Future of Single-Dealer Platforms: SIs, MTFs or OTFs?

An excellent article in Risk.net covered also in FXWeek, looks at the future of Single-Dealer Platforms under MiFID II and discusses the options for bank platforms.

Should they register as:

  • Systematic Internalisers (SIs), which enables them to utlilise their own risk capital and trade on bilateral basis with customers
  • Organised Trading Facilities (OTFs), in which case they cannot use their own capital, and would in effect be running an agency business, but cannot run both an SI adn OTF under the same legal entity
  • Multilateral Trading Facility (MTF), which offers all to all trading

Initially, the SI regime seems obvious, as they can deploy their own capital, and trade with clients on a bilateral basis, which is what most SDPs currently do.

The test for an SI is that it Continue reading

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

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.

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

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

CME Direct – OTC & exchange liquidity in single platform

The CME has released their new offering, CME Direct. Delivered via the web, it combines OTC (broker-liquidity) with CME futures liquidity.

Fully integrated with CME ClearPort, enabling OTC (voice) trades to be submitted for clearing instantly without manual intervention by client, or broker, reducing time and errors. CME Direct is launching initially with CME Group benchmark energy futures and global OTC oil markets, with more to follow.

Michel Everaert, MD CME interview:

Link to CMEDirect webcast

Coverage: CME Direct, PR release and Bloomberg

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

Does MiFID really understand bilateral execution? (worth a read)

Are the EU and US regulators converging, or diverging? Are definitions of SEFs (under Dodd-Frank) and OTFs (under MiFID) equivalent? And, do regulators get the differences between multilateral and bilateral execution?

Confused? Definitely.

Continue reading