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The Agency Broker Hub: Generating value through broker-to-custody solutions

By
Ian Rycott
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Mario Domenico Recchia, Managing Director, Product Management GTB, IMI CIB Division, Intesa Sanpaolo.

In recent years we’ve seen brokerage and custody providers face significant changes, driven in part by regulation and in part by business. The services on offer have become more focused as brokers and custodians have specialised their business models to better serve institutional investment flows versus retail trading flows. In this environment, intense competition has compressed margins resulting in scale being the only way to guarantee economic sustainability.

Traditional banks and brokers that service retail and private banking clients are facing very challenging times with mounting competition from new broker entrants looking to capitalise on the surge in retail trading volumes. Research shows that this surge comes in part from investors having exploited greater flexibility in managing their time, with global lockdown measures allowing them to better follow the markets in a general search for more income. In this environment, these new ‘challenger’ brokers have been able to service their end clients with technologically advanced, cutting-edge digital channels, trading tools and apps, rolled out without the legacy technology problems hindering traditional banks and brokers. The incumbents can only remain competitive and maintain their client base by reducing their fees, which leaves little room for significant investment in upgrading their internal and client-facing platforms.

As a consequence, many traditional banks and brokers are beginning to take a different approach by examining ‘Broker-to-custody solutions’ as an answer these issues. These solutions aim to seamlessly combine execution, settlement and asset servicing activities as a value proposition. This set-up can be key to obtaining operational efficiencies, leading also to improved customer services, while relying on the deep and sophisticated capabilities of a specialised provider directly connected to exchanges and settlement infrastructures. This generally requires a new way of evaluating exactly ‘what’ can be offered by a provider adopting a holistic enterprise vision, breaking down if necessary historical, internal silos and fiefdoms, keeping in mind that in many organisations the final selection of a brokerage provider or a custody provider is decided by different arms of the organisation, often in a disjointed way. For instance, with execution services the decision is usually left to the head of trading, while for custody this may fall under the head of operations, or a dedicated network management division. Therefore, it becomes vital that these areas work together in identifying a unified vendor selection process strategy, highlighting the overall benefits to be delivered in rationalising its brokerage and custody provider network.

Logically, a reduction in the number of vendors being managed by the firm brings with it efficiencies by reducing operational risks, significantly eliminating failing trades, simplifying liquidity needs, and allowing the rationalisation of connectivity protocols between the client and vendor. The client’s middle and back offices can also be reorganised and made more agile. Fewer suppliers, by combining the execution and post-trade services being received by a client, can also simplify the legal and operational contracts that have to be stipulated in setting up these relationships, and which have to be continuously managed afterwards, with the evolution of the services and changes in regulation.

Some examples of concrete benefits that arise from putting in place a broker-to-custody solution are:

  • Automatic matching of the OTC leg of trades to be settled. Once executed on the market the trades can be automatically grouped and settled on the account of the client in accordance with pre-defined rules eliminating the need to instruct the OTC leg of the transaction, thus reducing transaction fees
  • Reduction or elimination of fail trades. Since matching takes place earlier within the broker-to-custody’s systems, the vendor’s middle and back office teams are in a better position to reconcile and proactively monitor, on behalf of the client, the settlement of the trades for the intended settlement date.
  • Proactive or on-demand short coverage of failing trades. The unique position of the broker-to-custody solution in the trade life-cycle can identify earlier and resolve problem trades; coverage for short positions can be sourced more quickly. Optionally, this activity can even be left to the broker-to-custody solution provider to manage.
  • Optimisation of reconciliation processes. Depending on forecasting and the reporting methods used by a client, the verification of end-of-day cash and securities balances can be simplified or eliminated.
  • Rationalisation of vendor due diligence activity. Given the critical nature of the brokerage and custody services, an organisation has a responsibility to systematically oversee the quality and robustness of such services to include the vendor’s BCP/DR capabilities and planning. Moving from several to one provider eases such engagement.
  • Information on fees. Commission accounting and verification can be brought under one roof, allowing for a firm to monitor its overall spend more effectively.

Regulation

Given the constant changes in regulation in the last decade, impacting both the execution and custody sectors, using a broker-to-custody solution can also future-proof the business, thus insuring that services to the end retail or an institutional segment are fully compliant with future norms.

Some of the recently implemented regulations having impacted the European execution and post-trade services landscape have been very CAPEX intensive when you look to MIFID II, (impacting best execution, annual pricing transparency, custody asset segregation), CSDR (covering optional client asset segregation at a CSD, internalised settlement reporting, settlement discipline introducing penalties) and the SHDII (requiring standardised and timely corporate action reporting, facilitating shareholder meeting participation and the identification of the end investor).

The regulatory landscape certainly has not stabilised yet as the European legislative bodies and the regulators have an intention to revisit many of these regulations in order to verify that they fit the needs of the financial markets looking forward to the CMU. This means that firms will have to continue to invest in processes and technology both on the execution and the custody sides of the business, and must plan for this on time.

Adopting a broker-to-custody solution can have numerous tangible as well as intangible benefits. When looking to implement such a solution, one has to remember that different degrees of integrated solutions can be put in place – spanning different products such as cash markets, derivatives, and FX – which should also be complemented by a bundling of services for the underpinning of cash and custody account structures, supported also by a range of connectivity, transaction and position reporting tools, market research and intelligence, and day-to-day client support. Depending on the complexities involved, a step-by-step approach can be adopted to implement the set-up, usually deployed by traded product, thus also allowing for the mitigation of project execution risks.

Given today’s operating context, only some significant players in both the execution and custody space have made the proper level of investment to be able to offer a combination of these services. By partnering up with a player that can provide a bundled broker-to-custody solution, long term benefits can be generated, leveraging on the single point of access to efficiently reach a larger number of markets. This also shields a client from local market trading and custody nuances, as well as minimising investments in the future to address regulatory and market changes. All of this can only lead to the strengthening of a client-vendor relationship, creating a long-lasting rapport and generating true value for a firm.

©Markets Media Europe 2022
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Equities trading focus: A bumpy road ahead

By
Ian Rycott
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Lynn Strongin Dodds looks at the current trends in equity markets and the changes needed to make them more efficient.

Covid rattled equity markets in 2020 but it is nothing compared to the Russian invasion of Ukraine. Few predicted the conflict and unsurprisingly, geopolitical risks are now much higher on the agenda for buy and sell side firms as sanctions bite. Navigating markets always requires quality data and the latest tools and protocols but they have never been more important than today.

While it is hard to predict the long-term impact of the conflict, the wide-ranging sanctions will affect liquidity in certain segments of the market. As Alex Tedder, head of global and international equities of Schroders notes, “They will certainly have significant impacts on companies doing business with Russia and the continued impacts on both commodity prices and their availability will have important implications for cost inflation, interest rates and supply chain disruption.”

The US, Canada and Europe are tightening financial restrictions with a new ban that blocks seven Russian banks from using SWIFT, the global messaging system that enables bank transactions. Meanwhile, the clearing houses Euroclear and Clearstream have stopped clearing rouble-denominated securities. In addition, MSCI reclassified Russia as a “standalone” market, from its current emerging-market status while the London Stock Exchange suspended trading in 27 companies with strong links to Russia, including the energy and banking firms Gazprom and Sberbank.

It is no surprise that against this backdrop that equity markets are gyrating and valuations are in a downward trend. “With record fuel prices being recorded in the US, inflation ticked higher, heightening margin pressure for corporates in the real economy,” says Louise Dudley, portfolio manager, global equities, Federated Hermes. “We are experiencing extraordinary volatility in global equities compounded by wavering market sentiment and the risk of recession intensifies on spiralling commodity prices. We expect ongoing swings in the short term as geopolitical uncertainty over Russian crude persists. The potential for further supply shocks across the economy is acute.”

Analysts expect European shares to be among the hardest hit given the region’s close proximity to the conflict but also its exposure to supply disruption and soaring energy prices The eurozone currently imports a quarter of its oil and 40% of its gas from Russia. Although there have been rallies, overall, shares are around 25% cheaper compared to the rest of the world – the biggest discount since the eurozone debt crisis in 2011.

However, Dr Robert Barnes, group head of securities trading & CEO Turquoise, LSEG notes although these sanctions are wide ranging, equity markets have had experience with them before in 2014 and 2018. “While these sanctions are more dynamic and broader in scale, there is an established process for implementing them.”

The other key component in these volatile markets is the need for accurate and quality data, according to Rebecca Healey, managing partner, Redlap Consulting and chair of the FIX Trading Community’s EMEA Regulatory Subcommittee. “There will be a smaller number of equities trading due to the sanctions and it is important to have greater visibility to determine where brokers are trading and what they are doing particularly in times of scarce liquidity.”

Consolidated tape

There is a hope that the consolidated tape proposed by the European Commission, as part of the Capital Markets Union agenda, will be one step in this direction. “The benefit of a consolidated tape is that it provides a truly aggregated view,” says Ben Stephens, global head of product management at Nomura. “Unless you pay for a service like Bloomberg, you will not get that full picture. That drives competition and gives the end user a better understanding of what is being provided and if they can validate the services they are getting.”

It has been talked about for years but Matthew Coupe, co-chair EMEA Regional Committee & EMEA Regulatory Subcommittee of the FIX Trading Community and director of market structure at Barclays Investment Bank believes that the CMU’s focus on retail investors could bring it over the finishing line.

To date, the proposal on the table is to require the region’s 476 exchanges and trading venues – many of which trade the same securities – to make mandatory contributions to a tape for stocks as well as bonds, derivatives and exchange traded funds in return for “fair remuneration” or “a guaranteed a minimum revenue”. In addition, all market data sources would have to make their offerings standardised and available to market data aggregators.

Although Coupe sees the benefits of greater transparency as well as the ability to flag and identify liquidity as key attributes, he stresses that the data needs not only to be accurate but also relevant to the end investor. “FIX is all about the plumbing and we are working on developing a set of standards and best practices to determine what is just noise and what is important,” he adds.

Not everyone is convinced of the advantages. As Michael Richter, executive director, Transaction Cost Analysis, S&P Global Market Intelligence, notes, in “theory” a consolidated tape has multiple benefits with regard to equity trading, what is there not to like about consolidating fragmented European markets into a single source. However, there are a number of challenges that arise in this concept.

He notes that the liquidity improvement may not necessarily materialise and that market participants would need to be connected to all trading venues and systematic internalisers to be in a position to take advantage of all the liquidity available which in many cases, is not always possible. There is also the latency issue that would need to be addressed. A quote could come available and disappear before an execution could take place.

Also, he says, “In terms of data quality, will the data on the tape be cleansed? The accuracy and reliability of data on the tape would only then be as good as the worst contributor. In terms of the transparency, would the tape consolidate 100% of all data sources such as the fragmented SI’s and the OTC data, if it didn’t, it really won’t be providing improved levels of transparency.”

At the close

There is also debate and discussion around the trading protocols in the market and whether they are useful in a volatile market. For example, closing auctions have gained traction over the past few years, but Richter does not believe that there is a significant benefit to the end investor.

“If you look at it it’s not the total volume in the closing auctions that has increased it is the percentage of total volume that has seen a significant increase,” he adds. “A lot of our clients are providing us feedback that it has become more difficult to trade during the day. The feeling in the industry is that there is a lot less liquidity in the continuous trading hours.”

Richer explains that passive funds are attracted to the closing auctions as for them being able to trade at a closing price suits their investment strategy. “Doing this however, can often cause a particular name to have a price spike and reflect a price or value that hasn’t been consistent with where that name has been trading throughout continuous hours trading, lo and behold the following morning, the stock will find its level again close to the price when continuous trading ceased the day before,” he adds.

