Instability in equity volatility is driving client demand for related products, with Cboe Global Markets set to add another service to its suite less than two months after launching S&P 500 variance futures.
For traders, a key feature of US equity markets is its concentration – the degree to which the index return and volatility are driven by a few mega-cap stocks, and the degree to which other stocks are correlated with the biggest components in the index. This correlation – known as dispersion – can now be traded using a new index product.
The VIXEQ Index, developed in partnership with S&P Dow Jones Indices, measures the market cap weighted 30-day implied volatility of selected S&P 500 constituents, as determined by the Cboe S&P 500 Dispersion Basket Index (DSPBX). Launching on 4 November, it uses Cboe’s VIX Index methodology.
Cboe and S&P’s DSPBX Index provides the representative universe of large-cap US equities in relation to the DSPX Index calculation. The Cboe S&P 500 Dispersion Index (DSPX) was launched in September 2023 to provide insights into movement in the S&P 500 index relative to its companies over the next 30 calendar days.
Speaking to Global Trading, Rob Hocking, head of product innovation at Cboe, explained: “We calculate individual VIX values on each of the single name equities that make up the DSPBX basket. We market cap weight them, and then we subtract the VIX index itself.”
Client demand has driven the product’s development, Hocking shared; “This wasn’t something that we initially anticipated launching. Once we got the DSPX index out there, we had a bunch of inbounds that asked us to publish the VIX index for the constituents as well. We were already calculating it as part of the DSPX Index.”
Another recent addition to Cboe’s volatility product suite is Cboe S&P 500 variance futures, which gives users the ability to trade the spread between implied and realised volatility. This variance swap replication allows investors to manage two different risk characteristics, Hocking said, “capturing the balance between forward implied and what actually happened”.
“All of these products are somewhat interrelated in different ways, but each one gives investors a different risk metric to be able to trade or measure,” Hocking commented.
Further volatility services are in development at Cboe Labs, the company confirmed, including a futures product on the DSPX index.
A change of pace: How Fidelity International turned its equities desk around
The equities desk at Fidelity International (FIL) has had a frenetic few years following a major team revamp in 2017. We talk to the winners of the EMCA Best Equities Trading Desk about team spirit, team structure, and team autonomy. What makes this desk stand out from the crowd?
A decision to diversify In 2017 a structural change saw the equities team begin an internal journey that would see it evolve into a very different animal. “We brought together a collection of people with a mix of different experiences and energies to try and take the team in a different direction,” said head of desk (and head of equity trading) Tom Stevenson, who has been with the firm for 18 years. “We wanted to be able to service our fund managers in a slightly different to way to how we had done previously, and that’s ultimately what we’ve been focusing on over the past seven years.”
The journey to achieve this has seen the desk bring in multiple resources from multiple routes – from sourcing internally to looking outwards, from bringing in sell-side expertise to leveraging trade support. The result is a diverse yet tight-knit team, all with very different strengths yet all pulling in the same direction.
The intention was to be able to work more closely with the investment team, and for the traders to be more integrated into the investment process – effectively to become the eyes and ears of the investment team. “Traders have access to a lot of unique information but we need to make sure we are actually using that information in an effective and efficient way,” said Stevenson. “You need the right people to be able to do that.”
Emmanuel Gbetuwa.
Meet the team Equity trader Emmanuel Gbetuwa, who has been at Fidelity for 12 years, came on board from the support team. Having joined the firm straight from university, he had seen multiple aspects of the business before he joined the desk. “That really helped, as I was able to understand how things flow from the start of the trade all the way downstream to the accounting system, which was a positive addition to the experience already on the desk.”
Next came senior trader Tim Miller, who joined from Jefferies in October 2016, quickly followed by senior trader Georgina Flynn, who joined from Merrill Lynch, both bringing sell-side experience into the desk. Next was senior trader Grainne O’Connor, who came from Blue Crest Capital in 2018 to bring a hedge fund flavour to the desk. Equity trader Louise McCormack was an internal hire, promoted to trader during Covid, with Will Vaz joining in a desk support role at the same time. Equity trader Dominic Eccles, who joined the team in 2022, was the final piece of the puzzle.
“We have a pipeline of talent internally that we like to tap into,” explains Stevenson. “So we had three internal moves, two sell-side hires and two buy-side.”
Tim Miller.
Tim Miller: Systematic integration It’s not all been plain sailing, but the new team has big ambitions. One of the biggest changes has been a more efficient approach to the use of data – something that might sound standard but has actually been a sea-change.
Miller runs the systematic side of the desk, and his main focus now is looking at all trades which could be traded systematically to see where efficiency can be improved. “We look at performance both in pre- and post-trade data versus TCA, and we work really closely with our data teams to build an in-depth data source that we can then look at to improve and enhance our process. We use that to demonstrate to our fund managers and to our clients that we are delivering the best possible performance.”
