Simon Walls, interim executive director of markets, FCA
The Financial Conduct Authority has published proposals for the Private Intermittent Securities and Capital Exchange System (PISCES) trading platform.
PISCES has been developed at a time when the number of listed UK companies is shrinking. The system will allow private companies to trade their securities on a controlled basis, temporarily going public to gain access to a larger funding and liquidity pool, before going private again.
The platform combines both public and private market infrastructure, offering multilateral trading and allowing for greater discretion around company disclosures. The Treasury is expected to deliver a statutory instrument to Parliament by May 2025, after which the legal framework for a PISCES sandbox will be released.
Such an environment will allow the Government and regulators to ensure the system is working successfully before a permanent regime is implemented.
Alongside the new market’s framework, the FCA is also consulting on risk warnings for investors.
Simon Walls, interim executive director of markets at the FCA, commented: “[The] new private stock market that could transform how private companies access funds and grow. It will offer investors more access and a greater confidence to invest in private companies and could act as a stepping stone to public markets for those firms.”
The UK Government ran a consultation on PISCES in March, publishing its response in November outlining a proposed design for the project. In the Chancellor Rachel Reeves’ Mansion House speech last month, the new platform was recommitted to.
The London Stock Exchange, which developed PISCES, has voiced its support for this latest development. CEO Julia Hoggett commented: “We welcome the FCA’s proposals for PISCES and this next step in bringing to the UK an innovative and tailored framework that supports the funding continuum across public and private markets. We look forward to working with the FCA, HMT and other stakeholders in the coming months to deliver further opportunities for companies to access the liquidity they need to support their growth ambitions.”
PISCES forms part of broader market reforms by the FCA, introduced to improve competitiveness and investment in the UK economy.. Other agenda items include reforming the prospectus regime to make fundraising in the UK cheaper and easier, introducing flexibility around asset managers’ investment research purchases, developing a crypto regulation roadmap and launching the digital securities sandbox.
George Rosenberger, head of NYFIX, Broadridge Trading and Connectivity Solutions
Broadridge has launched an AI-led tool to support buy-side firms’ execution decisions for its NYFIX order routing network.
FIX-based order routing networks are offered by a number of companies. Bloomberg, LSEG’s Autex Trade Route, FlexTrade and Trading Technologies are among Broadridge’s competitors in this space.
To differentiate from the market, “what we’ve built in essence is the Waze of trading,” George Rosenberger, head of NYFIX at Broadridge Trading and Connectivity Solutions explained to Global Trading.
“It’s a navigation tool, to set the user on the optimal execution path and keep them out of trouble. It sees things we can’t, and just like with Waze, if something changes along the journey, we will notify the trader via a liquidity alert.”
“Traders have so many algo choices available to them. It can be information overload. This tool will provide insights into the specific strategy to use for the name they are looking to execute,” he noted.
“While traders often assume stocks with similar traits trade alike, our research reveals that liquidity demands are the true performance driver. Our tool maps the algorithmic landscape based on a stock’s liquidity characteristics and market environment,” added Linda Giordano, who is consulting with Broadridge and is founder and CEO of Babelfish Analytics.
This tool aggregates public, private, historical and real-time data from across the industry, “which we stitch together using AI to create a time series that gives us a complete view of market liquidity,” Rosenberger said. “Then we make a recommendation on which strategy to use.”
Traders receive real-time alerts and in-trade analysis, with updates provided to allow for amendments throughout execution. The tool aims to reduce outlier trades to 10% or below, improving overall costs for the buy side.
The service can also identify where dark pool liquidity is developing. “Mapping the appropriate algo to where the dark pool activity is bubbling up has a substantial impact on performance,” Giordano explained. “It’s something that traders have been trying to get a handle on, and we finally have the technology to do it.”
