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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
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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

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
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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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Ex-Millennium hedge fund start-up poaches head of trading from JP Morgan

By
Lauren McAughtry
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Jeremy Wyatt, Jain Global
Jeremy Wyatt, Jain Global

Jain Global, a new hedge fund founded by former Millennium CIO Bobby Jain, has confirmed JP Morgan alumnus Jeremy Wyatt as its new EMEA head of trading. 

Jeremy Wyatt, Jain Global
Jeremy Wyatt, Jain Global

The new investment management firm, which is expected to go live in July and already has around US$3bn in commitments, is widely seen as one of the biggest new launches on the hedge fund scene. Jain, who originally was aiming for the biggest ever hedge fund debut with hopes of raising US$8-10b (surpassing the US$8bn record of ExodusPoint Capital Management in 2017), tempered expectations back in January with new plans to launch with around US$5-6bn in capital.

According to reports, the fund has been attracting investors with the promise of lower fees (10% for US$250m or more) and has already hired over 100 employees across London and New York.

Wyatt, who joins as EMEA head of trading, was formerly director of prime and investor services sales for hedge funds and alternatives at JP Morgan, a role he held for three years. He was previously EMEA head of trading for quant asset manager WorldQuant, a Connecticut-based hedge fund owned by Millennium.

He started his career as an algorithmic equity trader with Merrill Lynch.

© Markets Media 2024.

nuam exchange and Devexperts launch trading interface

By
Lucy Carter
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Juan Pablo Córdoba, CEO, nuam Exchange
Juan Pablo Córdoba, CEO, nuam Exchange

nuam exchange, an integration of the Lima, Santiago and Colombia Stock Exchanges, has partnered with financial software development firm Devexperts to create a unified trading interface for the equities and derivatives markets.

Devexperts will provide order execution and data information, and its front-end will be integrated with Nasdaq’s trading systems. The interface will evolve in line with regulatory frameworks in its countries of operation, the firms explained, and will cater to the specific industry requirements in each market.

Through the project, the organisations aim to enable market access for regional and international brokers.

Juan Pablo Córdoba, CEO of nuam, said: “Through our systems, there will be people conducting transactions from different parts of the world for companies valued in different currencies. This has enormous value and potential for investors, but it also poses operational complexities. Through developments like [this one], we can overcome this. We value [Devexperts’s] market understanding and their willingness to adapt it to our requirements.”

Michael Babushkin, CEO of Devesperts, added: “We are proud of participating in the nuam technology integration. This newly established exchange will bring great development to Latin America’s capital markets and help millions of people create durable wealth.

“This project signifies our entry to Latin America, and we hope to make a decisive contribution to the success of this initiative and furthermore to the development of the regional financial markets.”

©Markets Media Europe 2024

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Janus Henderson to acquire Tabula Investment Management

By
Alex Pugh
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Janus Henderson to acquire Tabula Investment Management, an independent ETF provider in Europe with a focus on fixed income and sustainable investment solutions. 

The deal, the details of which have not been disclosed, is expected to close in Q2 2024. The firm is also set to acquire NBK Wealth, the wealth management arm of the National Bank of Kuwait Group.

Ali Dibadj, CEO, Janus Henderson
Ali Dibadj, CEO, Janus Henderson

Ali Dibadj, CEO, Janus Henderson, said: “These transactions represent strategic steps to amplify existing strengths and diversify where clients give us the right to win. The M&A pipeline remains active, and these bolt-on acquisitions reflect only the beginning of what we believe will be several future partnerships to meet our clients’ needs and support the growth of Janus Henderson.”

The acquisition will build on Janus Henderson’s successful active ETF business in the US, the firm said, where it is the fourth largest global provider of active fixed income ETFs by assets under management (AUM). The deal will also allow Janus Henderson to meet client demand for investment strategies to include an ETF wrapper, the firm added. 

Established in 2018, Tabula operates an institutional-grade investment management and ETF platform with funds listed across 10 European exchanges, serving clients across 15 countries.

