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ING Uses Natural Language Processing for LIBOR Transition

By
Siobhan Brownlow
-

ING is using natural language processing developed by Eigen Technologies to speed up its communication with customers and speed up the bank’s transition away from the benchmark Libor interest rate. 

Eigen is being used to review documentation for references to dealing with rate benchmarks according to an ING spokesman. The data in documentation is often unstructured but NLP can speed up the process by identifying, for example, which customers can just be informed about the replacement rate and which need new documentation.

After the financial crisis there were a series of scandals regarding banks manipulating their submissions for setting benchmarks across asset classes, which led to a lack of confidence and threatened participation in the related markets. As a result, regulators have increased their supervision of benchmarks and want to move to risk-free reference rates based on transactions, so they are harder to manipulate and more representative of the market. The UK Financial Conduct Authority has said that it will not compel panel banks to submit to Libor beyond 2021.

London-based Eigen said on its website that a legal client also used it’s NLP platform to analyze approximately 150 loan agreements that are each several hundred pages long. Eigen automated the extraction of more than 20 data points and legal associates were able to answer complex questions about the Libor transition in two to four weeks.

This month the bank announced that it is investing €4.5m ($5m) in Eigen through venture capital arm, ING Ventures. 

Benoît Legrand, ING’s chief innovation officer and chief executive of ING Ventures, said in a statement that Eigen provides a strategic capability in use cases across both retail and wholesale banking.

“This partnership allows both companies to work closer together when implementing use cases through data and process analysis, so as to accelerate Eigen’s advantage in NLP as well as ING’s digital transformation,” Legrand added.

For example, the bank is also using Eigen to make loan operations  more efficient. Eigen receives the outcome of loan negotiations and can then find the data needed in order to complete the contract. NLP can also verify clauses in the contract during negotiations to ensure they meet the bank’s standards. 

“The solution runs wholly on-premise in ING, and we have implemented it in such a way that contracts and their data are linked in a consistent, secure and robust way,” added the spokesman. 

ING is also exploring using Eigen for reviewing other documentation, especially where regulatory requirements change, which will improve data quality and reduce costs. For example, risk-weighted asset relief under Basel 4 in retail mortgages will only be possible if certain clauses around government guarantees have been explicitly agreed with the customer and can be shown to the regulator. 

Benoit Legrand, ING

The bank currently has more than 200 active partnerships with fintechs, of which ING Ventures has made around 27 investments.

Eigen Technologies

ING Venture’s investment in Eigen was part of the fintech’s Series B investment round announced in November last year, with other investors including Goldman Sachs, Temasek, Lakestar and Dawn Capital. ING is the second strategic investor that Eigen has brought on board, alongside Goldman Sachs, who co-led the Series A round in 2018.

The latest round raised a total of $42m and brought overall funds raised to more than $60m. The fintech said its NLP technology is already used by over 25% of the global systemically important financial institutions, in addition to large asset managers, hedge funds, law firms and insurers.

Eigen Technologies has a team of 100 scientists, engineers, strategists, and creatives based in London and New York. The fintech was founded in 2014 by Dr. Lewis Z. Liu and Jonathan Feuer using insights from Liu’s PhD research in laser physics at the University of Oxford.

Liu, co-founder and chief executive of Eigen, said in a statement: “80-90% of the enterprise data in the world today is unstructured information such as text, meaning that most organizations are unable to it unlock its value. With continuing economic uncertainty and the ongoing disruption by data-native companies such as Google, Tencent, and Amazon the imperative to be able to leverage this data is stronger than ever.”

After closing its Series A round in 2018, Eigen more than doubled its headcount and grew its recurring revenue sixfold according to the firm’s website. 

In November last year the firm launched Eigen 3.0, the latest version of its NLP platform, which speeded up training by 30% and improved handling of documents. Extraction became between two and five times faster allowing a user, on average, to extract 10 questions from a 500-page document in five to seven minutes.

Dr. Ashley Fidler, chief product officer of Eigen Technologies, said in a statement:  “Our customers asked us for three things in Eigen 3.0: a superuser workflow, improved performance for large teams working simultaneously, and easier document handling. We will be building on this in 2020 and will have further updates to come.”

Pickett Grows Front Office Solutions at Northern Trust

By
Siobhan Brownlow
-

Melanie Pickett, head of Front Office Solutions at Northern Trust, has risen to a senior position in two sectors which are known for a lack of gender diversity – technology and finance.

Pickett joined Northern Trust at the beginning of 2017 to launch a new line of business within asset servicing which provides technology to in-house investment teams for large endowments, foundations, sovereign wealth funds, pensions, insurance and multi-family offices. These in-house investment teams traditionally had to use separate systems for each asset class.

Melanie Pickett, Northern Trust

She told Markets Media: “Necessity is the mother of invention. In the past, it was extremely challenging to find a technology platform that met the needs of an investment team monitoring a multi-asset portfolio. There wasn’t a holistic solution for the entire book.”