“Although electronification will continue to be a hallmark of equities markets, ushering in ever newer and shinier tools and protocols, the human element should also not be forgotten. Equity markets are becoming more and more electronic,” says Chris Jackson, global head, equity strategy & head of equities, EMEA Liquidnet. “However, the role of the sales trader is still extremely important. Difficult trades still need a human touch to find the liquidity. The right business model is a combination of the systematic and human engagement.”

©Markets Media Europe 2022
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MiFID II transaction reporting – Jethro MacDonald

By
Ian Rycott
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How can firms help ensure reports are complete and accurate? Regulators’ tolerance towards MiFID II failings appears to be waning, so ensuring MiFID II transaction reports are complete and accurate becomes all the more important. Jethro MacDonald of SmartStream believes AI-enabled technology, combined with rapid access to specialist reference data, can help firms meet reporting obligations.

MiFID II transaction reporting can pose a significant challenge. Containing sixty-five fields, and submissible on a T+1 basis, a MiFID II transaction report requires extensive information about the deal concerned, including details about the firm undertaking the trade, buyer and seller, the trade date and time, and so on. Firms must also decide whether a transaction is ToTV (Traded on a Trading Venue) and so reportable – creating further complexity.

An added pressure stems from MiFID II RTS 22, Article 15, which stipulates that firms must have in place arrangements to ensure transaction reports are complete and accurate, including testing of their reporting process and regular reconciliation of front office trading records against data samples provided by their competent authorities.

Performing the type of comparison demanded by RTS 22, Article 15 is complex. Firms must reconcile information from their own source systems with that from an Approved Reporting Mechanism (ARM) and from their regulator. A huge amount of data is involved and, while data from national competent authorities (NCAs) and ARMs may be fairly consistent, firms’ own information is likely to be in multiple formats, making reconciliations difficult and very time-consuming.

Worryingly for market participants, regulators are increasingly willing to clamp down on MiFID II failings. A July 2021 European Securities and Markets Association (ESMA) report reveals that in 2020, NCAs in 23 out of 30 EU/EEA member states imposed a total of 613 sanctions and measures in relation to MiFID II, with an aggregated value of €8,400,430. In contrast, in 2018, only 12 NCAs applied a total of 117 sanctions and measures, with an aggregated value of €1,263,717. These figures rose in 2019, when 371 sanctions and measures were handed out collectively by 15 NCAs, totalling €1,828,802.

Following Brexit, the UK and EU support individual MiFIR schemes. Firms are now watching to see how the UK’s Financial Conduct Authority (FCA) deals with MiFID II transgressions. Where transaction reporting failures are concerned, two large fines imposed by the FCA in 2019, albeit in relation to the pre-MiFID II, 2007 to 2017 period, may be indicative of how the regulator might act in the future.

March 2019 saw a penalty of £34.3m imposed on Goldman Sachs International by the FCA for failure, from November 2007 to March 2017, to provide complete, accurate and timely information in relation to 220.2m transactions. This total included 6.6m erroneously reported transactions which were not reportable. The FCA, in footnotes to the case, stated that it had, at that point, also levied fines on 13 other firms for transaction reporting failures. Notably, it fined UBS some £27.6m for shortcomings relating to 135.8m transaction reports, which included 49.1m transactions reported in error. Clearly, the FCA is ready to take tough measures – and particularly where it considers failings have occurred on an extensive, long-term basis, in a way that could potentially compromise its ability to monitor effectively for market abuse.

In response to firms’ need to demonstrate to the regulators the completeness and accuracy of their transaction reporting process, SmartStream has developed its MiFID II Transaction Reporting Reconciliation and Reporting Decision Control framework. At the heart of this lies SmartStream’s AI-based application, SmartStream Air.

SmartStream Air handles huge complexity and large volumes of data with ease. It can reconcile the 65 fields firms may need to enter for MiFID II transaction reporting purposes, rapidly marrying up firms’ source system feeds with those of the ARM involved and regulator. Offering near real-time matching, SmartStream Air handles almost any data structure, allowing it to cope with the diverse data structures typically found in financial institutions’ source systems. For firms wishing to prove the integrity of their data, but without the effort and overheads associated with a traditional three-way reconciliation, SmartStream Air provides a useful way forward.

SmartStream Air is complemented by SmartStream RDU’s cloud-based API that allows firms to validate whether a financial instrument is ToTV, and so reportable. SmartStream RDU offers a wealth of data from regulatory and industry bodies, assisting firms with their trade and transaction reporting, including avoiding either under- or over-reporting. The resulting solution is simple to access, making it easy to check for changes to an instrument’s status – a useful attribute, given that an instrument may not be ToTV one day, but ToTV and reportable the next.

The solution also provides market participants with the necessary data to support their decision to file a report, or not, should that decision be questioned by regulators. In the future, it may even be possible to make anonymised correlations between users, creating a benchmark so that firms can check whether they are reporting in line with their peers.

SmartStream’s technologies are helping firms meet other MiFID II obligations, including assisting trading venues to fulfil MiFID II RTS 2 transparency requirements. Following Brexit, ESMA has increased the data continuity checks trading venues must perform when reporting instrument reference and instrument quantitative data to it. Any irregularities have to be accounted for and mistakes re-reported, so that ESMA can meet its timelines in publishing instrument liquidity, size-specific-to-the-instrument, and large-in-scale calculations.

To alleviate this burden, a trading venue can now submit a single daily file of instrument quantitative data to SmartStream Air as part of SmartStream’s Trading Venue Quantitative Reporting Outlier Reconciliation. It then reconciles this with the instrument reference data for the trading venue, consumed directly from ESMA. SmartStream Air also deploys instrument CFI codes from SmartStream RDU, which it uses to check that the instrument included on the instrument reference data report is not one reportable under the quantitative transparency reporting regime. The process is carried out proactively and on a daily basis. The SmartStream approach contrasts with firms’ present practice, where trading venues check records retrospectively, on a three-month basis, against massive ESMA data files – a highly complex exercise and a huge operational burden.

In conclusion, financial authorities’ appetite for delving into firms’ reporting is growing, and they are doing so with an increasingly critical eye. Complying with the demands of MiFID II transaction reporting is complex and proving data integrity to regulators can place a real strain on firms. In response, market participants should take advantage of the sophisticated tools now available, including AI-enhanced reconciliations applications and Regulatory reference data – which it is straightforward to tap into as cloud-based APIs, and offer a very useful means to help alleviate the regulatory burden firms find themselves under.

©Markets Media Europe 2022
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Is there a better way for European retail brokers to achieve best execution? – Suminski & Wood

By
Ian Rycott
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By Adam Wood, Head of Turquoise Europe & Securities Trading Specialist Sales, LSEG, and Alicia Suminski, Turquoise Execution Services Senior Business Development Manager, LSEG

European retail brokers are always looking to deliver the best outcomes for clients’ orders. Not only does this ensure compliance with regulatory requirements, but it builds trusted relationships between clients and brokers. So if you’re seeking the best possible price, what factors should you consider in choosing your venues? Is your order in a mechanism that mitigates predatory behaviour? How do you know if you have delivered best execution?

European retail investors are used to seeing their orders sent to exchanges, and expect them to participate in the price formation process. Just like any institution on trading venues, such as regulated markets or MTFs, brokers serving those retail investors understand the elements of competition and their associated benefits. However, as each trading venue has a different business model for charging market makers and brokers, it can be challenging to know with certainty whether executed trades have achieved the best possible outcome.

So how can retail brokers avoid the detrimental effects while accessing the same or better results for their securities trading practices?

Broaden your access to Best Execution outcomes

The main considerations when retail brokers decide on which trading venue they should route their orders, are:

  • Cost – Connecting to a trading venue generates connectivity and post trade costs
  • Habit – If it works at the moment, why change?
  • Existing relationships – You know what you are going to get, the type of liquidity that is available, and the execution fees

These all make it easy to ignore the potential alternatives in the market. Each retail broker also has its own best execution policy, and retail investors must be able to understand what each policy means when pursuing the best outcome for their orders. Regulators have put the onus on retail brokers to prove that the best possible outcome was achieved, with legislation stipulating that execution price and cost of execution are crucial for retail investors. But if you are not connected to the right venue, how can you be sure that you’re achieving best execution?

For example, one venue may have zero execution fees but less competitive prices, while another may have better prices but non-zero execution fees. In each of these scenarios, there will be times when one model will yield a better outcome than the other.

Additionally, execution efficiency should not be overlooked. It is important for building retail investors’ trust in capital markets which, in turn, will increase the level of investment in the real economy from these key market participants.

Why trade with Turquoise Europe?

At Turquoise Europe, we are not expecting retail brokers to route all their orders to us. But we do want you to question whether you are able to get the best possible outcomes given your current trading venue connections. We pride ourselves on being able to unlock new opportunities for retail brokers to achieve best execution and get their business done more efficiently, and at a lower cost.

By providing a single point of access to pan-European securities markets, retail brokers routing orders to Turquoise Europe will be able to offer a broader choice of markets to their clients without having to multiply connections to markets that enjoy less coverage from other MTFs due to their size. In addition, Turquoise Europe is waiving real time market data redistribution licence fees to retail brokers in order for their clients to truly embrace the portfolio diversification opportunities that European capital markets offer outside their domestic markets, with over 2,500 securities to choose from.

And while geopolitical factors may have led to an influx of choice of new trading venues, Turquoise Europe is not just a new platform. We provide the security and comfort of working with a 300-year-old exchange, with a forward-thinking mindset so that you can take advantage of the latest technologies and innovations to enhance your equities trading experience. A prime example is our enhanced auction process for retail brokers, which is fostering “better” best execution by allowing retail brokers to trade closer to the primary market’s mid-point. Our solution also allows passive orders to benefit from price improvement, an outcome that cannot be reached in an ordinary central limit order book.

With competition intensifying across European securities markets, we are seeing more and more instances of static pricing. Turquoise Europe has chosen its lit auctions order book to host its new retail broker execution service, because it reverses the balance of power and provides the outcomes of a healthy price formation mechanism. This works by prompting the market to bid for the opportunity to execute against retail orders, with the price retail investors pay or sell at being the result of their orders’ actual interaction with the market.

But it does not end there. We have an existing network of participants. We have partnerships with seasoned liquidity providers. We have a resilient trading platform at competitive costs. So if you choose to add Turquoise Europe (Turquoise Plato Lit Auctions™) as an execution destination, your execution outcome will be the same price as the primary market or better at a transparent, low cost.

Retake control of your trading in Europe with a trusted, experienced trading partner to achieve better best execution. Choose Turquoise Europe.

Contact us today to find out more:

www.lseg.com/turquoiseeurope

Profile: Nicky Maan

By
Ian Rycott
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Nicky Maan, CEO, Spectrum.

Nicky Maan, CEO of Spectrum Markets, explains why now is the right time for a new derivatives trading platform

What were the drivers behind Spectrum Markets?

We are a subsidiary of IG Group and started looking at the European business in 2016 pre-Brexit and Covid. We realised that the industry was missing something – a modern trading venue using bespoke best-in class technology, that is specifically geared towards the need of retail investors. We then spent around three years doing research on the different European trading venues and what they had to offer. We found that placing trades at exchanges was rigid while launching and trading products was cumbersome. It was also expensive for retail investors, so we went back to the drawing board and as a technology company decided to design a pan European derivatives exchange that offers financial institutions and their retail investors a better way to trade. Retail investors cannot trade directly but via a broker on the MTF.

How does the exchange operate?

We developed the first 24/5 on-venue marketplace for securitised derivatives which means that investors can trade any time of day. We wanted to enable them to react to the news as quickly as possible when global events take place. We were also the first to enable a single ISIN to be traded simultaneously across multiple European countries in combination with intraday issuance, which was launched in April last year. The key for us was to develop a trading venue that was scalable with reliable technology. We wanted to give clients a seamless and efficient trading experience. We also wanted to ensure that any problems were caught immediately so we have an operational team working 24/7 – night shift is covered by our team in Bangalore – that is continually monitoring the exchange to ensure that there are no issues.