©Markets Media Europe 2024

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Saphyre, DTCC partner for T+1 settlement solution

By
Alex Pugh
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Bob Stewart, executive director, institutional trade processing, DTCC
Bob Stewart, executive director, institutional trade processing, DTCC

Pre-trade and post-trade fintech Saphyre is to work with DTCC to deliver a T+1 settlement solution.

Saphyre plans to link its Ready-To-Trade solution with data from DTCC’s ALERT to help increase transparency, efficiency, and straight-through processing across the institutional trading industry.

Bob Stewart, executive director, institutional trade processing, DTCC
Bob Stewart, executive director, institutional trade processing, DTCC

Bob Stewart, DTCC executive director of institutional trade processing, said: “With the U.S.’s move to T+1 settlement fast approaching, we are pleased to collaborate with Saphyre to bring solutions to the global financial industry. 

“Connecting client reference data through a link between Saphyre’s Ready-To-Trade solution and data from DTCC’s ALERT provides users with an end-to-end approach as they work toward creating operational efficiencies to successfully achieve accelerated settlement, enabling them to solve discrepancies that could potentially delay settlement.”

Ready-To-Trade subscribers will be able to query the status of critical standing settlement instructions (SSIs) reference data for all accounts, across all parties and across electronic systems directly from the Saphyre platform. The SSI status query can be done at the point of account opening or at any time during the trade lifecycle. The SSI status information for trade permissions will be available via DTCC’s ALERT API.

Saphyre’s platform enables buy-sides, sell-sides, custodians, fund administrators, asset owners, electronic trading platforms, and order management systems to onboard, and update, their client accounts before trading and throughout their lifecycle.

©Markets Media Europe 2024

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CFTC names Ted Kaouk agency’s first chief AI officer

By
Alex Pugh
-

The US Commodity Futures Trading Commission (CFTC) has named its first chief artificial intelligence officer (CAIO).

Ted Kaouk, who currently serves as the agency’s chief data officer (CDO) and director of the division of data, will be responsible for developing the CFTC’s enterprise data and AI strategy.

CFTC chair Rostin Behnam said: “Enhanced data analytics and artificial intelligence have the potential to transform the CFTC’s long-term capabilities for oversight, surveillance, and enforcement in the derivatives markets. 

Ted Kaouk
CFTC CAIO Ted Kaouk

“As one of my top priorities, the CFTC has been deeply engaged in efforts to deploy an enterprise data and artificial intelligence strategy to modernise staff skillsets, instil a data-driven culture, and begin to leverage the efficiencies of AI as an innovative financial markets regulator.”

READ MORE: UK regulators indicate principles-based approach for AI regulation

Before joining the CFTC in December 2023, Kaouk served as the CDO and responsible official for AI at the Office of Personnel Management (OPM), where he was responsible for developing the agency’s first federal government-wide human capital data strategy and data products. 

Prior to joining OPM, Kaouk was the CDO at the US Department of Agriculture, where he was responsible for establishing the agency’s first enterprise data analytics and AI platform.

©Markets Media Europe 2024

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PHILIP BILLE on the challenges – and opportunities – of integrating ESG principles into the trading desk

By
GlobalTrading
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Philip Bille, head of buy side ealing and market structure, Degroof Petercam.
Philip Bille, head of buy side dealing and market structure, Degroof Petercam.
Philip Bille, head of buy side ealing and market structure, Degroof Petercam.
Philip Bille, head of buy side dealing and market structure, Degroof Petercam.

Degroof Petercam’s head of buy side dealing and market structure explores the ESG journey, what it means for traders’ careers and wellbeing, and why firms can no longer ignore the issue.

What are the challenges when trying to integrate something so new into established processes?

Initially, the image of a traditional trading floor may seem very far away from an ESG driven setup. A few ‘cliché’ examples: Energy consumption, large trading floors, lights, air conditioning, many screens, big data centres. Additionally, long working hours without flexibility are not aligned with wellbeing concepts and is not the best in class in terms of gender diversity. And what about business travel, jumping on planes for short trips?

