BofE study finds mandatory swaps trading on SEFs increases liquidity and lowers costs!


Some interesting findings from a paper from the Bank of England, which looked at the impact of mandatory trading on swap execution facilities (SEF), for interest rate swaps (IRS) as required under Dodd Frank Act.

The paper looked at transactional data from the USD and EUR segments of the plain vanilla IRS market. The findings showed that as a result of SEF trading:

  • Activity increases
  • Liquidity improves across the swap market
  • Improvement being largest for USD mandated contracts which are most affected by the mandate
  • The reduction in execution costs is economically significant
  • Execution costs in USD mandated contracts, drop for market end-users alone, by $3 million–$4 million daily relative to EUR mandated contracts and in total by about $7 million–$13 million daily
  • Inter-dealer activity drops concurrently with the improvement in liquidity suggesting that execution costs may have fallen because dealer intermediation chains became shorter

Overall, the results suggest that:

“The improvements in transparency brought about by the Dodd-Frank trading mandate have substantially improved interest rate swap market liquidity.

Finally, the report finds that the Dodd-Frank mandate caused the activity of the EUR segment of the market to geographically fragment. However, this does not appear to have compromised liquidity.

 

Full report here

Interesting Celent report on future of Spot FX trading technology & platforms


Just finished reviewing an interesting Celent report by Brad Bailey, on evolving spot FX market structure and technology trends in light of changes in global regulation, a blurring of traditional liquidity pools and the ongoing competitive landscape.

Brad touches on a number of the themes we have covered here over the year, but it’s always good to have someone else’s perspective on them.

The themes covered being: Continue reading

BGC sells Trayport to ICE exchange for $650m


Back in Feb 2015, BGC the interdealer broker (IDB), bought rival GFI for $778m. The transaction included GFI’s FX Option platform Fenics as well as commodity and energy platform Trayport. Although Fenics was strategic to the transaction, BGC had talked about selling Trayport.

Today, BGC announced that ICE exchange, who last month bought IDC for $5.2bn, would pay $650m for the Trayport platform.

According to Howard Lutnick, CEO of BGC;

“One of the main reasons that BGC pursued GFI was the expectation that the sale of Trayport would dramatically lower the price and risk involved with respect to purchasing the rest of GFI’s businesses. The proposed sale price represents $650m of the $750m that BGC will pay for all of GFI.

This translates into BGC paying approximately $100m for $640m of GFI’s remaining revenues, or a multiple of just 0.16 times sales. Therefore, we expect the GFI transaction to produce enormous value for BGC’s investors.”

Trayport: generates less than 3% of BGC revenues ($18.9m in Q3/15)
FENICS, generates $60.7m in Q3/15, or $250m of annualized revenues and approximately $105m of annualized pre-tax distributable earnings

So, selling Trayport and keeping Fenics was a no-brainer for BGC!

David Weiss over at Aite group, has a nice blog post that saves me trouble of comparing the two heavyweight IDB groups of Tullett+ICAP’s Global Broking Business vs BGC+GFI.

Full details of the BGC/ICE transaction here

ICAP results, and strategy for Electronic Markets and Post Trade Services


ICAP today released first half results, confirmed the sale of the Global Broking Business (IGBB) to Tullett Prebon, and as part of their investor presentation, provided more details on the NewCo that will comprise Electronic Broking and PostTrade Services group.

In terms of result, group revenue fell 4% to £595m, although after stripping out ICBB, would show 4% rise, whilst revenues at TriOptima the post trade division rose 35%.

ICAP reported they had invested Continue reading

FX Platforms Oct 15 vols: Major platforms vols slightly lower, CME vols crash, whilst Fastmatch shines with double digit gains


Following weak Sept FX vols, the major OTC FX platforms reported further falls in October, with Reuters down -4.6% at $104bn/day, EBS down -6.5% at $83.6bn/day, whilst The CME futures exchange saw vols for all FX products collapse, down -22% at $92bn/day.

The only bright spot coming from second tier platform Fastmatch, which recorded a +15.4% gain to $9bn/day.

In terms of year on year changes, all platforms are now showing large falls, with Reuters Spot down -27.8% and EBS down -29.1% and CME down -36% compared to last Oct. Continue reading

Thoughts on ICAP – Tulletts discussions


The discussions between Tulletts and ICAP whereby Tulletts will buy ICAP’s global broking business is a great move on the part of ICAP. They will offload the high cost, low margin global broking voice business, and focus on the high margin and growing electronic broking (EBSBrokertec) and post trade services (including Traiana and TriOptima) divisions.

Update 11 Nov: Tullett confirmed acquisition of  ICAP’s Global Broking Business for £1.1bln here

Looking at these two slides from their last investor presentations Continue reading

Getting to grips with MiFID II


Following the release last month of the Draft Regulatory Technical Standards (RTS) and Regulatory technical and implementing standards Annex 1 for MiFID II / MIFIR firms and their regulatory experts and consultants will by now be deep into the technical details.

Whilst some firms have voiced concern that they will struggle to implement the technology changes required, others are already looking to turn regulatory compliance into competitive advantage. The clock’s ticking towards MiFID II implementation on 3rd Jan 2017, and the FCA has indicated that new authorisation could take up to six months, so really no time to lose.

As can be seen from the impact assessment heat-map below Continue reading

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