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Social Bond Issuance Set to Grow

By
Siobhan Brownlow
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Sovereigns, financial institutions and corporates could issue COVID-19 focussed social bonds as volumes this month have reached more than $7bn (€6.4bn), compared to a monthly average of $1.2bn in 2018/19.

The Institute of International Finance, the global association of the financial industry, said in a report last week, IIF Green Weekly Insight: ESG in the Time of COVID-19, that social bond issuance is set to surge.

The African Development Bank launched a $3bn “Fight COVID-19” social bond, which was the world’s largest dollar-denominated social bond transaction to date according to the IIF. The report said investor bids were more than $4.6bn.

The AfDB bond pushed issuance for April to near $7bn versus a monthly average of just $1.2bn in 2018/19.

Covid-19 may herald a social bond boom. Source: IIF.

“This is a remarkable achievement given market volatility and given that this is the largest dollar benchmark the AfDB has ever issued,” added the IIF. “With leaders around the world under pressure to respond (prompting a record $2.1 trillion in government bond issuance last month) the AfDB’s landmark bond could open the door for sovereigns across both mature and emerging markets to issue COVID- 19 focused social bonds.”

The IIF continued that social bond markets could provide debt managers with a more diverse investor base as government deficits are set to sharply increase,

The AfDB issued a second social bond this month, which also listed on the Luxembourg Stock Exchange.

LuxSE is waiving the listing fee for social and sustainable debt instruments that are issued to address Covid-19.

Julie Becker, deputy chief executive of LuxSE and the founder of LGX, said in a statement: “Many issuers have focussed mainly on issuing green bonds over the past years, but given the current pandemic, we expect to see a steep increase in social and sustainability bonds in the coming months. Significant funding will be needed to mitigate the impact of COVID-19, and LGX will continue to provide the necessary visibility to the response bonds and their issuers.”

The Luxembourg Stock Exchange established LGX in 2016 as a contribution to the Paris Climate Agreement and the UN Sustainable Development Goals. LGX is a platform for sustainable instruments and aims to redirect capital flows towards sustainable investment projects.

Nasdaq has also said it will waive fees on bonds that respond to the pandemic.

Italy

Cassa depositi e prestiti (CPD), the Italian Development Bank has also issued a €1bn ($1.09) Covid-19 Social Response Bond, the first of its kind for the country.

The proceeds will be used to help corporates, mainly small and medium-sized enterprises access banking and financial services; provide local authorities with financial support and finance facilities, equipment and technologies for the improvement and protection of public health.

BNP Paribas said in a blog: “The issuance follows a number of recent sustainable bond transactions from development banks in response to Covid-19, such as the Nordic Investment Bank (NID), European Investment Bank (EIB) and African Development Bank (ADF), and marks a significant deal for Italy.”

The French bank was joint lead manager of the deal.

The €500m Italian bond attracted orders of more that €1.9bn mark, with a meaningful participation of socially responsible investors.

Fabrizio Palermo, chief executive of CDP, said in a statement:  “Thanks to this transaction, CDP will further support enterprises and public administrations to foster their ability to cope with the current crisis and recover. The demand registered is proof to the growing attention investors are paying to initiatives of high social and environmental impact and is a positive signal for Italy.”

BNP Paribas continued that recent weeks have seen a strong supply of social bonds as in response to Covid-19. “Financial institutions and corporate could also start issuing Covid-19 response bonds in the coming weeks and months and highlights their collective role in responding to the pandemic,” added the bank.

Social bond principles

The International Capital Market Association has issued guidelines on social bonds.

ICMA said in a statement: “All types of issuers in the debt capital markets can issue a social bond related to COVID-19, as long as all the four core components of the Social Bond Principles are addressed, and that the use of proceeds of the bond go exclusively towards addressing or mitigating social issues wholly or partially emanating from the coronavirus outbreak.”