What were some of the challenges developing the exchange?

Although we were able to reuse a lot of components from parent IG Group, from a tech perspective, and in terms of efficiencies and the end cost for retail clients, we had to unpick everything and strip it right down. We built and designed the exchange from scratch. Having the right infrastructure was fundamental in attracting the big institutional businesses as members of the venue.

From a regulatory viewpoint in terms of reporting, pre- and post-trade transparency requirements, we also had to start afresh. This led to various discussions with different European regulators in terms of how the exchange would operate, how it should be manned, the monitoring process and the overall set of rules required. This involved looking at every side of the business – front and back office, clearing and settlement. We decided to work with BaFin, the German regulator which is why the company is based in Frankfurt.

Why BaFin?

We wanted to build a sustainable relationship with a regulator of repute to ensure the stability of the exchange and its products. BaFin went out of its way to understand our vision for the business and where we wanted to be in 10 to 15 years’ time. The German regulator was also very thorough as well as being cautious.

When did you launch and what have been the milestones?

We launched in 2019 and offer trading in Germany, France, Italy, Spain, Sweden, Norway, the Netherlands, Ireland and Finland. We have also launched turbo certificates linked to 70 stocks in the US and Europe which currently see high trading volume through securitised derivatives. The most popular sectors are IT, bank/finance and commerce/e-commerce. Turbo certificates on stocks allow equity investors to hedge their positions. Due to the underlying leverage inherent in these products, it only takes a fraction of the stock price to get exposure to the movements in the underlying equity price.

What have been some of the milestones?

Over the last 12 months we have maintained 100% rolling uptime, and have not had any unplanned interruptions to trading, in spite of operating 24/5 on a pan-European basis.

Third-quarter trading volume increased by 94% year-on-year while 198 million securitised derivatives were traded on the exchange from July to September, compared to 102 million during the same period last year. During the quarter we also saw the one-billionth securitised derivative traded, ahead of its second anniversary on October 3rd. If you look at the first two years of trading, the number of securitised derivatives traded in October 2020 to September 2021 rose by 173% on the same period the year before.

Why did you focus on the retail investor?

I think we are seeing a real generational shift in Europe of people who now have to invest for their own pensions. However, although they are younger, they are well educated and want the same access to financial markets. What we have found though is that people are looking at the different options of investing. This is a long-term trend that started about 20 years ago but accentuated by Covid-19 and working from home. People want to choose when they can trade whether it be first thing in the morning or after work. We are seeing more than a third of our flow on average outside of traditional trading hours (i.e. between 17:30 and 9:00 CET). This is why a securitised derivative makes sense, and particularly turbo warrants because this is a short-term product that can be traded around the clock.

What are your future plans?

We plan to continue developing the platform by further improving and extending connectivity options and trading infrastructure, as well as welcoming new members to the venue. We are constantly building new technology and draw on a team of around 600 people around the world. We are also planning to introduce a broader product set that includes more medium- and long-term securitised derivatives as well as introducing cash equities and ETFs.

Nicky Maan is CEO of Spectrum Markets. He joined IG Group in 2014 as co-head of its MTF strategic initiative, bringing it from concept to delivery. He is a qualified solicitor in England & Wales and from 2008-2012 was a corporate lawyer at Dewey & LeBoeuf in London and New York, followed by a role as managing associate at Greenberg Traurig in London and Miami.

©Markets Media Europe 2022
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Embracing Change in a New World

By
Shanny Basar
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Neha Mehta talks to Shanny Basar about setting strategy in the new combined IHS Markit and S&P Global group, encouraging women and changing perceptions of disabilities at work.

Neha Mehta, who works at data and analytics provider IHS Markit, now part of S&P Global, moved from India to start working in the UK in 2007, which she described as not just a geographical change but also a cultural and mindset change.

Mehta said: “The move has helped me evolve, embrace that change and take the best from both worlds.”

The move demonstrates her belief that you have to go outside your comfort zone if you are ambitious, otherwise opportunities become very limited. That mindset is crucial as she has spent the last few months preparing for a new role after completion of the merger of IHS Market and ratings provider S&P Global on February 28 2022. Both companies had made disposals to satisfy competition authorities after announcing the $44bn acquisition in November 2020.

Douglas Peterson, previously President and Chief Executive Officer of S&P Global, is CEO of the combined company. He said in a statement:  “Our combined strengths in credit and risk management, indices across multiple asset classes, private markets, ESG and energy transition data and analytics will accelerate the growth of our business and broaden the scope of services we can provide to the markets.”

Since the closure of the deal Mehta’s position is Senior Director, Corporate Strategy. Her new role will help guide and define strategic priorities across the combined firm as part of the Corporate Strategy group. The combined company said it expects to realise between 6.5% and 8% annual organic revenue CAGR on average through 2023, balanced across major industry segments.

Mehta was previously COO for the Office of the Chief Technology Officer at IHS Markit and responsible for implementation of the mandate from Group CTO and Chief Data Scientist, influencing and collaborating with divisional CTOs to drive, communicate and execute technological growth and transformation across the firm.

“The corporate strategy role is very broad across the organisation – what products we should have, what are the gaps in the market and how we should develop our strengths,” said Mehta.

Over the last few years Mehta has learnt that it is necessary to know what the business is trying to do, but also that it is equally important to define what the business is not trying to do.

“The world is changing and we are a global data, information and analytics provider,” she said. “We need to know where we want to go and being in the right markets is key to our corporate strategy, and we need to innovate and be ahead of the curve.The problem is not having data but having the right data.”

The right data means that it is relevant for each individual piece of work and that it is being used in the right context. The data then has to be synthesised into recommendations for leadership with a macro view of opportunities so they have the whole picture. IHS Markit’s strategy resulted in the firm ending 2021 with record organic revenue growth for both the fourth quarter and the year.

“I’m excited about these two big organisations coming together and excited about my new role, meeting new people and coming up with a new culture for the combined organisation, being part of it and driving it forward,” Mehta said.

As the merger has completed, Mehta is likely to meet one of her personal goals for 2022 which is to learn something new. The willingness to constantly learn is one mindset that Mehta admires, whether that relates to people development, a technical skill or something completely new outside the professional workspace.

Women in Tech
Mehta has been helping colleagues learn by launching a global Women in Tech structured mentoring scheme with an SVP at IHS Markit in 2020.

“We have run two different programs under that banner for two years, received huge positive feedback from the mentees and won a Brandon Hall Excellence Award,” she added.

The Leadership Mentoring program is for associate directors and directors to support them for future leadership roles. The program started with only women only but opened up to men to be inclusive, although it has a higher ratio of women to men.

The Talent Growth program is for associates and focuses more on networking, but is also structured around specified topics and giving access to senior management as mentors.

“We’ve been able to serve more than 500 colleagues and the themes that come across are about building confidence and having role models,” Mehta said.

IHS Markit is making an effort to attract and retain female talent and support them growing into senior positions and the firm has other initiatives to get more women into the Executive Director, MD and SVP levels.

Confidence
Mehta needed confidence when she decided to become a chartered accountant in India as the exam has a pass rate of between 2% to 3%, with many more male than female candidates.

“There were definitely naysayers so you have to tighten your belt and have conviction in yourself,” she added. “I was very clear that I was going to do this, no matter what it takes.”

She continued that she learnt early in life that she was passionate about numbers and that she needed to fight and advocate for herself.

“If I am really passionate about something I have to take onus and do it; nothing in life is handed to you,” Mehta said.

Confidence was also necessary when Mehta left BNP Paribas after more than nine years to join IHS Markit because she believed she had capabilities and transferable skills. In her role as Finance Business Partner at the bank she had worked with business managers, understood what they were doing, and was pretty sure she could take her career in that direction.

“The drive to move into business management and operations made me apply for this role and I absolutely love it,” she said. “I think it boils down to having the confidence in yourself that you can do it.”

Mehta admitted that putting her hand up and saying she wants to do something more has not come naturally, and she sees a lot of women wait for that proverbial tap on the shoulder to say, ‘Hey, this is happening and I want you to be part of it.’

She believes confidence is cultivated over a period of time and part of her self-belief has come from her personal life and knowing she can handle situations.

EnABLE
In December 2020 Mehta founded EnABLE, IHS Markit’s global action and support affinity network for employees with diverse visible and invisible needs because she has a daughter with disabilities and a complex set of needs.

“Before I had a child I was limited in my experiences with disability,” she added. “So it’s about creating an environment where we talk about disability, understand what it means and how we drive true inclusion.”

Being a parent critically changed Mehta’s perception from viewing disabilities as what people cannot do – to what people can do. EnABLE aims to raise awareness and change that mindset so that all forms of abilities and disabilities are in the workplace.

“We really want to make the workplace inclusive and provide opportunities to people with disabilities by matching their ability,” Mehta said. ”It’s not to do with a disability but about the ability to do certain things.”

EnABLE has worked with HR globally to make policies more accessible, train hiring managers to raise awareness around disability, and make it normal to have conversations about disabilities with colleagues. As a result IHS Markit hired five people with disabilities in India, where a trial began, after using an agency that represents people with disabilities.

Mehta believes the Covid-19 pandemic has driven empathy and many colleagues have been working from home with a child, a parent or a sibling who may have a disability.

“So it’s about more support and understanding of those circumstances so we can bring our true authentic selves at work.” she added. “For me, my daughter is very much part of my life and you can’t just switch it off.”

Being a parent has also contributed to Mehta’s confidence as she is her daughter’s advocate and fights for what she needs. Her advice to women at all stages of their career is to have self-confidence, go for opportunities and be their own advocate. Networking helps but there is also a need to be willing to ask for help, to learn and be curious.

Mehta said: “You cannot wait for things to happen and be handed to you, you have to go out and look for opportunities.”

Through the mentoring programmes, colleagues at IHS Markit have made connections and grown the confidence to push to do more things for their growth.

“I have always found support in the initiatives that we have put in place, it’s been an absolutely fantastic experience,” she added. “Wonderful colleagues are always happy to help and drive that change that we want to see; but there’s always more to do.”

©Markets Media Europe 2022 

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Pay gap in UK financial services could take 30 years to close

By
Lynn Strongin Dodds
-
Amanda Blanc, Group CEO at Aviva
Amanda Blanc, group chief executive officer of Aviva, and Women in Finance Champion.

It will take 30 years to reach gender parity at senior levels of the UK financial services industry if nothing is done to improve the “frustratingly slow” current rate, according to Amanda Blanc, group chief executive officer of Aviva, and Women in Finance Champion.

As the week of International Women’s Day approaches, research by the Women in Finance Taskforce calculated the 30 year number by looking at the proportion of senior management among the 400 signatories who were female. During that timeframe it increased by just one percentage point between 2018 and 2020, from 31% to 32%.

Blanc, who has run Aviva since July 2020 and was appointed by the Treasury as the women in finance charter champion a year ago, said, “Progress towards gender equality in the financial sector remains frustratingly slow. Women, companies and society cannot afford to wait 30 years when we can achieve this in 10.” she says.

She added, “We’ve got to work quicker and harder, for the sake of women, for the sake of society and because a more diverse business is a more productive and innovative one. ”

The UK government’s Women in Finance Charter was launched in 2016 as a voluntary agreement committing firms to gender diversity targets.  It has over 400 signatories including Aviva, the Bank of England, London Stock Exchange, the fund manager BlackRock, the banks Morgan Stanley, Santander and Monzo, and the building society Nationwide.

The Women in Finance Charter Accountable Executive Taskforce has worked with Bain & Company to develop a series of practical recommendations to help firms accelerate their progress towards gender equality.

They were based on interviews with financial services CEOs, academic research, and over 100 responses to a survey issued to all of the Charter’s signatory organisations.

They include mandating shortlists for senior positions with 50% female representation, greater use of psychometric testing in recruitment, removing male-biased recruitment advertising. Also, on the list were creating diverse interview panels and mid-career returner programmes to help women move back into work.

