF/OTF markets and critical factors setting this direction. Based on these insights, Celent believes that there are multiple scenarios for the market structure to reach the SEF/OTF future state. However, because of fragile liquidity, industry feedback, and cautious regulators, a dominant scenario emerges as the most likely outcome.

Celent report here

MiFID II Unveiled: Now Who Will Regulate the Regulators?


Will Rhode’s recent post on the TABB Forum is up to his usual high standards. He’s given us not only a great synopsis of the EU’s unveiling of the new MiFID proposal, but also a few predictions regarding the future of the directive.

Beyond the overall “who will regulate the regulators theme”, I think one of the most significant points Will makes is on the cost of compliance:

In addition, new compliance costs are indicated at between €512 and €732 million, with ongoing costs of between €312 and €586 million per year for the European banking sector, supposedly representing a minimal impact of 0.10 percent to 0.15 percent and 0.06 percent to 0.12 percent of total operating spend in the EU banking sector

His post is probably the best overview of derivatives reform I’ve found yet – join the TABB Forum and take a look.

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