Social bonds finance projects directly aim to address or mitigate a specific social issue and/or seek to achieve positive social outcomes.

Relevant projects to mitigate COVID-19-can include expenditures to increase capacity and efficiency in provisioning healthcare services and equipment, medical research, SME loans that support employment generation in affected small businesses, and projects specifically designed to prevent and/or alleviate unemployment stemming from the pandemic according to ICMA.

Trading Up: Doug Clark to Credit Suisse

By
Traders Magazine
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Credit Suisse has landed a market veteran to its ranks.

Doug Clark, formerly of ITG, has joined the Wall Street broker-dealer, according to his LinkedIn profile as the new Head of Market Structure for the Americas. He will be based in Toronto.

According to a memo seen by Traders Magazine:

“We are pleased to announce that Doug Clark will join Credit Suisse as Head of Market Structure for the Americas. Doug will be primarily based in Toronto and report functionally into John Comerford and locally into Graham Choquette.

Doug brings a wealth of knowledge to the firm with over 20 years of experience in the financial services industry. In his most recent role he was the Americas Head of Market Structure for Virtu. Before that Doug held senior trading roles at both BMO Capital Markets and ITG Canada. Additionally Doug is the former Chair of the Security Traders Association, the Canadian Security Traders Association, and the Ontario Securities Commission Market Structure Advisory Committee.”

In this new role, Doug will be responsible for delivering market structure content, regulatory insight, and trading consultation to our core client base. As we continue to grow our Execution Services platform, Doug’s expertise will further strengthen our market leading position with clients and help them navigate a continuously complex and evolving trading ecosystem.

Please join us in welcoming Doug to Credit Suisse and in wishing him success in his new role.”

The memo was signed by Anthony Abenante and Doug Croften.

Chuck Lugay

Chuck Lugay has moved to the exchange-side of the trading business joining Nasdaq in Sales in the company’s Market Technology group. A financial market professional with 23 years of experience, Lugay came from Clearpool where he spent almost the last three years as a Managing Director. Before that, he was with Citadel LLC in the Citadel Execution Services group for four years. Lugay also served as President of the Security Traders Association of New York. He began his career as a Financial Specialist at Morgan Stanley Dean Witter in 1997.

Industry veteran and former co-head of European electronic trading at Morgan Stanley, Rupert Fennelly, has landed at Barclays, according to The TRADE and his LinkedIn bio. Fennelly joined Barclays as its new EMEA Head of Electronic Equities Sales and coverage. A spokesperson at Barclays declined to comment. Fennelly, who also worked at Credit Suisse for several years, spent almost a decade at Morgan Stanley where he oversaw the electronic trading business. He joined as head of Morgan Stanley Electronic Trading (MSET) for the Americas in 2010, before leading the European arm from 2014.

For more news like this, please check our sister publication Traders Magazine on Tuesdays in its On The Move column

BTON Financial makes two strategic hires

By
Lynn Strongin Dodds
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BTON Financial, an independent outsourced dealing desk provider, has hired Charles Phan as chief technology officer and Caroline Holmes as head of business development to drive the business forward and respond to increased client demand that has only accelerated in the current lockdown environment.

According to Dan Shepherd, CEO & co-founder of BTON Financial, the outsourcing of the trading desk has been a “hot topic that has only become hotter” as the industry is operating in uncharted territory and is looking to automate existing workflows, processes and for innovative ways to implement trading strategies effectively.

Charles Phan, CTO at BTON

Prior to joining BTON Financial, Phan held senior technology positions at hedge funds, with responsibility for full stack development of distributed automated trading systems, and has traded instruments across several asset classes. His most recent position was chief technology officer at Interdax, a crypto exchange.

Holmes has over 20 years of experience working at several asset managers including Columbia Threadneedle, Principal Global Investors, BT Pension Scheme Management, Hermes and BMO GAM. She was also a senior programme and change management consultant at PwC.

