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FPL News

By
Creating Digital
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FPL News

Welcome to the September 2010 FPL news update. Over what is normally a relatively quiet period, with those of us based in the northern hemisphere jetting off to warmer climates, preferably with a beach towel in tow, this summer has proven not to be the case with interest in FPL and its activities continuing to increase, building on the growing momentum we have witnessed since the start of the year!

Over the summer months FPL has observed a flurry of activity regarding financial regulation and the use of standards. Communicating the benefits that FIX offers for regulatory requirements is an area of significant focus for the organisation and interest from this sector is on the rise. This was highlighted by the recent announcement of the Australian Securities & Investments Commission (ASIC) regarding its adoption of FIX for the reporting of short positions as of June 1st 2010. FIX is the language of the world’s financial markets, having achieved mass adoption across the global financial services industry, and interest from regulators in the protocol is very encouraging. By choosing FIX regulators enable many firms to leverage their existing investments in technology across additional business processes, generating the potential for significant cost savings and further efficiency gains. It was also encouraging that on a recent trip to London members of FPL were invited to join other MiFID Forum participants and meet with ASIC representatives to discuss the benefits of using standards. ASIC’s move to select FIX is yet another example of the growing level of interest by regulators to chose standardised practices. This move builds upon the 2009 announcement by the Investment Industry Regulatory Organization of Canada (IIROC) advising of the regulator’s plans to adopt FIX for market surveillance and transaction reporting.

From a European perspective as the region’s regulatory environment continues to evolve and impact decision making, FPL dedicated its July EMEA Quarterly Meeting to this subject area. This meeting generated significant discussion focused on the recent CESR consultation and the key issues facing this market post-MiFID, including the proposed Consolidated Tape, post-trade reporting and broker-crossing related concerns.

FPL in Europe is being increasingly approached to comment on regulatory consultations and as it is a neutral industry body it is keen to ensure that these responses reflect the interests of its membership. To this effect FPL is currently formulating an EMEA Regulatory Subcommittee. This group will work with FPL to ensure that all responses are reflective of member interests and participants will initially focus on the role that FPL should play in the development of a European Consolidated Tape. This group is open to all FPL Member firms based in the EMEA Region. If your firm is interested in participating please contact the FPL Program Office by emailing FPL@fixprotocol.org.

The European group will complement work already underway in the Americas and Asian markets by FPL. In the Americas region a FPL/FIF (Financial Information Forum) Regulatory Working Group has been formulated. This group was created to combine the expertise of FPL’s knowledge of electronic trading and leverage FIF’s relationships with the regulatory community in the U.S. The group’s purpose is to work together to standardise trade reporting and develop further standard approaches. This group will focus on addressing a series of regulatory initiatives including short sale reporting, trade reporting, dark pools and sponsored access.

From an Asian perspective the FPL Asia Pacific Exchanges and Regulator Sub-committee continues to reach out to regulators across this diverse region, in order to highlight the benefits that standardisation and use of the FIX Protocol presents.

In Japan the topic of regulation will also feature prominently at the FPL Japan Electronic Trading Conference on October 6th in Tokyo as the subject area of ‘Changing Global Stock Market Regulation and Japan’ is addressed during a keynote speech.

Increasing the FPL membership is essential for the on going success of the organisation. Not only do new member firms provide vital funding required to facilitate the ongoing development of the FIX family of standards to ensure they meet evolving industry requirements, new members also add significant value as they enable FPL to benefit from the insight and perspectives of their employees and truly represent the broader community in decision making. Over recent months FPL has placed an increased focus on expanding its membership and since June more than 25 new firms have chosen to join the FPL community! This is excellent news for FPL and with many more firms contacting the organisation to explore the benefits that FPL membership could present to their companies, we look forward to welcoming additional firms to our committees and working groups in coming months. If your firm would like to find out more about the advantages of FPL membership please contact the FPL Membership Relations Manager Bernie Simon by email at Bernie.Simon@fixprotocol.org.