So yes, ESG at first may sound like a controversial topic and not something one needs to consider regarding trading activity. However, there are plenty of opportunities to integrate ESG topics and criteria in a trading setup. It is only logical. More and more asset managers are well engaged in their ESG journey, and the same goes for financial institutions. Hence, trading floors or trading activities need to start their ESG journey since they are part of a larger organisation moving this way – and fast.

Challenges always exist when you try to integrate something new into established processes. The same applies to ESG integration into trading activities.

What is impeding progress in integrating ESG frameworks into trading processes?

It is more a combination of factors rather than a few individual concerns. On the one hand, it is something new, and it may not seem straightforward at first. Culture needs to evolve in this direction, and this takes time. You also have several external constraints. Technology and big data sit at the centre of trading activity, and this is often perceived as a hurdle. It is important to mention the opening hours of European exchanges. They are on average open two hours longer than the US market, for a fraction of the turnover, and with a high concentration of volume on the close. Reducing those market hours to an international standard would facilitate the integration of several ESG topics. The most obvious positive impacts are around mobility, wellbeing and diversity.

What progress has been made?

The biggest achievement so far is awareness. And this is already a major step. In other words, this means that the journey has started and that ESG is now effectively part of the roadmap. The speed of ESG integration still varies a lot across trading firms, but those topics are no longer ignored. Gradually, you are hearing more about the need for green data centres, new governance, the impact on recruitment processes and some wellbeing drivers, a change in travel habits, paper consumption, and much more. The best proof of progress is that ESG is now top of the agenda during leading trading conferences and present in discussions among the different actors.

The industry is ensuring ESG is higher on its agenda and is seeking to improve business practices. Beyond regulatory obligations, the pace of change is driven by the demands of shareholders, customers, employees and other key stakeholders.

What will the benefits be to firms that integrate ESG into their trading processes?

Firms will be better places to work, and this will have a positive impact on society. One clear benefit will be on the recruitment side, with higher diversity making teams stronger. Since I expect ESG to become an essential selection criterion, firms with a strong ESG footprint will stand out and be among the winners of tomorrow. And rapidly, firms will also realise that this ESG journey is an important asset to their trading activities.

In a few years’ time, we will look back and collectively wonder why this journey didn’t start earlier and we will realise that most perceived hurdles were not that difficult to overcome after all.

What technologies are firms utilising to implement ESG frameworks into their trading processes?

I do not think we should focus on technologies to implement ESG frameworks into trading processes. The ESG journey is much broader, and success will depend on the ability to act on various fronts.

©Markets Media Europe 2024

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UK regulators indicate principles-based approach for AI regulation

By
Lauren McAughtry
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Jessica Rusu, FCA
Jessica Rusu, FCA

Following the government’s white paper, regulators including the Financial Conduct Authority (FCA), the Bank of England and the Prudential Regulation Authority (PRA) each confirmed a principles-based approach for the UK financial sector in relation to AI, suggesting that regulated entities are unlikely to be bound by prescriptive rules governing the use of AI in the near-term. 

On 29 March the UK government launched a “pro-innovation” white paper intended to “turbocharge” economic growth through a clear and “proportionate” regulatory approach that allows AI to flourish.

“Instead of creating cumbersome rules applying to all AI technologies, our framework ensures that regulatory measures are proportionate to context and outcomes, by focusing on the use of AI rather than the technology itself,” said the paper, which also stressed the importance of close international cooperation.

READ MORE: Talent, collaboration, ethics – Secret sauce for genAI in derivatives

The government has engaged extensively in industry debate around the application of AI in all areas, and as part of its consultation response, called upon regulators in key sectors to outline their strategic approach by the end of April 2024, including an explanation of their current AI framework and any plans they have to ensure the correct structures are in place going forward to manage and regulate its use.

Jessica Rusu, FCA
Jessica Rusu, FCA

In response, the FCA last week published an AI update outlining its approach.