Executing in the dark allows for anonymity and lower implicit trading costs, however the tool does not automatically favour dark pools. “If there’s not any liquidity there, then it will tell you the opportunity cost and send you to the appropriate exchange. Traders can be a little cautious, but if you have to make that decision you want to make it at the appropriate time. This model will tell you when to pull the trigger.”
The service follows last year’s launch of NYFIX Fill Matching, a service designed to support real-time reconciliation for high-volume trading. Fill Matching was developed to address market demand for synchronisation between brokers and asset managers and provide an end-of-day processing solution for the T+1 environment.
“We’re not supplanting traders’ gut instinct – there’s a reason why they’re the best traders,” Giordano continued. “But having a decision-making tool confirms that they’re doing the right thing, and can give them new ideas.”
“Broker algos are highly differentiated, however one of the key similarities is that they all contain a liquidity sourcing mechanism. We have developed a proprietary system that identifies where a security is likely to trade best under specific market conditions.”
However, Rosenberger clarified, “we are not an algo switching engine, we are not an algo wheel. We’re simply making a recommendation to traders based on the expertise and data that we’ve assembled.”
The service is currently available to NYFIX Order Routing customers in US equities. Broadridge has shared its intentions to expand the offering to other asset classes and regions, and to clients on other order routing networks.
Andreas Burner, CTO and Head of Product Management at SmartStream
Data may be today’s gold, but for some firms it is still a burden rather than a blessing. Andreas Burner, CTO of SmartStream, believes that intelligent automation transforms data from an encumbrance into a valuable strategic asset.
Data has become the lifeblood of the financial industry and capitalising on it is critical if firms want to win the battle for market share. Yet for some companies, what should be a treasure trove undermines their competitiveness rather than contributes to it.
So why has data become such a double-edged sword?
Andreas Burner
Information now flows around in vast quantities and dealing with the sheer volume of it has become a challenging task. Data circulates in many different formats, including unstructured ones such as PDFs, making it difficult for institutions to ingest it into their systems and process effectively. A lack of standardisation in the way financial information is communicated adds further complexity – consider, for example, the varied methodologies used by individual data vendors to identify financial instruments.
Low quality data is another pain point. Businesses are constantly hindered by inaccurately captured, incomplete, out-of-date, inconsistent, duplicated or redundant information. This is not just troublesome to deal with but significantly affects firms’ earnings. A recent Gartner survey found that it costs organisations an average of $12.9 million per year, while earlier research (MIT Sloan Management Review) put the bill at 15% to 25% of revenue for most companies.
This also creates other side effects. It prevents businesses from understanding market trends and customer preferences, denying them the opportunity to offer new products and services. It also hampers regulatory compliance, while negative customer experiences resulting from incorrect information are likely to engender mistrust towards an organisation and damage its reputation. Furthermore, operational efficiency is affected – tackling shoddy or missing data involves huge amounts of wasted staff time.
In addition, inaccurate data impacts decision-making, resulting in flawed insights and bad strategic choices. There are huge implications for risk management, too: risk models built on faulty data, for instance, can lead to financial institutions losing millions of dollars.
Air, SmartStream’s cloud-native, SaaS, data automation and intelligence platform, has been designed to address these challenges. It provides financial institutions with a low cost, scalable and secure environment in which they can manage their data effectively. It offers firms the potential to lower operating overheads, alleviate their technology burden, reduce risk, improve accuracy and enhance customer trust, enabling them to increase competitiveness, and to become more resilient and adaptable in the face of future change.
The platform, which is built on the latest technologies, harnesses AI and machine learning to process data from multiple sources. It ingests information in a variety of formats, including unstructured ones such as PDFs, and deploys AI-based techniques to enrich, cleanse, aggregate and match inflowing details. A co-pilot feature assists users to manage any resulting exceptions.
Importantly, Air takes a very different approach to traditional systems, which depend heavily on the quality of the data they receive. Once information has been fed in – which can be done quickly and easily by business users, allowing self-service – Air employs AI-based techniques to address flaws rapidly, preventing faulty data from entering other applications and causing exceptions downstream.