From an events perspective FPL has been very busy over recent months putting in place a schedule that will enable it to provide educational opportunities in multiple markets globally. FPL’s events provide a forum where local market participants can learn about the latest trading trends and developments to the FIX Protocol that could help their firm to trade more efficiently. Over coming months FPL will be hosting conferences and briefings in Cape Town, Singapore, Mexico City, Tokyo, Sydney, New York, Stockholm and Dubai. Each of these events have been formulated through the collaboration of FPL Member firms and we encourage all readers interested in finding out more about these initiatives to visit the FPL events page (www.fixprotocol.org/events) for further details.

These are just some of the highlights of FPL’s activities over the past three months and upcoming initiatives, to stay up-to-date with the latest FPL news and developments please visit the FPL website www.fixprotocol.org.

James Day & Damian Bunce: Barclays Capital

By
Ian Rycott
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BUILDING A BRAND.

Damian Bunce and James Day explain how Barclays Capital, which bought Lehman’s US operations two years ago, are choosing the best of breed services and products from both organisations to create the optimal business.

How have things developed in Europe since Barclays Capital bought the US assets of Lehman in 2008 and Brian Fagen took over as head of global equities electronic trading distribution?

BARCAP_DamianBunce_614x375

Damian Bunce – As well as all the technical integration work that has been undertaken there has been organisational change at a global level to ensure we have an optimised structure. We have regional heads of electronic sales and trading who drive commercial efforts in the region, and regional heads of electronic product who refine products for local markets. Brian’s appointment was a reflection of the need to ensure that, at a client level, we pull together a global structure to reflect the needs of our global clients. As we have evolved the business structure supporting functions have quickly evolved with us, for instance, we have regional algorithmic development teams supported by regional quant teams, but it also made sense to appoint a global head of quant to shape the inner working of the product from a central source and allow regions to deal with local market nuances.

At a product level there were natural synergies at play, both Barcap and Lehman were market leaders in services to the high frequency community so speed, latency and throughput have been at the heart of the product cycle from the outset. We took advantage of niche strengths, for instance Barcap’s strength in cross-asset spread trading and integrated fx capabilities stood out, as well as the strength of the “Barx” electronic brand.

BARCAP_JamesDay_565x375

James Day – We spent a great deal of time assessing technology capabilities of each firm, and the underlying infrastructure they were built on.  We enhanced the strongest products and cut the weaker ones. For example, we retired the technology underpinning the smart order router and crossing functions from Barcap in Europe, and following Europeanisation of the functionality imported the former Lehman products from the US that were tried and tested. We enhanced the former Lehman analytics products that were market leading and rebranded them as part of Barclays Capital Live, The algorithmic framework (LMX) was stronger from Lehman but the algorithmic code in Europe from Barcap was stronger so we combined the two. We plan to re-launch LX (liquidity cross) in Q3 and have taken advantage of some of the differentiating functionality that this offered. As well as integrating internal products, as part of the acquisition of Lehman, we acquired Townsend Analytics and the Realtick EMS product. This gave the firm an independent, multi-broker solution that we have integrated into our suite of services.

How have you developed the business on the people front?

Damian Bunce – We were fortunate to have had a blank sheet of paper when it came to hiring so we were able to put the right people in the seats straight away. We offered the appeal and excitement of a start-up that had investment, but because we had a rich technology base we were able to avoid many of the growing pains associated with a start-up. The technology base coupled with experienced staff gave us a huge head start in terms of time to market.  Integral to our offering at the outset was the quality of the service model. We recognised the increased importance of the electronic sales trader to many clients.  The particular role has developed significantly over the last few years, particularly as electronic volumes have grown amongst clients. It was once considered a training ground for graduates and a reactive role to trade problems. We encourage our service desk to be proactive with clients that value it, to spot problems before clients do and to add value to the execution strategy. Integral to this approach was a real focus on development of leading edge monitoring tools that show graphical representations of how algos are operating. This gives our desk an edge when advising clients.  We think that if clients know their orders are being monitored by capable people with strong trading skills and market knowledge, throughout all forms of market conditions, that over time this will earn longevity of our service to clients. Additionally we bucked the trend by hiring from the buyside, to inject a greater understanding of the portfolio process into the team to better refine client service. On the technology side we brought all the tech support functions into the front office making it an integral part of the business – this approach helped us to attract high calibre candidates whilst at the same time control the overall service levels to clients.

How do you see the landscape unfolding in Europe in terms of the execution venues?