Caroline Holmes, head of business development at BTON

Holmes believes that the lockdown will have long lasting consequences on working environments long after restrictions ease. “I do not think we will be able to press the reset button and go back to the way we were,” she adds. “This has forced organisations to get their people to work from home and made them think structurally about how they work as well as their business continuity plans.”

Phan adds that outsourcing of the trading desk will increase because asset managers, more than ever, will want to focus on their core competencies to generate alpha for their end clients.

Earlier this month BTON Financial struck a partnership with genesis, the low code application platform for capital markets, to automate trading workflows and drive front office transformation for the buyside.

©BestExecution 2020
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Fintech and bank partnerships not always delivering the goods

By
Lynn Strongin Dodds
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Anirban Bose, CEO of Capgemini

Covid-19 is only likely to accelerate the trend towards bank and fintech partnerships although more work needs to be done to make them successful, according to the World Fintech Report 2020 published by technology consultancy CapGemini and financial trade group Efma.

The research found that although banks were looking to leverage new technology and move the business forward, the alliances struck have not been as fruitful or beneficial to the bottom line as expected. Just 6% of banks achieved the desired return on investment from the collaboration while only 21% thought their IT systems were agile enough for collaboration. In addition, cultural and organisational issues hampered progress with 70% of fintechs claiming they did not ‘see eye-to-eye’ with their bank partner while a similar percentage expressed frustration with the incumbent’s process barriers.

Against the backdrop, it is not surprising then that half of senior fintech executives polled in the report said hey had not found the right collaborative partner.

Anirban Bose, CEO of Capgemini

“The world has changed dramatically over the last couple of months,” says Anirban Bose, CEO of Capgemini’s financial services practice. “Businesses will evolve and emerge from the Covid-19 crisis in different and profound ways. For traditional banks, this will translate into an even greater need for digital experience through further collaboration with fintechs.”

The World FinTech Report 2020 is based on research insights from the 2020 Global FinTech Executive Interviews and the Capgemini Open X Readiness Index, a global benchmarking tool that measures the readiness of banks to effectively collaborate at scale with start-ups. It assesses a range of metrics including their maturity across people, finance, business, and technology pillars.

According to the report, the index shows the leading collaborative banks have dedicated and autonomous start-up-partnership team that adopt the well-established fail-fast innovation approach which quickly determines value and cuts losses if something isn’t working. The frontrunners are also early movers that invest in emerging technologies and have little dependency on legacy systems, which makes fintech integration easier.

©BestExecution 2020
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City of London jobs halve since 2019 due to Covid turmoil

By
Lynn Strongin Dodds
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Jobs available in the City of London have dropped by 51% since March 2019 as the Covid-19 pandemic reverberated across the global economy and lockdown forced swathes of the UK economy to close, according to the latest Morgan McKinley London Employment Monitor.

Research from the recruitment agency shows that the picture was far brighter in December to January where there was a 97% increase in jobs available. This was mainly due to the positive market response to UK Prime Minister Boris Johnson’s resounding election victory and clarity on Brexit.

Hakan Enver, Morgan McKinley

“Out of the frying pan and into the fire: we barely got to take a breath between Brexit and this new global crisis,” said Morgan McKinley’s managing director Hakan Enver. “London came back in the new year, with a renewed optimism, which was reflective in the general mood of employees and employers alike. Soon enough, business confidence fell once again which has in turn impacted trading prospects and overall economic optimism.”

He adds that “Numerous banks have pledged not to cut any jobs in 2020 and employers are honouring job offers that were already made. This is a strong sign from major institutions that by working collectively, they can do their part to fend off similar dire circumstances that the UK faced after its decision to exit the EU.”

UK based HSBC, Barclays, Lloyds and Standard Chartered, US peers Morgan Stanley, Goldman Sachs, Citi as well as Germany’s Deutsche Bank are among those who have indicated that job cuts are off the table this year given the current volatile environment.