According to Stevenson, the systematic side of the desk is one of the team’s strengths – in more ways than one. “Systematic execution can result in different skillsets for traders who focus on that side of the business. The important element here, where I think we got it right and what makes us different from other desks, is that it is completely symbiotic,” he emphasises. “The systematic traders are absolutely part of the investment process. They are speaking to fund managers, they are focused on performance and delivering for clients, but equally they are out there working with their colleagues on the alpha generation side of things – so it’s not a siloed compartment. It’s cross-team, we have a single structure made up of individual team members.”
Miller agrees, reiterating that the desk is fully symbiotic. “That’s what I do on a day-to-day basis but everything is very interchangeable. Even though I do systematic, any of the guys here can press the same buttons, so it’s a seamless process. I can pick up high touch orders, they can take mine. It means we can all go on holiday without worrying that things will fall apart, because we have the data and the communication all in place.”
Georgina Flynn.
Georgina Flynn: Supporting flexibility Flynn, who recently came back from maternity leave, has relished the flexibility that this working structure provides. “I’m the one who always comes in in my gym kit,” she laughs. She currently works a four-day week, a structure that has worked well for both her and the desk. “I’ve never seen that contract on another buy-side desk and frankly, when I came into this industry, I never thought it would be possible, but it works brilliantly. I feel I can fully commit to my job and still be present with my kids. It’s a huge differentiating factor.”
“It’s not just about working from home or from the office, it’s about thinking about the actual pattern of the week as well, and what works for everyone as a team,” adds Miller. “Not having to worry about your family means you can bring your A-game to work.”
And while the desk promotes flexible working, this doesn’t come at the expense of wider performance. “There’s always a trader on the floor,” stresses Miller. “There’s always someone the PMs can reach out to talk to, which gives them a degree of comfort.”
A key factor in making the team a success has been the physical location, which was a major change. “We used to be in a separate floor in a glass box, we were completely segregated from the fund manager. Now we sit right in the middle of the investment team and that’s completely changed the conversation,” says Flynn, who sits on the high touch side and specialises in sourcing outside blocks of liquidity. Formerly covering consumer and healthcare, she now covers the industrials and materials sector from micro to mega cap. “I see myself as a liquidity consultant to the PMs. They’re experts in stock selection but we’re the experts in sourcing the liquidity they need – and in knowing when and how to trade it.”
Grainne O’Connor.
Grainne O’Connor: Structuring information O’Connor is the mother figure of the group, and the communicator. Coming from a sell-side and hedge fund background she is, like Flynn, a high-touch trader. “I’ve had lots of experience and I can pick up on things quite early. I like posing questions to the team, and making sure that the content we’re talking about is all-inclusive – I like starting debates and our weekly team meetings are really valuable in that regard. It’s about having that feedback so that we can decide the best course of action and deal with any challenges.”
One of the key things she believes differentiates FIL as a desk is their structural distribution of information. The team always issues a morning note to give a recap of what’s happened overnight, then a midday update covering the morning’s thematic activity in Europe and anything coming up in the US, and finally an end of day recap. “In between all of that, the team are also sending out content continuously, which can be bilateral to fund managers on liquidity positioning and execution strategy, or it can be on technical analysis, single stock trade ideas, sector updates, or deep dives on equity positioning or rebalances – just to make sure that the fund manager is aware of liquidity events they should be tapping into to reduce transaction costs,” she explains. “It’s something that every desk has access to, but not every desk will be using. Our team is really proactive on that front.”
The information goes out to the whole investment team, including the sales force who often use points when talking to clients – and it often has a broader reach than they realise. “We sometimes think, well does anyone actually read this, but then the one morning we don’t do it, we’ll get constant enquiries about where it is,” says O’Connor.
“We get a lot of information sent to us and for me, it’s about being that link between the market and the PMs. It’s about cutting through the noise.”
Emmanuel Gbetuwa: Strengthening connections Gbetuwa, who has been on the equities trading desk for seven years now since coming up from the support team, has found the experience intensely rewarding. “When I first joined the desk, the traders really took me under their wing and showed me things from the ground up. I got a really good grounding not just in how to be the best and the smartest, but in how to really think about trading, and how to approach it from a future-proofing perspective.”
His speciality, outside of trading financials, is equity capital markets and in particular secondary market deals. “I connect to the PMs, gather demand and reflect that back to the street. I work closely with the capital markets team and there has definitely been an evolution throughout the years. A lot of the things that we’re trying to do now focus around automation and how to improve processes – particularly in emerging markets like the MENA region, where there a lot of nuances that we’re trying to find more efficient ways to process.”
Tom Stevenson.
Tom Stevenson: Spreading responsibility As the leader of the new team, Stevenson manages the desk along flat structural lines – focusing on the ethos rather than the org chart. “The team I worked in before were all excellent traders who taught me everything I know about market etiquette and how to conduct yourself – but this team is different. They leverage their differences, they are really inquisitive and incredibly proactive, and that’s what separates us and allows us to stand out. My role is two-fold. First, to make sure that we are delivering on our best execution obligations to clients, so there is a performance element that I’m laser focused on. But equally, as a people manager, my job is to give people the opportunity and the platform upon which they can do their best work and grow in their careers. Ultimately, that’s always the long-term goal.”
