SEC Fines Dark Pool Operator Liquidnet US$5m Over Control Failures

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January 13, 2025

In a rare enforcement action against the lightly regulated alternative trading system industry, the Securities and Exchange Commission is sanctioning TP ICAP-owned ATS operator Liquidnet over failures in its market access controls and protection of confidential trading information.

The settlement, announced on January 10, marks the second major enforcement action against Liquidnet in a decade, following a US$2 million penalty in 2014 for similar violations regarding the handling of confidential subscriber data. TP ICAP had reported continued strong revenue growth at Liquidnet with revenue up 26% in the third quarter of 2024.

The SEC found that Liquidnet had set “inappropriate” credit thresholds for its customers, including a default limit of US$1 billion, while failing to restrict access to confidential trading information adequately. The regulator also determined that the firm misrepresented material about its control systems to customers.

The case highlights the SEC’s continued scrutiny of alternative trading systems, which have become vital liquidity venues in US markets, now accounting for approximately 16% of U.S. equity volumes and satisfying up to half of institutional traders’ liquidity needs. It follows similar actions against other ATS operators, including tZERO’s US$800 thousand settlement in 2022 for disclosure failures.

“ATSs are incubators in a market structure laboratory, with less stringent rule sets than exchanges,” Jesse Forster from Coalition Greenwich said, highlighting the innovative potential of these venues. This innovation is exemplified by newer entrants which have gained traction among sophisticated market participants seeking enhanced liquidity with reduced information leakage. According to Coalition Greenwich about 16% of U.S. equity volumes overall are currently executed via ATS and could be accounting for at least half of the liquidity needs for institutional traders.

Joseph Sansone, chief of the SEC’s Market Abuse Unit, stated that “ATS operators account for a significant amount of liquidity in public markets and are part of the fabric of our market structure.”

While Liquidnet neither admitted nor denied the findings, the firm has agreed to be censured and has retained an external consultant to improve its controls and procedures. The company will also submit ongoing reports and certifications related to these remedial efforts.

The enforcement action underscores regulators’ growing focus on market structure participants’ operational controls and transparency, as alternative trading venues capture significant market share. As of July 2023, the Trade Reporting Facilities (TRF) market share, which encompasses both ATS and non-ATS over-the-counter (OTC) trading, accounted for 44.97% of overall market volume according to CBOE

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©Markets Media Europe 2024

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Ian McGinley follows Behnam, jumps CFTC ship

By

Lucy Carter

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January 13, 2025

Ian McGinley, director of the enforcement division, CFTC

Ian McGinley is the latest to announce his departure from the Commodity Futures Trading Commission (CFTC), effective 17 January.

He has been director of enforcement at the commission since February 2023, focusing on areas including digital asset enforcement, insider trading, cybersecurity and emerging technology, and the enhancement of surveillance and analytics capabilities.

The news follows chairman Rostin Benham’s announcement of his departure from the commission last week, effective 20 January.

The majority of McGinley’s almost 20-year career has been spent as assistant US attorney and unit chief for the Southern District of New York, a role he held between 2011 and 2021. Prior to this, he was a law clerk for the US District Court in the Eastern District of Pennsylvania.

On his departure, McGinley said: “I have always said the division punches far above its weight. Consistently obtaining judgments multiples greater than the CFTC’s entire budget, the Division of Enforcement works tirelessly on behalf of the American people, bringing some of law enforcement’s most complex and impactful cases.”

Behnam added: “Under Ian’s leadership, the division has brought first of their kind cases in both traditional and emerging markets, published cutting-edge guidance, and reorganized and consolidated our analytical units to strengthen the agency’s ability to detect misconduct. On behalf of the entire CFTC, I thank Ian for returning to public service and leading the division during this critical time.”

©Markets Media Europe 2024

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BNY snaps up Aviad Axelrod amid outsourced trading boom

By

Lucy Carter

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January 10, 2025

BNY has appointed Aviad Axelrod as head of fixed income and equity (FIEQ) product for the EMEA region.

The appointment continues BNY’s expansion of its global markets trading business, which saw increased activity in 2024. In the first three quarters of the year, income from ‘other trading revenue’ reached USD 225 million at the bank – up 22% year-on-year.

