Will there be some upheaval in the retail brokerage space as a result of some major players reducing trading commissions to zero?

There could be, said one prominent analyst.

According to Jessica Rabe, Co- Founder at DataTrek, the decision to cut trading commissions to zero has had a definitive impact.

To recap, Charles Schwab announced that it will no longer charge commissions on online stock trades, effective Oct. 7. TD Ameritrade followed suit, saying it would also offer zero-commission trades.

Founder and Chairman Charles Schwab said, “From day one, my passion has been to make investing easier and more affordable for everyone. Beginning October 7, every Schwab client can trade U.S. stocks, ETFs and options commission-free. Eliminating commissions ensures my ultimate vision is realized – making investing accessible to all.”

Schwab CEO and President Walt Bettinger emphasized, “This is our price. Not a promotion. No catches. Period. Price should never be a barrier to investing for anyone, whether an experienced investor or someone just starting on the investing path. We’re proud to provide clients with a full-service, modern investing experience that delivers on our no trade-offs combination of service, simplicity and superior value – backed by a satisfaction guarantee2. In support of the valued independent investment advisors we serve, the same pricing will apply to their clients when trading at Schwab.”

In sum, beginning October 7, 2019, the company will reduce U.S. stock, ETF and options online trade commissions from $4.95 to zero.

Shares of Schwab fell more than 10% on fears the change will hit margins. The broker said commission fees make up 3% to 4% of net revenue each quarter.

Rival brokerage firm TD Ameritrade responded by also dropping its charged commission rate to zero on trades which resulted in its stock dropping more than 26% for its worst day in 20 years right after the announcement. It previously charged customers $6.95 per trade.

TD clients trading options will now pay $0.65 per contract with no exercise and assignment fees.

“We are committed to giving our clients the best possible investing experience, with cutting-edge technology and award-winning investor education and service teams. And now, that experience just got better,” said Tim Hockey, president and chief executive officer of TD Ameritrade. “We’ve been taking market share with a premium price point, and with a $0 price point and a level playing field, we are even more confident in our competitive position, and the value we offer our clients.”

Rates will be effective for TD Ameritrade retail clients, as well as clients of independent registered investment advisors that utilize TD Ameritrade Institutional. A final pricing schedule will be available on Oct. 3, 2019.

E*Trade too dropped its trading fees to zero. It estimates a quarterly revenue impact of $75 million from dropping fees.

But DataTrek’s Rabe said that others were hurt by the news. She reported that these moves cut $1.7 billion of market cap from ETRADE Financial, as well as $6.6 billion from TD Ameritrade and an undeterminable amount from the values of private companies like Fidelity and financial conglomerates that offer retail stock/bond/options trading. She added that old timers will recall that the trend to lower retail trading costs actually started in 1975, when the SEC first allowed negotiated commissions.

“Charles Schwab itself was an early entrant in the discount brokerage space on the back of that regulatory change,” Rabe said. “But it took the Internet, mobile computing, and venture capital backed brokers targeting millennials to get commissions to zero. And here, we suspect, they will stay.”

So, what can we expect next?

Consolidation among the brokers.

“The bottom line here is that M&A is a natural result when an industry goes through a disruptive shift that makes its products/services cheaper, better, or more responsive to customer needs,” she said. “Scale may not return an industry or its participants back to returns on capital that existed before the disruption came along. But for many of its competitors, mergers will be better than the alternative.”

Social media giant Facebook has finally provided a glimpse into the hard currencies backing their Libra cryptocurrency.

As first reported in the Independent, in a letter to German politician Fabio de Masi, Facebook said that half of the Libra cryptocurrency would be backed by reserves of US dollars, while the Euro, Japanese Yen, British Pound and Singapore dollar would also provide support. The thinking goes that by having solid and liquid underlings would help stem some of the price volatility that has been seen in other cryptos such ass Bitcoin and other lesser currencies.

But wait…where is the Yuan? China’s strong economy and government protection of its currency would seem a natural fit for Libra. Not to mention its inclusion in the underling basket could prompt China to relax censorship of social media within the country.

But with the ongoing trade dispute between the US and China, the move away from the Yuan might make US regulators more apt to allow the social media entity to use Libbra more freely.

French finance minister Bruno Le Maire said recently that Libra’s development would be blocked in Europe as it poses a threat to “monetary sovereignty”.

Politicians in the UK expressed similar concerns earlier this year, claiming Libra represents Facebook’s latest attempt to “turn itself into its own country.”

