The Securities And Antitrust Class Action Litigation Industry Continues Its Record Pace

By

-

February 13, 2018

By Kevin Doyle, Global Head of Marketing, Battea Class Action Services, LLC

Billions of dollars are available to eligible investors, but the extensive class periods, vast array of instruments, and complex loss calculations pose a challenge to individuals filing claims on their own.

There has been incredible growth in securities and antitrust class action litigations and settlements, particularly as they have unfolded in 2016 and the first three quarters of 2017. The number of new cases and new settlements from across traditional securities litigation to antitrust rate rigging, spread inflation and other forms of collusion are at an alltime high and shows no signs of slowing down.

In the first half of 2017, 226 new federal securities class action cases were filed.
This surge in U.S. securities class action filings is more than 130% higher than the 120 first half filings in 2016.
Of the new cases filed in 2017, 135 cited violations of SEC Rule 10b-5 or of Section 11 or 12 of the Securities Exchange Act of 1934 and the 1933 Securities Act, respectively.
The 2017 first half filings are the highest in history, and should this pace continue, total annual filings would represent a 67% increase from 2016.

As new cases are introduced or settle, the claim and loss analysis, litigation research, and rigorous data auditing and monitoring required for these filings have become increasingly complex. In addition to the size and complexities of many derivatives and FX trading cases and settlements, the sheer volume of more traditional securities cases is exploding in the US and abroad.

Antitrust litigations
While most antitrust cases are not specifically securities class actions, these two legal subsets may overlap, and the result is antitrust securities class action litigation. Examples include the Credit Default Swaps Antitrust Litigation (which settled for $1.86 billion in 2015), the Private Equity settlement for $590 million, the Libor, Euribor and Tibor scandals, and the recent FX-rigging case for more than $2.31 billion.

Although settlement funds are established primarily to benefit damaged institutional investors, many products transact over-the-counter (OTC) and accordingly are not easily identifiable with traditional securities identifiers. Special diligence is required in the filing of these types of claims or investors risk leaving vast sums of money on the table.

With many mega multi-billion dollar litigations related to Libor, Euribor and Tibor rates and spreads manipulation across a vast set of financial instruments and major multi-billion litigations in foreign exchange related trading,the hedge fund community is first in line to cash in from these and other regular events.

With nearly $4 billion available to eligible claimants across a variety of cases, ensuring your eligibility by properly filing your claim is an absolute necessity. Here are a few updates on some of the larger available settlement funds.

FX instruments litigation settlement
In quarter 2 and quarter 3 2017, six new defendants agreed to contribute more than $300 million to the litigation settlement fund, pushing the preliminarily approved settlement fund to $2.31 billion regarding the manipulation of benchmark rates, price spreads at which currencies were bought and sold, and exchanging confidential customer information in an effort to trigger client stop-loss and limit orders. However, with one defendant still yet to settle, we anticipate this settlement fund to increase.

Euroyen (Tibor) litigation settlement
In quarter 3 2017, two new defendants agreed to contribute $148 million to the litigation settlement fund surrounding the manipulation of the Yen Libor and Euroyen Tibor benchmark interest rates. The preliminarily approved settlement fund now stands at $206 million.

US dollar (Libor) litigation settlement
The current settlements in this case, Barclays Bank for $120 million and Citibank for $130 million, are considered “ice-breakers”. In addition to the monetary contribution, the settlement requires cooperation with the Plaintiffs in their on-going litigation against the Non-Settling Defendants. This is expected to increase the leverage the Plaintiffs have in the settlement negotiations.

The list of Non-Settling Defendants is lengthy and includes 16 major banks. It is most likely that additional Banks will fall in line and settle; and with each settlement the Settling Bank will be required to cooperate with the Plaintiffs in their on-going litigation against the remaining Non-Settling Defendants. With each settlement, the Settlement Fund will continue to grow. It is expected that the total Settlement Fund will be in excess of $1 billion.

The time to act is now
As there are such significant sums available to damaged investors, it is crucial that to take action to establish a claim. For the US and Canada FX litigations, eligible investors are automatically included in the class, but must file claims to collect their portion of the settlement dollars. International filings require an unparalleled understanding of the filing process, the specifics of each case and the various recovery options available.

To maximize recovery potential, it is highly recommended to seek an expert firm who specializes in this area and who can provide the transparency required to validate their performance. Without having that trust there is a risk of leaving large sums of money behind without knowing it.

For further information contact Kevin Doyle at doyle@battea.com or call +1 (203) 595-4329.

We’d love to hear your feedback on this article. Please click here

News: Paul Squires to join Invesco

By

Ian Rycott

-

February 12, 2018

PAUL SQUIRES TO JOIN INVESCO.

By Dan Barnes.

Paul Squires is to join Invesco as head of EMEA Equity Trading, the asset management firm has confirmed, leaving his role as head of trading and securities finance at AXA Investment Managers. Squires, highly-respected in the industry, has risen through the ranks at AXA IM which he joined in 1996 as a UK equities trader. He was promoted to head of trading in 2005, becoming responsible for managing the firm’s 32-trader multi-asset class team, with trading turnover last year of over €850 billion.