She holds an executive masters of technology management, a joint degree granted by the Wharton School of Business and the University of Pennsylvania School of Engineering and Applied Sciences.

“While studying at The Wharton School of Business for my MBA/MSE, I realized that the most important conversations in finance would sit at the intersection of business, technology and operations,” added Pickett.

Before joining Northern Trust, she had been chief operating officer of Emory Investment Management, which is amongst the largest 20 US endowment investment programs.

Pete Cherecwich, Northern Trust

Pete Cherecwich, now president of Northern Trust Asset Servicing, said in a statement when she joined: “Having spent her career designing and executing large-scale change within financial services organizations, Melanie is a tremendous addition to our team. The needs of global asset owners and allocators have changed dramatically over the last decade and continue to rapidly evolve.”

The new business brings together Northern Trust’s existing platform together with new capabilities across data aggregation, enhancement and analytics.

“Northern Trust executives have historically had a more centralized focus on redesigning products to ensure success,” added Pickett. “When I joined, we set up a specialized, cross-functional business and technology team to be able to get to market quickly.”

The team spent the first year validating the needs of clients and the second year building and launching a customizable platform.

Pickett said in a blog last year: “In our research, every client said they spent more time managing the data than actually analyzing it, and that the relationship between the amount of time they spent collecting, aggregating, and cleansing data was inverse to the amount of time they wanted to be spending on those tasks.”

Pickett explained that it is easy to monitor public companies but Northern Trust also enables risk management of clients’ exposure to private companies.

The new platform uses Northern Trust data and has additional capabilities for clients to define a proxy and flexibly mark-to-market both their public and private exposures, which is important during times of high volatility – such as experienced during the last few weeks due to the coronavirus pandemic.

“In a crisis, it is especially important to also understand any potential liquidity challenges,” she added.

Front Office Solutions has already onboarded clients with approximately $150bn (€136bn) in assets under management, and is agnostic to whether they use Northern Trust for custody. Early next year there is another round of interest which will more than double the assets under management.

This growth is reflected in the size of the Front Office Solutions team.

“At the end of 2018, there were 21 people on the team, which then grew to 53 in 2019, added Pickett. “We currently have more than 70.”

In September last year Front Office Solutions product suite expanded to include a suite of risk management capabilities which incorporate detailed operational due diligence assessments.

Vin Molino, Northern Trust

Pickett said in a statement at the time: “Complex asset owners have focused their efforts around operational risk management in the decade since the global financial crisis. With our enhanced due diligence capabilities and the strong leadership of Vin Molino, the launch of operational risk management solutions marks a new chapter in Northern Trust’s strategy to support the evolving needs of asset owners across the globe, going beyond traditional asset servicing offerings.”

There are also  plan to integrate Front Office Solutions with Omnium, Northern Trust’s middle- and back-office technology platform for alternative fund managers, for a limited number of global investors that have both externally managed portfolios and internal trading.

“That combination is a powerful opportunity for us and would be transformational for the market,” said Pickett.

Career development

Prior to Emory Investment Management, Pickett spent more than a decade managing operations and technology strategy within global wealth management at Morgan Stanley. She continued that working at Morgan Stanley for 11 years defined expectations for her career and laid the foundation for the culture she wants to work in.

“The lack of diversity in financial services was especially eye-opening when I was trying to raise capital from venture capital and private equity,” she added. “In 2019, only 2.8% of venture capital funds went to female founders.”

Pickett said she has been successful, in part, because she has had many supporters who encouraged her to be authentic.

“In your career, it can be easy to be pulled in several different directions – my advice would be to follow your interests and instincts, and stay true to yourself,” she explained.

Pickett continued that being authentic requires having a connection to the work you do and Northern Trust Front Office Solutions supports endowments, foundations and other philanthropic organizations who have highly important missions.

Diversity

“These types of clients want to work with teams who match their diversity“ she added. “I meet with Human Resources weekly so that we can make important decisions on how to focus more on diversity in our recruiting strategy.”

However she added that intentions and actions are two very different things – and only actions will ever actually lead to greater diversity.

“The benchmark for me is, ‘would I encourage my seven-year-old daughter to follow in my footsteps…in this industry?’” she added. “She’s the reason I want to make this an industry of choice for women and people of color.”

Pickett said she knows the industry will have succeeded in increasing diversity when she can answer that question with a definitive “yes”, and she is optimistic.

“We are making progress on many fronts,” she added. “I am lucky to work for an organization that both supports and encourages diversity.”

FIX Aims to Reduce Pain Points in ESG Data

By
Siobhan Brownlow
-
Rebecca Healey

FIX Trading Community, the non-profit standards body, aims to make it easier for the financial industry to use environmental, social and governance data as asset managers could spend roughly $554m ($515m) for ESG data next year.

Rebecca Healey, Liquidnet

Rebecca Healey, global head of market structure & strategy at Liquidnet and co-chair of the FIX Trading Community’s EMEA regulatory subcommittee, told Markets Media that the group can provide a backbone of how new data fields are defined, the assumptions that are made and the reports that end-investors find useful so each market participant does not have to reinvent the wheel.