Damian Bunce – We think it is still a bit early to draw any firm conclusions. For instance, we have seen signs of consolidation such as the LSE and Turquoise but at the same time we have seen businesses winding down such as NASDAQ OMX Europe; businesses start up such as Getco Execution Services; others being re-invigorated with investment (Equiduct and Citadel for example), and firms that are showing positive signs of growth like Knightlink in Europe. Additionally there was what appeared to be a growing desire for broker dealers to own and operate dark pools as MTFs. This, however, seems to have cooled.

Looking at best execution, what do you see as the main challenges?

James Day – I think one of the key areas that still needs to be addressed is on the post trade side. Europe still has an inefficient clearing model that adds significant costs, particularly to those that contribute significant volume levels. Interoperability between clearers has been moving very slowly; in fact there are signs that the vertical model will be introduced with the recent announcement of NYSE Euronext to set up its own clearing operations. In order for Europe to become as competitive as the US, and for firms to achieve best execution in far more liquid markets, issues around post trade need to be accelerated.

Do you think regulation will move things forward?

James Day – We engage with the regulators through AFME and other organisations and play our role as much as we can in shaping the future of trading. Many of the perceived inefficiencies (some around definition as much as functionality) are being debated as part of the call for evidence and the MIFID 2 review, so we are confident the right issues are on the table. Wat we cannot ascertain right now is the timeframe over which we will see decisions implemented.

Aside from regulation, what other challenges do you see the industry facing?

Damian Bunce – The electronic trading industry is fast-paced and constantly evolving. Of late we have seen the spotlight turned on the industry overall due to discussions around the “flash crash”, and data dissemination in dark pools etc. During these times it is more important than ever to stay close to our customers and clients help them navigate the changing environment and manage their risks effectively.

James Day – Another challenge continues to be the bottleneck that brokers face when trying to release a product to the independent vendor community that resides on the desktop of clients. The vendors are understandably jammed with requests and the certification process can be lengthy.  Broader adoption of FIXatdl (algorithmic trading definition language) should come some way to removing this problem but the rollout remains slow.

[BIOGRAPHIES]

Damian Bunce is a director and head of equities electronic sales & trading, Europe at Barclays Capital. Based in London, he joined Barclays Capital in March 2009, previously having worked at Goldman Sachs, where he held various positions in London and New York during his nine years with the firm. His most recent position was head of execution sales in Europe.  Bunce started his career with IBM, selling systems solutions to financial services clients.  Following this he worked for Barings Bank, London. Bunce has an undergraduate degree, BA (Hons), in English from the University of Surrey, and a master’s degree (MSc) in computer science from the University of Hull.

James Day is a director and head of European equities electronic product at Barclays Capital. Based in London, he is responsible for electronic equities trading products such as pre- and post-trade analytics, RealTick EMS, algorithmic trading strategies, smart order routing, and crossing. Day joined Barclays Capital in 1998 from Daiwa Securities where he was responsible for equity finance and execution.  Prior to that, he worked at Nomura Securities.

©BestExecution

 

Brian Mitchell : Gartmore

By
Ian Rycott
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TAKING ON A NEW ROLE.

Gartmore_Brian.Mitchell_560x375

Despite MiFID, best execution is still difficult to define. Brian Mitchell, who has recently stepped into the new role of head of dealing at Gartmore assesses the challenges in the industry.

Do you think best execution is any easier to define after MiFID?

As with most on the buyside, we define best execution as the process of executing transactions. This means taking all reasonable steps to obtain the best possible result for our clients taking into account the price, costs, size, speed, nature of order, likelihood of execution and settlement and any other factors relevant to the execution of the order. We will have regard to our clients’ particular characteristics, the nature of the order, the financial instruments being traded and the execution venues to which orders can be directed. We monitor “best and timely execution” primarily through our third-party transaction cost analysis (TCA) services.

Best execution, however, has always been tricky to prove. The definition to my mind is attempting to describe the overall aim of those transmitting / executing orders. It is striving to get the best overall outcome for our clients. This in reality remains difficult to prove as it inevitably will depend on the exact conditions at the time of the trade. Since MiFID, proving best execution in Europe is actually harder as trading is much more fragmented across different venues.

What are some of the other challenges in achieving best execution?