However, the data  reveals that new projects have been put on hold, slowing hiring for most roles, with the exception of software engineers, IT auditors, cyber security experts and data and analytics professionals, who all remain in high demand.

“Institutions continue to recruit business critical vacancies, whilst at the same time ramping up their remote team systems and practice,” says Enver. “Those working in IT and fintech are going to continue to enjoy a robust job market.”

The report also found that the average salary changes for a new employee moving from one company to another dropped in March. The 12% hike is the lowest recorded in more than two years as firms adapt to the uncertain economic backdrop. In the 11 months prior, the average salary change was 19%.

©BestExecution 2020
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Derivative exchanges report record level volumes

By
Lynn Strongin Dodds
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Walt Lukken, FIA president & CEO

The total number of contracts traded on derivatives exchanges worldwide soared by 43.2% to an all- time quarterly record of 11.41 bn in the first quarter compared to the same period last year, according to figures from the Futures Industry Association (FIA).

Walt Lukken, FIA

“The tremendous increase in trading volumes clearly demonstrates the importance and resilience of the listed derivatives markets during these stressed times,” said Walt Lukken, president and chief executive officer of FIA. “In spite of the volatility and economic uncertainty caused by this global pandemic, these markets have continued to provide the vitally important functions of price discovery and risk management without interruption.”

The trade group’s data shows that total trading of futures rocketed by 45.8% to 6.42 bn contracts while options volume increased 40% in the first three months of 2020, from the same period last year. Open interest, which measures the number of outstanding contracts, was 921.3 m at the end of March, up 5.2% compared to the same point in time in 2019.

Equity index futures and options were the standout performers, ratcheting up the greatest rate of growth among the nine categories of contracts tracked by the FIA. Over 4.57 bn equity index futures and options contracts changed hands in the first quarter, a significant 61.9% hike from March 2019. Open interest in this category appreciated 16.7% to 258.6 m contracts over the same time period.

Interest rate futures and options also grew at a clip with a 37.2% gain to 1.55 bn contracts while open interest in this category rose 4.1% to 187 m contracts.

Breaking it down globally, all regions recorded growth rates of 35% or more. Volume on North American exchanges was the highest, surging  47.2% to 3.59 bn contracts followed by European exchanges with a  43.9% jump to 1.77 bn. Asia-Pacific exchanges, on the other hand, reported a 35.8% rise to 4.4 bn.

The FIA measures volume and open interest by the number of contracts traded and/or cleared on 80 exchanges and clearinghouses worldwide. The statistics include exchange rankings, top contracts by category, and summary statistics on regional and category trends.

©BestExecution 2020
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Trading costs spike amid COVID volatility

By
Lynn Strongin Dodds
-

As COVID 19 raged on and markets gyrated wildly, the cost of trading soared in March with a 1x large in scale (LIS) or €650,000 stock order in a FTSE 100 name jumping 115% from an approximate 34.6 basis points in January to 74.5 bps in March, according to a new report from Liquidnet which analysed a range of metrics for the major European indices including volumes, spreads, close-to-close volatility and a pre-trade market impact estimate.

Chris Jackson, Liquidnet
Chris Jackson, Liquidnet

The report found that volumes on the European primary markets skyrocketed – between 300% and 600% – of the December 2019 daily average. More specifically, just comparing one day, volumes on the Euro Stoxx 600 skyrocketed from roughly 1m shares per day on January 20th to 7.8m March 20th.

As for spreads, they became significantly wider – between 4 to 5 times – as volumes reached record levels. Stocks on the IBEX 35 in Spain saw the biggest hike of their European peers with their average spread rising by a dramatic 420% from 5.98bps on the 20th January to an average of 31.09bps on 20th March.

As for close-to-close volatility, it tends to be historically low for European indices but this appreciated from around 1% in January and February to between 7% and 8% in March. The EuroStoxx 600 recorded one of the highest increases at 606% while the FTSE 100 reported a 465% rise.