“Financial services are already at the forefront of digitisation and AI could significantly
transform the way these firms serve their customers and clients – in both retail and wholesale financial markets,” said chief data, information and intelligence officer Jessica Rusu, who stressed that: “The FCA is a technology-agnostic, principles-based and outcomes-focused regulator.” A variety of TechSprints, regulatory sandboxes and other FCA innovation services have already been implemented to prove access to a suite of tools to collaborate and develop proof of concepts, including providing access to high-quality synthetic data.

“Data and digital plays a key role in the FCA strategy,” added Rusu. This includes
a new FCA digital hub in Leeds, while the regulator has also recently recruited over 75 data scientists. “We are exploring how we can use AI in the pursuit of our objectives. It has already transformed the speed with which we can monitor and tackle scam websites, money laundering and sanctions breaches, as well as supporting the work of the Supervision Hub,” said Rusu.

DON’T FORGET TO TAKE PART IN THE GLOBAL TRADING AI SURVEY

In the same week, the Bank of England and the Prudential Regulation Authority (PRA) also published a letter addressed to the secretary of state for science, innovation and technology, Michelle Donelan MP; and the economic secretary to the treasury and city minister, Bim Afolami MP, setting out their own approach to AI in the financial markets.

“AI/ML are rapidly developing technologies with the potential to enhance the financial services sector in the UK and globally,” emphasised the letter, adding that both authorities have spent the past few years working on a plan to safely adopt and regulate these new tools.

“AI/ML is already being widely adopted in many parts of the financial sector to improve firms’ operational efficiency, better detect fraud and money laundering, and enhance data and analytics capabilities,” confirmed the letter. “We have engaged extensively – and will continue to do so – with the tech sector, academia, and financial services firms to keep up with the rapid pace of technological change.”

Sam Woods, Bank of England
Sam Woods, Bank of England

Both the Bank of England and the PRA stressed that their focus is to understand how to support the safe and responsible adoption of AI/ML in financial services from both a macro-financial and prudential perspective, given the potential benefits – including driving innovation – that AI/ML could bring to firms.

“Our core principles, rules, and regulations do not usually mandate or prohibit specific technologies,” they said. “However, technology-agnostic does not mean technology-blind.”

All three UK regulators have been exploring the implications of the use of AI in financial services for several years now: including an initial Bank of England paper on better understanding the adoption and use of ML in financial services published in 2019, with a follow-up in 2022. From 2020 to 2022, the Bank and the FCA ran the AI Public-Private Forum (AIPPF) examining the challenges of using AI/ML within financial services, as well as opening a dialogue between the public and private sectors on the topic. In 2022, the Bank, PRA, and FCA published a further paper seeking views on whether the existing regulatory framework was sufficient to address the risks and harms associated with AI, while in October 2023 the Bank published another feedback statement summarising respondents’ views to its discussion paper.

In December 2023 the UK’s Financial Policy Committee (FPC) was briefed on the continued adoption of AI/ML in financial services and the potential financial stability implications, and committed to considering these potential risks in 2024. The Bank is also about to launch the third instalment of its ‘ML in UK financial services’ survey, and will work with the Digital Regulation Cooperation Forum (DRCF) on selected AI/ML projects – for example, conducting joint research to better understand cross-sector adoption of generative AI technology.

“Given the rapid pace of innovation and widespread use cases, we are also undertaking deeper analysis on the potential financial stability implications of AI/ML over the course of this year,” said the deputy governors Sam Woods and Sarah Breeden.

“Both the FCA and BoE/PRA Updates indicate that they welcome the government’s principles-based, technology-agnostic and sector-led approach to regulating AI,” commented law firm Hogan Lovells. “Many businesses that operate in the financial sector – including financial services firms and technology providers – will welcome the principles-based approach favoured by the regulators and will be happy that they will not need to prepare for a prescriptive new suite of regulations in relation to IT systems that rely on AI components.”

© Markets Media 2024.