Her other recommendations included advertising all jobs as flexible, publishing bonus payments of all senior managers, formal sponsorship programmes for women at all levels, full-pay equal parental leave and benefits packages that support women at key life stages including menopause.

Blanc said senior female role models and zero-tolerance policies for harassment were crucial for improving culture and behaviour.

She also advised setting detailed annual gender representation targets for all parts of the organisation, a real-time dashboard to showcase progress against gender targets that is publicly available and embedding gender parity targets into scorecards for all senior management linked to executives achieving gender equality targets.

©Markets Media Europe 2022
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Russia frozen out by stock exchanges and index providers

By
Lynn Strongin Dodds
-

The London Stock Exchange (LSE) suspended with immediate effect the trading of global depository receipts (GDRs) of several Russia-based companies including Rosneft, Sberbank, Gazprom, En+ and Lukoil.

The LSE has 24 companies incorporated in Russia trading on its bourse, of which 17 are suspended. GDRs are negotiable certificates issued by a bank which represent shares in a foreign company but traded locally.

However, the ban also affected a number of other Russian companies such as En+ which is incorporated in the UK.

The LSE’s move to suspend Russian depositary receipts is “in connection with events in Ukraine, in light of market conditions, and in order to maintain orderly markets,” LSE said in a statement.

It also noted that less than 1% of its total income comes from operations in Russia and Ukraine.

Deutsche Börse, Germany’s largest stock exchange operator, suspended trading in shares of 16 Russian companies, including Aeroflot, Rosneft, Sberbank, VTB and VEB Finance.

In the US, Nasdaq and Intercontinental Exchange’s NYSE have temporarily halted trading in the stocks of Russia-based companies listed on their exchanges, their websites showed.

Market participants said the moves were due to regulatory concerns as the exchanges seek more information following economic sanctions imposed on Russia because of its invasion of Ukraine,.

Meanwhile, index providers MSCI and FTSE Russell have also removed Russian equities from their widely-tracked indexes.

An overwhelming majority of market participants see the Russian market as “uninvestable” and its securities will be removed from emerging markets indexes effective March 9, according to MSCI.

The Dow Jones Russia GDR Index, which tracks companies like Gazprom PJSC and Sberbank of Russia PJSC, has plunged about 96% in the past two weeks.

©Markets Media Europe 2022
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ESMA chair Verena Ross highlights importance of data quality

By
Lynn Strongin Dodds
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Verena Ross, chair, ESMA
Verena Ross, chair, ESMA

The importance of data quality and rigorous reporting in order to mitigate systemic financial risk across markets should not be underestimated, according to European Securities and Markets Authority (ESMA) chair Verena Ross in a speech to the Eurofi High Level Seminar.

“In a world that runs on data, good quality data is also the essential ingredient to effective risk analysis,” Ross said, speaking to financial ministers, regulators, and practitioners. 

European Securities and Markets Authority (ESMA) chair Verena Ross

She added, “Detailed reporting requirements now constitute a key component of financial sector legislation. I know many firms complain about the burden of these reporting requirements, but – let me assure you – this data allows ESMA and national regulators to better understand risks and scrutinise market activity.” 

Ross confirmed plans to continue streamlining data reporting and improve ESMA’s data capabilities. She said they will put “every effort to enhance data-driven risk analysis, policy making and supervision in the EU.”

Alexander Dorfmann, senior product manager, SIX said, “As the local regulators begin to shift their focus from just demanding data consistency, to seeking both data consistency and quality, now is the time for financial institutions to reassess.”

He added, “There’s certainly signs that financial institutions are adopting a more consolidated approach, as they begin to re-evaluate what more can be done with their reference and market data. It is not hard to see why. Embracing a standardised, more scalable data service which enables firms to extract the reference and pricing information needed for each regulation is an obvious next step.”

Ross also highlighted the key role that central counterparties (CCPs) play in cushioning rather than exacerbating shocks in the financial markets.

During the stress period in March 2020, she said they dealt successfully with record volumes of clearing and settlement activity. However, “in view of the systemic importance of CCPs for the EU as a whole, we must continue to think about the risks stemming from our reliance on CCPs outside the Union as well as the appropriateness of the current supervisory framework within,” she added.

©Markets Media Europe 2022
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Research: A change of heart

By
Ian Rycott
-

Lynn Strongin Dodds assesses whether the FCA and European Commission’s reversals will have any impact on small cap research.

One of the biggest concerns of unbundling under MiFID II was that small to medium enterprises (SME) would lose their already dwindling audience of research analysts. The impact is still not clearcut, but UK and European regulators are concerned and rolling back some of the rules to help boost this cohort’s popularity and liquidity. The jury is out as to whether they will be successful.

In a paper published earlier in the year, the European Securities and Markets Authority (ESMA) absolved MiFID II of responsibility. The watchdog said it found no material evidence that the rules separating research from execution had limited the availability and quality of research on SMEs.

However, it admitted that the legislation did not help address the long-standing issues at play in this universe. The paper said, “In absolute terms, SMEs continue to be characterised by a lower amount of analyst research, higher probability of losing coverage, worse quality of research and limited market liquidity.”

One of the main reasons that coverage has suffered is that SME research is not seen as commercially viable as it is for the larger cap companies. Many market participants believe that MiFID II has only exacerbated the situation as many asset managers decided to shoulder the burden and pay for research out of their own P&L instead of charging end clients. The bottom line literally was that research became the second largest expense after staff compensation, shifting the focus even more to their bigger, liquid and lucrative counterparts.

As Steve Kelly, Special Adviser to Euro IRP notes, “It’s undeniable that SME research has been declining in scope and depth for a long time. The MiFID II rules may have accentuated this trend, but no more than that. As such, relaxing these rules is unlikely of itself to alter the underlying dynamic here. This can be seen by the fact that only about 1 in 5 IRPs offer SME research – it costs as much to do it properly as it does for a large cap stock, yet the potential market on the buyside is limited. Coverage of SMEs will continue from corporate brokers, and others may enter the fray, but not to any significant extent.”

Greg Bennett, chair of equity capital marketplace Appital, agrees, adding, “The diminution of quality and quantity in SMEs started after the financial crisis and MiFID II was the nail in the coffin. Research is seen as a cost and not a profit centre. What we saw after the Spitzer review, was that investment banking and research were separated. Banks needed to cut costs and as a result, teams of four were reduced to three, research became juniorised and that lowered the quality of the research. It has been like a snowball rolling down the hill.

Elliot Spitzer, the then New York attorney general, led an investigation into abuses during the dotcom boom which led to a $1.4 billion global settlement in 2003 that rewrote the rules for stock analysts. He campaigned for the independence of equity research from investment banking while at the same time the then UK’s Financial Services Authority launched a similar effort to get brokers to charge fund managers separate fees for their share-trading and other service such as the use of a data terminal or equity research

Regulatory push

Fast forward to today and the European Commission as well as the Financial Conduct Authority (FCA), the successor to the FSA is trying to restore some kind of balance in the post Brexit world. Under the Commission’s so-called Quick Fix Directive, firms will be allowed to re-bundle costs for equities research and execution for small and mid-cap companies below a €1 billion market cap. They will though be required to inform clients that they have entered into an agreement with the research provider to identify the portion of any payments attributable to research. The EC did not make any changes relating to fixed income research.

Bonds were also left out of the FCA’s blueprint which is encapsulated in its Wholesale Market Review. The UK watchdog has had to tread carefully given it was the main architect of unbundling for the MiFID II mandate and it did not want to appear to be back peddling. Unbundling was not popular with French and German authorities who wanted to keep the status quo.

This may explain why the FCA opted for a much lower market cap threshold of £200 million for exemption. It contends that this is the level where the research coverage is at its poorest, based on data indicating that almost all companies above this threshold have some form of coverage already.

However, many market participants believe the level is too low and will not generate interest. “The FCA has made an attempt to alleviative the problems with small to mid-size cap research but according to the buy side in the UK the £200 million cap is too small” says Mike Carrodus, Founder and CEO of Substantive Research, “However, even if the FCA matched the EU’s €1 billion I am not sure it will have an impact because asset managers have already unbundled and very few will change their processes for this level.”

Daniel Carpenter, head of regulation at Meritsoft, a Cognizant company, says, “I think each market will be impacted differently depending on the level of small cap research. For example, Sweden and the UK have some of the biggest players in this space. However, one of the problems is that if you are a big firm and have already unbundled, how do you allocate research under the new rules. Do you go back to soft commission dollars or commission sharing agreements?”

In other words, many buyside firms may decide that it is simply not worth the investment. “There are two considerations,” says Kelly. “Firstly, for most asset managers, SME stocks of this size are only a small part of their overall holdings, and secondly, there are not inconsiderable operational issues in defining this research distinctly, and then securing agreement from end clients that the costs of such research can be met through bundled payments funded by the end clients.

New avenues

While few believe that the regulatory changes will generate greater in-depth coverage, some fund managers are developing new ways to analyse the sector to unearth alpha generating opportunities. This is particularly true of Anglo South African bank, Investec which recently launched its Searchlight fund that covers 50 stocks with an average market cap of £500m.

Nathan Piper, head of oil & gas research and Searchlight at Investec believes that £500m is the right threshold because there are enough companies with potential in that space. However, the team does not apply conventional research but uses a combination of Porter’s five forces, and Dupont analysis along with historic analysis to identify companies that have the best competitive advantage and return on investment, according to Piper.

Developed by Harvard Business School professor Michael Porter, the Five Forces Model is a business analysis tool that examines the relative strength of five primary market dynamics that govern competition within virtually any industry. Dupont analysis provides an insight into a company’s strengths and weaknesses by breaking down return on equity into three parts: profit margin, asset turnover, and leverage.

“We chose this part of the market because it was under-researched,’ says Piper. “We also realised that you cannot cover the market in a traditional way where for example one analyst would cover 10 stocks. It’s too expensive. We generate a two-page report on the stocks we cover with our analysis on the stock, but the aim is not to issue sell or buy recommendations but highlight investment ideas.”

©Markets Media Europe 2022
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Derivatives trading focus: Restricting access to derivatives

By
Ian Rycott
-

In 2022 regulation and market activity may see greater adoption of derivatives, but traders need to be cognisant of their limitations. Dan Barnes reports.

Derivatives, across both listed and over-the-counter (OTC) markets, are an attractive tool for engaging with risk and position management.

However, the post-2008 regulatory environment and anti-free market politics are throwing up barriers to efficient derivatives trading. Not only is equivalence between the UK and the European Union still unresolved, but credit markets are also still beset by liquidity problems as a result of sell-side capital rules.

Using non-cash instruments is incredibly helpful. A portfolio manager running a long-only strategy without access to derivatives will have to sell down their positions to become defensive if things go sour.

The choice between holding investible cash securities or actual cash is limited, but if they use derivatives, they get the extra flexibility to stay invested, but still be defensive.

“Hedging helps portfolio managers maintain preferred investment views and themes while immunising the portfolio against volatility or unforeseen market developments,” says Brian Mangwiro, director research multi asset group at Barings. “For example, we can buy country credit default swaps (CDS) or corporate credit CDX to hedge against volatility in emerging market (EM) hard currency bonds or corporate bonds, respectively.  Equally, in an aggressive rate hike cycle, we can immunise cash bond portfolios by ‘paying’ (selling) interest rate swaps to hedge against rising interest rates.”

They are also a good way to manage risk in the credit markets when trading cash instruments is challenging.

“Derivatives can pull liquidity together and create liquidity in the markets,” says Daniel Leon, head of trading at HSBC Asset Management.

Mangwiro notes, “We can generate excess returns on a leverage basis. That’s key for absolute return mandates. For benchmark strategies we also use derivatives to hedge against market risk, ranging from geopolitical developments, change in monetary policy regime or any other event-driven market risk(s).”

