The more things change, the more they stay the same at Cboe Global Markets.

And open outcry trading, long the exchange’s hallmark, is vital and will continue, according to Ed Tilly, chairman, President and Chief Executive Officer at Cboe Global Markets.

In a webinar today sponsored by Greenwich Associates, Tilly said the exchange was running very smoothly despite days of extreme volatility, closure of its iconic trading floor and absence of floor brokers and alterations to its business continuity plans. Any changes to the exchange have been more modification and alteration rather than wholesale innovation.

“We’re providing the same valuable services now that we have been since our opening in 1973,” Tilly began. “We’ve had to adjust our business model to a work-from-home one but we’ve been busy and fully engaged with our clients and each other.”

One topic Tilly was asked about by facilitator Kevin McPartland was recent market volatility and ability of markets and traders to handle it, in reference to March 16 and a recent Wall Street Journal article that said the particular day almost crashed the equity marketplace. And while Tilly noted the March Monday was indeed unique it was not end of equity trading as he saw it.

“There’s no doubt that March 16 was a big day for us here at Cboe – moving the whole organization off the floor and home,” Tilly began. “But perhaps the biggest challenge for us was closing down our open outcry trading operations and access to the new all-electronic exchange model. It was an ‘all hands on deck’ moment, the entire staff was involved. At was it this time our engagement with the regulators was highest – and that relationship with them has never been more productive and helpful. The real trick was getting the customer base engaged in this new paradigm.”

Tilly noted that the Cboe has always had an open outcry trading floor and later an electronic component – which gave it a hybrid structure where customers could use one or the other element independently or in some combination. And that structure was intact up until the COVID-19 pandemic forced the open outcry element and floor to close. When outcry trading was closed, the exchange mobilized to get all on the electronic component.

“March 13^th on a Friday we closed the floor and then just two days later we re-opened electronically,” Tilly recounted. “And then by the 18^th we everyone home working remotely. That commitment then to getting things done then hasn’t changed now.”

It’s this head down and ‘get it done’ approach that Tilly is counting on to get his open outcry trading floor open and ready – hopefully for a June 1 re-open.

“As we’re contemplating our re-open, the process isn’t quite the same as the shutdown. “We’ve been aligning all the units back together for weeks,” Tilly explained. “We’ve been in communications with companies, setting up and conducting weekend testing and getting our organizational processes in line  to get everyone back safely. The health and safety of our workforce is paramount.”

Overall, as a part of the broader trading industry, Tilly said he and his competitors have locked arms and worked together to keep the markets running smoothly. And the death of the trading floor, as some pundits and others have contemplated, is not in his future playbook.

“As we evolved into the hybrid model we have now, the cry for closing the floor was loud. But we’ve  maintained our customers get to choose how to trade – whatever the service is – not us. We’ll answer the customers’ needs and now they say they want the outcry.”

Tilly agrees with other exchange executives that having a human element on a physical trading floor is a plus for the marketplace. Floor brokerages, he said, add “huge value” as there is no better service than someone acting on one’s behalf.

“When you can replicate that value with technology, then fine. But until then, open outcry is a great value-add,” Tilly said. “The more risky the trade, the more the need for a broker. We’ve observed this time and time again and can’t wait to re-offer this service to customers.”

On the topic of expansion and future growth, Tilly said the exchange is always on the lookout for future opportunities, citing its recent purchases of Euro CCP in Europe and the proposed MatchNow ATS in Canada this past week.

“Our mantra is grow, grow, grow,” Tilly said. “We are always on the lookout for a core business that will help us expand our asset class offerings, geography and meet client needs.”

Open access to clearinghouses and trading venues and the high cost of market data in the European Union have been highlighted by trade associations in their responses to the review of the MiFID II regulation.

The European Commission has been consulting on the review of the MiFID II/MiFIR regulatory framework, which went live in 2018.

📢 ESMA publishes responses to the consultation on Draft technical standards on the provision of investment services and activities in the Union by third-country firms under MiFID II and MiFIR.