Accordingly, last October the company launched an EU trading desk in Dublin to provide integrated execution services to EU-based FIEQ clients.

At the time, global head of markets Adam Vos noted: “Expanding into the EU is a direct response to the growing demand from our EU-based clients for execution services.”

Based in London, Axelrod reports to Bianca Gould, EMEA head of fixed income and equities, and John Goodheart, global head of FIEQ product and head of equities.

Axelrod has more than 20 years of industry experience, and joins BNY following 10 months with Stifel Financial’s algorithmic trading and execution services division.

Prior to this, he spent five years at Virtu Financial’s execution services, business development and market structure division. His career also includes 15 years with ITG, where most latterly he was director of algorithmic trading and smart order routing in the product management team.

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HKEX poaches JP Morgan’s Gregory Yu as volumes surge

By

Lucy Carter

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January 10, 2025

Gregory Yu, managing director and head of markets, HKEX

Following a spike in volumes at HKEX, Gregory Yu has been named managing director and head of markets, effective March.

In December 2024, equities turnover was HKD 2.1 billion at the exchange; up 37% year-on-year from HKD 1.4 billion in December 2023.

In the role, Yu will oversee and support the growth of HKEX’s equities, derivatives, fixed income and currencies franchises. He reports to Bonnie Chan, CEO.

Chan commented: “[Yu’s] extensive knowledge of the international and Mainland China markets will make him a valued member of the senior team, as we continue to deliver on our strategic imperatives to elevate the depth and attractiveness of Hong Kong’s markets.”

Yu’s move is a loss for JP Morgan, where he held the key role of head of equities and COO for its China business. He spent 18 years with the company, working across New York and Hong Kong.

Earlier in his career, Yu spent three years with BNP Paribas in the fund derivatives business, working as a structurer and product specialist in New York and Hong Kong.

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SS&C picks up ex-BNY Horan, ramps up outsourced trading

By

Lucy Carter

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January 10, 2025

Michael Horan, EMEA GIDS head of trading, SS&C Technologies

The increasingly crowded market for outsourced trading services has gained a new entrant as SS&C Technologies appointed trading veteran Michael Horan as head of its EMEA outsourced trading business.

The global investor and distribution solutions (GIDS) business provides operational insights and real-time transparent oversight to investors, advisors and asset managers, with global transfer agency and investor servicing available through a single platform. It was established in 2020.

Based in London, Horan will lead the outsourced trading division.

Horan has 30 years of industry experience, most recently as head of electronic equity trading at BNY. He held the role for more than a decade, leaving earlier this year amid department restructuring.

Prior to this, he was head of outsourced trading at Pershing EMEA. Earlier in his career, Horan was head of the European broker desk at Instinet and a UK equities inter-dealer broker at Tullett Prebon.

©Markets Media Europe 2024

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Megadeals kept US in forefront of secondary share offerings in 2024

By

Etienne Mercuriali

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January 9, 2025

ECM-2024-Secondary-issuance-per-month-and-ccy-in-USm

2024 was a boom year for equity capital raising, with $640bn of secondary offerings worldwide, according to Bloomberg data.

Secondary offerings were up 26% in 2024 over 2023 according to LSEG data, correlating with an overall strong market for stocks and the need for issuers to raise further equity.

Top US issuers included Boeing, which raised $18 billion in a rights issue in October, and Micro Strategy, which issued $15 billion in equity the same month “to buy more bitcoin”, according to a filing by the company. Saudi Arabia’s Aramco raised $11.2 billion in a secondary offering in May. Two Brazilian companies, Viver Incorporadora e Construtora and Cia de Saneamento Basico do Estado de Sao Paulo, raised a total of $19.4 billion during the year, according to Bloomberg.

NASDAQ and NYSE accounted for 46% of secondary issuance volume of US$288.2 billion. The London Stock Exchange saw a high value of secondary issuance compared to its small IPO volumes, led by National Grid’s secondary offerings valued at around US$10 billion and a series of deals by Haleon totalling $8.4 billion. Similarly to its strong showing in the primary space, Indian secondary offerings were 7% of the total or $US 47.9 billion.

