Dan Barnes speaks with Lynn Strongin Dodds about some old chestnuts – a consolidated tape for European equities, and the implications of Brexit for London.
Me The Money Show Episode 22 from Markets Media on Vimeo.
©Best Execution & TheDESK 2020
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Data demands change as liquidity ebbs and flows, creating risks for buy-side traders as they seek to use more data to support their activity and increased levels of automation. Jason Waight, Head of Regulatory Affairs, Europe at MarketAxess outlines the challenges to The DESK.
When market conditions change, both price transparency and liquidity are affected; traders need to optimise their access to price and liquidity data. That can mean increasing access to available data, or enhancing the analytics used to support risk and investment processes.
How do market conditions affect transparency demands?
There is always as strong demand for transparency – the fixed income market has a lot of bonds which trade infrequently, so any data point you can get is in demand, whatever the market conditions.
When market conditions are more stressed, it becomes more important to discover as many data points as you can, to try and understand the appropriate level for trading. A bifurcation can occur in crisis situations, whereby you might see a lot more transparency in bonds that are suddenly very active. You may see a string of information because there is a lot of activity, and therefore it becomes safe for us to publish it under our rules.
But you may also see the opposite effect. Liquidity can dry up and it becomes harder to find any price point. So, there isn’t a straightforward reaction. The key argument for a consolidated tape is to counter that problem.
As firms make prices how does their need for transparency change?
We can see more firms becoming price makers on our platforms. I am confident that correlates nicely with the availability of more data. It’s hard to make prices without data. In the crisis earlier this year, we saw a step up in the number of participants on our all-to-all platform making prices, Open TradingTM. We have seen them stay, and that is not possible without access to the kind of data to work out where to price.
Do you need a critical mass of data before you are confident enough to make a price?
That’s got to be the case. In practice, the biggest barrier to price making is not so much access to information, because you can get that, it’s having the time to calculate where the market is, and then to engage with your portfolio manager about whether they are happy or not with making a price. The barriers I can see are more to do with timing than with information that is available. If you come onto our platform you can see our Composite Plus (CP+) pricing tool with Axess All.
What is the correlation between executable liquidity and price transparency?
The relationship is not linear. Transparency and liquidity clearly support each other up to a point. There is a balance whereby there is enough liquidity to support transparency, the point at which people are comfortable taking risk and there is enough information to make prices. But clearly at one point on the curve the correlation might invert, and too much transparency prevents people from taking risk.
Figuring out the exact at which that happens is hard. ESMA has spent a lot of time trying to do that. The relationship is correlated up to a point, after which I suspect it inverts and the correlation becomes potentially negative.
There are different views as to the right level of transparency on the buy-side. The number of buy-side firms that are starting to make prices this year on Open Trading is increasing, suggests they are confident in the greater amount of data they are getting, and what they are doing. There is also evidence that suggests the buy-side traders want a consolidated tape for more transparency, and the International Capital Markets Association (ICMA) is working with buy and sell side to try and standardise axe distribution, so clearly how axes and dealer runs are presented is causing problems which needs sorting out.
If they want to increase confidence, what steps can they take?
It comes down to reviewing sources, making sure that they are as wide as they can possibly be. That could include traded prices as we provide via services like Axess All, which truly acts as the first intra-day tape for the European fixed income markets. Other products like CP+ take into account not only trade prints, but data reports, quotes and other information that can be consolidated. They need a clear view of where they are sourcing data from and need to maximise the amount that they can get.
How would that then affect their capacity to find a counterparty in different market conditions?
The more confident you are in your data, the more open you can be in using trading protocols such as Open Trading, which opens up the entire universe of liquidity providers on the MarketAxess platform. That to me is the real correlation of the link between data and liquidity.
Historically, relationships led a trader from trusting a dealer to thinking their price would be good. Today, if you have the data you can know where the price is going to be, and I ask the dealer for it.
How do you expect trading to change as an outcome of more data-led trading activity?
An increase in the non-standard counterparties that you see trading on platforms. If you haven’t got bilateral relationships, platforms provide a route to access those non-traditional counterparties, with pricing data taking the place of the need to trust a human being on the other side.
Open Trading’s success is that it enables you to face a counterparty in MarketAxess and can get access to the full range of liquidity that they can provide, and if you have got the pricing tool you can be pretty confident in how you are evaluating it.
What would you say are the most effective approaches to onboarding data of the right quality and amount, and integrating that in the buy side desks today?