Using intelligent automation to redress data inadequacies represents an attractive alternative to current practices. At present, firms expend vast amounts of effort carrying out manual validation, correcting errors and searching for accurate information. The bill for these activities has become immense – experts estimate that handling data quality issues costs companies between 10% and 30% of revenue – meaning that finding a more cost-effective way of working is now imperative.
Air utilises AI-driven algorithms to reconcile any data structure, permitting rapid pinpointing of exceptions and removing the need for laborious manual file comparisons. Air makes use of Affinity, SmartStream’s observational machine learning technology – which learns from the way human reconcilers correlate records – to further enhance matching.
Advanced reporting provides detailed, real-time management information, allowing managers to promptly assess operational health, rebalance workloads and address inefficiencies. Sophisticated analytical tools also empower firms to achieve valuable business insights, enabling them to unlock the hidden potential of the data they hold.
Two powerful modules, Air Data and Air Cash, automate activities that would otherwise require significant time and manual effort. Air Data automates time-consuming cross-checking between different systems, while Air Cash is designed to handle a wide range of cash reconciliations, from simple to highly complex cases, with speed and ease.
In addition, the solution is highly scalable, fast, cost-effective to operate, and capable of adjusting rapidly to fluctuations in business volumes. It also offers an extremely secure environment in which to operate.
In conclusion, financial institutions are often unable to exploit their data effectively, and so fail to extract the operational and commercial understanding needed to improve efficiency, control costs and raise profitability. To fight back, firms must take a new and more pre-emptive approach to managing their data, seeking out innovative, low-cost ways of improving its quality.
Sophisticated AI-based technology can be particularly helpful in this respect, enabling firms to clean up, enrich, aggregate and match information before it enters downstream applications and creates exceptions. Importantly, the management information and business insights yielded by intelligent automation has the potential to transform institutions’ data into a valuable strategic asset at a far earlier stage than is currently possible, offering firms a vital lifeline in their efforts to lower overheads, boost efficiency and raise competitiveness.
Change in data management practices is also essential if the industry is to prepare for the future through digital transformation exercises and, more specifically, by taking advantage of technological advances in AI and machine learning. The effectiveness of AI-based tools rests squarely on the data they have access to and, if the information they have available to work with is flawed, their value is impacted. Given that AI-driven technology surely represents the future for the finance industry, it makes more sense than ever for the sector to put its house in order and improve the accuracy of its data.
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Eurex has continued to dominate the equity derivatives market this year, reporting 90 million contracts traded in November – more than eight times Euronext’s 10.8 million.
Both companies have seen growth in contracts traded this month, Eurex by 12% and Euronext by a more modest 6%.
EUREX vs Euronext in contracts traded 2024 YTD
Although the ratio between the two is similar in notional traded value, with Eurex recording €3 trillion to Euronext’s €384 billion in November, month-on-month results were up 8% at Eurex but down 5% at Euronext.
EUREX vs Euronext NV in Mln EUR 2024 YTD
Eurex’s market share, in terms of traded contracts, has hovered around 90% throughout the year. Its lowest point was 87%, seen in February.
The German giant gets the bulk of its power from the Euro Stoxx indices, which cover the most actively traded euro-denominated equity index derivatives in the eurozone.
Euronext is taking a number of measures to fight back. “The migration to Euronext Clearing has given us more agility,” Charlotte Alliot, group head of institutional derivatives at the firm, told Global Trading. “We’re focused on maximising returns, updating its service for existing Euronext equity derivatives, and going into new business lines.”
The group has recently completed its coverage of all DAX index constituents in Germany, adding 21 new single stock options to its roster, along with six Irish. It is the first to offer access to the Portuguese market, offering six single stock options in the region.
“We’re narrowing the gap with Eurex, not removing it. We’re the natural exchange choice for institutional investors after Eurex, and the natural choice for retail,” Alliot concluded.