“The organisation provided the same service for MiFID II and saved the industry hundreds of millions of dollars,” she added. “FIX helped solve the pain points between data providers and the buy side.”

She continued that ESG as an investment strategy is a rapid success story and so is moving from niche to mainstream, requiring the use of more ESG data.

“It is becoming a consideration in every investment decision and as a result the industry’s data consumption will be on steroids,” said Healey. “Data consumption on the investment process will change as managers turn to alternative data sources and techniques such as artificial intelligence and natural language processing.”

The demand for ESG data is expected to grow 20% annually, and the demand for ESG indices data to grow at 35% each year, according to a report from consultancy Opimas this month. The study, ESG Data Market: No Stopping Its Rise Now, said the ESG data market hit $617m last year and estimated that the  the market could approach $1bn next year.

Co-authors Axel Pierron, managing director, and Anne-Laure Foubert, analyst, said in the report: “Of that, the ESG content segment currently represents a market of $525m and could exceed $630m in 2021.”

Rise in spending on. ESG data. Source: Opimas.

Opimas continued that asset managers are the heaviest spenders, at 59%, as they already buy ESG data in varying forms ranging from raw data to ratings, from different providers.

“With the integration of ESG consideration into their fiduciary duty required by the European Union by 2021, asset managers will likely continue to be the main consumers of ESG data,” said the study.

The consultancy estimated that asset managers could spend roughly $554m for ESG data by 2021.

Greed is no longer good

Healey said: “Global asset managers also need to take ESG data into consideration when monitoring investments, benchmarking and reporting and that is where FIX can potentially play a role.”

A recent survey form Liquidnet, the institutional liquidity pool, found that 62% of fund managers said ESG was increasingly important in giving greater insight into the underlying investment. In addition, Healey explained that the new EU Sustainability Action Plan requires every firm to incorporate and disclose their ESG considerations. Fund managers will also have to give ESG information before recommending an investment under suitability criteria.

“ESG is not just led by regulators but also by consumers so it is the direction of long-term travel,” she added. “My conversations with asset managers have found there is just as much demand in the US as in Europe.”

Healey continued that finance industry leaders are discussing ESG issues and unpicking some of the challenges. However, she warned that it is a very labour intensive process to move from ESG being a niche strategy to becoming embedded across all their investments.

“Fund managers are just at the start of having to rethink what they do, how they do it and waking up to the enormity of what this could potentially mean for the industry,” she added. “Ethical investments outperform in the longer term so it is the end of the greed is good era.”

Regulators warn against cyber criminals in corona scams

By
Lynn Strongin Dodds
-

Lynn Strongin Dodds

Regulators in the UK and Europe have issued a warning to market participants over an increase in financial scams as cyber criminals try to take advantage of the coronavirus crisis.

In a statement, the Financial Conduct Authority said “A major event like coronavirus can initiate new types of scam activity… When it comes to financial services, the scam activity is more nuanced and often appears after the initial shock of a major event.”

The UK watchdog added that” scammers are sophisticated, opportunistic and will try to get personal details or money from victims in many ways.” It listed several scams that investors should be aware of including getting calls or messages about a bank getting into trouble and the need to transfer money as well as selling bogus investment schemes from buyside firms.

French regulators the Autorité des Marchés Financiers (AMF) and the Autorité de Contrôle Prudentiel et de Résolution (ACPR) have also published their own proclamations. The two authorities said they have already noted “unscrupulous actors” using keywords linked with the covid-19 virus to exploit the situation and proposing, for example, fraudulent safe-haven investments.

Even in so called normal times, the financial service sector is among the most vulnerable, according to the 2019 Global DNS Threat Report: Understanding the Critical Role of DNS in Network Security Strategy report. The UK has been among the hardest hit with the latest figures showing that the industry experienced a fivefold rise in data breaches in 2018 with 1435 incidents being reported to the Financial Conduct Authority (FCA) compared to 25 in 2017.

Investment banks reported the highest number at 34 compared to just three the previous year. The main causes were attributed to third party failure, hardware and software problems and change management involving switching from one system to another. The statistics were from the UK regulator on behalf of RSM, an audit, tax and consulting firm which requested the information under the Freedom of Information Act,

The same type of behaviour and rise in cybercrime was also seen during the 2008 financial crisis when criminals preyed on market participants and the public’s fear of uncertainty in the stock market and a high rate of unemployment rate.

©BestExecution 2020

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Capital Markets Trends & Innovations

By
Creating Digital
-

By Dr Robert Barnes, Global Head of Primary Markets & CEO Turquoise, London Stock Exchange Group

Dr. Robert Barnes, LSE Group

Primary Markets recognise Fintech as an important sector with Nexi’s listing on Borsa Italiana being crowned the largest IPO in Europe in 2019 and Network International the biggest IPO on London Stock Exchange.

In London, seven new listings of companies above £1bn market capitalisation included Coca Cola European Partners at £18bn. International offerings accounted for 22 of 47 new London listings in 2019, representing half of capital raised, reflecting the increasing trend of globalisation against the backdrop of low interest rates.