In his 13 years as head of trading, Squires has been noted for taking a long-term, strategic view over managing the trading desk, harmonising the trading workflows and execution reporting across its Paris, London and Hong Kong desks. For example, by controlling its own technology spend the desk has been able to aggregate trading data for fixed income since 2007. This enabled the building of a pricing database for fixed income instruments, which has assisted in overcoming the post-crisis drop off in sell-side liquidity provision.

In a statement a spokesperson for the firm said, “AXA IM can confirm that Paul Squires will leave the firm. Paul has been an integral part of the AXA IM Trading and Securities Finance team for 21 years and we wish him every success for the future.”

In the interim, the Trading and Securities Finance team will be led by Daniel Leon, head of Engineering and Execution at AXA IM with further details to be announced in due course.

©BestExecution & The DESK2018

[divider_to_top]

January 2018: MarketAxess reports record electronic trading volumes

By

Ian Rycott

-

February 12, 2018

MARKETAXESS REPORTS RECORD ELECTRONIC TRADING VOLUMES.

By Flora McFarlane.

MarketAxess, electronic trading platform for fixed income securities, has reported that January was a record month for daily and monthly trading volumes, which it artttributes in part to MiFID II trade reporting.

The trading platform, which also provides market data and post-trade services for fixed income markets, saw a total trading volume of US$14.9 billion on January 31.

Average daily trading volume in January was up to US$7.3 billion, an increase of 22% on the previous year and beating March 2017’s record of US$6.7 billion.

In addition to the record total trading volume posted on January 31st, the last day of January also posted records in high grade, high yield, emerging market and open trading.

US$7.8 billion was traded in high grade, while high yield and emerging markets recorded trading volumes of US$1.3 billion and US$3.5 billion, respectively, while open trading volume hit US$1.9 billion.

MarketAxess has attributed the record-breaking volumes to the changes that have come about under MiFID II. MiFID II’s post-trade transparency requirements have seen firms looking to third-party providers to facilitate meeting requirements.

Kevin McPherson, global head of sales, said: “Our growing global client network and the initial effects of MiFID II trade reporting rules were among the drivers of the high level of electronic trading activity in the month.”

©BestExecution & TheDESK 2018

[divider_to_top]

Outsourcing Client Connectivity

By

richard_bentley

-

January 30, 2018

By Richard Bentley, Chief Product Officer, Ullink

Pressures from regulation, technological complexity and burgeoning costs are a wake-up call to sell-side firms to optimise their client connectivity management.

Approaches towards client connectivity are in flux. The challenges of new regulations and increasing electronification along the trade process and across product lines are at best forcing modifications of some sell-side systems, and at worst reducing others to obsolescence.

In general, the momentum towards greater automation in asset classes such as fixed income and foreign exchange is prompting banks and brokerages to consolidate their systems, applying and integrating the technology and processes already used in equities and derivatives trading in order to curb costs and check complexity.

Meanwhile, regulation and in particular the launch next year of Markets in Financial Instruments Directive (MiFID) II will make trade reporting obligations more onerous, enhancing order execution visibility for clients, counterparties, exchanges and other trading platforms.

MiFID II means that client connectivity needs to be modified, for example to validate that new data items required by the legislation are being correctly sent by clients. Large global banks and brokerage firms usually have dozens of front- and middle-office systems, siloed by product and business division. But, with the implementation of MiFID II, it will make sense to centralise these operations in one place, rather than modify multiple, disparate systems.

They might choose to consolidate their systems internally. However, if they choose instead to use an external specialist they can not only deploy their human resources elsewhere (and more productively), but also amortise (as well as lower) their costs.

Manging order flows and aggregating data is an increasingly complex, costly and time-consuming business. For about a decade, many organisations have outsourced the post-trade operations that were previously tasked to the back and middle offices.

Vendors are well positioned through economies of scale, critical mass, and concentrated expertise and technology investment to perform post-trade functions in a standardised, efficient way. Third-party service providers can collate orders and disperse allocations automatically communicating to all channels via the FIX protocol, and also compute fees such as stamp duty and exchange charges.

In the past, mainly small- and medium-sized firms turned to third-party vendors. However, more recently large sell-side firms have started to outsource the management of their client connectivity. In practice, this involves both the hardware and software infrastructure. It includes linking the sell-side with the buy-side for electronic FIX messaging; routing client orders internally through order management systems (OMS) to trading desks; and on-boarding clients and validating them within the OMS.

Hybrid model
Now a trend for outsourcing the front office’s direct links with clients is rapidly gaining momentum. For instance, brokers’ indications of interest (IOI) targeted via the FIX protocol to select buy-side firms can be handled by vendors. And the re-emergence of systematic internalisers (SIs) is likely to escalate the demand for external services, as buy-side requests for quotations (RFQs) increase the sell-side’s workload

The economic case for outsourcing many of front office functions is compelling. Millions of dollars can be saved if standardised procedures are adopted, while the obligation to implement regulatory compliance across a multitude of platforms within any sell-side firm is an incentive to minimise complexity as well as reduce expenses.