“Many firms” now say they’re ready for T+1 transition – but have you checked your ETFs yet?

By
Lucy Carter
-
Syed Ali, managing director for product development, change management and delivery, DTCC
Syed Ali, managing director for product development, change management and delivery, DTCC

In the constantly shifting regulatory landscape, firms must constantly adapt to remain compliant and maintain a competitive edge. EMIR Refit in Europe and T+1 in North America are two of the biggest headlines of 2024, with the former going live on 29 April and the latter set for 27 May in Canada and 28 May in the US. But how is the industry coping with the preparation – and the implementation?  

T+1 has been a long time coming, and to date there have been numerous concerns around how to prepare for the shift.

READ MORE: T+1 disaster planning: Prepare for the worst, hope for the best?

However, David Smith, managing director and capital markets practice lead at Broadridge, reassured Global Trading this week that “with 26 days remaining until T+1 go-live, many firms have said that they are ready for the transition on May 28th, 2024.”  

Where preparations are not fully in place, Broadridge suggested, firms should focus on the elements of the transition that they can control, structuring teams to more efficiently manage exceptions when they arise. 

One sector expected to be hit hard by the shortened settlement cycle is ETFs, which Brown Brothers Harriman addressed in a recent report. The firm drew attention to the potential increase in settlement fails, mismatches in European and Asian secondary market trading and enhanced pressure on securities lending programmes that the shift could bring, advising firms to analyse their ETF order settlement and portfolio trading workflows and timings. 

Speaking to Global Trading on the topic, Jeff Sardinha, head of ETF solutions for the Americas at State Street, commented: “One area of concern from the industry ETF perspective is essentially trying to prepare for the unknown. Has there been enough communication to industry participants? Will all of the custodian, clients and counterparties be ready? Will there be a need for day 2 changes based on day 1 issues that may arise? How will the broader ETF ecosystem react to the change, and what will the costs look like on day 1 versus day 100?” 

Resource management has also emerged as a focus area, according to Broadridge Capital Markets, with increased pressure requiring collaboration and communication. 

Broadridge advises that companies send teams to each satellite in their processing chains in order to fully understand and recognise how each component is connected. Compliance departments should also be engaged in looking for practical solutions before the go-live, it added, stating that this – along with communication between the buy and sell side – has been a crucial part of problem-solving processes thus far. 

Smith went on to advise: “As the industry enters its final weeks of preparation, market participants should be focused on completing their T+1 implementation plans and ensuring all necessary resources are in place for a smooth transition. This includes thoroughly testing all systems and processes, training staff on the new procedures, and communicating any changes to clients and counterparties. It’s also important to have a contingency plan in place in case of any unexpected issues that may arise during the go-live period.”

In Europe, EMIR Refit is the latest large-scale regulation to go live, coming into force on 29 April. The regulation aims to improve transparency, standardisation and data quality in derivatives markets, a goal that DTCC expects it to achieve. Speaking to Global Trading, Syed Ali, managing director for product development, change management and delivery at DTCC, stated: “The EU EMIR Refit marks a significant step towards a more transparent and resilient derivatives market, with greater standardisation of data fields and formats as well as better data aggregation and risk analysis across the system.”

READ MORE: EMIR Refit: Ready or not?

Standardisation should help to reduce the complexities associated with cross-border transactions and regulatory reporting, which in turn could improve market integrity and investor protections. “At the same time, broader adoption of standard data reporting formats also means increased interoperability and efficiency of data exchange, reducing errors and speeding up processing times within the financial ecosystem,” said DTCC. 

“We anticipate steady progress as the industry navigates these regulatory changes,” Ali continued, but warned that “the coming months will continue to challenge firms”. 

“Even though the EU EMIR Refit is now live, the previous reporting regime, EMIR-UK, will remain on the prior regime until this September. We expect that the 180-day adjustment periods will help firms to address most new reconciliation issues, ultimately improving consistency in matching rates over time,” he concluded. 