Since rates turned negative in Europe in 2015, London’s financial centre increasingly has attracted international companies. For example, in 2017, they represented nine out of ten of the largest IPOs on London Stock Exchange. Two were global depositary receipts (GDRs) denominated in US dollars and settled in Euroclear Bank.

This trend continued in 2018 with significant dual listings from emerging markets, most notably the successful issuance of Slovenia’s Nova Ljubljanska Banka (NLB) – the largest bank IPO in EMEA – as well as Kazatomprom from Kazakhstan. In both cases the community of international investors active in London contributed the majority of risk capital, exemplifying cross-border co-operation and ability to deliver investments back to the home market. In fact, Kazatomprom returned to the London public markets in 2019 for another successful follow-on issue.

The insight is that investors are seeking growth, and are open to gaining exposure to companies from countries world-wide such as Brazil, Russia, and China without negative interest rates. In 2019, Shanghai-London Stock Connect launched on London Stock Exchange’s International Order Book’s new Shanghai Segment.

This offers investors the same developed market buying and selling experience as that for FTSE 100 securities. The first issuer, Huatai Securities, which raised $1.7bn on Shanghai-London Stock Connect, is considered a great success.

Meanwhile, in Europe, since MiFID II, stock exchanges in the region have registered as SME European Growth Markets. AIM, a leading growth market, continued to lead peers in Europe, accounting for approximately 60% of all IPO and further capital raised among SME European Growth Markets. AIM Italia similarly achieved a stellar year in 2019, its 10th anniversary, with 31 IPOs, a new record.

SUSTAINABILITY

Last year also saw sustainability become even more significant in the aftermath of the Financial Stability Board Task Force on Climate-related Financial Disclosures (TCFD) which met in October in Tokyo. It highlighted the importance of the transition to a low carbon economy as well as relevant, quantitative disclosures. London Stock Exchange launched the Green Economy Mark for Equity Issuers and the Sustainable Bond Market for Fixed Income, innovations among Primary Markets.

Calisen, with a market cap over £1 bn, is the latest to join the cohort of 79 companies and 1st Main Market IPO to secure a Green Economy Mark on admission to the Premium Segment in February 2020 on London Stock Exchange.

On another note, London Stock Exchange was privileged to be selected as the sole Primary

Market for the first public bond listing by Saudi Aramco. Its landmark bond issuance raised $12bn with books reflecting demand via London of more than $100bn.

Funds in London also did well, attracting over £5bn further capital during 2019, more than all of 2018 (£3.5bn).

SECONDARY MARKETS

Secondary trading markets in Europe continue to offer a full suite of execution mechanisms to help investors deploy capital into equities markets, as well as minimise slippage costs of buying and selling. With low interest rates, every efficiency contributes to long term investment returns.

In 2020, Turquoise expands its catalogue of examples of unique liquidity. While both dark and lit order book trade sizes throughout Europe average less than €0.01m per trade, Turquoise Plato Block Discovery™ customers continue to set new execution records.

Figure 1 shows a price chart of Airbus on 19th February 2020 during the month when global concerns of coronavirus (COVID-19) drove market volatility. On this day, Turquoise Plato Block Discovery™ matched a single trade of more than €23m, a new record for a single order book trade. The chart shows this €23m trade time stamped at 14:34:22. Moments later at 14:34:26, a trade of more than €3.05m matched.

This unique liquidity is available thanks to European regulations that enable a well-defined framework for trading and transparency, including combined MiFID waivers that support innovation.

Many investors continue to seek potential price improvement from Turquoise Plato™ to benefit from the efficiency of a single system combining Reference Price and LIS (Large In Scale) waivers to deliver lower implicit costs of trading while minimising fragmentation because investors can send a range of orders to a single order book with Market Identifier Code TRQM.

In just 6 years, from March 2014 through to end of February 2020, Turquoise Plato™ traded more than € 1 trillion, single counted, with buyers and sellers matching at the respective Primary Market Best Bid and Offer midpoint. Similar workflow serves all securities – UK and European, blue chips to mid and Small caps – including AIM 100+ securities which can have average bid offer spreads more than 10x wider than those of FTSE 100 blue chips.

Figure 2 highlights continued growth of monthly value traded and new records set in 2020 via Turquoise Plato Block Discovery™, designed for larger sized orders within the Turquoise Plato™ order book.

Asset Managers from Brazil to China have enquired about the potential to scale Turquoise Plato™ midpoint and electronic block trading via Turquoise Plato Block Discovery™ given the empirical benefits investors in UK & European equities have experienced, including quality execution on order book, fewer settlement and reconciliation events with increased trade value, minimal market impact, and lower slippage costs.