League tables were stable with the top 5 lead managers (Goldman Sachs & Co, JP Morgan, Morgan Stanley, BofA Securities Inc, Citi) keeping their rankings and helping issue US$197.2 billion worth of stocks, amid small movements lower down in the table with Indian banks gaining while European investment banks and Chinese banks lost some ground.

©Markets Media Europe 2024

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India, Middle East are new IPO hotspots as Europe and China flag

By

Etienne Mercuriali

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January 9, 2025

Dollar and Indian rupee-denominated initial public offerings in 2024 accounting for 56 per cent of primary issuance, underscoring the growing importance of India’s capital markets alongside traditional US venues.

The IPO landscape reflects broader shifts in global capital markets, with European financial centres increasingly sharing the spotlight with emerging market venues, particularly India and the Middle East this year.

Nasdaq was the year’s leading venue across its various platforms, in front of India’s National Stock Exchange, with the New York Stock Exchange and Hong Kong Exchange following behind. European exchanges saw notably subdued activity, compared with a surge of issuance on Middle Eastern bourses in Dubai, Abu Dhabi, and Saudi Arabia which collectively raised $12bn — surpassing the total euro-denominated issuance across all European exchanges, according to data compiled by Bloomberg.

Carmaker Hyundai Motor India’s $3.3bn capital raise which completed in October was the largest deal of the year in India, where total issuance of $22.7bn mostly consisted of smaller companies. In Europe, SIX Group accounted for $5.5bn of issuance with two deals, Galderma in Switzerland and Puig Brands in Spain. Home Furnishings group Midea raised $4.6bn in Hong Kong, part of $11.5bn of total issuance in the territory.

The market showed seasonal strength during the September to November period, though no single industry dominated issuance. Diversified holdings and REITs emerged as the most active sectors, albeit representing only a modest portion of total activity.

ECM-IPO-by-month — ECM IPOs by month Source: Bloomberg

In league tables compiled by LSEG, Morgan Stanley climbed from the 15^th position in 2023 to claim the top spot among underwriters last year, bolstered by its lead roles in the high-profile Reddit and Astera Labs offerings which amounted to US$748 million and US$774 million respectively. JPMorgan Chase and Goldman Sachs both improved their standings, securing second and third positions respectively in the league tables. A notable entrant epitomising the good issuance year in India was Kotak Mahindra Bank Ltd in tenth place, while Chinese banks suffered from the poor performance of their home market last year – China Securities moved from second place in 2023 to twenty-fifth.

©Markets Media Europe 2024

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LSE claws ahead in European equity exchange rankings

By

Lucy Carter

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January 9, 2025

Rising market capitalisation prevented reduced transaction volumes from denting most European exchanges’ equity turnovers in 2024, according to end of year results.

Euronext continued its reign of dominance in European equities in 2024, reporting €2.7 trillion in transaction values over the year. At the other end of the scale, Deutsche Börse and LSE were almost tied with €1.05 trillion and €1.06 trillion reported respectively.

End-of-year 2024 results show LSE pushing ahead of Deutsche Börse in terms of equity turnover, reversing their 2023 standings. This shift occurred in the second half of the year, with Global Trading’s European Exchanges Handbook showing the 2023 rankings in place at mid-year.

Although it reported the greatest transaction value of European exchanges, Euronext’s results were up just 4% YoY, to €2.7 trillion. Similarly modest increases were seen between December 2023 and 2024, up 9% to €204.9 billion. As noted across the board, values dropped from the previous month – here by 14%.

Rising market capitalisation over the year superseded a decline in transactions, which dropped by 4% YoY in 2024 to 603.7 million at Euronext.

SIX Group (SIX Swiss Exchange and BME) was the only exception, noting a slight (1%) dip in order book turnover over the year to €1.1 trillion in whole-year results. Although there was a small bump in December results compared to 2023 (up 3% to €86.5 billion), there was a more drastic 17% decline on November’s turnover of €101.9 billion.

Transaction volumes were up 2.5% over the year to 44.6 million but dropped by 15.2% between November and December to 3.3 million. For the most part, it was the opposite story at European exchanges – with transaction volumes falling but turnover rising.