©Markets Media Europe 2024

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Appital Insights completes FactSet Portware EMS integration

By
Lucy Carter
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Mark Badyra, CEO, Appital
Mark Badyra, CEO, Appital

Appital Insights has fully integrated with FactSet Portware EMS, allowing the latter’s buy-side clients to access Appital Insights liquidity. Appital CEO Mark Badyra spoke to Global Trading to share more about the partnership.

Speaking to Global Trading, Mark Badyra, CEO of Appital, explained the motivation behind the project. “The integration enables asset managers using FactSet’s Portware EMS to access Appital Insights liquidity via their existing execution management system. This is very much a client-driven development; buy-side firms have been asking for this functionality to be part of their daily workflows.”

FactSet Portware EMS has recently added a Live Watchlist functionality to its platform, allowing buy-side firms to determine the viability of executing larger ADV orders without alerting the market.

This complements Appital Insights’s offering, which allows buy-side institutions to gain feedback on the likelihood of a successful bookbuild without alerting others in the market or risking price erosion. Traders and portfolio managers can also use the platform to gain passive exposure in chosen equities, with consideration to minimum ADV ambitions and pricing thresholds.

Large or illiquid equity trades can then be executed using Appital Turquoise BookBuilder.

“We expect Appital platform liquidity to increase as a result [of the integration],” Badyra concluded.

©Markets Media Europe 2024

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London leads European equities capital raising in Q1

By
Lucy Carter
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AFME Logo
AFME Logo

Average daily equities trading on European main markets and MTFs rose by 14% between Q4 2023 and Q1 2024 according to a recent publication for the Association for Financial Markets in Europe (AFME), with LSE and Frankfurt leading the pack. Despite this increase, however, a 6% drop was seen YoY. 

Turnover ratio rose to 110% after H2 2023’s record low of 100%. AFME stated that there has been a “pronounced deterioration in market liquidity” since 2018, with turnover ratio falling from approximately 150% to between 100 and 110% over the previous year. 

European primary markets are currently facing a liquidity crisis, with initiatives including to address this including the EU Listing Act.

READ MORE: ‘A moment of transition’ – EU Listing Act goes live 

Further research from bigxyt noted that 74% of total addressable liquidity in Q1 came from on-venue trading, slightly above the approximate 70% that AFME has seen since 2018.

READ MORE: All the light we cannot see – why the decline in continuous lit trading?

Equity capital raising on European exchanges reached €29.5 billion in Q1, increasing by 4% quarter-on-quarter. Secondary markets contributed most significantly to this figure, raising €23 billion over the quarter, but saw an increase of just €0.3 billion from the end of 2023. 

Initial public offerings (IPOs) raised just €5 billion in Q1 2024, but recorded a 387% YoY increase. While this is a significant increase, AFME notes that since 2010 the quarterly average has been €8 billion.

Junior exchanges, defined as venues with “less onerous listing requirements” that facilitate capital raising by small to medium enterprises and younger companies, issued €0.5 billion in enquiry capital over Q1 2024. This is the lowest quarterly value recorded since Q1 2009, AFME stated. 

The London Stock Exchange led Europe’s equity capital raising pack, reporting €7.2 billion in the first quarter, followed by Frankfurt Stock Exchange-Prime with €4.1 billion. The Paris Stock Exchange and Borsa Italiana both reported €3.2 billion over the year so far. 

AFME’s report also considers the double volume cap mechanism, which aims to limit equity trading under the reference price waiver and the negotiated transaction waiver on EU venues. There has been a slight decline in the number of instruments suspended under the mechanism, the report states, with the number suspended at the TV hitting its lowest point since August 2021. 

©Markets Media Europe 2024

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Global Trading is an industry-leading news service for the global equities capital markets: providing information, education, insights and analysis for senior professionals working within trading and execution across Europe, the UK, North America, APAC and other emerging markets. With a focus on the intersection between the buy and sell-sides, Global Trading covers all industry elements from technology and trading strategies to regulation, best execution, market structure and liquidity.

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