The need to keep generating trading profits means the US banking giant has to take greater risks
Goldman Sachs experienced a total trading loss of $687 million on two days during the third quarter, according to regulatory filings by the bank. The losses, one of $407 million and the other of $280 million, were disclosed in Federal Reserve filings because the bank breached its daily value-at-risk limit on both occasions.
The August volatility was sparked by a 12% decline in Japanese equities on 5 August, which led to sell-offs in other markets and prompted a brief pre-opening hours spike in the VIX index to a record 66%. The volatility attracted regulatory scrutiny, with the Bank for International Settlements referencing carry trade unwinds and the quote-based mechanism for VIX calculations as causes of the turmoil.
While Goldman Sachs enjoyed $5.5 billion of trading revenues during the quarter as a whole, the two days of losses underline the vulnerability of the bank to sudden market reversals amid a time when stocks and other risk assets are reaching record highs.
As part of the Fed’s application of Basel rules, large US banks incorporate VaR in their market risk capital calculation. Banks use VaR to predict their largest trading loss up to the 99th percentile, and breaches of this limit are reported as backtest exceptions.
Under normal market conditions, banks are expected to stay within daily VaR limits. There are about 62 trading days each quarter, so the 99th percentile VaR limit should be crossed once every two quarters, on average.
Clusters of VaR exceptions indicate that markets are behaving abnormally, but such clusters are not uncommon. The top five US banks collectively reported 32 VaR exceptions during the first quarter of 2020, when markets plunged at the onset of the Covid pandemic. Another cluster of VaR exceptions occurred in the fourth quarter of 2021, when JP Morgan breached its VaR limit eight times and Morgan Stanley did twice.
Meanwhile, the need to generate trading profits means the banks have to hold larger and larger trading portfolios as equities rise in value. The total trading assets reported by the six banking giants reached record highs in the third quarter, as did equity trading portfolios and the notional amount of equity swap contracts.
JP Morgan is the largest bank under these metrics, with $786 billion in trading assets, $223 billion in listed equities and $855 billion in equity swap notional, according to the standardized disclosures required by the Fed, with Goldman in second place. However, when measured using risk metrics, Goldman is an outlier, emphasising the riskiness of its trading book.
The bank’s one-day VaR averaged $158 million during the quarter, more than double the $69 million reported by JP Morgan and the $70 million at Bank of America. The Fed also requires banks to report ‘stress VaR’ which measures the riskiness of their current portfolios when subjected to the market conditions at the height of the 2008 financial crisis. By this measure, Goldman’s third quarter stress VaR was $336 million, with JP Morgan in second place with $130 million, despite Goldman having a smaller trading portfolio.
The bank may hope that market-making fees will continue to outweigh the kinds of losses experienced in August, but this depends on its VaR continuing to grow in line with market valuations. Speaking to investors in October, CEO David Solomon said, “I think one of the things that people forget is that these businesses are correlated to growth in the world. They’re correlated to market cap growth in the world.”
In 2007, Citigroup’s then-CEO Chuck Prince said that the bank had to ‘keep dancing’ as markets boomed. Solomon’s quote could be interpreted in a similar way – which could return to haunt him in the future.
Aquis is expanding its conditional order services as demand for trading mechanism choice grows.
Conditional orders, also called indications of interest (IOIs), allow traders to send a dark order to multiple venues at once. If a match is found, participants will get an invitation to firm up their order within a window of time. Once confirmed, orders on other venues are cancelled to prevent duplication.
Aquis VWAP Match (AVM) allows users to submit IOIs to cross orders at a five-minute volume-weighted average price (VWAP), which is calculated from lit continuous reference market trades.
Aquis already offers a dark pool, which it acquired from UBS in 2022, and a dark-to-lit sweep functionality that allows clients to bring orders crossed in the dark to lit exchanges. The exchange was recently acquired by SIX Group.