At Deutsche Börse, turnover rose by 2% YoY to €1.06 trillion on a year-to-date basis but declined somewhat compared to both December 2023 (€79.2 billion) and November 2024 (€91.3 billion).

Units traded were down 12% to 36 million (results adjusted for comparability) for the full year, and down 44% from December 2023 to 4.23 million in December 2024. This also marked a 44% rise on November’s figures.

LSE recorded a more drastic 12% YoY rise to €1.06 trillion in total volume traded for EOY 2024, and a 9% increase in December volumes YoY to €75.8 billion. From November, this figure dropped by almost a quarter (23%).

A marked decline in international equity trading (down 23% YoY) in 2024 was somewhat offset by a 7% increase in UK equity trades at the exchange. This was more pronounced between December 2023 and 2024 trading volumes, which were up just 1% and down 29% for UK and international equity respectively.

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Six market microstructure research papers you must read

By

Nick Dunbar

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January 9, 2025

Global Trading examines six of the most influential trading and market microstructure papers published online in 2024.

Competition and Learning in Dealer Markets

A world in which AI-powered robots dominate trading may seem dystopian to some, but in their paper Hanna Assayag, Alexander Barzykin, Rama Cont, and Wei Xiong embrace this future. They analyse dealer behaviour in a hypothetical market consisting of autonomous market making agents with the ability to learn from experience. In a tour-de-force of theoretical exposition, the paper combines Nash equilibria (where players in a game can only win from others’ mistakes), mean-field theory (the physics of magnets), and reinforcement learning, the AI technique used by Google DeepMind to defeat the world’s best Go players. Their findings reveal that diversity among dealers helps prevent systematic over-bidding and under-offering (supra-competitive quoting strategies), suggesting that heterogeneity in dealer strategies contributes to more efficient market pricing for the market makers themselves.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4838181

Navigating the Murky World of Hidden Liquidity

Maureen O'Hara, Cornell University. — Maureen O’Hara, Cornell University.

Lit markets are often criticised for providing the illusion of liquidity, because fear of information leakage means most available liquidity remains concealed from view. Robert Bartlett and Maureen O’Hara seek to quantify this effect in U.S. equity markets, with a comprehensive multi-venue database of $467 billion of trades in which 40% of activity is hidden. Their research demonstrates how a simple machine learning model can assist broker-dealers in identifying hidden liquidity pools, and with better recall than conventional statistical models. With the help of a vendor dataset, they provide evidence of the bigger prevalence of hidden liquidity in high priced stocks (over $US100) as opposed to lower priced stocks (sub US$ 5)

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4988855

Passive Market Impact Theory

There is a natural dichotomy in trading between liquidity-taking market orders and liquidity-providing limit orders. Executing entirely via limit orders is known as passive trading, and here Youssef Ouazzani Chahdi, Mathieu Rosenbaum, and Grégoire Szymanski introduce innovative models for understanding the market impact of such strategies. Previous work focused on the impact of metaorders when they are executed as market orders. Using a model known as the Hawkes propagator, here the authors provide theoretical predictions of the impact of meta orders executed passively – that is executed through providing liquidity on the bid or offer side of the market.

https://arxiv.org/abs/2412.07461

ETF Flow Dynamics and Market Bubbles: Ponzi funds

Efficient market theory states that securities prices reflect fundamental information but this view is under increasing attack from the market microstructure community. The latest assault comes from Philippe van der Beck, Jean-Philippe Bouchaud, and Dario Villamaina who argue that investors are unable to disentangle fundamentals from fund flows that inflate returns. Through anonymised thematic ETF flow data, they statistically examine the self inflated return and price impact of said ETF, as well as model price reversal events. They identify daily wealth reallocations of approximately 500 million dollars from ETF alone and propose a new regulatory metric called “fund illiquidity” to measure bubble risk.

https://arxiv.org/abs/2405.12768

Beyond the Bid–Ask: Strategic Insights into Spread Prediction and the Global Mid-Price Phenomenon