The objective is always scalability, and everyone on the team has the autonomy to focus on their own business areas – which has led to some interesting outcomes.
Standing out through independence “When I joined Fidelity I was used to the sell-side mentality where you were very micro-managed and you felt like you were on a knife-edge the whole time, so it was a big shift coming here,” reveals Flynn. “When I joined and was told ‘you can run your own business, I’m here to support you’ it was like a breath of fresh air, and a complete revelation to me. That’s what Tom does so well with our team – everyone has so much independence to pursue different interests and specialisations, including projects off the desk that involve different parts of the business. There’s no checking in or getting permission, and I can’t ever recall being told that I can’t do something. It’s very open and collaborative and everyone is allowed space to grow.”
For example, a few years ago Flynn undertook a data clean-up that dramatically improved efficiency. “Essentially the information we were receiving from the street on stocks they were active in was almost 90% inaccurate, just because of the way it was being sent to us. I did a huge clean-up exercise and we used it as a way of identifying which brokers were showing us the best liquidity in which sectors, which helped us as traders. From a data perspective, that led to information our data scientists could mine, and we could look in detail at who we were trading with and why, which then feeds into best execution. That’s a great example of a simple exercise that grew into something much bigger, and now feeds into our broker reviews and day-to-day trading.”
Securing best execution As an equities desk, best execution is at the foundation of everything they do. “It’s the crucial underpinning,” agrees Stevenson. “Everyone has a responsibility for it, but it’s not a single metric. Best execution for us is all about process. We need to have a demonstrable process that we can show to clients and auditors and that ensures robust oversight. Yes, there is a performance element to it, so we do use third party providers. But we are benchmarking our trades; not our traders.
“I think that’s really important. If you give a trader a benchmark they’ll trade to that benchmark and not necessarily to the right outcome for the client. We have to look at each trade in isolation. That’s what we do through pre-profiling – it may be a systematic execution, for example, but it’s based on data and historic performance. If we don’t think trading quickly is the right thing to do then we won’t do it.
“All our traders are proactive,” stresses Stevenson. “People really want to improve themselves and achieve better outcomes.”
Cross-team collaboration The desk works very closely with the trading analytics team, which sits independently but feeds data back into all of its processes. On the low touch systematic side the team measures performance of the algorithms they are using against a variety of different benchmarks and then allocates the trades based on that performance. On the high touch side, they use analysis of multiple factors, such as the success of block trades.
And data is the thread that runs through everything. The Trading Analytics team, led by James Anderson, has done some important work in leveraging new data evaluation systems for the trading team.
“We have a lot of data generated through systematic trading which we can utilise to show performance, so a key element is working with the data team to leverage that,” explains Stevenson. “We sit down together monthly and quarterly to look at all the data, where it’s going, review all the different strategies we have in place and so on. Sometimes, a data subset might show that we’re not trading as effectively as we could be, so we can use that to generate better outcomes. We then back-test those new strategies against historical trades, and go through them with the governance team to show them our proposal, and then we build it. That all comes from different teams working together.”
Company-wide synergies The equity trading desk, which sits within the equity investment team, is part of a global trading team that also includes FX and fixed income. “We’re now trying to leverage use cases from across different asset classes to see where we can improve performance or find synergies to reduce costs,” says Stevenson. “That’s a focus area now, and it’s been a big shift over the last three years. We’re trying to make sure that we don’t just develop something that works for us over here but that might not work for another asset class or that might end up becoming eventually redundant. We need to make sure we’re forward-thinking, so if there is a solution that benefits us in equities, can it benefit the FX team, and vice versa?”
Miller is at the forefront of this, currently working closely with his colleagues in FX and Fixed Income to enhance trading protocols. “We’ve seen the period of intense technological advancement and I think we’re still on the crest of that wave,” he says.
O’Connor agrees that technology has supported huge advancements in efficiency. For example, Vaz recently began a degree apprenticeship in data science, and his latest project has allowed the team to pull source data each morning – saving a substantial amount of time by overriding the former archaic system of manually inputting each individual stock or holding for every fund every day. “It’s so much easier now to decipher what we have to focus on, on a daily basis,” says O’Connor. “It’s probably one of the most efficient tools that we use.”
It’s all about small enhancements, she thinks. “We’re looking at tagging data so that we can mine information to make better decisions. It’s always evolving, and we’re able to use Will’s new-found data science expertise to track liquidity opportunities and demonstrate them to fund managers. It sounds quite simple but actually it’s really hard to get that data, store it and log it. We have a small midcap bias and so TCA can escalate quite quickly when you’re dealing with the lower market cap end of the spectrum. Using this new tool we can be a little more targeted in how we’re showing our fund managers liquidity, getting their responses and logging it all. It’s worked really effectively.”
But there are limits, and the litmus test is always whether it improves performance. AI is a case in point. “We’ve tested Microsoft Co-Pilot and Chat GPT, etc, and we’re always trying to think about ways we can compete for efficiency. But at this stage it’s not so much about how we can use AI in the trading process as how we can use it to be more efficient with the information we have,” cautions Stevenson.