Regulatory impediments

The derivatives markets are global, but liquidity is typically provided in focused markets – such as at exchanges for listed derivatives – or fragmented in the OTC space. Today, post financial crisis, OTC derivative markets are highly regulated, with clearing of trades, electronification and reporting all well mandated in the major markets – US, Europe and in Asia Pacific. This has the positive effect of limiting banks’ exposure to leverage in credit – a trigger of the 2008 crash.

However, trading in OTC markets also has considerable limitations as a result of rules, which have reduced liquidity in single name CDS by increasing the costs of holding inventory for the banks.

“If you look at the fixed income market especially on the credit side, the CDS have been hit on the head pretty hard by regulation, for single names,” says Leon. “Which is a pity because if you examine what a single name CDS is, it’s an interesting contract because it’s going to pull all the liquidity from the bonds of the same issuer. That’s a slight simplification but that’s the objective. So, the CDS is an interesting instrument in creating liquidity for a name, because it allows you to look at the liquidity of the whole name.”

The use of central counterparts to clear trades adds a level of process which also requires regulation. Getting to this post-trade processing via central counterparties (CCP) is as necessary as access to trading venues.

In this area, the regulatory fragmentation via Brexit has so far been staid. The existing equivalence between the UK and EU regimes was upheld after the UK left the Union, and on 10 November 2021 the European Commission (EC) announced it would extend equivalence of recognition for UK clearing houses into the new year.

Yet despite the post-trade equivalence, there has been a lack of equivalence for trading venues, leading to fragmentation of liquidity, as venues either had to create functional entities in both jurisdictions, which in equities led to a significant volume of trading moving into EU aligned venues, or for trading firms to operate in both places.

That stems from trading firms’ need to manage the Derivative Trading Obligations (DTO) by using the appropriate trading venues based upon recognition by the relevant National Competent Authority (NCA).

“If we look at jurisdictional differences, clearly there have been complexities created by Brexit which has split the industry’s workflow,” says Steven Swann, Head of Derivatives and Client Driven Solutions, ABRDN.

The same issue extends to the jurisdiction in which a firm is registered. Trading counterparties find working with those in a market without equivalence to be challenging in certain circumstances.

As the US has agreements with the UK and EU, the greater advantage has been given to the US trading venues and traders.

Without a resolution between the European and UK markets this is unlikely to be resolved in 2022.

Risks in the market for 2022

Fragmentation creates complexity and cost, for example with regulatory changes underway in Europe via the European Market Infrastructure Regulation (EMIR) which has part of its reporting reforms under the REFIT programme expected to take effect in Q3 2022, and the Commodity and Futures Trading Commission (CFTC) Rewrite reforms which are expected in May next year.

These are centred on the reporting requirements, with a view to creating more accurate and efficient reporting regimes.

“At the end of 2021 and in early 2022, firms are using the pause in regulatory change to focus on the absolutely essential need for improved accuracy, alongside improved efficiency and reduced errors. However, with new requirements looming later in 2022, it is essential that the market turn its attention to ensuring it is prepared to avoid missing deadlines or implementing ineffective processes,” said Ronen Kertis, head of IHS Markit Global Regulatory Reporting Solutions.

In an October research report, IHS Markit found that preparation for European reporting requirements was well underway, but that US preparation was less established, with 60% of firms still to engage – or only just beginning to engage – with the CFTC obligations, potentially indicating an underestimation of the work involved.

Analysis by Quantitative Brokers has also found that market risks are increasing in the interest rate derivatives markets, with average quote sizes of many interest rate futures now almost 70% below the 3-year average, with traders and asset managers recommended to be careful as shallow quote sizes indicate markets are vulnerable.

Shankar Narayanan, head of research, Quantitative Brokers says, “We recommend exercising caution in the rates space and, more specifically, the 2-10-year maturities. Based on a heatmap of microstructure changes, rates show a significant drop in quote size, specifically the curve’s short end.”

This signals that volatility risk is potentially increasing.

“The volatility has been rising but not as steep as the drop in quote size – the two are negatively correlated,” he says. “The long end of the rates, 30-year, shows little to almost no change in quote sizes. In such circumstances, the quality of price discovery deteriorates, trading big sizes is challenging, and markets are vulnerable. We attribute the changes in microstructure partly to shift in sentiment, expectations of inflation, and other macro conditions.”

©Markets Media Europe 2022
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Buyside profile: Kristian West

By
Lynn Strongin Dodds
-

Kristian West, head of JP Morgan Asset Management’s investment platform, explains how the asset manager is driving greater scale, efficiency and standardisation across the organisation.

What were the drivers behind the new investment platform?

We wanted to introduce scale and greater efficiency across our technology infrastructure, which includes research, the development of investment ideas, portfolio construction and trading. As a large and complex organisation, historically the asset management group was divided into silos with different systems and processes in each region. This meant that if portfolio managers wanted to send a US order, they would do it through the US or a Taiwanese order through Taiwan. However, our CEO George Gatch wanted to redefine the way the group did business and create a global experience and bring greater efficiency, scale and standardisation across the organisation. He wanted to develop an environment where everyone used the same tools, engines and data whether they are sitting in Hong Kong, London or New York.

How did you get involved and how did you develop the platform?

I have worked at JPMAM for 14 years mainly on the equity trading front and became head of the platform in February 2021. However, in 2018 I was made head of equity data science along with my role as head of global equity trading, so I had experience in using artificial intelligence and machine learning tools. We also built an autonomous technology team which sat alongside our trading business and implemented a much more data driven process. We created a predictive machine-learning platform, Stars, which took orders, categorised them, and chose the best way to execute the orders. Scaling this approach across our entire Asset Management business is the challenge at hand.

What functionality does the new platform entail?

The platform is supported by 1,200 technologists and they have helped us pivot from a vertical to horizontal integration which is a huge organisational change but especially one across over 7,000 employees. It has meant condensing several functions and establishing six core groups – equity trading & analytics, derivatives, broker relationship management, investment data, data science and product ownership – under one roof. While the first three are more traditional, the other three involve more modern practices and principles. Overall, the aim is to focus on scale and efficiency through automation as well as create centres of excellence.

Can you go into more detail about the traditional pillars first?

On the traditional side we have equity trading and analytics which is where I have worked for most of my career. It covers all asset management businesses and works very closely with technology to streamline processes, automate trading flow, simulate trading and run historical analysis in order to continually improve trading strategies. The team is centred around achieving efficiency and performance at a lower cost. Trading analytics is a subset of the broader trading space and is focused on delivering front-to-back analytic, reporting and systematic trading capabilities to the global trading desks. The team delivers industry analytics and systematic trading systems which not only cuts execution costs for our clients but also drives trading efficiencies for our trading desks through automation. It also supports the regulatory obligations of best execution.

Derivatives is an area where we have seen a great deal of exponential growth. This is because although equity markets have done very well over the past ten years, we are at a point of inflexion and people want to protect their portfolios. We are building out our derivatives capabilities and have a dedicated derivatives portfolio management team who come from both the buy and sellside. Together they have around 93 years of experience in equity, rates, currency, credit and volatility derivatives. The team acts as a centre of excellence for all aspects of derivatives at the firm, helping improve investment outcomes in existing portfolios and working with clients on complex derivative implementations. This is all built on a best-in-class risk-analytics and middle-office architecture powered by our proprietary infrastructure.

The aim of our broker relationship management team is to ensure that there is one single contact for the Street. The team works with management across all products to create a holistic view of these relationships. The team liaises with major counterparties to best align asset management priorities and identify opportunities where we can improve partnerships.

Can you provide more information on the last three functions?

Product is a dedicated, cross-asset product owner & management team covering the investment management space. As we pivot from vertically integrated technology solutions to horizontal, this team manages the technology engagement to ensure we have consistency and best in class technology capabilities. This team is responsible for delivering cross-AM functionality across Research, Portfolio Construction and Trading. With their focus, they infuse agile delivery principles across the organisation.

Agile is an iterative approach to project management which generally requires teams to work in small, consumable increments. Requirements, plans, and results are evaluated continuously rather than incrementally so teams have a natural mechanism for responding to change quickly. Our key points of emphasis for agile within the investment platform are to value individuals and interactions over documented processes and tools, customer collaboration over a contract negotiation, and the main area is responding to change over following a plan.

We are also building out our data capabilities. We have a great deal of proprietary data as well as data that we buy in, but it has been fragmented. To maximise its use and accessibility we have established a team to transform the business and build an asset management-wide data environment where data is accessible and accurate in any format for decision making.

We created a data science team around four years ago which has given us an early mover advantage. The platform has 26 dedicated data scientists who use artificial intelligence, machine learning and data science techniques within the asset management investment lifecycle including research, portfolio management & trading. This team supports efforts across Asset Management.

How does this dovetail with JPMAM’s sustainability objectives?

Our data science team partners with our sustainability team to help close some of the gaps in ESG information. Although there are ESG metrics, scores and information from corporates, it is still fragmented because not all sectors are mandated to disclose information to the standard we require. We have helped develop a proprietary framework that uses machine learning that uses traditional and alternative data to produce scores and metrics to better identify trends, opportunities and risks.

What have been some of the challenges in building out the platform?

As I mentioned, moving from a vertical to horizontal structure is a big undertaking from an organisational as well as psychological perspective. For example, if you want to trade FX in Hong Kong and London, it may have been done in two ways and now you are asking people to do it in the same way. What we did was to set up working groups across research, portfolio construction, trading and data that sit within the investment platform and with product owners and managers to help drive the agenda of standardisation and convergence. They help define and prioritise the key criteria from the asset managers and ensure that the process is transparent, well understood and goals are aligned and met.

How do you hope to develop the platform in the future?

The last three years has very much been about implementing the right organisational structure, teams and technology. Going forward we will continue to build upon what we have done using agile principles and innovation to help better service our clients.

Kristian West is a managing director and head of JP Morgan Asset Management’s investment platform. An employee since 2008, he has worked on the equity trading side in different roles with global head of equity trading & equity data science being the most recent position. Prior to that, he was head of equity execution services at Barclays Capital and worked at Goldman Sachs, responsible for trading within their electronic transaction services (ETS) department. Before that, he was a US sales trader at Spear Leeds & Kellogg and worked at Ford Motor Company’s research and development centre.

©Markets Media Europe 2022
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Macquarie hit with AUD 35m ASIC fine

By
Lucy Carter
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The Australian Securities and Investments Commission (ASIC) has given Macquarie Securities a AUD 35 million fine for Christmas.

Macquarie Securities Australia has admitted to misreporting 73 million short sales between December 2009 and February 2024 due to numerous system-related failures, some of which ASIC notes were undetected for over a decade.

ASIC estimates that the number of misreported short sales is actually between 298 million and 1.5 billion.

Macquarie has admitted to not having appropriate supervisory policies and procedures or adequate risk management systems, and not maintaining necessary organisational and technical resources, to comply with its short sale reporting obligations.

Beyond this, Macquarie has also admitted to incorrectly reporting regulatory data for more than 633,00 orders between November 2022 and March 2023.

ASIC and Macquarie have requested that the New South Wales Supreme Court impose aAUD 35 million fine for these failures.

“Accurate and reliable data underpins confidence in our financial markets. ASIC and the market rely on short sale and regulatory reporting data – especially during periods of volatility – to understand market activity and make informed decisions. Without accurate data, market transparency is undermined,” stated ASIC chair Joe Longo.

EuroCTP to provide equities CT

By
Lucy Carter
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Eglantine Desautel, EuroCTP
Eglantine Desautel, EuroCTP.

The European Securities and Markets Authority (ESMA) has confirmed EuroCTP as the first European shares and ETFs consolidated tape provider (CTP).

EuroCTP has been invited to apply for authorisation, after which it will operate the CTP for five years under ESMA’s direct supervision. The firm intends to launch in July 2026, subject to authorisation timelines.