Certainly, there are some areas that sell-side firms, whatever their size, are unlikely to outsource. Client relationships, both the on-boarding and maintenance processes, are critical to a brokerage, and often nuanced to give a firm what it perceives as a competitive edge. So, although it might it use leveraged centralised services for some trade functions, it is likely to retain other added-value elements. The preference is for the adoption of a hybrid solution or partnership.

Vendors should recognize this trend. Successful providers will be those that offer a package that combines a managed service with the provision of the tools and technology for a client to control sensitive aspects of the client relationship. Moreover, Ullink differentiates its managed connectivity service through its independence of a firm’s OMS, even if it is provided by a rival vendor.

Indeed, there is a raft of vendors offering FIX engines and hosting services, and brokerages’ IT project management teams are typically keen to advocate an internal solution to any process and platform consolidation. The key to providing a credible alternative is expertise, flexibility and lower costs.

We’d love to hear your feedback on this article. Please click here

Thomson Reuters REDI

By

GlobalTrading

-

January 23, 2018

Empowering Today’s Buy-Side Trader

Evolving Market Demands Require Evolved Partners
The difficulties facing today’s buy-side trading desk are well known, with technology costs rising, regulatory requirements becoming more onerous, and buy-side fees compressing are just a few of the challenges. Traders are looking for partners who can deliver an end-to-end trading solution that meets their execution, analytics and market data needs, as well as one that reduces total cost of ownership (TCO).

At the same time, your role as a trader continues to evolve, with new asset classes, geographies and responsibilities now most likely part of your mandate.

Given this reality, our trading clients require a single solution that simplifies trading workflows by bringing deeper liquidity, additional counterparties, more powerful trading capabilities, and better intelligence and analytics. Our clients are looking to do more with fewer resources.

Both the buy-side and sell-side are rightfully considering big changes to their technology stacks. They are turning to technologies that help them to scale, lower their TCO, offer frictionless integration and connect to a broad array of content and deep pools of liquidity in order to efficiently trade.

REDI Rounds Out the Platform
With the advanced REDI EMS (Execution Management System) now integrated into the Thomson Reuters platform, you can leverage our award-winning EMS capabilities across a wide range of asset classes. With REDI, you can move seamlessly from pre-trade activities through to post-trade via a single, fully integrated and open platform environment.

With support for the full trading life cycle, Thomson Reuters REDI simplifies trading with a sophisticated execution, workflow and compliance solution.

Execution Tools
Thomson Reuters REDI supports the trading of listed equities, options or futures globally, as well as advanced execution tools like portfolio and spread trading.

Single-stock trading – Trade single stocks with ease using intuitive execution capabilities
Portfolio trading – Execute global, multi-asset portfolios across multiple counterparties
Spread trading – Implement a broad range of strategies, including ratio, risk arbitrage and relative price
Options trading – Trade equity options, option spreads and options on futures globally
Futures trading – Execute nearly any listed future globally across multiple brokers

Workflow capabilities
Through integrations with more than 20 prime brokers and clearing firms, REDI’s suite of order management capabilities supports users throughout the trade life cycle.

Order and ticket staging – Create and manage parent orders in REDI, or leverage our integration network to receive parent orders from partner systems
Position management – Easily load your start-of-day position files and use quick filters to view by asset class, notional value, account and P&L
Locate management – Submit and view status of all requests and the real-time inventory of approved locates
Allocation and commission tools – Allocate equities or options transactions between accounts via the allocation engine while leveraging user-defined commission schedules
End-of-day files – drop executed trade files seamlessly to any of the 20+ prime brokers and clearing firms in REDI’s growing network

Compliance tools
REDI’s suite of compliance tools offers a robust, cost-effective solution capable of meeting the needs of a wide range of market participants.

Risk Manager – Utilize dozens of trading rules based on symbol, exposure, P&L, liquidity or security triggers that block offending trades at the point of order entry, before they are routed to a broker for execution
Automatic Order Marker – Split US equities sell orders into Sell Long and Sell Short orders based on the net position of the securities in a defined trading aggregation unit
Anti-crossing – Prevents users within the same supervisory group from crossing Futures orders with each other, providing either a hard or soft block as defined by the administrator
OATS reporting – Combines order audit trail feeds from multiple third-party platforms (EMS, OMS or proprietary systems) from across your organization and submits a single, consolidated report to FINRA
Custom reports – Customizable Daily Trade Blotter, User and Custom Account reporting tools

The combination of REDI with other Thomson Reuters components creates a powerful buy-side trading platform enabling you to identify trading opportunities, connect with counterparties and contacts, and discover liquidity before executing.

With Eikon, Thomson Reuters next-generation financial markets desktop, content running along-side REDI, you now have access to open and powerful pre-trade capabilities which give you access to a growing suite of trader-focused apps and premier content derived from natural language search.
An integrated Eikon Messenger enables you to connect with a community of over 300,000 verified financial professionals across more than 30,000 firms in 180 countries, and share text, live data, charts and analytics, and collaborate with your network from a single platform.
Access to the Thomson Reuters Autex Suite, which includes the Autex IOI network and Advertised Trades Apps which provide unparalleled access to liquidity.
Connectivity to a network of more than 600 brokers and venues with Autex Trade Route. Where you have the option to subscribe to one of the world’s largest FIX order routing networks handling order flow of over 40 billion shares a day.