Grabbing the edge So what makes the FIL equities desk really stand out?
“Our feedback from the Street is that we’re one of the most proactive desks in the City,” says Miller. “We show our flow, we treat our PMs as clients, and we are constantly looking to reduce and minimise the cost of execution.”
“It’s also about our depth of relationships, both internally and externally,” adds O’Connor. “Both of those have to work in order to get the best outcome.”
“Everyone is keen to develop both themselves and the team,” stresses Flynn. “That’s different from other desks. Everyone is always pushing their own projects, generating new content, making decisions. The team has evolved into this wonderful machine that is constantly moving, and none of us are ever sitting still. We are always looking for inefficiencies in the process or improvements in performance that we can solve. We drive so many conversations across the firm – how can we fix this, how can we look beyond the horizon. I’ve never worked on a desk like it.”
“I think a big part of what makes our team stand out is also its diversity,” concludes Gbetuwa. “We all have completely different backgrounds, different educations, but we come together to create a diversity of thought that really lends itself to progress. We have a fundamentally collaborative approach – we might be competitive, but we rarely disagree. People challenge, and they are challenged in return. And everyone laughs at everyone else’s jokes.”
We ask the head of multi-asset agency solutions at RBC Capital Markets about European equities consolidation, ETF algos and the growing role of AI.
Tell us about your role, and your time in the industry. As European Head of Multi-Asset Agency Solutions at RBC Capital Markets, the primary focus of my role is to continue the growth of the electronic trading franchise in equities and coordinate closely with our teams across different asset classes. Prior to joining RBC in September 2023, I spent 17 years at Credit Suisse, most recently looking after the Advanced Execution Services (AES) Sales team in Europe.
What have you found most interesting in the agency solutions/electronic coverage space over the past year? The continuous evolution of market structures across asset classes is always fascinating. The competitive landscape coupled with regulatory intervention and technology developments ensures that nothing stands still. Since May, European equities post-trade reporting has seen an overhaul as new exemptions came into play ahead of a potential consolidated tape. We can see that bilateral trade mechanisms such as Systematic Internaliser and Off-Book (On Exchange) are increasing, perhaps contrary to the desired outcome of the regulators and exchange operators. In other asset classes, we are seeing client demand for increased transparency, automation, and potentially more order book liquidity against the backdrop of banks and liquidity providers protecting their risk books. I’m looking forward to seeing how these trends evolve as the tape comes to fruition.
Most recently, we’ve been excited by some developments in the Exchange Traded Funds (ETF) space. There is a growing desire from some ETF issuers to encourage “on screen” liquidity and we’ve been partnering with some clients to build ETF algos that can provide liquidity on screen to save them spread costs, whilst finding sensible times to take far-touch liquidity. The liquidity of securities is often measured by trades carried out on screen and many investors will have investment constraints on illiquid securities, so this initiative has the potential to make the whole asset class more investable going forward.
What are the key themes shaping the industry? Digital, Data, and Artificial Intelligence (AI) are always front of mind. AI is going to bring significant efficiencies to the financial services industry, and we need to embrace those opportunities whilst delivering solutions in a responsible and ethical way. RBC is fortunate to have a long history in this space following the establishment of its research lab, Borealis AI, back in 2016. In partnership with Borealis, we are exploring how we can best leverage AI to deliver unique solutions to our clients. Four years ago, we launched Aiden, an algorithmic trading platform that uses deep reinforcement learning to constantly adapt to changing market conditions in real time. Aiden learns and adapts from every market interaction, continuously striving to improve its performance. We’ve received great feedback from clients using Aiden, and we can benefit from its learnings to drive innovation on our core algo platform. The evolution of generative AI is exciting and the scope to adopt these technologies to drive efficiencies and improve service within financial services is extensive.
How do you expect to see multi-asset solutions evolve in the short and longer term? In the short-term, we’re going to see continued growth in electronic trading across asset classes. Providers who embrace these areas are likely to see success by leveraging key learnings from various asset classes – whether it’s managing risk, connecting to liquidity providers, or interacting with lit order books. Delivering a connected and consistent strategy and approach to development cross asset class, will be integral for providers to evolve in the near-term. In the longer-term, we expect a bigger focus on digital data and insights. Advanced clients are already building data lakes to help them to make informed decisions about trade opportunities, performance expectations, liquidity profiles and much more. Providers will need to be able to deliver quality insights across asset classes for their clients.
Ursula von der Leyen, president, European Commission
ESMA’s proposed regulatory technical standards for the consolidated tape provider are insufficient, according to the European Commission’s expert stakeholder group on equity and non-equity market data quality and transmission protocols (DEG).
Despite having been proposed by the European Commission almost 15 years ago, Europe still does not have a consolidated tape (CT). It has been considered as part of the Markets in Financial Instruments Directive(MiFID), the Markets in Financial Instruments Regulation (MiFIR) and the as-yet unrealised Capital Markets Union (CMU), but still remains an elusive goal for the EU.