CEO Eglantine Desautel stated, “I am honoured that EuroCTP was selected. We successfully delivered this vision from concept to operational readiness in under two years. We now look forward to delivering on the promise of our platform.”

No other organisations made public bids for the tape contract.

READ MORE: One-horse European equity CTP race “flawed”, industry expert says

EuroCTP will share technical specifications, guidance and resources before the go-live, it added. Earlier this year, it appointed BMLL to provide data sets and calibration tools.

READ MORE: BMLL will provide harmonised historical data to EuroCTP

Currently, EMSA has mandated 109 data contributors to the tape. A further 74 have been given the opportunity to opt in.

READ MORE: Increased visibility to encourage voluntary CTP data contribution

Natasha Cazenave, ESMA executive director, commented, “[This]  is a major milestone for the attractiveness of equity markets in the EU. ESMA is confident that this new step will contribute to advancing the Savings and Investment Union (SIU), benefitting all market participants.”

NBIM warns on OPR reforms

By
Etienne Mercuriali
-

For Norges Bank Investment Management, the $2 trillion Norwegian sovereign wealth fund, the US order protection rule is a source of information leakage when it conducts block trades. Despite this, the fund’s traders are worried about the consequences if the rule is abolished.

For once, the loudest sceptics of the order protection rule (OPR) are not the usual suspects. Institutions with a lot to win in the short term can still take a longer-term view. Norges Bank Investment Management (NBIM), the world’s largest sovereign wealth fund, says it could live without Rule 611, the trade-through prohibition at the centre of Regulation NMS. But it warned Global Trading that a straight repeal by the SEC could damage one thing most US market participants still treat as a sacrosanct “north star”: a credible national best bid and offer (NBBO).

With more than 51% of its portfolio invested in the US — NOK 10.49 trillion (about US$1.03 trillion) as of 30 June 2025, according to its disclosures — NBIM is a major stakeholder in any US market structure debate, and wants its voice heard in the OPR discussion.

Read more: Norway’s sovereign wealth fund paid US$2 billion in transaction costs in 2024

Simon Emrich, NBIM’s head of market structure strategy

Simon Emrich, NBIM’s head of market structure strategy, is clear about the large buy-side’s short-term incentive. “From a selfish perspective, we would be fine if the order protection rule did not exist,” he says. “We try to source liquidity through block trades, and having to sweep the top of book as a first step can be a signalling issue.”

That point sits at the heart of the modern critique of Rule 611: exemptions — including orders marked as intermarket sweep orders (ISOs) — can expose intent in the most visible place, the lit top of book, before investors can attempt to access larger blocks of liquidity.

NBIM’s warning is that the discussion should not end at a simplistic transaction cost analysis for a single institution. Emrich says there are longer-term, more fundamental issues: what happens to investor confidence, particularly retail confidence, if the NBBO becomes a weaker, less universal reference price?

ISO orders in notional and trades versus all LIT Continuous trades on the SIP, per week. Data: BMLL Data Lab

“However, we are concerned about the long-term health of equity markets if the OPR is completely eliminated, particularly if it leads to a reduction in quality of the NBBO,” he says. “This might reduce the confidence investors have in equity markets — imagine if different brokers quote different prices for the same security.”

His cautionary stance comes as the SEC accelerates its rethink of the trade-through regime, and Regulation NMS more widely. At the Commission’s 16 December roundtable on Rule 611, SEC chair Paul Atkins told participants: “We must summon the courage to acknowledge when well-intended policies have produced unintended consequences,” adding: “The verdict is clear that core aspects of Regulation NMS, including Rule 611, command a fresh look.”

The data behind the debate is, by now, familiar. SEC staff analysis of second-quarter 2025 consolidated data shows measured “trade-through” rates are extremely low and become lower still once a short look-back accounts for fleeting quote changes. In round lots during regular hours, the rates are in the single basis points. That is one reason the conversation has shifted away from “how often do trade-throughs happen?” and towards “what is Rule 611 really doing now, and what else has grown up around it?”

ISO E/Q proving the vasr majority don’t actually cross the NBBO, Data: BMLL Data Lab

NBIM’s view is that the SEC can target low-hanging fruit and real pain points by tweaking rules rather than repealing them: venue proliferation, SIP-related rent extraction, the connectivity burden, and how to allow more meaningful innovation in public markets — without betting the integrity of the national reference quote on a full repeal.

Emrich argues that exchange entry has become easier, while the obligation for brokers to connect broadly can turn protection into leverage. “The barriers to entry as an exchange have come down,” he says. “Since brokers are forced to connect to every exchange, this can lead to a form of rent extraction.”

In NBIM’s view, the Commission should start with eligibility and incentives. “The proliferation of exchanges… is arguably driven even more by the economics of the SIP,” Emrich says, adding that the SEC could “look at [the] SIP revenue sharing formula” to address proliferation “without taking out the cornerstone of Reg NMS.”

The fund also wants the reform agenda to make space for more meaningful experimentation in market design — but not necessarily by applying the same “fair access” constraints to every possible model. “While fair access to displayed quotes is important… we would encourage allowing exchanges to operate different books… like not having fair access,” Emrich says. “Exchanges could get into the block trading business, for example — that would be intriguing.”

Peder Viervoll, NBIM’s head of quantitative trading

Peder Viervoll, NBIM’s head of quantitative trading, makes a similar point in practical terms: reforms should preserve the ability to test market models for liquidity and execution quality, rather than forcing everything through a single price-protection logic.

“If you don’t have order protection for smaller exchanges that do have a potential innovative approach… you can actually force flow there to test… because market participants like ourselves can effectively do A/B experiments properly,” he says.

Plainly, NBIM is not defending Rule 611 because it makes execution easier. It is warning that, if the SEC dismantles the OPR, it should do so in a way that does not quietly degrade the NBBO into a “good enough national quote” concept. For the world’s largest sovereign wealth fund, the near-term benefits of less signalling and simpler routing may be real — but NBIM argues that targeted tweaks, including to SIP payment mechanisms, minimum market shares for protected quotes, and aspects of fair access, could deliver better outcomes than a clean repeal.

 

In this execution quality analysis, we discuss E/Q, the standard measure of execution quality. The measure is calculated as the spread realised by market makers versus the national best bid offer (NBBO) mid-point divided by the prevailing NBBO spread. This means a ‘0’ E/Q is a trade at mid price, 0.5 is a trade at half the spread between mid and NBBO, and ‘1’ is trading at NBBO, while ‘2’ would be trading at twice the spread.
Our lit market proxy looks at all the securities information processor’s trades within the month, as long as the bid and offer have been updated within 0.5 seconds of a trade and take the closest quote in time to measure E/A versus Intermarket Sweep Orders, and the quotes are not locked or crossed.

China HFT crackdown accelerates with potential co-location limits

By
Lucy Carter
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China Securities Regulatory Commission (CSRC)
China Securities Regulatory Commission (CSRC)

Changes are afoot in Chinese exchange colocation service regulations, with sources have confirmed to Global Trading that the Shanghai and Shenzhen exchanges are meeting with clients and mainland brokers to discuss incoming rule amendments.

Rumours of new regulations were reported in Chinese publication National Business Daily last week. The article noted that order submission delays could be extended, and that securities firms may have to remove all client-dedicated equipment located inside exchanges within three months.

One source familiar with the issue highlighted the scale of such an exercise, warning that it would be a significant operation for algo firms to complete in the three-month timeframe.

Colocation services allow firms to place their servers close to an exchange’s matching engines, thereby reducing latency. Such services are favoured by high-frequency traders (HFTs), as they allow them to place orders faster than their competitors.

The China Securities Regulatory Commission’s (CSRC) current securities programme trading rules, updated over the summer, allowed eligible brokers to offer direct market access (DMA) to external clients. Simmons & Simmons also highlighted that DMA may later be allowed in futures securities trading – where it is currently only permitted for international participants acquiring market data.

Order submission delays may be similar to those seen with IEX’s ‘Speed Bump’, which provides a buffer before orders reach the exchange’s matching engine. IEX introduced this mechanism in a bid to create a fairer trading environment.

HFTs are active in the Chinese stock markets, with Citadel Securities applying to set up a securities status on the mainland earlier this year. Algo trading is nevertheless tightly regulated.

READ MORE: China boosts domestic investment, Citadel Securities vies for regulatory approval

No official statement has been made by either mainland exchange or the CSRC. Regulation of the Shanghai and Shenzhen exchanges was described as “difficult” by a market participant earlier this year, who explained to Global Trading that guidance is not always clear.

READ MORE: Demystifying the Dragon

DataBP affiliate to administer updated US CT

By
Lucy Carter
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DataBP
DataBP

DataCT, an independent affiliate of market data licensing and administration firm DataBP, has been selected to serve as independent administrator for the US consolidated tape (CT) plan.

The new CT plan, or new national market system (NMS), brings together the three existing NMS plans. It is expected to launch in Q2 2027, with current NMS plans being phased out.

“The selection of DataCT is the culmination of a lengthy, robust process,” CT Plan stated. In September, a request for proposal was launched by the plan’s operating committee to select an administrator. The number of applications has not been disclosed, but the company reports receiving “strong interest from the market data industry”.

Securities Information Processors (SIPS) Operating Committee chairman Jeff Kimsey added, “We set an aggressive timeline to have a firm selected by the end of 2025, and I am very happy we met that deadline.”

Terms of the final agreement will be determined in due course.

Acting as independent administrator, DataCT will cover a range of the CT’s operations: subscriber onboarding, account management, licensing administration, usage reporting, billing and collections, audit and compliance oversight, revenue allocation administration and communications. It will also handle coordination with the SIPs.

The company will operate under the direction and oversight of the CT Plan Operating Committee, and has independent governance, management, controls, and accountability from DataBP.

It will initially be led by DataBP CEO Mark Schaedel as acting CEO, before a permanent DataCT chief administrative officer is appointed. The transition process will be supported by Deloitte as a service provider.

Surfing Japan’s equity trading boom

By
Nick Dunbar
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modern office building of JPX

Japan’s buyside giants are learning to use algos for equity execution but amid information leakage and HFT concerns, the path to adopting the new technology remains unclear.

Japanese equity markets are on a roll. Volumes on the Tokyo Stock Exchange and JapanNext, the two main cash markets, are at all-time highs, as well as the index itself. Retail trading as a percentage of the total daily volume reached 31.5% in November according to TSE data.

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Dealing with this increased flow are two kinds of buyside firms: big international asset management companies like BlackRock or JP Morgan AM, and Japanese domestic firms, such as the asset management arms of large financial services groups like Nomura or Mitsubishi UFJ. And their perspectives are very different.

Ako Nishi
Ako Nishi, Executive Director, Central Dealing, J.P. Morgan Asset Management
(Asia Pacific).

The international firms serve as a funnel for global investor money into Japanese equities, says JP Morgan AM trader Ako Nishi. “Our diverse client base includes both domestic and international investors, representing a wide variety of ownership and investment profiles. In recent years, our fund strategies have broadened to incorporate active ETFs alongside traditional active funds, and trading turnover on the APAC desk has shown strong year-on-year growth, with a particularly notable increase in Japan-related activity. Additionally, global funds such as JPMorgan Global Select have achieved significant success, with Japanese equities included as part of these global portfolios,” she told Global Trading.

These flows pass through Nishi’s trading desk in Hong Kong, she explains. “For Japan-related flows, the JPMAM APAC Equity Trading desk executes orders in Japanese equities and equity-linked derivatives for portfolio managers across APAC, EMEA, and the US.”

For Nishi and her colleagues, trading Japanese stocks is only one part of a much bigger task of getting best execution across the group’s global trading flows. “Our team is structured into two main groups: one specialises in systematic and liquid flow, leveraging machine learning techniques, while the other focuses on large-size and illiquid trades, utilising a range of execution tools,” she says. “Orders are allocated to the most suitable execution method based on their specific characteristics, and our traders – each with unique backgrounds and specialised expertise – oversee every trade to ensure optimal execution.”

