Mapping of Bond platforms in Europe (ICMA study)

An interesting report from The international Capital Markets Association (ICMA ), has mapped the features and coverage of European Bond Trading Platforms.

According to the report, the European bond market trading has become increasingly electronic due to a natural evolution of trading, and more recently, as a by-product of regulation. Market participants have a regulatory obligation to evidence best execution and meet transparency obligations, but more importantly need to source and optimise liquidity.

The fixed income landscape is currently very fragmented. The reduction in balance sheet due to Basel III combined with investors’ reluctance to trade has led to a diffusion of liquidity across platforms. This is particularly the case in corporate bonds where it is often heard that liquidity is “a mile wide and an inch deep”.

Here is a chart from a previous post which shows the lack of inventory being held by dealers, making it harder for investors to find the liquidity they require.

Bond inventoryChart showing Net Bond inventory held by primary dealers (McKinsey/Greenwich)

Sourcing and aggregating liquidity is paramount for sell-side and buy-side traders. Technology is the only way to enable these participants to uncover the liquidity available. Understanding the contrasts and capabilities of new and more traditional platforms, is the first step to choosing the best execution venue or information network available in the market.

ICMA has undertaken a Continue reading

Fixing the Fix – final report from FSB

The Swiss based Financial Stability Board (FSB), has today published their final report and recommendations for Foreign Exchange Benchmarks, which follows an initial consultative report published in July.

The report sets out a number of recommendations for reform in the FX markets and in the benchmark rates that have been identified as pre-eminent by market participants – in particular, the WM/Reuters (WMR) 4pm London fix produced by the WM Company. These recommendations fall into the following broad categories:

  • the calculation methodology of the WMR benchmark rates;
  • recommendations from a review by the International Organization of Securities Commissions (IOSCO) of the WM fixes – this review is included in the report published today, and is also being published separately by IOSCO;
  • the publication of reference rates by central banks;
  • market infrastructure in relation to the execution of fix trades; and
  • the behavior of market participants around the time of the major FX benchmarks (primarily the WMR 4pm London fix).

Summary of recommendations Continue reading

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

US Government may sue BNY Mellon over FX trades

US federal Judge has ruled that the US Government can sue BNY Mellon over miss-pricing of FX transactions for some custody clients.

According to a Reuters report, while dismissing some of the fraud claims, U.S. District Judge Lewis Kaplan in Manhattan said..

the complaint “generally suffices” to let the government pursue its main claim, that the bank fraudulently misrepresented that it would provide “best execution” to various trading clients.

The case revolves around failure to provide ‘best execution’ , as the original transcript states:

“BNY Mellon consistently misrepresented to customers the rates it would give foreign currency transactions. Instead of providing the best interbank rates– as it promised – BNY Mellon gave the worst or nearly the worst rates of the trading day.” Full compliant transcript

We covered the original case here.

However, BNY has since done much to rectify this, by providing more transparent pricing, and introducing benchmark pricing for custody clients.