Although this isn’t the first time that stock markets have crashed, the drivers this time were completely unprecedented. In the past, they plunged due to a confluence of factors slowly building in the underlying economy, such as the subprime crisis in 2008. but no one put a COVID 19 into their investment models.

As Chris Jackson, global head of strategy and head of equities EMEA at Liquidnet, says, “The direction of trading costs in this volatile environment is not surprising, however, the scale of the move has surprised the industry and illustrates the breadth and the depth of the impact the coronavirus has had across all sectors of the economy as well as the uncertainty the market faces in quantifying its long term effect.” “

He adds, “We have seen this pattern before in other market crashes such as 1987 and the financial crisis. In this case, high frequency traders and market makers pulled back which in turn caused spreads to double, volatility to rise and trading costs to increase. Traders are turning more to systematic and electronic trading to find the liquidity. However, when the volatility cones down, trading costs will revert to pre-Covid levels.”

©BestExecution 2020
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Automation Moves Up Buy-Side Agenda

By
Siobhan Brownlow
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Using technology to improve order processes and workflows has moved up the agenda in the current market environment according to Dan Shepherd, chief executive of BTON Financial, the independent outsourced dealing desk for asset managers.

Dan Shepherd, BTON Financial

Shepherd told Markets Media: “In the current environment automation has become a focus and using technology to improve order processes and workflows has moved up the agenda. Outsourcing is clearly a part of this and we have had a lot of incoming calls from buy-side firms looking to outsource equities and exchange-traded fund trading.”

In order to increase automation for asset managers, BTON Financial and genesis, the low code application platform for capital markets, have launched a smart broker router.

“Smart order routers analyse the liquidity at each exchange and push orders into the market,” added Shepherd. “A smart broker router is a level above as it finds the most appropriate broker and execution algo at that broker.”

Shepherd added that the fintech ecosystem is becoming essential in helping firms manage their business continuity plans by automating more procedures, so the collaboration with genesis will bring immediate benefits in the current climate.

The Covid-19 pandemic and restrictions on movement have meant that many staff have to work from home, so automated workflows are vital in ensuring efficiency, especially as volatility and volumes have increased.

James Harrison, chief operating officer of genesis, told Markets Media: “Remote working may not become the new normal in the long term but I believe we are unlikely to go straight back to the previous ways of working and instead looking to build on the positives with remote working. Technology is a great enabler especially in our need to work and collaborate remotely; we’ve also seen improvements in our internal processes such as the need for paper contracts to be replaced with digitally signed media.”

Low code

In October last year genesis launched the low code platform designed specifically for capital markets to enable the building of robust, secure products by radically reducing the amount of coding required.

Shepherd said: “We looked at a lot of technology providers but genesis was by far my favourite collaboration and best suited to our needs.”

The BTON Smart Broker Router is fully integrated with the other genesis trading solutions built on the platform, allowing orders to flow securely from the Smart Broker Router through to the receiving broker and into the trading workflow in real-time. The Smart Broker Router also provides real-time metrics to monitor trading performance and best execution requirements.

James Harrison, genesis Global

“BTON provided the quantitative brains for their smart broker router which we developed as a partners using our low code platform in a matter of weeks,”added Harrison. “There will be future iterations as the product is used and refined.”

He continued that genesis’ technology is cloud-based and focussed on capital markets, so the platform has held up well as volumes have increased.

Low code was highlighted in the latest annual Nasdaq Tech Trends Report at the beginning of this year.

Brad Peterson, executive vice president and chief technology & information officer, and Lars Ottersgård, executive vice president and head of market technology, said in the report: “Low code no code (LCNC) is simplifying the process of building and testing of mobile and web applications.”

Low code no code allows users to build and test applications such as mobile or web apps by dragging and dropping application components, and connecting them together without knowing traditional programming languages.