AVM operates on a separate order book to the main Aquis dark pool. “If a contra order comes in that could match with it, we send both of those counter parties a firm up invite and they get a one second window in which they can accept that invite. Once they both accept it, that triggers a 5 minute window of time during which we calculate the VWAP,” Sakeena Lalljee, head of sales at Aquis Exchange, told Global Trading.
“This [type of tool] is already used in the US, and it’s something that some trading firms already do internally,” Lalljee shared. “There’s a space in the market, particularly in Europe.”
Cboe provides a similar 5-minute VWAP model in its trajectory crossing solution Cboe BIDS VWAP-X, which launched in the UK earlier this year. The release was swiftly followed by Nasdaq’s announcement that it was bringing its own service, PureStream, to the European market after success in North America.
“The solutions that are coming to the market indicate the strong demand that exists,” Jerry Avenell, co-head of sales at Cboe Europe told Global Trading. “Being a first mover was important to us, giving participants time to adapt to our model, but we have many points of differentiation beyond that.”
As an extension of Cboe BIDS Europe, client benefits include familiarity with the platform, connectivity and reduced costs, Avenell said.
“A successful launch in European securities also opens the door for BIDS to launch VWAP crossing in Cboe’s other jurisdictions– potentially including the US, Canada, Australia and Japan. Given that many of our participants are global in nature, providing consistent services worldwide is a key differentiator for us and will help with the long-term adoption of the product.”
Laljee stated that the differentiator for AVM is the ability for users to trade at a smoother price than other conditional services. “Rather than trading several times separately over a period of time, they can smooth out volatility and price movements by waiting 5 minutes and trading at a volume-weighted average price calculated over that duration,” explained Lalljee.
Additionally, “unique to AVM, client-facilitating members will have flexibility to specify if they are open to trade with any type of contra flow, thereby maximising their likelihood of execution, or if they only want to match with other client-facilitating orders,” she continued.
Navigating market complexity with data-driven insights
Anya van den Berg, Global Head of Analytics Sales, Deutsche Börse.
Anya van den Berg, Global Head of Analytics Sales – reflects on an impressive year’s performance across Eurex’s futures and options trading volumes, leading to increased uptake of Eurex Analytics datasets. This article will delve into the statistics and trends captured in 2024 within Europe’s leading derivatives market and how this has positively impacted data and analytics adoption within Deutsche Börse.
In times of ever-increasing trading volumes, data-driven insights are becoming more and more important. This has never been more apparent this year than across Eurex’s derivatives products and the corresponding analytics datasets produced within Deutsche Börse’s Market Data + Services department (MD+S).
In November 2024, Europe’s premier derivatives exchange, Eurex, announced another impressive month in its overall trading volume. Total trading volume climbed 6% compared to the same period last year, reaching 177.6 million contracts, up from 167.5 million contracts in the same month last year. Similarly, total trading volumes increased in October 2024, with a further 4.5% year-on-year rise to 168.5 million contracts compared with 161.2 million contracts the previous year. Notable gains were attributed to interest rate derivatives, as well as equity derivatives and OTC clearing.
This growth reflects broader market trends and signals the ongoing shift in trading preferences among institutional investors, with significant gains particularly in the interest rate derivatives segment. The 9.4% year-on-year rise in Eurex’s total trading volumes YTD, including November 2024, indicates not only increased trading activity but also a growing demand for data-driven insights. Thus, market participants are turning to sophisticated analytics tools to gain deeper insights into market trends, improve decision-making and manage risk more effectively.
This shift is reflected in the growing popularity of Deutsche Börse’s unique analytics offerings, particularly ‘Eurex Flow Insights’, ‘Eurex Open Interest Insights’ and the newly launched ‘Eurex Cleared Flow Insights’, which form the Eurex Flows Suite. These tools are helping market participants navigate the complexities of the derivatives market with greater precision. As trading volume builds momentum, the need for advanced data analytics is greater than ever.