The European Securities and Markets Authority (ESMA) released its MiFIR Review consultation package in May, including regulatory technical standards regarding CT providers (CTPs). Five months on, the European Commission’s expert stakeholder group on equity and non-equity market data quality and transmission protocols (DEG) has highlighted a number of areas as needing greater clarity and overall improvement.
Data
An effective data quality framework is a key priority of the stakeholder group: “As the single source of truth, the integrity of the data regarding accuracy, completeness, and timeliness are foundational and a required dependency for the information quality and success of the CT,” it affirmed.
To ensure adequate information quality, data must be standardised, coherent and relevant, the report said, with users able to access liquidity, market events and price formations across the market and filter out information that is not relevant to them.
In order to maintain these standards, market participants must be held accountable for their responsibilities and be subject to the enforcement of transparency rules. This will require the coordination of European and national competent authorities, the report stated, adding that the group does not believe the proposed revenue distribution exclusions will be enough to maintain data quality control. It advises the introduction of clear and enforceable sanctions, regular audits, and an approach of continuous improvement.
It advises the introduction of uniform instrument identification, as ESMA outlined in its RTS proposals, and the adoption and consistent application of trade flags.
If inaccurate information does make its way to upstream layers, the CT should request a correction from the body that has inputted the data. Mechanisms should then be in place to ensure that incoming data quality improved, in coordination with action from the supervising NCA.
Trade Reporting
Currently, issues of duplication, ambiguity, inconsistency and non-reporting limit the integrity of trade reporting, the group stated, recommending the adoption of a comprehensive handbook including guidance for each specific trade reporting scenario and calling for more timely interventions from national competent authorities in the arbitration and interpretation of trade reporting procedures.
The role of the approved publication arrangement (APA) was considered extensively by the DEG, the report said, with the group conclusion that it should be held accountable for data quality monitoring and controls along with the reporting firms. Additionally, it said, unique transaction identifiers for trades reported to APAs – APA transaction identifier codes (APATIC) – should be introduced to prevent duplicate trade reporting.
The availability and quality of the CT is ultimately the task of the consolidated tape provider (CTP), however this also relies on the contributions of trading venues (TVs), APAs, designated publishing entities (DPEs) and investment firms (IFs). As such, the responsibilities of these parties “must be clearly specified and delineated to avoid any misunderstandings or accountability failures”, the report affirmed.
The report advises the adoption of standardised inputs to reduce the operational burden on the CTP, lower the risk of inconsistencies and allow for greater agility. Minimum requirements should be introduced to strengthen accessibility, performance, reliability, data security, compatibility and stability.
Publications
Enhancements to what the CTP must publish under the regulatory technical standards, outlined in ESMAs proposals, are required for better information management and data quality measures, the DEG said. These include information value metrics such as reference price waivers and the European Best Bid Offer (EBBO) average size and spread by security, the addition of amended trade reports to improve data integrity, and the introduction of capacity and performance metrics by contributor.
EBBO publication should be as close to real-time as possible, have a precise timestamp and be transparent, the group stated. A minimum quote size must be established for TVs, who will provide best bid and offer quotations from each market. A common methodology should be defined to determine how often quotations are published by each TV as the underlying order book changes.
Jefferies Securities has joined Cboe BIDS Australia as an introducing broker, the first of the service’s connected brokers to do so.
The introducing broker model was launched in September to allow US-based fund managers to trade in the Australian market through partner brokers. Introducing brokers have relationships with and can settle with clients, but do not have a full exchange relationship or the ability to settle with the local CCP.
Jefferies is the first of the 12 brokers connected to the platform to provide this service. Several other firms are in the final stages of testing to take on this status, Cboe confirmed.
Murrough O’Brien, head of Cboe BIDS APAC, commented: “The introducing broker model is important in improving the ability of offshore investors to gain access to the platform using their local broker relationships. It helps to further diversify the liquidity available and showcases the benefits of the global BIDS network and its familiarity among sell-side and buy-side firms across different regions.”
Cboe BIDS Australia, launched in 2023, allows counterparties to trade large volumes of Australian equities and ETFs without alerting the market to their intentions. Conditional messages are submitted to the platform, matches are identified, users firm up their orders and select a broker, and the order is executed on Cboe Australia.
Unique and evolving markets require custodians with both global capabilities and local expertise.
For tourists, Australia and New Zealand offer their natural wonders, cosmopolitan cities, and laid-back vibes; for financial institutions, custodians, and exchange operators, primary attractions are stable economies, fast-growing pension plans, and modernising market infrastructure.
As the Australia and New Zealand markets develop, high-level trends include consolidation, among asset managers as well as custody providers; internationalisation, in the form of expanded access to global markets; and asset servicers stepping up to meet institutions’ increasing need for digital solutions.
A key in the capital markets ecosystem is the custodian, or asset servicer, which provides custody, safekeeping, clearing, and administration of securities held by institutions. Custodians are especially important in relatively small yet evolving markets such as Australia and New Zealand, where inbound capital flows are rising, domestic asset owners are seeking global investments, and all parties want better technology and more efficiencies in trading and clearing.