“We are moving away from delivering historical market data in a downloadable file that consumers have to figure out how to read,” said Nasdaq. “The new LCNC approach involves API access to the data that is also self-discoverable.”

Swap Trading, Clearing Hits Record

By
Siobhan Brownlow
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Dealer to dealer swap trading volume and swap clearing reached records last month as volatility increased due to the impact of the Covid-19 pandemic.

Chris Barnes of Clarus Financial Technology said on the derivatives analytics provider’s blog that dealer-to-dealer volumes for US dollar swaps on swap execution facilities reached a new high of $1 trillion last month.

Barnes wrote: “March was a record month ever for volumes across US dollar, euro, sterling, Japanese yen, Australian dollar, and Canadian rates markets.”

“The big SEF winners were ICAP, Bloomberg and Tradeweb,” he added.

Tradeweb, the electronic trading platform, reported for March that interest rate derivatives trading rose 70.5% year-on-year to average daily volume of $319.2bn.

“Markets saw unprecedented volatility during the month, and Tradeweb activity was elevated throughout,” added the report. “On March 3rd, the day of the emergency rate cut by the Federal Reserve, a record $1.5 trillion was traded across the Tradeweb platform globally.”

Clearing

Barnes continued that clearing houses also saw combined volume records with more than $50 trillion cleared in a month in the top six currencies.

“Over $4.5 trillion cleared in currencies outside of the top-six for the first time,” he added. “CME and Shanghai Clearing saw notable increases due to increased volumes in Latin American and Chinese yen clearing.”

CME market share of these non-major currencies increased from 16.2% to 19.7% and Shanghai Clearing market share increased from 3% to 7% according to Barnes. He added that this suggests that the larger increases in volumes have not been in European currencies where London Stock Exchange’s LCH is strongest.

LCH reported a record quarter at SwapClear, with $402 trillion in notional cleared in the first three months of this year, up 26% from the same period in 2019.

“The first quarter saw three record days for notional cleared and 10 March was a record day for number of trades cleared,” added LCH.

FSB sets out new recommendations for stablecoins like Libra

By
Lynn Strongin Dodds
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The Financial Stability Board (FSB), the G20 supervisory body) has asked national regulators to review standards and address any possible disruptions caused by global stablecoins such as libra which was floated as a crypto currency by social media giant Facebook last year.

Stablecoins are tied to a traditional currency or basket of assets, and used for payments or storing value. They are typically underpinned by blockchain, a form of online ledger in which transaction-monitoring does not require the intervention of a single authority, such as a central bank

In a consultation report the FSB set out ten recommendations for a common, international approach to regulating stablecoins. Its action was triggered by the uproar over Facebook proposing its billions of customers use Libra to pay for goods and services. Several of Libra’s major backers, including Visa, Mastercard and PayPal, have since dropped out after scepticism from regulators and central banks, which said it must not be launched until adequate rules are in place.

Existing financial rules, such as for payments and customer checks, typically apply in whole or in part to stablecoins and address at least some of the risks they generate, the FSB said. Coverage, however, can be patchy from country to country, exposing gaps for supervising a cross-border stablecoin.

The FSB said stablecoins should face the same rules as other businesses that present the same risks, regardless of technology used. “If users relied upon a stablecoin to make regular payments, significant operational disruptions could quickly affect real economic activity,” the FSB said in its report. “Large-scale flows of funds into or out of the GSC [global stablecoin] could test the ability of the supporting infrastructure to handle high transaction volumes and the financing conditions of the wider financial system.”

Moreover, the FSB said national regulators need to monitor the fast pace of innovation in the digital asset space to try and anticipate any weaknesses or regulatory holes before they take effect. All member countries should “clarify regulatory powers and address potential gaps in their domestic frameworks to adequately address risks posed by GSCs.”
The FSB’s public consultation is open until July 15, with a final report published in October.

©BestExecution 2020
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