Facebook, via its Calibra subsidiary, has enlisted major players in the Libra project—such as Mastercard and Visa.

However, the New York Times and others have reported PayPal has decided to withdraw from the Libra Association, the 28-member nonprofit organization formed in June 2019 to oversee the cryptocurrency’s creation and eventual consumer rollout. The company doesn’t cite a specific reason, saying only in one statement to The Verge that it decided “to forgo further participation in the Libra Association at this time and to continue to focus on advancing our existing mission and business priorities as we strive to democratize access to financial services for underserved populations.”

Nasdaq, the US exchange group, is aiming for more than 30% of its European data business to come from outside its traditional market data offerings.

James McKeone, head of European data for Nasdaq’s global information services, told Markets Media: “We are building a European data business and our ultimate aim is for upward of 30% of our business to come from outside our traditional exchange market data offerings.”

The move fits in with the strategy that Adena Friedman, president and chief executive of Nasdaq, has articulated for the exchange group. She described Nasdaq as “a technology company that serves the capital markets” with offerings such as market monitoring tools, data and analytics in a webinar with consultancy Greenwich Associates last week.

In June Bjørn Sibbern also took on the new role of president, European markets, to lead markets across the Nordic and Baltic region. He is also responsible for managing trading, clearing, settlement, and data businesses in Sweden, Denmark, Finland, Iceland, and the three Baltic countries. Nasdaq operates 19 offices in 15 countries across Europe.

Friedman said in a statement at the time: “Our European markets are strategically and financially important to our global business. Bjørn will bring his extensive markets experience and strong leadership capabilities to deepen our relationships with clients and regulators and create new opportunities to expand our business.”

Sibbern was previously head of Nasdaq’s global information services business, and led the the acquisitions of investment analytics provider eVestment in 2017, and Quandl, the Canadian alternative data provider, last year.

ESG data

One area of focus for the European business is environmental, social and governance data.

McKeone said: “Our approach to ESG data is unique because we have a team of people who guide companies on reporting, such as how they should report carbon dioxide emissions, and they also validate the data.”

As a result , Nasdaq has a gold source of ESG data which attracts investors and especially pension funds.

“There are 250 companies reporting ESG data since we started with them a year and a half ago,” added  McKeone. “The aim is to cover all our listed companies, private companies, and then to expand to the rest of Europe and potentially the US.”

The exchange has also launched Nasdaq ESG Footprint in partnership with Matter, a Danish fintech.

Nasdaq ESG Footprint provides investors & managers with access to the real-life effects of each investment, along with alternatives based upon their sustainability goals. Explore the interface here: https://t.co/tWCSPOjshV #ESG pic.twitter.com/pqtD0E316p

— Nasdaq Exchange (@NasdaqExchange) September 24, 2019

The product is aimed at retail banks and analyses their customers’ portfolios against ESG metrics and the United Nations’ Sustainable Development Goals. It will suggest stocks of similar companies that better meet the investors ESG profile. For example, if the portfolio had weapons manufacturers it suggests companies that are a close match but not in that business line.

“Nasdaq ESG Footprint will first be offered to banks in the Nordics and then expanded in Europe,” said McKeone. “By the end of next year we hope that five or six retail platforms will be using the service.”

The exchange also aims to grow green bond data for investors in Europe and the US, and further expand the alternative data offering to support increased transparency in new markets.

Outside ESG, Nasdaq also launched a partnership in July with the LBMA, the  trade association for the wholesale over-the-counter market for gold and silver bullion, to increase transparency in the OTC precious metals market.

“We adapted technology that we acquired through Cinnober to allow for commodities reporting so that members can send us their trade information,” added  McKeone. “We aggregate and anonymize this data and create a data product.”

The LBMA-i service was expanded to include daily market information on platinum and palladium, from gold and silver. LBMA-i is an online offering that collates anonymous and aggregated trade volumes reporting data from LBMA members and began as a joint effort between LBMA and Simplitium, a subsidiary of software provider Cinnober, which Nasdaq acquired this year.

Ruth Crowell, chief executive of LBMA, said in a statement: “Our collaboration with Nasdaq ensures that all stakeholders and interested parties have access to high-quality data on precious metals on a daily basis.”

Information services

Nasdaq said in an investor presentation last month that the Information Services division earned $714m ($656m) in revenues last year, 38% of group operating income. The presentation continued that key capabilities include being a gold source for data; marquee index brands and analytics that deliver actionable insights.