Mark Wootton, BNP Paribas.
“Offshore investments into the local markets and the domestic investment from the buy side into the markets are critical, and custodians play an important role here, as we see a lot of flow going through our books and onto the exchange,” said Mark Wootton, Co-Head of the Financial Intermediaries and Corporates Client Line in Asia Pacific, Securities Services, BNP Paribas. “Where we add value specifically is on offshore investments into these markets, where we can demystify and give clients one view, whether they’re transacting in Hong Kong SAR, India, New Zealand, Australia, or elsewhere.”
“Custodians are enablers for investors – we’re the ones that do all the behind the scenes work – and also understand client requirements,” Wootton said. “There’s also an element of bringing economies of scale, which means providing a price point for which it makes sense for clients to transact in these markets.”
New Zealand’s KiwiSaver, which launched in 2007, oversaw $115 billion as of March 2024, comprising $68 billion of overseas assets and $47 billion in domestic assets.2
Philippe Kerdoncuff, BNP Paribas.
The pension plans’ oversized importance to the economies of their nations is a unique feature of their capital markets. “It has been a proven successful pension system, representing a very big part of the capitalisation of each market,” said Philippe Kerdoncuff, Head of Asset Owners and Asset Managers Client Lines, Australia and New Zealand for Securities Services at BNP Paribas.
Lisa Briggs, ASX.
Lisa Briggs, Senior Manager, Equity Post Trade Services at ASX, noted bullish demographics for Australia’s superannuation funds – specifically, the strong presence of retail investors between the ages of 18 and 24 who are keen to educate themselves and invest in their future.
As New Zealand is a smaller market – its projected 2024 GDP of $258 billion is about one-seventh Australia’s $1.79 trillion3 – its domestic managers need to look harder for overseas investment opportunities.
“Local asset owners need to work with global custodians to get international exposure,” said Iain Martin, Head of Territory, New Zealand for Securities Services at BNP Paribas. “Also, as in Australia, there’s a real pressure on costs in the market, so there’s a race to gain efficiencies of scale. There’s a lot of consolidation among smaller custodians,” he said.
Iain Martin, BNP Paribas.
Recent consolidation among capital markets participants in New Zealand include Forsyth Barr’s purchase of Hobson Wealth; Jarden and NAB combining their wealth advice and asset management businesses into a new entity called FirstCape; and the merger of global players UBS and Credit Suisse. The local M&A activity has been prompted at least partly by lower levels of market liquidity that has pressured capital markets firms’ cost structures, according to Jeremy Anderson, General Manager, Capital Markets Development at NZX.
Jeremy Anderson, NZX.
In a July 2024 note to clients4, BNP Paribas’ Securities Services business cited post trade as a primary topic of importance globally, especially in light of the U.S. moving to T+1 settlement as of May. Specific to Australia, a potential move to T+1 was cited, while in New Zealand, topics of interest were the Reserve Bank of New Zealand’s public consultation on the design of digital cash and financial services conduct regulations.
The country-specific business items underscore that despite global market participants often perceiving Australia and New Zealand as one market, there are important nuances that need to be understood. “For example, there are some very specific New Zealand tax laws around asset owners that are quite different from Australia,” Martin said. “So, for a custodian to properly support New Zealand asset owners, you need an on-the-ground presence.”
Data-Informed Custody Scale has gained importance for custodians as institutional asset owners increasingly adopt master custody, a structure in which they have multiple investment managers but only one custodian. Kerdoncuff noted that master custody provides buy-side clients with a consolidated view of their investments, a single point of contact for all investments, and services pertaining to valuation, reporting and monitoring of investments. While each benefit is important in itself, the true value-add is that the whole is greater than the sum of the parts.
As data – including new frontiers such as environmental, social and governance (ESG) data and private-market data – has become more critical for market participants, a new type of master custody has emerged, enriched with data.
“As a custodian, we are sitting on quite a high level of data, and we want to leverage that data to provide a strong solution for our clients,” Kerdoncuff said. “Clients want to use their data, so we need to structure and clean the data to provide a suite of reporting analytics using that data.”
“And it’s no longer listed assets only – we need to provide a consolidated view across all asset classes, including private assets,” Kerdoncuff continued. “You need to have the proper technology to clean, scrub and aggregate the data, and then provide it to the client in the right manner. It’s a bigger challenge for custodians, but it’s a matter of having the right tools and the right processes in place.”
Digital Transformation
Technology is a critical aspect for smaller securities markets like Australia and New Zealand, both to attract international capital and to provide domestic market participants with the efficiencies and low trading costs found in global financial centres such as New York, London and Hong Kong SAR. Tech innovation and evolution, largely driven by custodians and exchange operators, is prized by market participants for its ability to ‘future-proof’ business models.
The New Zealand Stock Exchange punches above its weight technologically by outsourcing its trading engine to Nasdaq, and its clearing and settlement systems to Tata Consultancy Services (TCS). “Beyond that, we are able to innovate more and evolve at the forefront of technology in our systems, like our websites and our adoption of cloud for data delivery,” said Anderson of NZX.