🔗 https://t.co/YOYiMItmjX pic.twitter.com/Kv0DEgjSO3

— ESMA – EU Securities Markets Regulator 🇪🇺 (@ESMAComms) May 19, 2020

The International Capital Market Association said in its response that open access to market infrastructures was first identified by the Giovannini Group in 2001 as a key element of an integrated EU post-trading landscape and has important benefits.

For example, clearing instruments from multiple venues at a single clearinghouse of choice could lead to substantial netting efficiencies, compared to clearing these at two different CCPs.

“It also has the effect of freeing up collateral, which is an increasingly scarce commodity in today’s financial markets,” added ICMA. “The extra availability of collateral could in turn contribute to more liquid capital markets.”

Open Access could also lead to lower execution costs, contributes to financial stability and create more innovation.

“New and non-vertically integrated trading venues would be prevented from entering the market and thus unable to contribute to a more competitive and a less concentrated market,” said ICMA. “The emergence of competing venues to challenge the incumbent will put pressure on all service providers to improve service levels and to innovate, which would be to the benefit of all market participants.”

The Association for Financial Markets in Europe also said in its response that open access leads to lower costs, deeper pools of liquidity, improved service levels, greater capital efficiency and innovation.

Yesterday, AFME submitted its response to the @EU_Commission’s public consultation on the review of the #MiFID II / #MiFIR regulatory framework.

See our response 👉: https://t.co/EAEbxgmrfU pic.twitter.com/LmSEB1KCIE

— AFME (@AFME_EU) May 19, 2020

“Fragmentation often undermines the ability to achieve economies of scale that bring benefits to users of capital markets,” added AFME. “Any further delay to the implementation of the MiFID II/R open access rules must be avoided.”

ISDA, the association for the derivatives industry,  and the Futures Industry Association also said in their joint response that their members, who mainly represent clearing members and end-users and some trading venues, would support the implementation of both open access to CCPs and trading venues.

“Members believe that open access will foster competitiveness on European markets, improve risk management and make central clearing more attractive,” they added. “Having open access would increase competition as it would open up the existing vertical silos, to enable products from trading venues outside the siloed group to be cleared by the CCP and vice versa.”

Consolidated tape

The European Fund and Asset Management Association said in its response that the cost of data is “surging” in the EU.

“MiFID II still fails to deliver a consolidated tape and the notion of “reasonable commercial basis” in data cost has been largely overlooked,” added EFAMA. “We therefore call on the Commission to enforce the creation of a consolidated tape.”

EFAMA recommended that the Commission should start with post-trade data, which should be part of a consolidated tape offered at a proportionate cost and without mandatory consumption.

ISDA and FIA said in their joint response that a consolidated tape would help brokers to locate liquidity at the best price available in the European markets, and increase investors’ capacity to evaluate the quality of their broker’s performance in executing an order.

“A European consolidated tape could also be one major step towards “democratising” access to “market data” so that all investors can see what the best price is to buy or sell a particular share,” added ISDA and FIA.

They noted that in the US a consolidated tape has been mandated for shares (consolidating pre- and post-trade data) and bonds (post-trade data).

ICMA said in its response a consolidated tape for bonds should be developed at the same time as for equities, rather than an equity tape being developed and delivered first.

We responded to the @EU_Commission’s public consultation on the review of the #MiFIDII / #MiFIR regulatory framework. Both primary and secondary markets related questions were covered by our response.

You can find it on our website ⤵️https://t.co/h60cXx1m9F

— ICMA (@ICMAgroup) May 19, 2020

“It is the industry’s understanding that equity and bond consolidated tapes will both face technical implementation challenges, but it is the taskforce’s impression that bond markets have particularly challenging data quality issues to overcome,” added ICMA.

The World Federation of Exchanges, which represents regulated exchanges and clearinghouses, defended the cost of market data in its response to Esma.

WFE said: “The multinational banking groups and high-frequency traders involved in the debate see a consolidated tape as a backdoor to realising their efforts to have more regulatory intervention in the setting of market data prices.”

The association, led by Nandini Sukumar, clarified that it does not support the introduction of a pre-trade consolidated tape as it would create additional costs to the industry and lack a clear use case.

Bond research

MiFID II mandated the separation of research payments and trading commissions, which had traditionally been bundled together.

