More parties chiming in on TOM vs deGiro

Way back in december 2014, online broker DeGiro issued a paper debunking a claim from competitor Binck that it is better to use TOM's platform for order execution on TOM/Euronext due to the best execution mechanism above executing directly on Euronext.

The paper got quite the media attention in papers, television and financial market blog Amsterdam Trader. And, of course there were the obligatory threats of bringing the suits in. Meanwhile things still did not die down, despite the fact that TOM closed down the stock market section of the TOM MTF as it was not gaining enough market share anyway.

In May, Dutch broadcaster VPRO rekindled the discussion in their ARGOS broadcast. For their research they contacted Alexandre Laumonier, author on HFT and active blogger on the site 'sniperinmahwah', who in response also wrote an article on it today, which in turn is getting a response from TOM itself. 

And so the saga continues. Famous soccer coach Louis van Gaal would probably say: 'it must be getting cucumber time' and nobody who's not Dutch would understand him. (it means that as there is nothing really newsworthy to report, media turns to older stories or human interest stories)

Are data centers utilities?

Another good post from Mechanical Markets. This time the question is raised if data centers are utilities or not. Given the latency driven compitition, being in the same DC as the exchange can be very profitable. However, it comes at a cost. And one can question to what extend exchanges and data centers are willing and able to provide space to all participants.

And this is exactly what happened in the Nordics between Verizon, Burgundy and Nasdaq OMX. The exchange abused its position in the market and forced Verizon to deny Burgundy acces to the DC in which Nasdaq OMX was providing co-lo services and hosting its matching engines. 

All in all, there are very good and compelling arguments to start seeing DC as utilities! 

You can read the blog here.

LME looking to improve liquidity

Interested in trading metals? The LME launched a month-long consultation on proposals designed to broaden access to its electronic trading platform. 

According to LME the proposals are crucial to  maximize liquidity and participation. CEO Garry Jones believes that opening up access to trading on LMEselect is beneficial to everyone  active on all LME's venues. 

More flexible application criteria for LME membership may lead to some prospective members benefiting from exemptions from the UK Financial Conduct Authority (FCA).

The effort is an important step in  LME’s liquidity roadmap.

Join Inside ETFs Europe on June 8

From Monday 8 june till Wednesday 10 June a large ETF conference is held at the Okura in Amsterdam.

More than 500 industry professionals will gather to learn more about ETF's and have in-depth discussions on latest trends in the ETF market at the 6th annual Inside ETF's Europe.

We will cover the event at Brokerdealer.eu and summarize the proceedings but do consider joining the event yourself. It looks to be a great event.

The event will kick off on Monday with some ETF basics such as understanding what ETF's are, how to trade them and how to choose the best ETF's for different asset classes. In the afternoon, focus will shift towards Smart Beta ETF's, Fixed Income ETF's, commodity ETF's and currency ETF's. The session is closed with a keynote adress by Professor Jeremy Siegel providing his outlook on Global equity markets and interest rates and a coctail drink session.

On Tuesday the session proceeds with keynote addresses on how ETF's are changing the investment world, a macro economic discussion on finding investment opportunities and the future of ETF's. During the lunch a Q&A session with Dutch football legend Ruud Gullit is held. In the afternoon 6 'track-sessions' will be held with panels consisting of different industry professionals detailing the usage of ETF's for different markets and purposes. After the closing keynote of former White House advisor Pippa Malmgren, a reception is held at the famous van Gogh Museum.

On Wednesday, the conference is closed with a recap, a panel discussion on platforms and Smart Beta, a live trading demonstration on finding liquidity and regulation topics. The final word for the conference is given to Nick Leeson, perhaps one of the most famous 'trader turned big house resident' ever. Leeson now gives speeches on risk and corporate responsibilty using his vast practical experience in that area.

All in all a very worth-while conference to learn about one of the fastest growing sections of our industry and a great place to meet interesting industry peers.

Check out the conference website for more information and registration.

Collateral damage?

Transaction cost shocks in financial markets are known to affect asset prices that banks use to collateralize borrowings in monetary policy operations. 

The ECB published an interesting paper presenting a micro-simulation of the impact by transaction cost shocks on asset prices. The conclusion is that banks will on average suffer small collateral losses while selected institutions may face considerably larger collateral decreases. 

The simulation shows that, when disregarding effects on turnover, a 0.1 percentage point increase in transactions cost causes a decrease of -0.30% in collateral value. When taking the effects on the turnover of debt instruments into account in the order of 25% or 75% the collateral value is shown to decrease by -0.22% and -0.07% respectively. 

The study also shows that different assets are impacted differently. Uncovered bank bonds, central government assets and corporate bonds are affected the most with decreases by -0.96%, -0.91% and -0.34% respectively. 

The fight over FTT continues

Yesterday the EU stated that the EU commission is close on reaching a compromise on the discussed Financial Transaction Tax (FTT). The full Bloomberg article can be found here

It is interesting to note that the EU members remain divided over introducing an FTT, the possible compromise would still be without the UK and the Netherlands participating. The European Banking Union rightfully noted that an introduction of FTT in only some countries of the EU would be inconsistent with the EU efforts to build a capital markets union.