ASX’s Briggs said: “ASX continues to focus on technology modernisation and innovation, and leveraging the data in our customer relationships.”
“There is a lot of work to do, but the technological changes will help uplift the global angle of investment to Australia,” said Wootton of BNP Paribas. “Some of the legacy processes will be revamped, so there will be efficiencies, and it will move more toward what global players see in other markets.”
In the wake of the U.S., Canada, Mexico, and Argentina shortening settlement to T+1, market participants are keen to see alignment of settlement cycles in all major jurisdictions to reduce complexity and cost5. ASX published a whitepaper in April 20246, outlining how Australia’s unique market structure, size, time zone, investment flows, and trading activity necessitates careful industry consideration of the risks, benefits, and costs of transitioning to T+1.
Briggs said the ASX will continue to work with the industry and regulators to determine the best course of action, and an update is expected to be announced by the end of this year.
As Australia and New Zealand capital markets enter the next phase of their development, while retaining their uniqueness, global custodians who attain trusted-partner status will go along for the journey.
“We see the role of the custodian as bringing our global technologies to assist with the efficiencies of local capital markets,” BNP Paribas’ Martin said. “Whether that’s third-party clearing products and technology, or derivative products and technology, or anything else, providing a global reach brings efficiencies to local markets.
Melvyn Merran, EMEA head of ETF, credit algo and portfolio trading, Jefferies.
Jefferies went home with the best electronic fixed income trading award at this year’s European Markets Choice Awards (EMCAs), held in July. Melvyn Merran, EMEA head of ETF, credit algo and portfolio trading, talks to Global Trading about what has driven the company’s success this year, how the fixed income landscape is evolving, and what to expect over the next 12 months.
What has driven your success this year?
A combination of internal and external factors. To mention a few:
Internal factors:
The way we are organised. The eFixed-Income tech, quant and sales and trading divisions have a shared reporting line that delivers high frequency feedback loops, upgrades and releases.
Integrating fixed income ETFs into our fixed income infrastructure as the backbone of Jefferies’s eTrading offering. In practice, it means leveraging ETF flow and price discovery to guide our low-touch bond trading offering. That helps facilitate high balance sheet turn-over by harvesting multiple layers of liquidity across bonds and ETFs. It also means managing risk and PnL in a centralised fashion, with ETFs, lists of bonds and single bonds all feeding into the same books by subset of risk.
Proprietary analytics computed across a jumbo-large dataset are absolutely critical to our success, assessing relative liquidity and performance of every single pocket of the credit market and delivering a systematic trading offering across more than 5,000 securities. That includes things like live ETFs iNAV, target create-redeem ETFs bond baskets, and risk-factor management.
External factors:
The growing client adoption of Credit eTrading (more tickets, more clients, more passive list-investing, wider universe of bonds) and the rise of fixed income ETFs (more clients, more innovation — passive ETFs, active ETFs, fixed maturity ETFs — more AUM).
The current competitive landscape, which is wide-open for new entrants. While ultra-competitive, market-share is still heavily concentrated across a few specialised market makers. Jefferies is now ranking well within the top five, and regularly within the top three. We have been able to deliver consistency in pricing, hit-rate and producing content.
The marketplace continues to evolve. Recent changes include the aggregated tape, bringing more transparency to automated trading engines, and the growth of auto-ex protocol to select dealers on RFQ platforms.
How have you focused investment to support this growth?
Two key layers of investment:
Sales people to tell our story and connect the dots with platforms and clients across fixed income (bonds and ETFs) and equity (ETFs). This is true across regions, with a more pronounced push in the Middle East and Asia as of late.
The tech and quant team continues to grow, with constant demand for more analytics and emphasis on trading user experience. We try to be very targeted in growing our service offering across pockets of the market that now qualify for eTrading and support our clients’ flow.
What has customer response been?
Overwhelmingly positive. Clients continue to look for access, liquidity and solutions to navigate the market place, and want to diversify their counterparty list with partners they trust. We aim to be that partner by continuing to put clients first.
Jefferies’s see-rate , increasing month over month, is a testament to the service we are providing and the trust we are building.
In which areas are you building the team (numbers/skills etc), and why?
In line with our current investment logic, we are investing in sales people with cross-selling knowledge of bonds and ETFs who are well plugged-in to changes in regulatory and execution protocols. Why? To keep on growing market shares, and expand Jefferies’s reach across products and regions.
We are also constantly looking for talent to support our tech and quant offering in order to assist and expand Jefferies’s systematic offering. Our assessment is that this portion of the market will keep on growing, and that delivering user-friendly tools to both clients and voice trading will be paramount to success going forward.
How will the market see your offering evolve over the next twelve months?
We will continue to grow in fixed income ETFs, with a clear focus on global IG/HY baskets and $EM. Our systematic bond offering will be more targeted, with expansion in high beta €IG and €HY. Portfolio trading will be introduced to support our client’s passive list-trading flow.