And naturally, that leads to broker algos with performance measured by transaction cost analysis (TCA). “For Japanese equity trading, as with most other APAC equity markets, we primarily engage brokers who demonstrate top execution performance according to our quantitative TCA model, which uses globally standardised benchmarks,” Nishi explains. “Over 50% of our desk flow is now automated through machine learning, with our proprietary quant model allocating eligible orders to the most suitable and best-performing broker algorithms based on historical data.”

A home disadvantage
For the domestic Japanese buyside firms, the picture is very different. They have obvious advantages in Japanese stocks compared with the international players. Their portfolio managers actually live in the same country and know the issuers well. They have insights into liquidity that are easily shared with their trader colleagues, who are familiar with domestic brokers who also know the market.

Kenji Takeda,
Kenji Takeda, head of equity trading, Nomura Asset Management.

Yet the drive towards broker algos that has become a feature of most developed market buyside trading is uneven in Japan. Those firms with a significant international footprint, like Nomura Asset Management, have imported the methodology into Japan, says that firm’s head of equity trading Kenji Takeda.

“In recent years, most people on the buy side have started using algorithmic trading,” Takeda told delegates at the FIX Japan electronic trading conference in October. “The field of automated execution, such as algorithms, is rapidly evolving, and I feel that analytical capabilities and customisation capabilities are becoming increasingly important factors.

“Not many Japanese asset management companies have overseas trading desks, and in most cases, they handle their transactions mainly in Tokyo,” Takeda notes. “However, we are in the midst of fierce competition to acquire overseas mandates, so for us there is an increasing need to build a global standard execution system and automate our trading.”

Masatsugu Takiyama
Masatsugu Takiyama, MUFG Trust Bank.

That may be happening at Nomura AM, which has a large proportion of actively-managed funds, but less so at Mitsubishi UFG Trust Bank, which manages US$600 billion in mostly passive funds. “In terms of changes in the industry, automation of execution seems to be a trend, but we are more focused on other aspect of trading, such as confidentiality,” according to Masatsugu Takiyama, chief trader at MUFG Trust Bank. “However, we have started to consider updating our structure and system to implement automation of execution in the near future.”

Perhaps one reason for this mixed picture is that Japan’s equity market has unique challenges. For international funds that trade Japanese stocks alongside those of other countries, the problem is that the universe of stocks is much larger than other markets in the APAC region, and many are thinly traded. Also, the presence of high frequency trading (HFT) firms is higher than other markets, leading to well-known complaints about market impact. Frustration about HFTs in Tokyo runs so high that Nomura AM’s Takeda refers to it as a “signalling cost” on the buyside.

Japanese buyside firms that use non-order based liquidity in the form of indications of interest (IOIs) warn about the importance of transparency, because here there is also an information leakage problem, with ‘fake IOIs’ being present according to Takeda.

Read more: Japanese buyside traders seek defence against HFT – Global Trading

A question of trust
For Mitsubishi UFG Trust’s Takiyama, the challenge relates to programme trading in his fund’s passive portfolios. “Our firm has a high proportion of passive management, with many of our executions being primarily carried out through program trading desks,” he says.

Programme trading, which involves trading large baskets of stocks over a period of time, does not lend itself easily to algos. Buyside firms can execute programme trades bilaterally with brokers as a principal, but in Japan that poses a problem: The Tokyo Stock Exchange requires such bilateral trades to be reported daily on a platform called ToSTNeT (TSE Trading Network System). But with a fund management firm’s name appearing on the platform, hedge funds and HFTs get tipped off that a programme trade is underway, allowing front running to take place.

“Most Japanese buyside firms are using a principal to trade for their passive fund rebalancing,” Takiyama explains. “However, our trading is quite large, so if we trade on ToSTNeT everyone can see we are trading, they can see our inflows and outflows, and I think that’s not good for us and also our clients.”

As a result, Takiyama prefers to hand over the entire basket trade to a broker which acts as an agent, and whose larger flows mask their client’s programme trade. “We use agency PT for confidentiality reasons,” he told Global Trading. “It is extremely rare for it to be carried out by the principal. The agency commission tend to be cheaper than using algos.”

This willingness to rely on third parties extends to non-domestic stocks, as Japanese investors use domestic fund managers to access US and European markets. The traders serve as conduit for such activity.

“In the European and American markets, which account for the majority of our transactions, orders are mainly placed via program trading desks due to time difference. In the foreign equities, we place the greatest importance on ability to provide information and conduct research in overseas markets,” Takiyama observes. “Access to information is often difficult, including due to language barriers, so we believe that the information provided by traders is extremely important.”

IOIs fit naturally into this programme trading mindset, where brokers are keen to access Mitsubishi UFJ Trust’s client activity or ‘natural’ IOIs. “We use IOI natural flow,” Takiyama explains. “We ask the securities companies for this. Normally, we ask brokers to send us IOI by email, but for illiquid stocks we also use Bloomberg’s IOI. In such cases, we basically try to make use of natural flow and the unwind of a principal flow.”

Because of this reliance on brokers, Takiyama places huge reliance on trust and confidentiality with the brokers he uses.

Nomura AM’s Takeda says his trust in brokers has been dented by some bad IOI experiences. “People use IOI because they don’t want to have that impact, which means they don’t want to move the price, so they basically prioritise natural flow,” he says. “However, in cases where the entire portfolio is to be sold, we also use Principal IOI. Here, I strongly feel that we need brokers to present accurate information.”

By contrast, rather than relying on trust, JP Morgan AM is determined to ensure best execution using its global benchmarks. “We leverage IOIs regardless of whether the contra is natural or non-natural, and for each IOI cross transaction, we confirm the type through direct communication with brokers before accessing liquidity,” says Nishi, who uses her firm’s technology to detect and punish fake IOIs in the broker market.

“All transactions, including IOI crosses, are incorporated into our broker evaluations, enabling us to analyse the impact of each trade on overall performance,” she told Global Trading. “By applying systematic approaches to our trading operations, we ensure objective decision-making and strive to execute at the optimal broker and venue, ultimately benefiting JPMAM’s clients.”

The pressure to modernise
For domestic Japanese buyside firms, the message is increasingly clear that they need to up their game when it comes to systems and internal rules.

According to Nomura AM’s Takeda, “In our case, we do not currently conduct quantitative performance evaluations of execution. The reason is that we don’t often leave it in one algorithm and execute it. Each trader analyses the market situation and frequently changes strategies, so I think that our company’s execution performance on a day does not necessarily reflect the performance of the broker’s algorithm. We are currently considering making the orders placed on algo wheels quantitatively evaluated.”

The ability of many Japanese buyside firms to modernise their trading is hamstrung by aging technology.

Mitsubishi UFJ Trust’s Takiyama explains the challenge: “We need to update our systems and rules to use the latest technology,” Takiyama says. “Those are not designed to adapt to new technology.”

An example that Japanese firms might want to emulate could be JP Morgan AM’s APAC trading desk. “We place a strong emphasis on TCA and have two dedicated quant analysts in the region,” Nishi explains. “Our proprietary analytics tools and globally integrated order management system, Spectrum, ensure consistency across our organisation. For trading cost analysis, we utilise an independent third-party model, enabling us to evaluate costs objectively and comprehensively. Japanese execution, like other markets, is seamlessly incorporated into our globally standardised benchmarks.”

Domestic firms face a similar handicap when it comes to access new liquidity sources such as dark aggregators and alternative trading systems. According to one buyside trader, “To make sure we can use them, we have to be ready. We have to change our systems, and we have to maybe change our tools.”

JP Morgan AM, on the other hand, is ready, and Nishi welcomes the arrival of new entrants to shake up the Japanese market. “The development of advanced electronic liquidity sources is particularly attractive to us, especially in markets like Japan where the order book is thin and confidentiality is crucial – particularly for mid and small caps that are difficult to trade on screen,” she says. “Increasing the ability to secure liquidity electronically in an unbiased and confidential manner would provide greater confidence to information-sensitive participants and could help advance Japanese equity trading to the next level.”

In the absence of JP Morgan AM’s world-class AI and data tools, Mitsubish UFG Trust’s Takiyama wants something simpler and fairer – a consolidated tape, which in Japan remains just a dream. “We need to have a consolidated tape to make it easier to decide which trading venue has the best price at the time,” he complains. “Right now in Japan, if you want to trade at PTS, we have to make sure the price is same or better than the main market. We don’t have a consolidated tape, so we have to ask the broker to send us the report after the trade every day to check the trade, which is waste of time.”

This article forms part of the joint Global Trading & The DESK Special Report on Japan. To download the full Japan Report click on the image below:

Euronext pushes new CSD model amid regulatory scrutiny

By
Lucy Carter
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Pierre Davoust, head of Euronext Securities, Euronext
Pierre Davoust, head of Euronext Securities, Euronext

Euronext is racing ahead with its plans to create a new European central securities depository (CSD) model, offering a single platform for settlement and custody across the region’s markets, despite facing regulatory obstacles elsewhere.

Uptevia, ABN AMRO Bank, Rabobank and Banque Internationale à Luxembourg have worked with Euronext on the project as the exchange group seeks to offer a European-wide issuance model.

This will give market participants more choice, a larger investor base and better shareholder engagement, the company believes, while cutting down costs, improving cross-border operations and addressing post-trade fragmentation.

Part of Euronext’s Innovate for Growth 2027 strategic plan, this initiative will also support the European Union’s Savings and Investment Union (SIU) project, the company notes.

Pierre Davoust, head of Euronext Securities, commented, “[This] expansion marks a major milestone in our commitment to building a more unified and efficient European capital market. We are unlocking new opportunities for issuers and investors, strengthening Europe’s financial infrastructure.”

Euronext Securities will be the CSD of reference for equities and exchange-traded products in France, Italy Belgium and the Netherlands from September 2026. The model will be testable for clients from Q1.

Earlier this month, Euronext’s plans to bring all exchange-traded fund (ETF) listings across its various exchanges to a single venue were halted by French and Dutch regulators.

According to a statement from Euroclear published in late November, the Autorité des Marchés Financiers and the Autoriteit Financiële Markten found Euronext’s plans discriminatory and unjustified.

Euronext confirmed that it had received letters from the two regulators, and expected a third from the Belgian authorities. It responded, “[These] do not put into question Euronext’s plan to roll-out a European-wide CSD offering through Euronext Securities. It does not change Euronext’s financial targets as part of the Innovate for Growth 2027 strategic plan. It does not change the implementation, by September 2026, of the new settlement model.”

The group maintains that its initiatives will give market participants more choice, encourage a more competitive marketplace, and integrate post-trade infrastructure.

Serving Japan’s equity retail revolution

By
GlobalTrading
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Roman Ginis, CEO, Imperative Execution.
Roman Ginis, CEO, Imperative Execution.

Serving Japan’s equity retail revolution

Roman Ginis, CEO, Imperative Execution.
Roman Ginis, CEO, Imperative Execution.

Global Trading spoke to Roman Ginis, CEO of Imperative Execution, Founder of IntelligentCross, on how innovation in US equity markets is being applied to Japan.


Over the last couple of years, equity trading in Japan has undergone a transformation, with a growing base of active retail traders repositioning their assets into stocks. How does this correlate to the US Equities Market?

Retail investors have become a major force in US equity markets – accounting for about 20-30% of trading volume in 2025¹, up from just 10% five years ago. Retail brokers and their clients want liquidity, performance, and economics – areas where IntelligentCross can add significant value, leveraging our extensive institutional network and liquidity.

It is important to US retail investors to ensure that their orders are getting the best possible execution – being optimally matched for maximum price improvement.

This is one of the objectives for JAX, the newest Proprietary Trading System (PTS) operator in Japan, which is designed to better serve the needs of retail investors.