In the States meanwhile, Presidential hopefull Bernie Sanders made FTT a part of his campaign, stating that he would tax 50 cents on every 100 USD traded in equity value to provide better education and shrink trading (effectively killing HFT). According to him, both moves would improve and stabilize the economy. Realistically, it will be a cold day in hell when he gets elected but it does show that FTT is still far from dead and still a great tool for politicians to rally the masses.

Meanwhile it would be good to step away from the rhetoric and look at some studies conducted on the effects of FTT. In our studies collection there is a very interesting study from the University of Duisburg. They looked at Italy where FTT was already introduced and measured its effect. They saw an increase in volatilty and a widening of spreads. Read the article here.

Another interesting document is a study done by the City of London Corporation (perhaps not completely unbiassed). They used another angle and researched how an FTT would affect household savings. That is one of the things that usually gets lost in all the rhetoric of the FTT proponents, at the bottom line it will be the end-client that pays the bill.

NYSE to launch bitcoin index

The NYSE today announced the NYSE Bitcoin Index (NYXBT), the first exchange-calculated and disseminated bitcoin index. 

NYXBT will utilize a unique methodology relying on rules-based logic to analyze a dataset of matched transactions and verify the integrity of the data to produce an objective and fair daily value for one bitcoin in USD.

The NYSE Bitcoin Index will initially feature data from transactions from Coinbase Exchange, the leading U.S.-based bitcoin exchange in which the NYSE has a minority investment.

Read the full press release here.

Top US Federal researcher discovers the obvious

Not so long ago, when the industry was in full auto destruct mode, governments and regulators stepped for the big bail-out. Naturally that came at a price. The internet might just be too small to list all the measurements, fees and regulations that followed but one thing stood out; risk associated with the financial industry had to become more visible and had to be contained.

Centralized clearing for those pesky OTC transactions became an essential part of this. It would enhance transparency, deal with counterparty risk and it seemed like the best solution to prevent a domino effect. Instead of lining the domino blocks next to each other, you'd stack them on top of each other.

With that imagery in mind, a top US federal researcher identified the next problem. The stack at the CCP might get too high at a certain point (concentration risk). No, who could have foreseen that?

Read the full article here

Fix security group established

FIX is the standard messaging protocol used by trading platforms, banks and brokers to communicate trade information. Traditionally the FIX protocol only offers very basic security options. In the past the opinion of the FIX organisation has been that security is not part of the core expertise of the FIX organization. The FIX organisation did provide some help and guidelines.

Now a working group has been formed to research the need and possibility for hardening the technology used for transactions around the world.  Because the threat of financial institutions being breached is very real, its a topic worth following.

Tullet Prebon launches matching engine for alternative investments

Tullet Prebon is one of the largest interdealer broker worldwide. It has now launched a matching engine for alternative investments called TP-AIME. The enigine will also serve as an auction facility for secondary investments in hedge funds, private equity and real estate funds.

The matching engine is the first of its kind and Tullet Prebon believes it will increase transparency and simplify transactions in a relatively opaque market.

Users of the plaform will be 'LP's' (Limited Partners) such as the funds to buy or sell illiquid interests and 'GP's' (General Partners) such as private equity firms looking to run auction events.

Read the full press release here

HFT don't spoof markets, people spoof markets

A debate on HFT was held at the CFA Institute conference in Frankfurt in April. Panelist included Haim Bodek, in the Netherlands best known for his contributions to VPRO's Tegenlicht documentary on HFT and James Freiss, former white collar crime fighter at the US Treasury.

While the opinions on the matter differed, there were a number of things the panelist could agree on.  

First, it is important to understand that HFT in itself is not a strategy, it is a technology. It is nothing more than a tool. HFT as a tool can add liquidity to the markets but it can also be used to for illegal or unethical activities. So, just like with any other tool, it is a question of how to regulate and monitor the people operating the tool and not just condemn the tool itself.

Read the full article here

An objective look at HFT and dark pools

Sometimes it takes a knowledgeable outsider to bring some perspective and simplicity to a complex environment. That is especially handy when you only need to learn the essentials without becoming an expert.

Enter, PWC. They wrote a clear and concise position paper on dark pools and HFT. A clear explanation of what these phenomenons are and a list of their advantages and disadvantages. 

Read the position paper here

Exchanges crack down on market manipulation

Regardless of the true effect that Sarao had on the 2010 flash crash, one thing seems to be certain. He was manipulating the market and the CME was widely critizized for letting him get away with it for so long.

So, not hard to imagine that in different board rooms at exchanges and regulators, market supervision was a hot topic. The outcome is predictable as well. Read the full article here

"MIFID II, more draconian than regulators realize"

In the continuous rally against MIFID II, there was another opinion voiced yesterday in an article in Pensions & Investments Online,

Tom Conigliario, the MD of Markit, a large US based financial services data provider states that ESMA is taking things too far and that the measurements are more draconian ans troublesome than they realize.

According to Conigliario, trading costs will rise, fund performance may be hindered and further consolidation between funds might take place as the smaller funds will be incorporated with the larger funds. He can also imagine that some asset owners like pension funds may choose to do more internal management.

An associate of Conigliario goes as far as predicting the death of OTC markets. Other experts consulted in the article disagree but do share the opinion that there is a lot of trouble ahead.

Read the ful article here