People have data resources that are under utilised. And the vast majority of firms can access most of our pricing products, but a number don’t. So, my main call to action would be to ask firms to take a good look at what they already have access to. You may find there is more information available to you than you realise.
The global green bond market is set to grow from around the current level of €662/672 bn to €1 trn by the end of 2021 and €2 trn by the end of 2023, according to NN Investment Partners (NN IP).
However, investors are advised to scrutinise the credentials of green bonds because around 15% of issues are from companies involved in controversial practices that contravene environmental standards. For example, a railway company could finance low-carbon transportation through green bonds while still being heavily involved in fossil fuel freight.
There is currently no uniform green-bond standard within the European Union. However, the Green Bond Standard (GBS) announced this year by the EU, closely aligned with the International Capital Market’s Green Bond Principle, sets out the three necessary requirements for a green bond: green-bond framework, proceeds to green projects and external verification – obtaining additional endorsement from a second party
Bram Bos, lead portfolio manager green bonds, NN IP, said, “Investors must do their homework and not blindly trust the green label. The projects financed by green bonds should deliver clear environmental benefits that can be assessed and quantified wherever possible.”
He added, “Unfortunately, companies can issue green bonds without having any intention of addressing their own core sustainability issues. A thorough evaluation of a company’s activities, future plans and intention to improve business practices is needed. “
According to NN IP, EU countries leading the pack include France as well as Germany who sold its first green sovereign bond last month – €20bn issuance from KfW, the state-owned development bank. Italy, Spain and Portugal are likely to follow suit.
In the US, issuance is being driven by large corporations seeking to demonstrate they are adopting more responsible and sustainable policies – an attitude that has been heightened by the COVID-19 crisis – while China’s stated ambition to achieve carbon neutrality by 2060 is boosting green bond issuance in Asia.
Green bonds are similar to their traditional counterparts but are specifically used to finance projects that have environmental benefits. They are an effective tool for issuers to finance climate transition and for investors to make a measurable positive impact on the environment.
Analysis by NN IP shows that they have outshone their more traditional peers. For example, the Bloomberg Barclays MSCI Euro Green Bond Index delivered an annual return of 3.2% between January 2016 and August 2020, which was 70 basis points higher than the Bloomberg Barclays MSCI Euro Aggregate Index. Since 2015, green bonds have outperformed in every year except for 2017.
©BestExecution 2020
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GlobalTrading Editor Terry Flanagan speaks with Jerry Hanweck, VP Software Engineering, Information Solutions at Cboe, about the Cboe Theoretical Value, or “Cboe Theo,” a new options pricing model.
The Cboe Theoretical Value is a sophisticated, next-generation improvement of Cboe’s existing datasets, and forms a foundational element of Cboe Information Solutions’ options analytics product suite. This cohesive dataset helps customers better understand risk, access markets and make more informed trading decisions. Cboe Theo is now available via Cboe Hanweck here and will soon be used across Cboe’s global derivatives marketplace.
For more information, visit Cboe.com/ISG
The Asia Pacific Trading Summit, the largest one-day electronic trading event in the region will be held on Tuesday, October 20, 2020. Delegates can attend in person or via live streaming.
Looking to expand your knowledge and trends on the world of institutional trading? Are you looking to discuss the burning issues that shape the future of the industry itself with peers that share the same interest and enthusiasm about trading that you have yourself?
Join us for the 18th Asia Pacific Trading Summit!
This one-day, electronic event is known to bring over 700 key personnel of the institutional trading industry to provide thought-provoking, forward focused insights through an interactive programme. The event is put together by senior representatives of our member firms.
Traders and technologists: mark your calendars for this one-of-a-kind event that you won’t want to miss! Live Streaming is also available!
This event was designed to appeal to both traders and technologists. The agenda of the event will maintain a balance of topics that address market and industry needs that have been discussed for years. Take a look at just a few topics and in-event showings that will be held during the 18th Asia Pacific Trading Summit:
1. Deep Dive Discussion
Delve into topics such as liquidity landscape, execution trends, best execution, traders’ priorities, and other controversial, trade-related hot buttons.
2. Mega Trend Displays
Explore trends like artificial intelligence, regtech, workflow automation, and ESG and learn how such high-level themes apply to your daily trade tactics.
3. Exhibition Zone
Delegates will be able to check out the latest, game-changing trading tools that are used daily by institutional members around the world to improve trade performance and operational efficiency.
4. Live Streaming
For those who are unable to attend in-person, we will live stream the presentations.