Nasdaq said Information Services revenues from non-exchange source were nearing 50% and the exchange expects organic revenue growth to continue.

In her webcast Friedman answered criticism of exchanges’ market data fees and said sometimes-cited figures of 14% annualized revenue growth are inaccurate. She said: “We try to make data affordable and high value.”

Nasdaq conducted a 10-year review of its equities product and said compound annual growth rate in data revenue was about 6%, with price increases contributing 2.4%. In addition, the Nasdaq Basic data offering is designed as a viable low-cost alternative to more expensive products.

Alasdair Haynes, chief executive of Aquis Exchange, said the subscription-based exchange group wants to become the growth market for Europe.

This week Aquis Exchange started trading 36 of the largest Irish blue-chip stocks taking the number of markets within the subscription package to 14.

Aquis Exchange expands stock universe: We are pleased to announce that we now offer Members over 35 blue-chip Irish securities for trading, all included under the fixed monthly subscription fee https://t.co/79ZaDeOFLS

— Aquis Exchange (@Aquis_Exchange) October 7, 2019

Haynes told Markets Media: “These are important stocks and shows the progress of our subscription model.”

Aquis said that it had completed coverage of Western Europe. Haynes added that the exchange may add central and eastern European stocks if there if there is customer demand.

The venue had to stop trading Swiss securities in July once the country lost its equivalence with European Union trading venues.

“We are looking for the earliest opportunity to restart trading of Swiss stocks once this is allowed by regulations,” Haynes added.

Addling listings

In July Aquis agreed to acquire NEX Exchange from CME Group. NEX Exchange is one of only four equities-focused Recognised Investment Exchanges in the UK, and a market for growth enterprises. There are currently 89 small companies on NEX’s two markets with a combined market capitalisation of approximately £1.9bn ($2.3bn), with 51 registered brokers and seven market makers.

Aquis Exchange PLC agrees to buy NEX Exchange from CME. Plans to create pan-European listings exchange for growth companies. https://t.co/X45opCvIBW

— Aquis Exchange (@Aquis_Exchange) July 5, 2019

Haynes said Aquis hopes for regulatory approval of the acquisition at the end of this month or the beginning of next month.

“Meanwhile, we have been talking to banks and brokers who want change in mid- to small-cap market, which has not changed for 40 years,” he added.

For example, some stocks trade at between 15% to 20% spreads, some do not trade for six months and there is no access for retail investors.

“It is essential to use technology for innovation so we can enhance liquidity and the price discovery mechanism,” said Haynes.

A new hybrid new trading model could be introduced which includes quote-driven, order-driven or auction-driven mechanisms. Aquis also wants to introduce machine readable data for its listed companies which will enable more quant research.

The acquisition of NEX gives Aquis a listing venue and allows the exchange to compete for initial public offerings. Aquis itself went public on the London Stock Exchange last year.

“We floated and had a beauty parade for banks, lawyers, accountants but not exchanges,” added Haynes. “There is an opportunity for Aquis to pitch with our own listing criteria which may be more appropriate for certain companies.”

Haynes also wants retail investors to have earlier access to the IPO process.

“We are not against investor protection but retail investors can buy shares in a new company one second after it starts trading,” he added.

The chief executive admitted that it will take time to build a new market, change the listing criteria and improve connectivity, but has ambitious targets.

“We have had positive feedback from the industry,” Haynes said. “We want to be the growth market for Europe and a competitor to Aim and Nasdaq.”

Rebecca Healey, global head of market structure at institutional liquidity pool Liquidnet, said research unbundling in the European Union has led to a changing role for execution as part of the investment process.

In a report, Unbundling: What’s the Verdict?, Healey said that fund mangers paying for research from their revenues has allowed them to select the best providers for research and execution services respectively.

“It is also leading to a changing role for execution as part of the investment process as greater in-depth pre-trade data can be fed into the investment process to enhance timing of an execution or uncover hidden liquidity through analysing previous executions to select the most appropriate venues and minimise unnecessary information leakage,” she added.

Healey continued that executions will improve as research evolves to include richer and bespoke datasets and help increase alpha.

The EU’s MiFID II regulation required the unbundling of research payments from the beginning of last year, and most asset managers have chosen to pay for research out of their own revenues. Before MiFID II research costs were often ‘bundled’ into transaction commissions and paid by investors, with many buy-side firms not monitoring how much of their clients’ money was being used to pay for research.