We’d love to hear your feedback on this article. Please click here

Profile : Lynn Martin : ICE Data Services

By

Ian Rycott

-

January 23, 2018

FILLING THE GAPS

Lynn Martin, President and COO of ICE Data Services explains the rationale behind the many acquisitions and why data services has become such an integral and important part of ICE.

Why has the provision of data services become so important for ICE?

The formation of the data business ICE Data Services has been a natural evolution for ICE since we started in 2000 as an electronic trading venue. As electronic trading has increased, so too has the generation of data, which is required not only for trading but also to manage risk. If you think about NYSE, it began with traders sharing bid/offer spreads with each other on a trading floor. Today, and this is a globalised trend, there are now a variety of participants who interact with market infrastructure electronically through the use of different models to calibrate trading strategies, and this has resulted in a greater need across the market for more types of data and sophisticated analytics.

Over the past two years, the company has made a significant number acquisitions*. What has been the strategy behind these?

The driver is usually that there is a gap in our customer offering and we buy an asset that fills that gap in order to offer a more fulsome service. However, before we make an acquisition, we debate as to whether it is better to buy or build the service. For example, we recently launched a new Exchange Traded Derivatives (ETD) reference data service that was built from our strong position as a global operator of derivatives exchanges combined with our established reference data business. In that case it made more sense to build than buy. In situations where it has made more sense to buy, I would characterise the acquisitions that we’ve made over the past few years as mainly bolt-ons, where we believed buying the business would help us get the product or service to market much quicker than if we’d built them ourselves.

Although I realise it is hard to characterise Interactive Data (bought for $5.2bn in 2015) as a bolt-on acquisition because of its size, the fundamental drivers were the same in that we wanted to expand our independent valuation business. We knew it would complement our existing suite of data services especially in credit, where we have the largest clearinghouse, as well as our ETF business. It also gave us an opportunity to look at fixed income where we want to continue to add transparency.

What have been the challenges in integrating the different businesses from an organisational and cultural perspective?

We tend to move very quickly in terms of integration and I think we do it well because we have had a lot of experience in complex integrations. The first thing we do is to approach the integration with the premise that the ICE culture, where people are hardworking, entrepreneurial, nimble and eager to learn, will be the pervading one. We realise that our culture is not for everyone, but we have been able to retain the key talent in all the acquisitions that we have made. Additionally, we are very focused on providing services that customers ask for in the manner that they ask for them. Our management style is also different from many other companies in that we are very hands on. Our management team gets ‘in the weeds’ with the business which gives us a better understanding of the details of the business and this in turn helps to develop the overall strategy.

How are you developing ICE Connect, which you started to roll out as a beta version in the second quarter of 2017?

ICE Connect is a story of many years in the making and one that started with WebICE, which is our electronic trading platform, and the evolution of our proprietary instant messaging service, ICE Instant Messaging, which we acquired in 2008. We’ve brought these two applications together with our ICE Options Analytics and recently expanded Data & Analytics application to deliver a single offering for our desktop tools that leverages data more effectively. In many ways ICE Connect is the final leg of the stool of services in that it consolidates our offerings, and with a single sign-in, clients can access instant messaging, order execution, price discovery, market data and analytics, and historical charts.

In terms of infrastructure, I read, and we have talked previously, about the firm maintaining different infrastructure and latency profiles – what is the strategy behind that?

If you look at the make-up of the marketplace, there is the full spectrum of users with different trading strategies. For example, high frequency traders and market makers will have a different latency requirement than institutional investors who are price takers. There may also be the commercial firms who are looking to hedge certain exposures. We wanted to ensure that we provide the full suite that encompasses all latency profiles in order to properly service our global customer base.

Looking ahead, are you planning further acquisitions and what gaps need to be filled?

We are always looking for opportunities and the ability to create new services and products, whether we bolt them on or build them in-house. The biggest drivers continue to be around regulatory ions, whether it be in the US with the new liquidity rules or in Europe where there is MiFID II as well as PRIIPs rules (Packaged Retail Insurance-based Investment Products). They all come into effect between 2018 and 2020 and we believe they will all require new compliance and data requirements for our customers.

I can see there are plenty of opportunities but what are the challenges?

I think exchanges have dealt with more change in the past 15 to 20 years than in previous periods. This is in terms of the types of trader profile, complexity of their strategy and preciseness of risk management. The fact is that technology and data are complimentary offerings to market, and the challenge is to continue to ensure that the new services you are providing are those that are relevant to clients as their risk management needs continue to evolve.

*Acquisitions such as SuperDerivatives, Interactive Data, S&P Capital IQ’s evaluated pricing and terms & conditions business, CMA (Credit Market Analysis), TMX and most recently Bank of America Merrill Lynch Global Research division’s fixed income index platform.

Lynn Martin is President and COO of ICE Data Services, responsible for managing global data operations including exchange data, pricing and analytics, reference data, desktops and connectivity services that cover all major asset classes. She began her career at IBM in their Global Services organisation where she served in a variety of functions, predominately as a project manager within the financial services practice. Martin joined NYSE Euronext in 2001 and has served in a number of leadership roles, including CEO of NYSE Liffe US and CEO of New York Portfolio Clearing. She most recently served as COO of ICE Clear US. Martin holds a BS in Computer Science from Manhattan College and a MA in Statistics from Columbia University.