Note how behaviour changed with industry adoption of Turquoise Plato™ designed in partnership with international asset managers, global banks and domestic European brokers. Figure 2 lists new Records via Turquoise Plato Block Discovery™ to end of February 2020 and compares profiles on two dates of high activity: 24 June 2016, the day after the Brexit vote; and 28 February 2020, ending a week of market sell-off coincident with concerns about coronavirus (COVID-19) and that day’s MSCI quarterly rebalancing. While each day recorded a similar €2.1bn value traded in Turquoise Plato™, on 24 June 2016 only 3% of Turquoise Plato™ activity matched via Turquoise Plato Block Discovery™ whereas by 28 February 2020, that number grew to 55% and a new record of more than €1.1bn matched via Turquoise Plato Block Discovery™. The insight is that even during times of heightened activity and increased volatility, the market has evolved to embrace the innovations of Turquoise Plato Block Discovery™ to trade large as well as small sizes enabled by the framework established by European authorities, helping investors even more efficiently get their business done.

Independent firm Rosenblatt Securities confirmed Turquoise Plato™ as the largest European dark order book, rated No.1 of 21 venues by value traded, and verified new records in calendar 2019 and again for the month of January. Thank you to our customers.

Turquoise Plato Lit Auctions™ offers pre-trade transparency and multilateral liquidity for trades of all sizes. Quality is high with low price reversion recorded after trades. Frequent Batch Auctions match many trades with small fill sizes, contributing to the €0.01m average trade size for European equities. Turquoise Plato Lit Auctions™ can instead match a wider range of trade sizes, including a material portion above LIS and trades above €500,000 in size spanning stock names of15 countries. If one is not accessing Turquoise Plato Lit Auctions™, how can one be sure one is achieving best execution?

Figure 3 shows unique liquidity example on 31st October, the day Fiat and Peugeot announced a merger. Investors using Turquoise Plato Lit Auctions™ achieved trades in large multi-million sizes, and this clearly differentiates the unique liquidity profile of Turquoise compared with that of other Frequent Batch Auctions’ venues.

Furthermore, Turquoise allows members, via single connection, to trade securities of 19 developed and emerging European countries – and settle each trade in the respective country’s Central Securities Depository. This means neither the cash nor assets leave the respective home country, by which Turquoise enables investors extra ways to buy and sell to get their business done. Turquoise timestamps trades to 1 microsecond, directly publishing trade data. MiFID post-trade transparency is pre-trade transparency for the next trade, enhancing decisions.

Turquoise has established a track record of innovation and partnership supporting efficient capital markets, and we look forward to continuing co-operation with the global investor community.

Data and the Buy-Side Trading Desk

By
GlobalTrading
-
Jacqui Loh, AIA

With Jacqueline Loh, Head of Trading, AIA Investment Management

How are buy-side trading desks gathering, organizing and utilizing data?

Jacqui Loh, AIA

Hopefully in a structured, consistent way! Data tells a story: in the first chapter we write about what we want to achieve, and the rest of the story just writes itself. The ending might not be one we like, but we can draw valuable insights from it to make our next story a better one.

To make gathering and organizing data as seamless as possible, there should be connectivity and consistency between the order management system (OMS), the execution management system (EMS), and the pre/post trade analytics module. Storing the data in one location is ideal but not always possible. Data should be organized in such a way that it is easy to run several iterations from different perspectives. However, the most
difficult part is probably deciding what to store and how much.

What are the main data challenges/ pain points for the buy side?

It would be appropriate to address the issue with a top-down
approach, thinking of the end game for data collection/analytics. Data collection and analyses should not be an end in itself, but rather should provide the basis for better decision making.

The main challenge then is to define a best execution process — how to evidence it and how to create a positive feedback loop using data analytics such that trading performance is improving all the time. After the main objective has been clearly defined, it’s then much easier to build an
end-to-end process involving data collection, data organization, and analytics. This is a more coherent approach than collating a few reports with the view of demonstrating best execution.

One related challenge is the selection of benchmarks. There are always pros and cons associated with each standard benchmark, e.g. volume-weighted average price (Vwap) vs implementation shortfall for equities. But,, they
should always be chosen to align with the asset manager’s management style and measure the matrices important to them.

The success of an end-to-end best execution process, if defined properly, can be measured by a quantitative improvement of the benchmarks.

What are the opportunities for a trading desk to use data as a competitive advantage?

As market environments change ever more rapidly and trading
platforms grow in sophistication, buy-side trading desks need
to use data to help improve liquidity costs / efficiency in a journey of continued evolution, or else suffer a deterioration in trading performance.

However, for trading teams who use data in a determined manner with the end goal in mind, the prize is that they can gain a lot of technical experience in a shorter time than previously possible. Constant analysis will also make it easier to discern anomalies in counterparty or algorithm behaviours.

On my team, every trader analyses his/her own trading performance for high- and low-cost trades on a daily basis. What were the reasons for the
high-cost trades and what do we learn from them? For the low-cost trades, what went right and how do we replicate them? This is not construed negatively, but rather viewed as opportunities to pick up changes in trends.