The Financial Conduct Authority reviewed changes in the research market since MiFID II came into effect at the start of last year. The UK regulator said in report last month that investor savings from unbundling could reach nearly £1bn ($1.25bn) over five years.

A US asset manager told Liquidnet in the report: “Historically the broker who did not have research would never have made it onto the list. It’s a different freedom, we can send our flow where we should.”

The FCA added that unbundling has allowed asset managers to select brokers purely on their ability to provide best execution and that the number of counterparties used for execution-only services has increased.

“Several firms said that fully separating execution from research has allowed them to reassess their use of high-cost versus low-cost execution channels, e.g. electronic and algorithmic trading,” said the FCA. “This has resulted in them making more use of lower cost channels, and further client cost savings.”

New data

The regulator continued that the majority of asset managers can still get all the research they need and are not experiencing a reduction in coverage on smaller companies.

@TheFCA outcome on #unbundling (thread) 1. £70mln in savings for sample of 40 buy-side firms 2. BS firms still have access to rsh they need & majority have not seen decline in SME https://t.co/UsXhCgCizc

— Rebecca Healey (@_RebeccaHealey) September 19, 2019

Healy said in the Liquidnet report that the focus should not just be on the coverage of small and medium enterprises but on the new requirements for research – including the requirement for both structured and unstructured data; and the rise of environmental, social and governance and sustainable investing.

“The ability to access, analyse, interpret and act upon the information now available in a global 24/7 economy will be how active managers can deliver better fund performance for end-investors,” Healey added. “Automating the investment process will be what differentiates the active managers who survive versus those that will not.”

Buy-side firms are likely to spend $1.7bn on alternative data in 2020, a sevenfold increase since 2016, according to the report.

Liquidnet found that 64% of asset managers now use both structured and unstructured datasets. The majority, 51%, also expect the greatest disruption to the industry to come from increased use in third party data and for technology providers to provide greater access, portability and modelling of data rather than the traditional bulge bracket brokers.

Healey gave the example of a multi-billion dollar discretionary fund which used systematic analysis to review all research reports, emails, instant messages and trader notes to extract data signals and create a shadow portfolio. Over a three-year period the strategy outperformed the fund’s own P&L.

She said: “It will not only be necessary to absorb an increased quantity of data from a continuing variety of sources but to also have the ability to efficiently aggregate and analyse this data in order to extract actionable insight.”

International standard

Liquidnet continued that research unbundling is becoming an unofficial international standard.

There were reports in the summer that the US Securities and Exchange Commission is looking to extend the exemption that allows US brokers to provide unbundled research to EU fund managers. SEC regulations prohibit fund managers from directly charging for research unless they register as investment advisers.

“Interestingly a recent report by the Tabb shows that only 33% of large US asset managers are still operating a bundled model; although this figure increases to 45% of mid-sized and 67% of smaller funds,” added Healey.

Pricing

The FCA survey said the quality of asset managers’ research valuation models varies and the UK regulator re-iterated that it expects buy-side firms to refine their models to ensure they are acting in the best interests of their clients. The report also said there are a wide range of sell-side research pricing levels.

“We will monitor for potential competition concerns in this market and will act if necessary,” added the FCA. “Firms are continuing to develop their arrangements and a market for separately priced research is still emerging. Therefore, we intend to undertake further work in 12 to 24 months’ time.”

"There’s been a rise in the outsourcing of various processes and tools that have become incredibly expensive to do yourself…the asset management industry needs to do things dramatically differently than they have in the past."

Brian Conroy of @Liquidnet speaks at #STA2019DC pic.twitter.com/goXeXpshrh

— SecurityTradersAssn. (@STA_National) October 2, 2019

Healey said research pricing models varied with some using tiered service pricing levels, others offering ’pay as you go’, while others price per type of interaction or product consumed.

“However, if what the buy-side receives is so cheap as to call into question whether it is genuinely divorced from trading or wider relationships with a broker, the FCA indicate that they are planning to monitor this for potential competition concerns and will act if necessary,” she added.

Independent research providers also expressed concerns to the FCA that pricing is too low because large multi-service banks are internally cross-subsidising their research, making it hard for them to compete.

The FCA said: “We are aware of the potential negative effects on competition in the medium term if some firm’s loss leading prices drive out competitors, reducing choice.”

Healey continued that while there are clearly anti-competitive issues which need to be addressed; in some sense this is a question of “stable-horse-bolted.”

“Conversations with asset managers who contributed to Canary in a Coalmine indicated that high touch services such as analyst access, conference attendance are increasingly being internalised or sourced from more cost-effective sources,” she said.