©BestExecution 2018[divider_to_top]

Buyside profile : Patrick Fleur : PGGM

By

Ian Rycott

-

January 23, 2018

LIVING BY THE CODE

Patrick Fleur, head of the trading & execution desk at PGGM, looks at the year ahead and assesses the challenges and opportunities created by regulations such as the FX Global Code of Conduct, and the impact of technological advances.

What impact do you think the FX Code of Conduct will have on the industry and how will it change behaviour?

Hopefully it will help us maintain having the deepest and most liquid market, where all participants not only step up and adhere to the FX Global Code, but also challenge each other to do so. They should work together to help the Global Foreign Exchange Committee (GFXC) create a more transparent, efficient wholesale FX market in which all participants increasingly become aware of their role and, therefore, duties. We are seeing the central banks lead by example with their trading relationships and demonstrating how you can adhere to a code which enforces the integrity and effectiveness of FX markets. All major banks, as well as buyside participants, should educate their clients to do the same.

Also, the Code is already successful. For example, the discussion about last look and pre-hedging during the last-look window is creating more transparency and opens the debate on how business is, and should be, conducted.

Do you agree with the Norges paper that there needs to be a robust governance structure around the last look implementation, to provide for an audit trail?

Currently, most execution systems do not allow clients to measure the duration of the last look window. Therefore, it is hard to control the behaviour of counterparties. I strongly believe that if clients get access to this data then the tools to police last look behaviour will emerge as well. This will enforce good behaviour.

What are some of the challenges with FX algo execution and how can its usage be increased?

To attract a broader community of algo users there are a couple of requirements. First, there needs to be a better explanation of the potential rewards and risks of using algos, which starts with more complete documentation. Questions should then be asked as to when and why to use algos and what can be expected? Peer reviews of transaction cost analysis (TCA) providers are becoming useful tools for this type of analysis.

Second, there needs to be greater transparency around internalised fills. Questions here should focus on how do the mechanics work, who are the different stakeholders and how are conflicts of interest measured? This remains largely a ‘black box’ to the outside world, but having this process audited would be a useful tool to have.

Last, but not least, is the need to reduce operational risks by conducting thorough tests before an algo is launched. Preferably the tests should be performed by an external party, along with sufficient risk controls, which would provide comfort to clients.

I think the creation of more credit intermediation tools should spur the availability of algos being developed by non-banks. This will give innovation in this field a big boost.

How are firms adapting to MiFID’s requirements to achieve best execution and a fully compliant trading desk?

What we see at PGGM, and for some of our peers, is a push to get the proper data to enable better TCA. This goes hand in hand with more resources being deployed into both internal and external analysis on how we transact on behalf of our clients. We think that although best execution should focus more on having a solid process with a feedback loop, and less about proving best price, there is an obligation to have a full audit trail on how you transact and can make improvements going forward. We think that facilitating and encouraging fully straight through processing (STP) workflows and electronic trading are the basis on which to extract the best outcomes for our clients.

Overall, how can the industry create robust, commonly agreed, execution quality metrics in FX?

I think the starting point should be transparency and data availability. When clients have access to all the relevant data, the tools and useful metrics will develop themselves. It remains questionable why proper, timely and reliable volume data is still so hard to come by. The rise of independent TCA providers is encouraging because they provide a growing group of investors with the right data in order to have meaningful discussions with their liquidity providers.

Do you see a consolidated tape being created within the next five years?

There are some commercial initiatives to create something which could be considered a partial consolidated tape (e.g. Fastmatch and Curex), or at least a reference database (e.g. CLS). The price for some of the existing and newly born data-feeds is relatively high. However, one of the problems is that major stakeholders are still reluctant to join in on a consolidated tape; mainly due to confidentiality reasons as far as we understand. We think it is important to keep working on transparency and creating a benchmark and open market that can help restore trust in an industry which has suffered from a series of scandals, large fines and now even the first jail case.

FX was an early adopter of electronic platforms, but what are the key criteria to determine which platforms to use?

As in equities, order routing logic, algo wheels and venue choice is still mainly done by banks. Whenever the question arises whether to use a single dealer platform or a multi-dealer platform, each client should decide for themselves what processes they need for their flows. Over the next few years we will be monitoring developments closely, but in our opinion the next generation of platforms should be very much about connectivity. As the workflow comprises a growing number of steps (order input / compliance / risk / pre-trade / execution / post-trade / reporting / settlement / administration), with the providers being increasingly independent or external parties, it will be key that you can connect to all of them. The other factor will be the ability to automate these workflows.

Traders at our end should only be looking at the exceptions, such as the large, difficult and more complex trades because this is where they can add value.

Looking at 2018, what are some of the challenges and opportunities ahead?

For challenges, I’ve noticed that FX swap liquidity is a topic that is not raised at the big conferences, and neither are there any fintech start-ups developing an alternative solution worth exploring (but please feel free to contact me if I’ve missed out on any new firms that have a brilliant idea to create a more electronic, level playing field and scalable solution in the swap space!).