ICMA continued in its response that in light of the Covid-19 pandemic, the whole bond research unbundling regime may need to be reassessed to stimulate business, finance the real economy, and assist the buy side.

“In particular, there appears to be no perceived benefits for fixed income investors,” added ICMA.

Share trading obligation

MiFID II requires EU firms to trade certain shares and derivatives on EU or equivalent venues, even if most liquidity is currently on venues outside the region.

WFE recommended that third country venues and shares should be excluded from the share trading obligation, especially when investors want to achieve best execution for dual-listed shares.

“Trading third-country shares on third-country markets is of great importance to the European financial market value chain,” added WFE. “Capital flows in either direction between the EU and third countries supports European businesses and investors, and contributes to the efficient allocation of capital.”

The association continued that it regretted the lack of an equivalence determination for Switzerland and the use of equivalence for political purposes.

The European Commission removed equivalence for stock markets in Switzerland in July last year and more than 300 Swiss shares were removed from trading on European Union venues.

“The result of this dispute has not been positive for the competitiveness of EU exchanges or market participants,” added WFE.

AFME also wants the share trading obligation to be revoked.

Yesterday, AFME submitted its response to the @EU_Commission’s public consultation on the review of the #MiFID II / #MiFIR regulatory framework.

See our response 👉: https://t.co/EAEbxgmrfU pic.twitter.com/LmSEB1KCIE

— AFME (@AFME_EU) May 19, 2020

“This has had negative effects on end investors, and such impacts could be exacerbated by the possibility of conflicting STOs and restricted access to liquidity pools after Brexit, resulting in investment firms being limited in their ability (in certain circumstances) to deliver best execution to EU investors,” said AFME.

Third party authorisation

Deutsche Börse Group, led by Theodor Weimer, said in its response that requiring self-regulated third country (proprietary) firms, to set up a branch in a new EU jurisdiction would be disproportionate.

“Were they to withdraw from that role, this could considerably constrain the cross-border provision of liquidity on EU trading venues and hence disturb the price discovery process leading to increased volatility, reduced competition in the market, and could eventually even increase systemic risks,”said Deutsche Börse. “Fewer liquidity providers would damage the interests of commercial, financial and industrial users of the markets in particular those managing price risks which are inherent in their physical businesses.”

London Stock Exchange Group said in its response that an equivalence assessment should be to ensure that Esma can reasonably rely on the third country regulators and apply deference where appropriate.

“ However, we believe that some of the listed requests for detailed information (information on the activities of the internal audit function and others), especially if provided on an ongoing/annual basis, appear not to apply appropriate deference and take into account that the third country firm would be operating to equivalent standards and subject to comparable supervision of its activities in its home state,” added LSEG.

Isda and FIA highlighted that that more fragmented markets have resulted from the lack of equivalence decisions on trading venues between the EU and other jurisdictions, and this is likely to be exacerbated when the UK leaves the European Union at the end of this year.

Systematic internalisers

MiFID II banned broker crossing networks and required broker-dealers to set up systematic internalisers in order to provide principal liquidity to clients.

AFME, led by Adam Farkas, continued that the association’s members do not believe that SIs should be compared to trading venues as they simply offer different services.

The response said: “AFME members value the role of the different kinds of execution venues and services, including multilateral venues and there is no desire to see non-exchange flow to represent the majority of execution within equities markets. However, we urge the Commission to recognise the benefits to end investors brought about through the existence of a variety of execution choices, including SIs, dark MTFs, and frequent batch auctions, which provide a valuable and additive source of liquidity.”

Esma Q&As

The European Fund and Asset Management Association also said that Esma’s current approach continuously updated Q&As is burdensome for the wider financial industry.

#EFAMA's response to the EC consultation on the #MiFID II / #MIFIR Regulatory Framework Review is published!

Key points: https://t.co/EiWGPxQICA

Full response: https://t.co/I7EsvbUkwL#AssetManagement pic.twitter.com/FOgLQ6RjsT

— EFAMA (@EFAMANews) May 20, 2020

“Each new clarification can lead to necessary changes to underlying systems and be time- and resource-intensive,” added EFAMA. “We would therefore strongly suggest making thematic Q&A updates every year, with enough time for the industry to implement these changes.”