As a three-year-old investment manager, how did AIA IM build its infrastructure to optimize data?
I have the privilege of working in a company that encourages the use of data in decision making. The theme on my trading desk is data-driven execution. We had a clean slate to work with. So once we decided upon our best execution objectives, we were able to proceed with collecting the
relevant data in the right format as soon as possible. In addition, volumes were much lower in our first year, making it easier for us to verify the data, clean it and lay the foundation for data collection and data analytics. From then on, as volumes increased year on year, we could run the analyses with the full confidence in our data sets.

I think the main advantage in building a data infrastructure from the ground up is being able to build in flexibility such that customized reports can be run easily and at short notice. This allows us to quickly drill down on
specific issues, e.g. determining the efficacy of a certain algorithm.

What are the data challenges / opportunities unique to equities?

Data challenges are related to the different classes of stock in some Asian markets, and having to map the orders to the right types of stock, e.g. NVDRs and foreign and local stock in Thailand. IPOs and placements are
sometimes not tagged correctly. Accuracy of order timestamps is another important factor.

More than one benchmark should be used, and benchmarks should be related to the type of flow to yield meaningful results. For example, if there is a large number of illiquid stocks which take several days to complete, a static benchmark involving the estimation of market impact costs might
be more appropriate than Vwap.

The big advantage in equities is that the boundaries of normally accepted trading performance have been established for the standard benchmarks.

There are huge opportunities in the area of data usage for algorithm differentiation. This would involve identifying best-in-class algorithms for various categories and which algorithms work best under particular scenarios, e.g. liquidity-seeking algorithms for illiquid stocks.

What are the data challenges/opportunities unique to fixed income?

Trading-performance measurement is not as established as in equities, and therefore the choice of benchmarks is still up for debate. Norms of performance are also not yet established, so perhaps outperformance  / underperformance should be considered as a percentage of spread rather
than absolute numbers. The size of spreads should be a function of the portfolio of bonds traded.

Accurate data collection is more difficult as fixed income is an OTC market. There may not be sufficient data for comparison in some of the more illiquid credits.

Here, there are opportunities for counterparty differentiation by sector, country and duration. We have just started to use transaction cost analysis (TCA) in our broker reviews, in the hope that the information will be useful to the sell side too.

What is the future of data management and utilization on
the buy-side trading desk?

Traders will have to be more quantitatively inclined. This is
because a large part of their jobs will center around data collection,
interpretation and application of the results to gain basis-point
improvements in liquidity costs and overall trade performance
measurement. Automation will be another important development,
as traders have to learn to work alongside machine learning algorithms to achieve better results.

Data optimization will involve a lot of work for the industry, but our clients will benefit from the effort.

 

A Letter From Markets Media Group CEO

By
GlobalTrading
-

On behalf of everyone at Markets Media Group, our hearts go out to all those impacted by COVID-19 — those diagnosed with the virus, their friends and family, those whose jobs have been impacted, and so many more. Through these trying times, our primary focus is on the health and safety of our employees, customers and communities.

As we all navigate this unprecedented change and disruption, I wanted to give an update on MMG. First and foremost, we will continue to deliver top-notch content across all of our editorial platforms: daily news, information and updates on Markets Media and Traders Magazine, and publishing and distributing the premier Best Execution, The DESK, and GlobalTrading magazines. We are also planning digital interviews and conversations on timely topics such as trading amid high volatility, trading remotely, and how technology is reshaping today’s market structure.

As our readers know, Markets Media Group is not just a publisher, we are also about bringing together the community of institutional trading and technology at live events. As our 2020 Markets Choice Awards (New York) and Women in Finance Asia Awards (Hong Kong) move forward, we are building out the programs as usual. We already have many excellent award nominations, and all processes and protocols underpinning the events will remain intact, i.e. MMG editorial staff selects winners based on feedback from market participants and ongoing, year-round internal research.

As for the physical awards receptions, we are monitoring the situation to determine when would be safe to proceed and we will make announcements on rescheduled dates when appropriate. 

Although the COVID-19 pandemic has, temporarily, succeeded in physically isolating us, the technology that we have at our fingertips today can still connect us to get things done. We will all succeed this way until things are back to normal.

We truly appreciate your support and please let us know if we can help in any way. Stay well.

Very Best,

Mohan Virdee

CEO, Markets Media Group

For editorial inquiries, contact Terry Flanagan, Managing Editor. tflanagan@marketsmedia.com

For inquiries regarding advertising, sponsorship or events, please contact David Griffiths, Managing Director. dgriffiths@marketsmedia.com

ETF Q&A: Steve Oh, Nasdaq

By
GlobalTrading
-

Markets Media caught up with Steve Oh, Head of ETF Listings and Business Development at Nasdaq, to discuss exchange-traded funds (ETFs) amid COVID-19 and recent market volatility.

How is the ETF market faring?

Steve Oh, Nasdaq

The ETF marketplace is faring well. The entire ETF community is working well together during this volatility despite the challenges posed by COVID-19 and the associated measures taken by business and government leaders to protect people’s health.