Also, we need the development of a standard which all wholesale participants can use to deliver best execution within the FX space, but it needs to be benchmarked, transparent and replicable (although we believe spot is exempt, so we’ll treat spot as if it’s MiFID II compliant). However, getting your hands on affordable data, and being able to store it in a scalable way, together with internal transaction data is one of the greatest challenges from a governance and economic perspective.

Another trend we’re seeing is around cryptocurrencies, which have been on many peoples’ agendas in FX. To date, the wholesale FX community seems to be holding back, although the technology behind some of these currencies could help create efficiencies in our world.

My own view is that when looking at the unbundling of the whole FX chain, we are all still heavily dependent on banks’ IT when it comes to algos, venue choice, TCA and credit. There is more work to be done though on issues such as integrity and transparency, efficiency of the marketplace and the unbundling of other parts of the FX microstructure. Non-bank liquidity providers have focused on market making, including credit intermediation, but there is also room for a separate data model (as mentioned earlier), algo provision, market venues and smart order routing outside of the banking landscape. The majority of corporates and asset managers have been leaning heavily on banks to supply the whole chain but this has already proven to be a long wait.

Patrick Fleur, is head of the Trading & Execution Desk at PGGM, a role which he has held since September 2007. He is responsible for all relationships with financial counterparts and for all front office IT & facility related services. In addition, he is a member of the PGGM Allocation Committee which advises clients on long-term tactical adjustments to their investment portfolio. He also holds positions at the ACI FX Committee, the ECB FX Contact Group and the Bloomberg FX Advisory Board.

©BestExecution 2018[divider_to_top]

Trends in E-commerce 2018 — Transforming Run-the-bank Budgets into Build-the-bank Opportunities

By

Ian Rycott

-

January 22, 2018

Trends in E-commerce 2018 — Transforming Run-the-bank Budgets into Build-the-bank Opportunities

This report identifies the shift in e-commerce governance from siloed to centralised decision-making and the anticipated reversal of this trend toward a more federated norm out to 2020. The 2018 edition of this report, which is based on a 2017 survey of 20 investment banks, explores changes to the technology delivery processes within banks, e-commerce functionality across the pre-trade, trade execution and post-trade spaces, and it examines the key challenges for e-commerce providers in 2018 – which encompass the provision of e-commerce services across a range of channels. The analysis was based on the results of GreySpark’s Trends in E-commerce 2017 survey, which queried bank e-commerce thought leaders on: client segmentation; the competitive landscape; e-commerce functionality; refreshing the technology stack; e-commerce governance; and respondents’ view of the road ahead for sellside e-commerce franchises.

https://research.greyspark.com/2018/trends-in-e-commerce-2018/

FX trading focus : Overview : Dan Barnes

By

Ian Rycott

-

January 22, 2018

FX: REFORM IN DIRE NEED.

Dan Barnes looks at the state of play in the FX markets.

As an asset class, FX trading has suffered more than most from bad practice. This is why there has been a raft of regulation such as MiFID which emphasises best execution as well as voluntary codes like the FX Global Code of Conduct that also emphasises best practice.

The buyside – taking into account hedge funds and proprietary trading firms as well as long only asset managers – is also engaging more actively with the foreign exchange markets.

Reduced appetite for risk trading on the sellside has led to a distorted picture of activity amongst authorities. Some $500bn in daily over-the-counter (OTC) FX volume is absent from industry estimates made by the Bank of International Settlements (BIS), according to the analyst firm Aité. This is a result of the misguided focus on sellside activity, when buyside trading has substantially increased.

In the estimate of execution by the BIS triennial survey, FX trading volume that goes undercounted includes activity from anonymous FX trading platforms, non-bank market-makers, retail aggregators, prime-of-prime (PoP) brokers, interdealer brokers (IDBs), and buyside firms.

One reason, according to Aité analysts, is that all of those firms internalise some FX activity which puts it outside of the view of the BIS. The buyside’s total share of global OTC FX volume will likely reach 35% by 2022. Consequently its leverage to improve execution quality is likely to grow, as will the importance that it uses their clout.

Existing risk

Trading currencies is largely unregulated, sitting as it does between the remit of two central banks. The cartel behaviour of major banks in the asset class is a matter of record. In other practices, Barclays took a $150m fine at the end of 2015 from the New York Department of Financial Services for abuse of the ‘last look’ protocol, which enables banks to determine whether or not they should trade against client orders.

As such, the introduction of the code of conduct in May 2017 was clearly a necessary step. Set up by the Foreign Exchange Working Group (FXWG) of the Bank of International Settlements, it is a non-binding set of principles that are intended to supplement local law. “It is a force for good,” says Tim Cartledge, global head of FX & head of product, NEX Markets. “One of the most positive things about the Global Code is that it is bringing transparency, making people ask questions and take ownership of their execution.”

Speaking at TradeTech FX Europe, on 12 September 2017, Chris Salmon, executive director for Markets at the Bank of England, said, “Virtually all of the firms directly engaged in developing the Code have publicly stated their intention to sign up, and members of the various central bank-organised foreign exchange committees across the globe will do so too. This captures many of the large sellside firms and infrastructure providers.”