One of the main factors contributing to the growth in trading volumes at Eurex is the increasing sophistication of market participants. As trading activity increases, there is a growing need for platforms that can deliver reliable and actionable data. The Eurex Flow Insights offering provides information about trending flow of derivatives contracts and has become an essential tool for traders seeking to track and analyse market sentiment and activity. The product uniquely aggregates market participant groupings into three categories: agent (buyside flow), market maker and proprietary trading. It allows users to monitor the movement of these contracts, providing essential insight into market trends and enabling traders to anticipate price fluctuations.
The sharp rise in interest rate derivatives trading, which increased by 8 percent in November and 33 percent in both September and October 2024, is a prime example of how ‘Eurex Flow Insights’ can be leveraged. Given the sensitivity of interest rate products to macroeconomic shifts, and the ongoing adjustments by central banks, it is essential for traders to have a detailed understanding of how these products are performing in the market.
Similarly, the ‘Eurex Open Interest Insights’ offering is another crucial tool that has seen a significant rise in adoption in line with Eurex’s rising volumes. Open interest, defined as the total number of outstanding contracts that have not been settled or closed, serves as a key indicator of market sentiment and investor positioning. A notable increase in open interest frequently indicates that traders are establishing or unwinding substantial positions in anticipation of future market movements.
For equity derivatives trading, ‘Eurex Open Interest Insights’ addresses the need to track market sentiment as the surge in equity derivatives has seen 40 percent growth in trading volume in November 2024 alone. Considering the increased number of traders entering positions in equity products amidst heightened volatility in global markets, it is crucial to gain insight into open interest trends. A rise in open interest may indicate that traders anticipate continued movement in a specific direction, whereas a decline could imply that market participants are adopting a more cautious stance or closing out their positions.
The growth trend is also directly reflected in the increasing use of cleared OTC derivatives, with notional outstanding in OTC clearing volumes increasing by 10 % in November 2024 compared with last year. In response to growing demand for transparency in derivatives, Deutsche Börse MD+S launched ‘Eurex Cleared Flow Insights’ in October this year. It has since become a key component of its analytics suite. This offering provides comprehensive insights into the flow of cleared derivatives transactions, offering detailed information about trade volumes, open interest, and same-day adjustments.
Source: “Eurex Cleared Flows Insights” – depicting the EUROSTOXX 50 Options (OESX) Cleared Position by Strike for Agents.
In conclusion, the synergy between Eurex’s growth in trading volumes and the expansion of Deutsche Börse’s analytics tools underpin a key trend in modern financial markets: the growing importance of data.
In light of the increasingly complex market conditions that traders and investors are confronted with, there is a growing reliance on sophisticated analytical tools that facilitate more informed decision-making. By offering, valuable, state-of-the-art and actionable insights into trending market flows, open interest, and cleared volumes, Eurex and Deutsche Börse MD+S are enabling its customers to maintain a good understanding of the market, making these tools indispensable in a rapidly evolving marketplace.
Barclays’ Head of Product for Prime Services, EMEA, Pip Ranson-Walters, discusses how executing brokers support clients through every step of the trade life cycle.
Pip Ranson-Walters, Head of Product for Prime Services, EMEA, Barclays, describes how executing brokers support clients by providing market access, managing execution and trade settlement, overseeing reporting and regulatory requirements, and delivering post-trade analysis to ensure alignment with client expectations.
This video clip is from the recently released Global Trading / LSEG documentary Life Cycle of a Trade: Joining the Dots.
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While Goldman Sachs
The bank’s one-day VaR averaged $158 million during the quarter, more than double the $69 million reported by JP Morgan and the $70 million at Bank of America. The Fed also requires banks to report ‘stress VaR’ which measures the riskiness of their current portfolios when subjected to the market conditions at the height of the 2008 financial crisis. By this measure, Goldman’s third quarter stress VaR was $336 million, with JP Morgan in second place with $130 million, despite Goldman having a smaller trading portfolio.
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