Cognitive Credit has been launched to improve the efficiency of credit analysis through using machine learning to analyse data.

Robert Slater, chief executive and founder of Cognitive Credit, told Markets Media that he has worked in credit markets for 15 years including more than a decade at Citi and on the buy side.

Slater said that a huge challenge facing credit markets is that analysts are inundated with information. The corporate credit market is more than $10 trillion in size but there has been minimal technical innovation.

“Fundamental credit analysis is done the same way as 20 years ago using spreadsheets,” he added. “The process is still extremely manual.”

Slater set up Cognitive Credit two years ago to develop an advanced tool to make research more efficient, rather than providing content, opinions or advice. The firm has been collaborating with investment firms and testing with potential users.

It’s an exciting time for technology in #fixedincome markets – @cognitivecredit @AB_insights @WeAreAdaptive @HermesEOS discuss how to best use technology to improve workflow and access to liquidity #FILS19 pic.twitter.com/EHf913c3G7

— Fixed Income Leaders (@FixedincomeGuru) October 8, 2019

“Our proprietary data pipeline uses machine learning to analyse documents such as financial statements and bond prospectuses,” Slater added.

The structured and unstructured data then automatically populates financial models in Cognitive Credit. Web-hosted financial spreadsheet models can provide years of annual and interim financial data, as well as additional functionality such as derived credit metrics, forecasting functionality and text search capabilities. Analysts can easily click through to find the original data source.

“We are not trying to replace analysts,” said Slater. “Credit analysis is still an art, not a science, and cannot be done completely by machines.”

However, he continued that computers are better at certain tasks, which then frees up analysts for higher value work. For example, they do not need to spend time finding documentation and Cognitive Credit can also automatically generate credit memos.

"Buyside still lives on spreadsheets" says @Hermesinvest s Lee at #FILS "innovation for in-ouse teams is hard -they do incremental day to day change" – Barrett. " Robert Slater @CognitiveCredit "our software augments the user. Collaborating with users so rewarding for both sides

— Andrew Marshall 🇺🇦 (@Andrew_Marshall) October 8, 2019

Cognitive Credit is initially launching in European high-yield which Slater described as having poor reporting standards and transparency.

“Our ambition it to be the ‘must-have’ credit tool,” said Slater. “Analysts should feel they cannot do their job without it and will be at a disadvantage if it is not part of their daily workflow.”

Pentech Ventures is one of Cognitive Credit’s shareholders.

Marc Moens, partner at Pentech, said in a statement that when the venture capital firm met the team at Cognitive Credit they were impressed with their combination of expertise in institutional credit markets with a deep knowledge of artificial intelligence and big data handling.

“The way their product captures, structures, analyses, verifies and displays complex data is unique, and we are excited to support them in establishing their company as a technology leader in the global corporate credit market,” added Moens.

Nasdaq is moving full-speed ahead in its evolution from just an exchange operator to also a technology provider across capital markets. 

That was the gist of Nasdaq CEO Adena Friedman’s remarks on a Thursday morning Greenwich Associates webinar.  

Kevin McPartland, Head of Market Structure and Technology Research at Greenwich Associates, asked Friedman to look back on her first day as CEO in 2017. 

“It was was extremely exciting and a proud moment for me and I was ready to get started,” Friedman said. “It was time for us to think through how to carry the business forward. How can we leverage technology to redefine capital markets? That’s how we looked at our strategy and the pivot we started to implement.” 

Friedman described Nasdaq as “a technology company that serves the capital markets” with offerings such as market monitoring tools, data and analytics. The mission is to “become a scaled technology player in the capital markets in addition to being a world-class exchange.”

The discussion moved on to cover topics such as private equity, blockchain, buy-side relations, and data. 

Nasdaq’s Private Markets unit provides technology and capital markets support for private companies, whether they wish to effect an IPO or stay private. Friedman said private companies need more automation and efficiency in their interfacing with capital markets.  

A private company can allow investors to access liquidity via a tender offer, but then there is an ongoing need for capital markets activity, such as price discovery, block trading, and auctions. “We facilitate liquidity in the private equity space,” Friedman said. 

Nasdaq is assessing whether real estate or other non-public markets might be suitable for similar liquidity facilitating, Friedman said. 

Regarding blockchain, Friedman cited the benefits of a technology that allows traceability and creates a perfect record of transfers, but adoption is best-suited for new markets.  