The Jefferies team with their award at the Waldorf Hilton, July 3rd, 2024. L to R: Burcu Karabork (Technology), Melvyn Merran, Angela Lobo, Nicolas Dujols (Quant), Alexis Besse, Georgina Coleman (ETFs Trading) and Alistair Wallace (IG Algo Trading).
TP ICAP’s agency execution broker plans to continue its expansion into 2025, building out its locations, multi-asset offering and follow-the-sun service model.
Coex offers an electronic execution desk for equities globally, equity arbitrage in North American and Europe, and equity and equity derivative coverage.
As part of the drive, Coex has appointed Matt Long as APAC managing director. Based in Singapore, Long has close to 20 years of industry experience and joins Coex from Citi, where he was managing director and head of foreign exchange financial institutions sales and solutions for the APAC region. Prior to this, he was head of FX hedge fund sales in APAC.
Earlier in his career, Long worked on UBS’s FX and precious metals sales team and spent two years as a proprietary trader at JP Morgan’s chief investment office.
Robert Bond, Coex CEO, commented: “Since our inception, we have focused on developing a robust infrastructure to support scalable growth. We are now at a point in our journey where we can execute on our expansion strategy. As a client-centric organisation, it is essential that we evolve our business in a manner that aligns with the global scale at which our clients operate.”
In a continued reshuffle of the executive leadership team following the departure of CEO Warren Day in June, the Australian Securities and Investments Commission (ASIC) has made further changes to its regulatory and enforcement divisions.
Peter Soros has been appointed executive director of regulation and supervision, effective November. He joins from financial intelligence, AML and counter-terrorism financing regulator the Australian Transaction Reports and Analysis Centre (AUSTRAC), where he is deputy CEO of regulation.
Savundra replaces Jane Eccleston, who has been acting executive director of the division since Greg Yanco was made interim CEO in June.
Alongside Soros, Chris Savundra has been named executive director of enforcement and compliance, beginning 28 October. He replaces Tim Mullaly, who left the role in July.
On the appointments, Joe Longo, ASIC chair, said: ‘We continue to change and evolve so we can ensure ASIC is an ambitious, confident and modern regulator. The cumulative effect of these changes will help ensure ASIC is set up to meet the challenges and opportunities the agency faces.”
In the first half of 2024, ASIC recorded 140 ongoing investigations and began a further 63. Its operations led to four imprisonments, six custodial sentences and three non-custodial sentences, the commencement of 12 civil proceedings and the imposition of US$32.2 million in civil penalties. These figures were reduced compared to those in 2023 and the second half of 2022.
“The work we have undertaken on ASIC’s transformation is delivering positive results for Australians, and we acknowledge that there are opportunities to continue that improvement,” Longo commented. “I am excited by the agency’s future and I am committed to the renewal and culture transformation that we are undergoing.”
Booming stock markets and bursts of volatility are cementing the position of US banking giants in equity trading. Goldman Sachs led the pack with $3.5 billion equity intermediation revenues in the third quarter, overtaking close rival Morgan Stanley.
Taking the five banks’ total equities revenues into account, Q3 2024 stood at US$11.9 billion, slightly down from the Q1 peak of $13 billion, but showing a 13% increase year-over-year from US$10.6 billion in Q3 2023.
Ranking the five banks, Goldman recovered its lead with $3.5 billion equities revenues in its Global Banking and Markets division, a figure that includes $1.2 billion in financing revenues from its prime brokerage business, with $2.2 billion from trading.
Speaking to analysts, CEO David Solomon highlighted his firm’s trading clients, whom he said, “in this environment that’s filled with uncertainty their need to constantly be engaging, repositioning and reshaping continues to make them very active on a broad global scale”.
Nine months ago, Morgan Stanley achieved US$4.94 billion in equities trading revenue in Q4 2023. However, it dipped to US$3 billion in Q3 2024, a decline of 38% from the Q4 peak. CFO Sharon Yeshaya highlighted the contribution of prime brokerage revenues to the result.
JP Morgan ranks third, with US$2.12 billion in equities revenues in Q4 2023 and US$2.7 billion in Q1 2024, reflecting a slight increase of 27% quarter-over-quarter. The firm’s equities revenues in Q3 2024 saw a year-over-year increase of 2.3%.
In fourth place, Bank of America saw one of the strongest year-over-year gains, with equities trading revenues jumping 29.4%, from US$1.545 billion in Q3 2023 to US$2 billion in Q3 2024. However, the bank reported a 20% decline in revenues from Q2 2024 (US$1.601 billion).
Lastly, Citi recorded the most significant YoY growth in equities trading, with a 35% increase from US$0.918 billion in Q3 2023 to US$1.239 billion in Q3 2024. However, on a quarter-over-quarter basis, Citi saw a sharp 17.4% decline from US$1.5 billion in Q2 2024.
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A decision to diversify
Ranking the five banks, Goldman recovered its lead with $3.5 billion equities revenues in its Global Banking and Markets division, a figure that includes $1.2 billion in financing revenues from its prime brokerage business, with $2.2 billion from trading.