Simplicity. Efficiency. Transparency.

That’s what hedge funds want in a nutshell. Given their higher-risk strategies and risk they incur, these funds want to minimize all their other concerns, such as technology, back and middle office operations and data management. So, where can they find all this on a cloud-based system that features the latest technology all under one roof?

Enfusion.

Enfusion started out as a technical consulting company going back to the late 90s, President Jason Morris, told Traders Magazine. The original founders – all developers by background – would work with firms in the financial services industry to help them achieve the requirements that the systems out of the box couldn’t facilitate.  Thus, after spending years working with systems that were heavy installs, clunky, and/or incredibly difficult to work with, Enfusion’s founders decided to write something better.

“The thesis for Enfusion was essentially to build the comprehensive SaaS offering that the asset management community craved, that was also nimble enough to cater to each manager’s unique needs,” Morris said.

Enfusion breaks technology barriers and removes information boundaries, creating enterprise-wide cultures of transparency and shared insight. The multi-tenant cloud solution is known to boost agility and efficiency, rationalize costs, and regulate resources. The journey started when developers Tarek Hammoud, Stephen Malherbe and Scott Werner met working at large hedge funds. They vowed to simplify financial technology infrastructure. In 2006, they conceived Enfusion as a Portfolio Management System, later adding a dual sided General Ledger and an Execution and Order Management System. The system wasn’t seamless, it was seam-free, built on one golden dataset; a pioneering approach to uniting front-to-back office.The global firm has seen eight offices across four continents: Chicago, New York, London, Dublin, Hong Kong, Mumbai and São Paulo and Singapore.  As the Visa advertisement goes, Enfusion is “everywhere you want to be” for its over 450 client firms in the global investment management sector.

Recently, the firm brought on former Tassat executive Thomas Kim as its new Chief Executive Officer. Kim replaces Tarek Hammoud, the company’s previous CEO and an original founder. Hammoud will continue to serve as Executive Chairman to refocus on developing and innovating Enfusion’s software technology solution.

Kim brings an extensive background of trading technology leadership at multiple major financial institutions and software providers to Enfusion. He joins the firm from his previous role as CEO of Tassat, a rapidly growing FinTech firm based in New York. Prior to Tassat, Kim was Chief Operating Officer of the Investment Engine Group at the world’s largest hedge fund, Bridgewater Associates. Kim also held leadership roles at UNX, Lehman Brothers and TradingScreen among others. At Enfusion, Kim will advance the company’s global strategy and take over its existing business development initiatives.

“It’s an honor to become the CEO of this amazing company and join a global team that is dedicated to serving investment managers as a partner to help them achieve their goals,” Kim said. “With its recent product expansion, including the development of a managed services and data analytics offering, Enfusion has established itself as a leader in the investment management technology space. Enfusion’s success at simplifying the complex asset management industry through thoughtful innovation and a cutting-edge technology solution proves there is no limit on the impact that it can have within the capital markets space.”

With Kim in place and ready to go, the firm is ready to dominate business globally, despite its hedge fund leanings. The top 15 hedge fund managers collectively earned $12 billion in 2019, with the top five taking in more than $1 billion each, according to Bloomberg estimates. Yet last year the hedge fund industry generally underperformed the soaring US stock market last year overall, despite 14 of the top 15 funds posted double-digit returns.

“Enfusion always aimed to serve asset managers across the board, but hedge funds quickly became an area of momentum for us. They are often the earliest adopters of new technology within the community,” Morris explained. “Hedge funds intrinsically are looking for any edge they can get and market leading technology is right at the top of that list.  Enfusion prides itself on being the fastest in the industry at taking a PM’s new investment idea and facilitating it into orders executed in the market.  Hedge funds continue to recognize this compelling value proposition and this momentum has carried over into larger institutional asset managers as well.”