Are there any issues with ETF liquidity?
Overall ETF liquidity has been strong. In fact, the early data is showing that investors are relying on the liquidity and access of ETFs even more during this volatile period. As volatility and trading volumes have gone up, ETFs are making up a larger percentage of overall equity trading as referenced by a recent report from the ICI. In general equity spreads have widened, including ETFs, but that can be expected with a significant spike in volatility and the associated risks to market makers.

Has ETF trading been ‘orderly’ during times of extreme volatility?
Yes, the trading of ETFs has been orderly, especially after concerns about all ETF investors trying to sell out at once during a market correction. Market data is showing that this isn’t the case at all, as ETF investors aren’t rushing out the exits simultaneously as originally feared and even some equity and fixed income ETFs have gathered new assets.

How has ETF trading held up compared with previous times of high volatility (for example, the August 2015 ETF ‘flash crash’)?
We are experiencing unprecedented and prolonged market volatility and the ETF structure has held up well to provide liquidity to investors. I think some of this is testament to the work that was done behind the scenes after August 24, 2015. Nasdaq was an important part of that, including the LULD (limit up limit down) procedures that were put in place by the industry working with regulators.

What is Nasdaq doing currently in the area of ETFs?
Nasdaq is currently the home to over 400 listed ETFs in the U.S. markets and ETF issuers have increasingly turned to our value proposition including low cost, a best in class execution platform, and strong brand alignment with top companies. Nasdaq Global Indexes has 332 ETPs tracking our indexes, listed in 20 countries on 24 exchanges globally. Nasdaq is also taking the lead in promoting ETF education to a broad audience to ensure investor confidence and to help encourage better academic research and regulations. Nasdaq has held an annual ETF education conference entitled “Synapse” with the goal of bringing together experts across the entire ETF industry to promote collaborative education. Partners have included Villanova School of Business and the CFA Society of New York. Nasdaq works with all our partners in the ETF industry including issuers, market makers, industry groups, academic and regulators to build a better marketplace to give investors more confidence in ETFs especially during times like this.

What is the broader outlook for ETFs, say for the duration of COVID-19 and beyond?
ETFs have performed well so far in being available to provide liquidity to investors looking to buy and sell through this unprecedented market volatility. Even as the impacts of COVID-19 are expected to persist, we expect this trend to continue with the ETF community working together to provide investors more comfort in being able to rely on ETF liquidity. We are optimistic that once volatility subsides regardless of the role that COVID-19 continues to play in our everyday lives, investors will gain a greater trust in the value proposition of the ETF structure in terms of liquidity, tax efficiency, costs and diversification. Investors have increasingly turned to ETFs in times of stress, as evidenced by higher volumes over the last three weeks. We anticipate that investors will continue to use ETFs to express their views about the market, especially for those asset classes and sectors where it is increasingly complicated/costly to transact in the underlying. Finally, we believe that ETFs will continue to act as price discovery vehicles, providing transparency into how investors are valuing assets. This is especially true in fixed income sectors where underlying bonds trade infrequently.

Data Connectivity Essential for Remote Work

By
Siobhan Brownlow
-

Matthew Cheung, chief executive of ipushpull, said there had been an increase in interest in the company’s ability to provide live data sharing as more staff are working remotely during the Covid-19 pandemic.

Matthew Cheung, ipushpull

Cheung told Markets Media: “The cloud has a couple of silver linings. As more people are working remotely, firms want the ability to share data in real-time while maintaining their institutional controls over access.”

London-based ipushpull allows users to securely share data in real-time across desktop applications, databases, messaging platforms and cloud services.

Cheung said the technology was originally built for an electronic trading company to facilitate sending data to mobiles and he realised there was a gap in market for a product that allowed a group of people to easily share live data .

Before  joining  ipushpull Cheung co-founded RANsquawk, an online financial news service after previously working as an analyst and trader. ipushpull was also  founded by Dan Eccleston, who built the Eccoware electronic trading software business, and David Jones, chief technology officer, who worked in a number of financial institutions.

Cloud technology

The data-as-a-service platform was launched three years ago and allows data to be easily shared using cloud technology.

“Cloud deployment was a big challenge in capital markets,” Cheung added. “An enormous tanker started slowly turning three years ago at a slow pace and has picked up speed in the last 12 months.”

He predicted there will be an acceleration in deployment of the cloud in the next nine to 12 months, especially as the Covid-19 pandemic has caused staff to work from remote locations while still needing access to real-time data.

In capital markets ipushpull has initially focussed on non-exchange traded assets that require manual processes. For example, when dealers make prices for options in Excel spreadsheets and then have to copy and paste the information into emails for distribution. ipushpull has been used by an interdealer-broker to automate this process by uploading the excel data into the cloud so it can  be shared live it in various formats such via chat or an API.

“We make the data interoperable enabling live collaboration,” added Cheung.

NatWest Markets

Another example of how ipushpull has been deployed is NatWest Markets hiring the fintech last October so the bank can share trade axes in real-time with some of its largest buy-side clients.

Instead of dealers manually copying and pasting data from Excel into emails, ipushpull’s automated axe interface supports customization and filtering per counterparty and allows delivery over multiple channels.