The Bank of England has replaced the relevant parts of the existing Non-investment Products Code and the European Central Bank announced on 29 November 2017 that 15 European central banks had committed to it, and asked that all counterparties who would commit should endorse the code’s Statement of Commitment by May 2018.

Furthermore the BoE’s Foreign Exchange Joint Standing Committee had requested that market participants provide feedback on last look practices by 21 September 2017 in preparation for a response paper (that at the time of writing had not yet been prepared). Yet there are major banks who are not signing it.

“There will be banks that may not sign it, because it’s demanding a lot of oversight and auditability of process for managing transparency and managing risk,” says Chris Matsko, FactSet.

Salmon also noted in his speech, “The challenge at this stage is to ensure that firms engaging in the full range of wholesale market activities are equally committed to incorporating the Code into their business practices.”

As a voluntary code its effectiveness as a tool is yet to be tested, but the use of public registers to allow counterparties to determine which of their peers are adherent to the code will allow buyside firms to put pressure on other players.

“Some market makers, that are really just passing off risk to different venues, flashing prices and not providing consistent solid liquidity for clients, are going to have a hard time coming into the next year,” says Matsko. “When folks on the buyside try to trade with those venues, they should be able to determine they are not taking their pricing and doing something malicious or putting it somewhere else before the trade executes. We will see how that plays out.”

Impact of MiFID II on FX

Execution quality should further improve under MiFID II, which came into effect on 3 January 2018, and is forcing fund managers across the asset classes to become more accountable. This in turn is driving leading players to enhance their transaction cost analysis (TCA) capabilities. As Cartledge says, “The battleground now is around analytics.”

Yet the back and forth of MiFID II is hurting the head traders. Although FX markets are expected to be less impacted than some other asset classes, the regulation touches the market in different ways. For example, the formalisation of trading venue regulation and the demand for increased reporting of trades, are also changing the way people trade in subtle ways.

“We think that voice trading will continue, however for banks to support voice trading they have to capture much more of the data whether a trade happens or not,” says Vikas Srivastava at Integral, which operates the Open Currency Exchange (OCX). “You can still talk on the phone with your customer, but you need a system to support you that is helping you capture where the market was, all the timestamps and everything necessary to support reporting on all those voice trades.”

As with any system implementation, particularly running across firms and market operators, operational risk is the major issue. “There is a theoretical market risk if liquidity was to be affected but I don’t think there will be a liquidity problem, I would say that the key risk is operational,” says Cartledge.

There are also issues arising from the somewhat uncertain roll-out of rules. For example, it had been expected that under MiFID II, buyside firms would have to collateralise their trading of FX forwards, used as currency hedges by asset managers. Now that has been called into question, with some expectation that national regulators will not require firms to collateralise their trading, as per the European and Markets Infrastructure Regulation’s (EMIR) original rules.

There had been no obligation to place margin against those uncleared FX forward trades under EMIR, which began rolling out margin requirements against many derivatives from 2013 including FX swaps and non-deliverable forwards (NDFs). However, FX forwards were expected to be added after 3 January 2018, as they fit the definition of ‘derivative’ under the new rules.

“[MiFID II] is just relentless,” says the global head of fixed income and FX trading at a US asset manager. “I was responsible for our FX collateralisation programme. But now the word is [the regulators] are going back on that, yet we have built out a platform on the basis they will need to be collateralised. Really nothing is certain apart from trade reporting.”

Data management : Origins : Heather McKenzie

By

Ian Rycott

-

January 22, 2018

TRACING THE DATA LINEAGE CHALLENGE

Heather McKenzie looks at the hurdles and solutions to one of data management’s thornier problems.

Regulations such as the Basel Committee on Banking Supervision’s BCBS 239, the General Data Protection Regulation (GDPR) and the US Federal Reserve’s CFO Attestation require banks to be accountable for their data sets and strengthen their risk data aggregation capabilities and reporting. In response, financial institutions are evaluating and implementing data lineage tools that will enable them to track data throughout the trade lifecycle more effectively.

However, tracking data and ensuring its quality is a difficult undertaking and one that has long troubled these organisations. As Varun Singhal, senior vice-president and product manager at AxiomSL puts it, “At an enterprise level, firms use a combination of various in-house and vendor solutions, meaning that no one technology system hosts the complete data tracking capabilities. Hence, getting data lineage right and in an automated fashion is challenging work. Firms are manually extracting the relevant data lineage information from the various sub-systems to achieve data tracking.”

Richard Hogg, global GDPR specialist at IBM, says the company’s clients are working on their information governance programmes around data. This means compiling a central inventory and policy catalogue as the key framework for information governance. “Organisations are recognising that it is key to tie defensible policies against whatever the legal citations are, across all compliance regulations in all jurisdictions they operate.”

Historically, this was known as the records, or retention, schedule but it is far wider reaching and covers things such as data residency, privacy, and security even through to data breach reporting obligations. “Most recently, the impending GDPR has put an even greater focus on data lineage along with data minimisation (retention), data protection (security/cyber) and processing activities,” adds Hogg. “In parallel, it is key to manage and use a common business language or terminology, visualising the data flow and use across the business, how it is connected across the business, and tracking where it came from and where it ends up.”