A hot topic in microstructure analysis is how the depth of limit order books (LOBs) affects quantitative finance questions such as option pricing and risk measurement. Yifan He, Abootaleb Shirvani, Barret Shao, Svetlozar Rachev, and Frank Fabozzi propose new LOB-based mid-price and spread metrics, incorporating the deeper liquidity in the total order book. Their findings, analysing these metrics for the stocks of Apple, Amazon, and Google, reveal heavy-tailed return distributions and innovative approaches to hedging liquidity risks with option pricing models. These insights refine trading strategies and risk management frameworks to take into account all available information within lit orderbooks.

https://arxiv.org/abs/2404.11722

Competitive Equilibria in Trading

Neil Chriss was a junior equity trader at Morgan Stanley in 1998 when he co-wrote the seminal paper ‘Optimal Liquidation’ which first explored the trade-off between market impact and volatility in execution strategies. After a distinguished career as an entrepreneur and hedge fund manager, Chriss has released a series of new papers. This one examines Nash equilibria (the best choice for each individual trader considering all information available) in multi-trader competition, providing closed-form solutions for equilibrium strategies and implementation costs. He highlights the benefits and drawbacks of different centralised trading strategies, optimised order flows, and the persistence of aggregate costs despite increased competition. These insights offer strategies for reducing trading costs in competitive markets. He demonstrates that naïve centralisation can result in increased cost through front running by other traders and an optimum centralised trading strategy can be found through splitting orders.

https://arxiv.org/abs/2410.13583

Which trading & markets microstructure research is important for you as a practitioner?

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MetLife Investment Management acquires Mesirow teams

By

Lucy Carter

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January 9, 2025

Jude Driscoll, president, MetLife Investment Management

MetLife Investment Management (MIM) has agreed to acquire the small-cap equity team of financial services firm Mesirow, expanding its leveraged finance platform.

The transaction also includes Mesirow’s high yield, bank loan and strategic fixed income teams, with a total of US$6 billion in assets under management being transferred to MIM. As of September 2024, MIM held US$609.3 billion in assets under management.

Jude Driscoll, MIM president, commented: “As fundamental, bottom-up investors, these investment teams are excellent strategic fits and bring seasoned talent to MIM. By leveraging the power of the MIM platform, we believe we can accelerate growth in these strategies through investment performance and the breadth of our distribution capabilities.”

Natalie Brown, Mesirow CEO, added: “[We] will continue to focus on growing our alternatives capabilities and core wealth management, fiduciary solutions, and capital markets/investment banking offerings.”

In December, MIM acquired global asset manager PineBridge Investments in a total US$1.2 billion deal as part of MetLife’s ‘New Frontier’ expansion strategy. The initiative aims to deliver double-digit adjusted earnings per share, a 15-17% adjusted return on equity, a 100-basis-point reduction in direct expense ratio target and free cash flow of US$25 billion.

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In a rare enforcement action against the lightly regulated alternative trading system industry, the Securities and Exchange Commission is sanctioning TP ICAP-owned ATS operator Liquidnet over failures in its market access controls and protection of confidential trading information.

Ian McGinley is the latest to announce his departure from the Commodity Futures Trading Commission (CFTC), effective 17 January.

BNY has appointed Aviad Axelrod as head of fixed income and equity (FIEQ) product for the EMEA region.

Following a spike in volumes at HKEX, Gregory Yu has been named managing director and head of markets, effective March.

The increasingly crowded market for outsourced trading services has gained a new entrant as SS&C Technologies appointed trading veteran Michael Horan as head of its EMEA outsourced trading business.

2024 was a boom year for equity capital raising, with $640bn of secondary offerings worldwide, according to Bloomberg data.

Dollar and Indian rupee-denominated initial public offerings in 2024 accounting for 56 per cent of primary issuance, underscoring the growing importance of India’s capital markets alongside traditional US venues.

Rising market capitalisation prevented reduced transaction volumes from denting most European exchanges’ equity turnovers in 2024, according to end of year results.

Global Trading examines six of the most influential trading and market microstructure papers published online in 2024.

Which trading & markets microstructure research is important for you as a practitioner?

MetLife Investment Management (MIM) has agreed to acquire the small-cap equity team of financial services firm Mesirow, expanding its leveraged finance platform.

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