Cheung said: “NatWest Markets have been fantastic to work with as they are happy to embrace new technology to digitise their processes.”

NatWest Markets uses ipushpull to automatically distribute axes from Excel into other formats including the Symphony chat app and APIs.

Matthew Harvey, head of fixed income client execution platforms and digital sales at NatWest Markets, said in a statement: “ipushpull’s innovative live data sharing and workflow automation platform enables us to bring an idea to a production application within weeks.”

Harvey and Phil Lloyd, head of market structure & regulatory customer engagement at NatWest Markets, said in a blog that the increase in volumes on electronic venues since the introduction of the MiFID II regulations at the start of 2018 led the bank to investigate new technologies.

“NatWest Markets and other banks have landed new tech on the sales desktop to help with the digitisation of these voice flows in an effort to achieve regulatory compliance,” said the blog. “This tech has also provided the ability to analyse flow in a similar way to what is possible via electronic venues – benefitting the dealer and client when reviewing service levels.”

Phil Lloyd, NatWest Markets

Harvey and Lloyd identified ipushpull amongst the fintechs that increase workflow efficiency, deliver increased controls and minimise the impact of post MiFID II additional process.

“An opportunity has materialized: combining the benefits of dealing directly with a salesperson with the speed, efficiency and regulatory controls provided by electronic flows,” they added. “The extent to which human interaction can be preserved whilst leveraging automation continues to be a key consideration for developing customer propositions. Clients and liquidity providers who adapt will be able to control migration to electronic channels, rather than just act as passengers.”

Euromoney TRADEDATA

This month Euromoney TRADEDATA announced the release of its first reference data application that can be deployed into Symphony in partnership with ipushpull.

The application will provide licensed Symphony users on demand access to Euromoney TRADEDATA’s reference data sets.

Cheung said: “Euromoney TRADEDATA used to send a large file once a day which then had to sliced and diced by banks. Users will now have data on demand.”

Euromoney TRADEDATA is now able to deliver live and on demand data into Symphony, as an app and as a chatbot, and direct into client-side Excel.

Mark Woolfenden, managing director of Euromoney TRADEDATA, said in a statement: “Community messaging solutions are a perfect medium for requesting and retrieving unique data sets as part of rapidly developing workflow technologies. We also look forward to working with ipushpull to develop a clutch of bots, to further enhance our customers’ experience in using our data services.”

A very bumpy road ahead

By
Lynn Strongin Dodds
-
Didier Saint Georges, Carmignac

Lynn_DSC_1706_WEBLynn Strongin Dodds

Around 44% of derivatives traders surveyed expect market volatility to remain high for months due to the coronavirus rather than weeks, according to the monthly Acuiti Derivatives Insight Report. This compares to 41% who believed it will last for weeks and the 8% who thought it would last for just a few more days.

Acuiti’s monthly operational and revenue survey, which was conducted between 2 and 13 March, also found that 90% of firms surveyed globally had taken some action to lessen the blow with the most common measures being working from home and restricting travel. Of those that had implemented a game plan, 63% anticipated it would be in place for more than one month with 31% predicting a two to four-week period. Recent events show that these measures may be in place for months.

The report also warned that while revenues spiked across the global derivatives markets in February in line with worldwide trends, the road ahead will be very bumpy. The study showed 84% of respondents reported higher year-on-year revenues in February, but the Acuiti Derivatives Sentiment Index, which measures industry outlook, slumped to its lowest level since it was launched in March 2019. Only 40% of respondents are predicting improved conditions over the next three months.

The monthly Acuiti Derivatives Insight Report is compiled from Acuiti’s network of over 550 senior executives in the global derivatives markets. The report covers revenues, outlook and is complemented by a quarterly analysis of cost bases, headcounts and barriers to growth.

Tim Edwards, S&P Global

The derivatives industry is not alone and markets across asset classes and geographies are experiencing record levels of volatility, according to Tim Edwards, Managing Director, Index Investment Strategy at S&P Global.

“Cboe’s Volatility Index, better known as VIX, gives an indication of how much volatility the market expects in the near term or, more accurately, the level of volatility that would justify the current prices of S&P 500® options,” he adds. “In a history that stretches back over 7,500 trading days to January 1990, five of the eight highest closing levels for VIX occurred in the past week. Only the peaks in volatility that occurred during the 2008 financial crisis saw anything similar.”

Didier Saint Georges, Carmignac

Didier Saint Georges, Member of the Strategic Investment Committee at Carmignac concurs adding that the financial markets have entered a highly unstable period, not just because of the ramifications of the coronavirus crisis but also because financial and macroeconomic conditions had become very fragile.

“For the past decade or so, central banks’ intervention has sustained an unprecedented performance by financial markets, while real economic growth has remained sluggish,” he says. “As a result, now that a health crisis is triggering a deflationary shock through a drop in demand, in the face of which central banks and governments are relatively helpless, the markets must contemplate some brutal economic repercussions. They will probably remain highly unstable until they manage to quantify these repercussions.”

©BestExecution 2020

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