Hot Topics Include:
• How COVID-19 is Shaping the Future of Trading Desks?
• Regulatory Priorities
• Equities Trading in Volatile Times
• Emerging Technology & Innovations
• Inside HK’s First Regulated Crypto Fund
• Putting ESG into Practice
• Buy-side Priorities
• Updates from HKEX, SGX, ASIC and LSE
The 18th Asia Pacific Trading Summit is a must-attend event for anyone looking to build a smart trading desk, discover emerging technologies and tools of trade, or would like to develop new approaches to accessing liquidity for best execution.
Join us for this educational, networking event for a chance to learn from and connect with a broad spectrum from the industry. Sign up for this long-standing event that’s packed with new content that you won’t want to miss!
*Admission for this event is complimentary for FIX Trading Community Member firms, buy-side, regulators, invited guests, and media. (Registration and approval are required)
Joelle Yap, Director, Client Development & Sales – Sell-Side, CME Group, won Best in Exchanges at Markets Media Group’s 2020 Women in Finance Asia Awards.
Markets Media caught up with Joelle to learn more.
What has been your experience as a woman in finance? Have you found that any doors were closed (or open) for you because of your gender?
I recall in one of my earlier jobs, I worked in a broking house as a dealer’s assistant. The company also required us to double-hat and support the sales and marketing team during client seminars and networking events in the evenings. I saw that as an opportunity to learn new things and to widen my own horizons, rather than fret about having to do additional work outside of my original job scope. This was how I learnt to multi-task and at the same time, this allowed me to experience first-hand a sales-related role within the derivatives industry and my initial dealing assistant role later expanded to include sales and business development. Subsequently, the experience I garnered in this very broad role stood me in good stead for a job opportunity at CME Group, and I was hired into my current role based on the merit of my skill sets and sales experience in my previous company.
For me, I am very thankful to have worked with many great bosses and mentors who had provided me with a lot of guidance and have given me the freedom to explore and work to my strengths while at the same time watching out for me to ensure that I am not blindsided by my own weaknesses and constantly pointing them out to me, and helping me course-correct along the way.
I have been very fortunate to have colleagues and bosses who have been supportive, and created a conducive and collaborative environment for me to thrive in. And this is especially so at CME Group, where the exchange of ideas is embraced and driven by the rich diversity of our people, cultures and experiences.
Women are well-represented at CME Group, including at the most senior levels. 40% of our senior leadership team is comprised of women, with women making up nearly a third of our workforce globally.
At CME Group, we have two Employee Network Groups (ENG) that were started by women and continue to create a forum for our female colleagues to share their professional and personal interests.
What is the “secret of your success”?
There is no real secret to my success, and my success if any, is all down to hard work, and constantly striving to better myself.
For women, or anyone working in the exchange sector, here’s my nuggets of wisdom for them:-
What is the value/significance of industry events such as Markets Media’s Women in Finance Asia Awards?
Over the years, I have seen more and more of such awards honoring women, and I think they are a fantastic way of showcasing and highlighting the achievements of women. I believe that these awards and awards winners themselves continue to provide a source of inspiration for many other women, especially to those who are relatively new to the workforce.
For me, I feel that the award win was a culmination of my hard work and the recognition and the opportunities given to me by my bosses and my peers. To be honest, I have never ever dreamt of winning an industry award, and to be conferred this Women in Finance Asia awards is both an honor and a privilege.
I hope that this will inspire many others who are reading about my award win, and drive them to work harder and to strive to be the best they can be. That hopefully could be my humble contribution in giving back to women in society and within the industry.
James Gorman, chairman and chief executive of Morgan Stanley, said the acquisition of asset manager Eaton Vance is the combination that the bank has been looking for during the last 10 years.
Morgan Stanley announced today that it will buy Eaton Vance, which has more than $500bn ($426bn) in assets under management, for an equity value of approximately $7bn.
$MS: Morgan Stanley to Acquire Eaton Vance; Creates a Leading Asset Manager Positioned for Growth; Advances Morgan Stanley’s Strategic Transformation. Press Release: https://t.co/VkOjPcN97X pic.twitter.com/Hs86KFXZeA
— Morgan Stanley (@MorganStanley) October 8, 2020
Gorman said on a conference call today: “We want to add ballast to our speed as there are difficult conditions in the water today.”
He continued that the speed is provided by the engine room of Institutional Securities which has been repositioned over the last decade and achieved true scale.
Gorman added that the pro forma revenues in wealth management and asset management from the combination will be approximately $26bn, which makes the merged firm the number one in the world.