The regulatory steer

There has been a ‘continuous drumbeat’ from regulators, rather than a specific set of regulations, that is driving firms to improve their data lineage practices, says Arnold Wachs, principal, practice lead data management, at US-based buyside consultancy Cutter Associates.

In general, the handling of data lineage and data tracking comes under data governance functions. Any data that goes out to regulators or clients must come under this umbrella, including the documentation and ensuring someone is responsible for data quality at all stages of the trade lifecycle.

Singhal adds that as bank executives are responsible for submitting reports to regulators and attesting to the numbers therein, senior management needs to trust their governance processes. “The person responsible for reporting should have confidence that the numbers and positions are correct.”

Wachs notes there is nothing “magical” in solving the challenges of data tracking and data governance: it requires hard work. Approaches to data lineage differ. One large Swiss bank, he says, is putting in place data governance rules that require personnel to obtain data from a specific source. This idea of using an authorised, mandated source of data is getting traction, he says, as firms tire of the challenges inherent in data inconsistencies caused by disparate data sources. “The bigger firms are doing this, and the approach is beginning to trickle down to the medium and smaller buyside firms.”

An integrated approach is required though. Since the same financial instrument, for example loans, can flow to different regulatory reports, firms cannot solve the data lineage problem in isolation for each regulatory report, says Singhal. Rather, they need to take a holistic approach. “Firms are working towards building a more comprehensive solution with the ability to track the financial instrument from the point of origin where the instrument was booked to the final stage where it is reported to the regulator,” he adds.

Hogg says a governance catalogue is the key framework. This provides the shared business terms and inventory of what each type of information, or data, is, where it comes from, how it is used or processed, against what policies apply, and where it ends up. This is intimately linked with the policy catalogue.

For metadata discovery and data actions, organisations should utilise open interchange formats and application programming interfaces. Aligning data, policies and automation trust is a key cultural essential for success, Hogg adds. “With this in place, for GDPR or any other regulation, you then have a defensible, authentic source of data across all the stakeholders, regardless of their function and differing needs. This allows everyone, up through to the chief executive, to answer the who, where, when, why – and most importantly, what – is the purpose and processing of the data depending on its lineage, business value, usage and policy decisions, transparently.”

Handing over the data challenge

Many firms have outsourced data management and Wachs says the third parties that provide services are having to “step up their game”. There is even more push from clients for third-party providers to deliver clean, scrubbed data and to show the lineage of that data. He believes suppliers such as State Street, BNY Mellon and JP Morgan are responding by increasing the transparency of their underlying data structure.

David Pagliaro, EMEA head of State Street’s data analytics arm, Global Exchange, says a hybrid approach will emerge among buyside firms. Certain data and content sets will be outsourced to firms such as his while other, more sensitive, data will remain inhouse. Under GDPR rules, there will be some content such as operational data related to trade management and fund accounting that service providers may not want to take on because of the potential fines for violating information privacy rules. More standard data could be moved to managed services where a firm will benefit from cost and scale. This would include operational, regulatory and risk data related to trade management and fund accounting.

The key to a hybrid model will be how the two models work together, he says. “In the past, firms have had very structured data warehouses and the cost of managing data was high. Now as we are moving to the cloud-enabled systems, the cost of data management is very much lower. A potential model is that the sensitive information sits within the client’s internal cloud, while standard data sets reside within the managed services cloud. There could be cross-pollination between the two, but a firewall that prevents the third-party from seeing the sensitive data.”

Singhal says understanding the origin of the data, its flows and the transformations it undertakes, provides an organisation with a complete picture that ensures data integrity. For regulatory disclosure, it is critical to have the ability to quickly respond to enquiries relating to numbers on the regulatory-facing reports. Also, complying with constantly changing legislation and technology improvements requires using tools which demonstrate the impact of those changes across all systems/reports using them.

“A successful data lineage solution provides the end user – including business users, such as a report owner, and technology users, such as a system owner – the ability to track the lifecycle of a data element from the point of origin to the end report,” he says.

Wachs adds that many firms now realise that getting data ‘right’ for regulatory reporting also benefits client reporting. “Firms are now documenting the data lineage of individual fields; this has never happened before. It represents a huge improvement and means firms have people who really understand the data they have and can start to use that data to address day to day business problems.”

.cls-8{fill:#fff;stroke-width:0px;}

PAUL SQUIRES TO JOIN INVESCO.

By Dan Barnes.

MARKETAXESS REPORTS RECORD ELECTRONIC TRADING VOLUMES.

By Flora McFarlane.

FILLING THE GAPS

Lynn Martin, President and COO of ICE Data Services explains the rationale behind the many acquisitions and why data services has become such an integral and important part of ICE.

LIVING BY THE CODE

Patrick Fleur, head of the trading & execution desk at PGGM, looks at the year ahead and assesses the challenges and opportunities created by regulations such as the FX Global Code of Conduct, and the impact of technological advances.

FX: REFORM IN DIRE NEED.

Dan Barnes looks at the state of play in the FX markets.

TRACING THE DATA LINEAGE CHALLENGE

Heather McKenzie looks at the hurdles and solutions to one of data management’s thornier problems.

.cls-8{fill:#fff;stroke-width:0px;}