“It’s very nascent. There has been a lot of innovation, but there are concerns around unregulated markets and certain behaviors,” she said. “The hardest part of blockchain is distributing it across clients with legacy technology infrastructure.”

As the buy side plugs into markets via sell-side broker-dealers, investment managers are a step removed from exchanges. Nasdaq is working to change that dynamic, at least incrementally, via analytics offerings such as Quandl and eVestment.    

Working directly with the buy side “gives us much deeper insights into what their challenges are and how we can better work with them,” Friedman said. 

Lastly, Friedman pushed back on critics of exchanges’ market-data business and said sometimes-cited figures of 14% annualized revenue growth are inaccurate. 

Nasdaq conducted a 10-year review of its equities product and determined that the compound annual growth rate in data revenue was about 6%, of which 2.4% was from price increases. The exchange operator’s Nasdaq Basic data offering is designed as a viable low-cost alternative to more expensive products.   

“We try to make data affordable and high value,” Friedman said.

The Bank of England has warned that firms are continuing to write new Libor contracts even though the benchmark interest rate is expected to be discontinued after the end of 2021.

The UK central bank said in research published this week that many new contracts maturing beyond 2021 continue to reference Libor. The Financial Conduct Authority said two years ago that it will not compel panel banks to submit to Libor beyond 2021.

With Libor expected to be discontinued after end-2021, the use of alternative interest rate benchmarks is steadily increasing. But use of Libor remains widespread, and this poses risks to market stability. https://t.co/8KgzL9XzKL #BankOverground pic.twitter.com/PDH5uRy8X3

— Bank of England (@bankofengland) September 30, 2019

“Despite the progress in establishing alternative reference rates and in building these new markets, much more work is needed to complete the transition,” added the study.

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 Bank of England highlighted the loan markets, which is still dominated by Libor-linked lending, and many new long-dated derivative contracts which are referencing Libor.

“Firms now need to focus on shifting new business from Libor to alternative rates, and should put in place a clear transition plan to mitigate their legacy risk from older contracts,” said the Bank of England. “In June 2019, the Prudential Regulation Authority and the Financial Conduct Authority published guidance for firms on the issues they need to consider when making a transition plan.”

Progress

The UK has chosen the sterling overnight index average, Sonia, as its new risk-free rate. The European Central Bank started publishing a new benchmark rate this week.

The euro short-term rate (€STR), a new benchmark interest rate, has been published for the first time. The rate reflects the wholesale euro unsecured overnight borrowing costs of banks located in the euro area. The €STR is available here https://t.co/BUp2OidOjS #EuroSTR pic.twitter.com/b14OFa6YHP

— European Central Bank (@ecb) October 2, 2019

The US has adopted the secured overnight financing rate, SOFR, as its risk-free rate to replace US dollar Libor.

CME Group  announced last month that it plans to introduce options on three-month SOFR futures.

Mark your calendars. SOFR options launch January 6, 2020. https://t.co/V0ffYSQb6c pic.twitter.com/DbdbmVC3r6

— CME Group (@CMEGroup) September 4, 2019

Agha Mirza, global head of interest rate products at CME Group, said in a statement:  “Offering options on futures builds on our ever-growing SOFR ecosystem and deep expertise in listed interest rate options, and provides clients with another solution for managing exposure to interest rate price risk around the world.”

The exchange said that since SOFR futures debuted in May last year, more than 195 global market participants have traded over 6.3 million contracts at CME Group.

“A record 120 large open interest holders held open positions in SOFR futures as of Aug. 27, 2019,” added CME. “Additionally, open interest surpassed a record 283,000 contracts on Aug. 30, 2019.”

SOFR futures open interest jumped 29% in August. https://t.co/nzsSKv4F9w pic.twitter.com/dxo87cjQ7x

— CME Group (@CMEGroup) September 5, 2019

Conduct risk

Deloitte Financial Services UK highlighted in a blog that the as markets transition from IBORs, there are likely to be recurrences of market and customer misconduct  – although they are likely to manifest differently.

“This being the case, risks of misleading clients, market abuse (including insider dealing and market manipulation), anti-competitive practices, both during and after transition (such as collusion and information sharing) and risks arising from conflicts of interest, are all likely to reappear,” said Deloitte.

Therefore firms should ensure that they robustly identify and mitigate conduct risks arising during the transition.

“As the famous statesman Edmund Burke once said, “those who don’t know history are destined to repeat it”,” added Deloitte. “There is plenty of historical information available to firms about potential conduct pitfalls.”