“It is the combination we have been looking for over the last decade to give us organic growth across all three of our businesses,” said Gorman. “In 2014 we had wealth and investment management client assets of $2.4 trillion and pro forma AUM will be $4.4 trillion.”
Dan Simkowitz, head of investment management at Morgan Stanley, said on the call there are multiple growth opportunities from the combination of complementary businesses. For example, Eaton Vance’s distribution is mainly in the US while Morgan Stanley has international distribution. Eaton Vance also has strong presence in customization through Parametric and sustainable investing through Calvert.
“We will have scale where scale matters and fill important gaps” added Simkowitz. “For example, we have been building in loans and municipals but Eaton Vance has both.”
In contrast Morgan Stanley has more than $110bn of client capital in private capital where Eaton Vance does not have a presence. As a result, there are meaningful opportunities to sell products from day one according to Simkowitz.
Gorman said: “Eaton Vance has unbelievable distribution capability and we have unbelievable product.”
An analyst on the call commented that most asset management mergers have been unsuccessful and asked why this is different.
Gorman argued that both parties want to do the deal and they have little overlap. He said: “Most deals are to acquire scale in one space and that creates a lot of friction. We do not have Parametrics and they do not have an alternatives business. They have US distribution, we have international.”
Thomas E. Faust, Jr., chairman and chief executive of Eaton Vance, said on the call that the firm has an unusual structure as all the voting shares are held by 25 senior members of staff.
“We met last night and voted 25-0 in favour,” Faust added. “We were assured that we are in complete alignment on how to achieve success in asset management.”
Faust continued that the premise of the deal is that it will accelerate Eaton Vance’s growth. “Morgan Stanley’s international and institutional distribution overwhelms anything we could have put together on our own,” he added.
Gorman said the the transaction is expected to be immediately breakeven to earnings per share, and then be marginally accretive, while adding approximately 100 basis points to return on tangible common equity.
He continued that the bank would not make any more acquisitions as it is focussed on integrating two large deals over the coming years. At the beginning of those month Morgan Stanley completed the acquisition of E*TRADE Financial Corporation.
“We have made our bed and want to lie in it,” added Gorman. “There will be no more acquisitions.”
The deal is expected to close in the second quarter of next year.
MS now owns the amber slice of the below chart, which is tiny vs ETFs and TIFs, and if anything, it's shrinking not growing as Parametric (aka Direct Indexing) has seen OUTFLOWS over past 12mo vs HALF A TRILLION of inflows for ETFs. Until these numbers shift, call me skeptical. pic.twitter.com/4u6bEjk6Ux
— Eric Balchunas (@EricBalchunas) October 8, 2020
https://twitter.com/ungarino/status/1314191548561711106
The London Stock Exchange Group said its pan-European share trading arm Turquoise will offer trading in EU-listed shares on its Dutch platform from the end of next month if there is no agreement on future direct access to the bloc by then.
In a statement, the London exchange said “Turquoise can confirm that it is planning on invoking its Brexit contingency plans on Monday 30 November 2020, unless relevant equivalence decisions to allow cross-border services between the EU and UK are agreed prior to this date. The final go-live decision will be confirmed in due course.”
The UK left the European Union earlier this year, but the official break and end of the transition period is set for 31 December 2020. Talks between the two sides are still ongoing, with the UK’s chief negotiator David Frost in Brussels this week in an attempt to come to an agreement before mid-October, the deadline Prime Minister Boris Johnson has repeatedly set.
As things stand, if a deal between the two cannot be struck, they will lose their “passport” for selling their services in the EU. This means that they will have to rely a system of “equivalence,” whereby the EU would be able to decide unilaterally whether the UK’s rules are close and robust enough to its own regulations to allow them in the door.
The LSE set up its Dutch hub as insurance against no direct access to EU investors. If the venue does need to invoke its contingency plans, European Economic Area securities will be made available for trading on the multilateral trading facility operated by Turquoise Europe.
The LSE also specified that Turquoise’s UK and European arms will begin running a range of independent order books as well.
CBOE, the biggest pan-European share trading platform, which is based in London, has also set up a hub in Amsterdam that is already open for business but with little trading so far.
Market participants are waiting to see if the Financial Conduct Authority will impose restrictions on where shares can be traded if there is a no-deal Brexit.
The moves announced by LSE and Cboe are seen as a way to provide flexibility to offer trading to customers in Britain and on the continent, whatever the UK regulator decides.
©BestExecution 2020
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