What role can innovation play at a time like this in the Japanese equity markets?

Innovation in the equities markets in the US has given investors tremendous choice in how they can optimise their execution. From reducing market impact and controlling information leakage, to lowering adverse selection, to getting more price improvement – venues and matching mechanisms in the US have validated that investors want and benefit from these optimisations. Japanese markets can build on the ideas that make sense and potentially innovate and improve on what already works elsewhere.


How is Imperative Execution participating in the Japanese markets? And how does that benefit the retail investor?

At the end of 2024, we partnered with a Rakuten-led consortium to launch JAX PTS, a retail-focused venue powered by our matching engine technology. Today, JAX handles over 7% of total Japanese market volume² – a remarkable success that underscores the strength of this model.

Retail participation is only growing, and so is the demand for innovative trading solutions. The result: better access, better execution, and better liquidity for everyone – retail clients, brokers, and liquidity providers alike.


You launched IntelligentCross in the US in mid 2018, and it has rocketed to being the #1 ATS³ (Alternative Trading System – the US equivalent of a PTS) in just 7 years. What did you learn that will help Imperative Execution provide greater efficiency and better performance to Japanese investors?

We launched IntelligentCross as a performance product to empower institutional investors to get higher quality execution than they could get from traditional venues.

Our growth in the US has validated that investors want this category of a product. Our subscribers are all major banks, brokers, asset managers and liquidity providers and they are looking for performance. It is not just about best possible execution, it is about winning more business and getting more performance out of each trade.

Many firms in Japan trade globally and already trade with IntelligentCross in the US. With their feedback, there are definite opportunities to adapt some of our technology to the Japanese market.


What are some things that Japanese investors should do to improve their equity investment experience and performance?

Japanese investors can ask their brokers to provide them with global post-trade data that helps them to assess how well their Japanese equity orders are performing against a variety of metrics, including data relative to performance trends in other markets, like the US and EU, where there are a number of established performance-focused venues and matching mechanisms. They can also ask whether their brokers are routing their orders to some of the newer venues available to them, in addition to the exchange. The natural forces of competition will help drive more choices, greater efficiencies, and lower trading costs.

Footnotes:
1. Sources: Nasdaq and SIFMA
2. Sources: JPX and JSDA
3. FINRA Weekly ATS Reports and IntelligentCross Data

This article forms part of the joint Global Trading & The DESK Special Report on Japan. To download the full Japan Report click on the image below:

Transforming Japan’s trading landscape

By
GlobalTrading
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Taichi Shibuya, Head of Japan, Tradeweb
Taichi Shibuya, Head of Japan, Tradeweb.

Transforming Japan’s trading landscape

Taichi Shibuya, Head of Japan, Tradeweb
Taichi Shibuya, Head of Japan, Tradeweb.

By Taichi Shibuya, Head of Japan, Tradeweb

How is the market structure for Japanese government bond (JGB) trading divided between electronic and voice execution, and how has that mix evolved over time?

In recent years, the JGB market has undergone a meaningful shift toward electronic execution, with international and domestic investor participation increasing and supporting this transition. From 2020 to 2024, total traded volume in JGBs on the Tradeweb platform increased by around 350%, while from Q1 to Q3 2025, it increased 23% compared to Q1 to Q3 2024.

While foreign investors accounted for roughly 65% of this activity, domestic participation is also accelerating. Japanese institutions have expanded their electronic trading of JGBs on Tradeweb seven-fold since 2020, demonstrating growing adoption among both global and local market participants. This evolution has brought the market to an important inflection point for electronic trading. Based on our own estimates from conversations we’ve had with dealers and JSDA data, we estimate that electronic trading now accounts for between 45-50% of all JGB secondary dealer-to-client (D2C) volume – up from around 25% in 2019. In other words, the share of electronic execution has roughly doubled in six years, underscoring a notable structural shift in how JGBs are traded.

Today, electronification is strongest in the D2C segment and in more standardised JGB cash transactions, list trades, and close orders (Hikene trading). Voice and chat are typically used for larger block transactions, cross market instruments such as bond basis trades, and other bespoke trade types.

However, electronic trading is no longer limited to just low-touch trades. Clients are increasingly adopting electronic workflows for larger and more complex activity as platforms replicate, enhance and streamline traditional voice workflows. Tradeweb continues to evolve its platform offering to cater for a full spectrum of trading activity – from simple outrights to multi-line lists and asset swaps – with a view that technology amplifies, rather than replaces, the interaction clients have with dealers.

What factors are driving the current shift in trading behaviour, and how do these trends differ between domestic and international participants?

The inflection in JGB electronification reflects both macro and structural forces. The end of negative interest rates, the gradual normalisation of yields, and the Bank of Japan’s slowing purchases of JGBs have created a more dynamic, two-way market environment with greater emphasis on price transparency and efficient risk transfer.

At the same time, technology, data and analytics have become central to how firms think about best execution, transparency and operational risk, with electronic trading platforms offering efficiencies across all of these areas. This has encouraged both domestic and international investors to adopt electronic workflows as trading volumes increase and liquidity becomes more dispersed.

International investors remain the earliest adopters of electronic trading in Japan. Many already use electronic tools when trading other government bond markets and expect consistent execution protocols, data transparency, and post-trade efficiency in JGBs.

For these participants, electronic platforms like Tradeweb’s solve practical challenges such as time zone coverage and language barriers. They can access onshore liquidity during Tokyo’s core hours without maintaining dedicated overnight desks or relying solely on voice coverage. As a result, offshore participants have been a major drive of electronic trading growth as they account for roughly two-thirds of JGB volume traded on Tradeweb.

Domestic institutions, while initially slower to transition, are increasingly embracing electronic execution. Rising JGB demand, a more dynamic market environment and a new generation of traders who already trade FX and equities electronically are accelerating adoption.

Domestic traded volumes have grown on Tradeweb, with their share of total JGB activity on our platform having grown from under 20% in 2020 to more than 35% today. As local institutional investors become more familiar with Request-for-Quote (RFQ), list trading, closing protocols and automation, electronic execution is becoming embedded in their day-to-day workflows.

Many buy-side firms are using Yen interest rate swaps (IRS) as an overlay alongside JGB portfolios. How do electronic platforms like Tradeweb’s support this activity?

For many global macro funds and asset managers, Yen interest rate swaps are a natural overlay to JGB portfolios, allowing them to adjust duration, express curve views or hedge liabilities without materially disturbing the underlying bond holdings. Electronification makes that overlay far more scalable. Around 30-40% of D2C Yen swap activity is now traded electronically, and Tradeweb accounts for the majority of the electronic market, offering clients a familiar multi-dealer environment and a broad set of execution protocols.

A key advantage for clients is the ability to integrate JGB and IRS execution into unified electronic workflows.

Tradeweb’s non-contingent asset swap functionality allows clients to execute the bond and swap legs with separate, specialised dealer sets, something that is difficult to replicate in voice markets – especially for off-the-run JGBs where pricing often resides on a separate desk. From the client’s perspective, the platform recombines the best prices on each leg into a single package, improving overall economics and reducing operational friction.

Regarding clearing, Tradeweb supports trading workflows for clients clearing through JSCC, LCH, and CME. Our role is to provide flexible, compliant execution pathways across venues and clearing houses, ensuring that clients can implement their Yen overlay strategies in the way that best fits their operational and regulatory requirements. In addition to having LCH and CME access, US investors can now also use JSCC to clear Yen swaps.

While electronic JGB trading continues to grow, voice execution still remains prevalent for larger or more complex transactions, including basket trades. How are electronic trading platforms helping to electronify this market and these trading strategies?

The most complex parts of the JGB market – large blocks, cross-market trades, as well as intricate baskets – have traditionally been handled by voice, but the boundary is shifting as platforms replicate and enhance legacy workflows. Tradeweb, for example, already supports list trading for up to 60 JGB line items at once, allowing asset managers to also execute Hikene trades (trade at close orders) electronically rather than managing multiple spreadsheets and chat threads with different dealers.

Hikene workflows are also fully electronified: clients negotiate spreads on platform and orders are filled once the close price of the day is published with no manual re-keying. This eliminates manual interventions and reduces operational risk.

On the swaps side, the electronification of JGB asset swaps has been a meaningful step forward. By enabling clients to trade JGB and swap legs separately, with optimised dealer sets and straight-through processing into clearing, confirmation and risk systems, electronic platforms reduce the operational complexity that previously kept these trades in voice channels. Over time, we see similar opportunities to bring more JGB basis, futures-linked strategies and larger, more bespoke risk transfers onto electronic rails, while still giving traders the flexibility to choose the right mix of screen and voice for each situation.

Firms point to solutions like Tradeweb’s Automated Intelligent Execution (AiEX) tool as playing a growing role in shaping trading workflows. What advantages does automation bring to market participants?

Automation is becoming a defining feature of how firms structure their JGB and Yen swap trading. Tools like Tradeweb’s AiEX helps clients scale efficiently, enabling them to manage increasing ticket volumes and complexity while maintaining high execution standards. AiEX allows clients to encode execution parameters – such as counterparty selection, quote thresholds, price tolerances, and timing – so these can be applied consistently and transparently across trades.

In Japan, AiEX’s Time Release functionality has been particularly impactful. Given that Yen rates liquidity is concentrated between 8:45am and 15:02pm Tokyo time, international investors historically faced a trade-off between sub-optimal execution or maintaining overnight trading coverage. Time Release allows trades to be scheduled during Tokyo hours, while maintaining the transparency and control of electronic RFQs, effectively solving a longstanding operational challenge.

Beyond execution quality, automation strengthens operational resilience. Seamless integration with Order Management System (OMS)/Exchange Management System (EMS) platforms, clearing houses and confirmation systems supports straight-through processing, auditability and regulatory compliance. As Japan’s fixed income markets become more data-driven and cross-border, these automation tools help both domestic and international investors modernise their workflows and enhance their ability to trade efficiently and consistently.

The contents in this article provide information on trading methods and products intended for Professional Investors. They are not available for use by persons other than Professional Investors. This advert is intended for the jurisdictions in which Tradeweb operates. Reach out to Tradeweb to discuss whether their services are available to your organisation.

This article was first published on The DESK and forms part of the joint Global Trading & The DESK Special Report on Japan. To download the full Japan Report click on the image below:

Trading Technologies picks up OpenGamma

By
Lucy Carter
-
Trading Technologies
Trading Technologies

Trading Technologies has acquired derivatives margin analytics company OpenGamma.

OpenGamma provides margin optimisation and capital efficiency services across over-the-counter and exchange-traded derivatives. Partners include IHS Markit, Eurex and Tradeweb, while CME Group, Allianz’s growth investments arm X and the Japan Exchange Group are among its investors.

According to accounts filed with the UK’s Companies House for the year ending 31 December 2024, OpenGamma Limited reported gross profits of £13 million and had 70 employees. The company was a wholly-owned subsidiary of OpenGamma Inc., incorporated in the US state of Delaware, the accounts stated.

Justin Llewellyn-Jones, Trading Technologies CEO, commented, “Global derivatives markets have undergone profound structural changes in recent years, particularly in the realm of margin requirements, resulting in an acute need to manage margin-driven liquidity risk without weakening safeguards around counterparty risk. OpenGamma’s real-time insights empower firms to maximise leverage and free up precious capital.”

OpenGamma’s solutions will be integrated into Trading Technologies’ platform to power automated trading and position transfer workflows that reduce risk. The firm will also use OpenGamma’s existing client relationships to increase its presence in the hedge fund and energy sectors, while OpenGamma will gain access to more sell-side banks in the Trading Technologies network.

“[This] will unlock new opportunities for the OpenGamma platform across the Americas, Europe, the Middle East and Asia-Pacific regions,” added CEO Peter Rippon.

In 2025 to date, Trading Technologies has handled more than 2.9 billion derivatives transactions.

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