To that end, Enfusion partners with over 450 clients firms to transform their investment operational efficiencies by uniting software, services and analytics on one platform with one golden dataset. Built with a vision, the native multi-tenant cloud-based solutions covers workflows across trading, compliance, positions, accounting and strategic analytics to deliver consistent control for global financial management. Team members are enabled to leverage the same insight in real-time across the entire portfolio. With 8 global offices spanning 4 continents, Enfusion expert services team enables investment firms to communicate, analyze, scale and prosper, breaking information boundaries and catalyzing growth. With 99.8% customer satisfaction rate – that’s the difference between effective and efficient.

Among the company’s premier offerings are:

Pre/Post Trade Compliance

Real-Time Portfolio Monitors

General Ledger Accounting

Pre-Populated Security Master

Automated Trade Workflows

Another marquee software solution the firm offers is Enfusion Visual Analytics – EVA. EVA helps streamline hedge funds’ reporting and analysis in a fully-integrated solution, helping collate and organize deliverable emails that can point out actionable alpha hedge funds can incorporate into their trading strategies. The historically manual and time consuming data management process is dramatically shortened.

“Much like all of Enfusion’s solutions, Enfusion Visual Analytics (EVA) was developed directly with client input,” Morris explained. “We leveraged readily available technology for data visualizations and storage, and then worked with both hedge funds and institutional asset managers to build out the analytics capabilities our clients desired.  We’re about two years  since the initial idea of bringing EVA to life and are super excited to continue partnering with clients to evolve EVA’s capabilities.”

Ali Stewart, SVP, Global Head of Product Strategy at Enfusion added that EVA was born out of the need for our clients to do more with the powerful data from Enfusion.  EVA allows clients to transform the data from Enfusion’s flagship product into analytics, time series analysis, chart and pixel perfect, branded reports.

“We saw clients struggling to take their data into third party applications, issues reconciling, historical back loads, and the cost of maintaining that data themselves,” Stewart explained. “We worked closely with clients in the early days to develop and in early 2019 hired a Product Owner with 15 years experience in portfolio analytics and reporting, Keeping with Enfusion’s innovative culture, we continue to collaborate with clients to deliver and industry leading product and have seen significant growth in the past 8 months.”

Block liquidity provider and technology firm Liquidnet is reportedly up for sale for an asking price of $1 billion.

A Liquidnet spokesperson declined to comment to Traders Magazine on a May 22 Bloomberg story reporting the firm was up for sale.

Spencer Mindlin, capital markets analyst at market consultancy Aite Group said that the market for deals in the institutional FinTech space has been very active and the Covid-19 pandemic will likely accelerate that trend. So, Liquidnet could see healthy interest.

“In 2005, Liquidnet was valued at $1.5 billion when it received its $250m investment from TCV And Summit. And back then, Liquidnet’s solution for block equity crossing was simple, yet elegant – and effective,” Mindlin began. “But since then, Liquidnet has evolved, as has the capital markets.”

“Equities has been under enormous fee pressures and players have been under enormous competition. But Liquidnet has expanded into asset classes and products way beyond its roots as a block crossing network for U.S. equities,” Mindlin said. “Its value proposition continues to stay rooted in their strong technology, talent and expertise, and very strong working relationships with customers. Customers still very much rely on Liquidnet for block trading.”

But is that enough?

Mindlin thinks so. He told Traders Magazine he would be surprised if a buyer doesn’t pay up for the firm. He cited potential suitors such as State Street, Blackrock, ICE, CBOE, MarketAxess, SS&C, Virtu Financial, as all have been “very aggressive” over the past ten years and he could see Liquidnet fitting comfortably into their respective business models and plans.

“Liquidnet has an army of top-notch talent and its technology continues to fly above the fray,” he said. “The winners in this market will be those with the most scale and the ability to integrate and bundle up the institutional trade lifecycle across the front-to-back office. It just makes sense to tuck in Liquidnet’s suite of products and solutions at a larger player.”

Founded in 2001, Liquidnet was one of the first innovators in the capital markets technology space, and it drove direct and indirect trading costs lower. Mindlin said equities has led the way for electronic trading among the asset classes, and Liquidnet was and continues to be a leader for equity block trading.

“Still, the sale (or potential one) is a sign of the times. Over the past twenty years, hundreds, if not thousands of people have worked on competitor products and solutions to Liquidnet,” Mindlin said. “A Liquidnet sale (would be) an inflection point for the industry.”