I personally believe that higher quality post-trade data, particularly from the dark pools, is key to understanding where best to transact our clients business for optimal execution. Currently we do not get information from every venue and a result there are inconsistencies in the extent, quality, reliability and calculation of data. The standard information provided by brokers to us around how they meet best execution obligations remains poor and tends to still simply repeat MiFID wording. We and I believe other buyside firms have to pro-actively push brokers for more granular information.

In relation to the stat arb or high frequency traders, to the extent that they add additional liquidity, they are not though seen as true market makers and as a result are not fully regulated by MiFID. One issue CESR (Committee of European Securities Regulators) could consider is can it obtain required trade data from them, and is it of comparable standard to what most brokers / investment firms provide.

Do you think that a consolidated tape will be in the CESR recommendations?

I think we are generally moving towards that direction because there are a lot of interested parties, but one of the main questions is who is going to pay for it? We do not want to have to pay, for example, for multiple feeds from Markit, Reuters, as well as Bloomberg and other providers. All primary exchanges charge brokers for the data and they then pass it onto us. I think that the buyside should be more vocal about the issue. At the moment the brokers have the loudest voice. Inadvertently MiFID has resulted in an unlevel playing field between buyside firms. It is those that can make the significant investments in technology that are better placed to take advantage of the fragmented market because they have an increased ability to search for prices and liquidity.

Overall, what impact do you think the CESR consultations will have?

Few brokers mentioned to me that the review will lead to a cleaner delineation of crossing and internalisation, with an end to the use of SI for crossing for example. I think it will have the biggest impact on dark pools and MTFs. It could lead to further banks creating MTFs although there is a risk of restricted activity.

In terms of the final outcome, I think the recommendations will probably be based on compromises from two sets of opinions. The regulators in some countries such as France and Germany are pushing for a restriction of dark pool activity as well as to the waiver regime, but others such as the UK would like to see a relaxation of the regime. It’s also worth noting that only three countries seem to be in favour of a mandated monopoly consolidated tape. The timeline is also short for the consultations. They were issued on April 13 and the deadline is May 31, with a view of submitting a final version on 31 July. I expect there will be many European Commission discussions before then.

How does the execution process work at Gartmore?

I have 14 dealers in London and Tokyo that execute trades for our 13 fund management teams across multi-products. We use over 130 different brokers a year and have about 20 commission-sharing arrangements in place on the equity side. A typical global broker in our top 20 list has access to more than 70 execution venues (via its smart order routing technologies), in order to help facilitate “best execution” for us as well as our end clients. The dealers are at all times responsible for ensuring best execution for our clients, be this via broker selection, trade execution or negotiating commission and/or financing rates for certain types of trades.

How do you choose your brokers?

We have a list of ‘approved brokers’ that dealers cannot deviate from. Approval of new brokers and daily order-monitoring is conducted by the Counterparty Management Committee, which is independent of the operational, dealing and investment functions of the business. The brokers are monitored for continued credit worthiness as well as for dealing efficiency. The aim is to reduce trading costs across multiple products, identify potential deficiencies and help to ensure that investment processes are in line with market standards for best execution. We also conduct detailed TCA and within that we focus, amongst other things, on both the explicit and implicit costs of trading.

How has technology changed the relationship?

The advent of electronic trading platforms directly linked to brokers and venues, via protocols such as FIX or FIX hubs allows us to transmit and execute our trades more rapidly. As a result, the focus of trading has shifted to short-term price volatility rather than share price movement over a long period. Reflecting this change, it has become important for us to continually review and enhance our trading analysis capabilities. We currently use an independent TCA service to help analyse in detail the true impact of equity trade implementation on client accounts and to analyse broker, and our own dealers’, performance. For example, we send all trade data from our order management system on a weekly basis, to our TCA provider.

You just arrived from Barings earlier this year, were you looking for a new challenge?

Yes, I was. The two firms are of a similar size but the mix of business is different. Baring is more of a traditional long-only fund manger while Gartmore has more absolute return / hedge funds and consequently higher trading turnover. Also, this is a new position / role at Gartmore and reports into the CIO (chief investment officer). Since I have been here, I have conducted initial due-diligence and TCA on historic broker / venue performance across cash, programme trading and algo usage. I also refined historic TCA processes / benchmarks as well as commission management / CSA processes and on-going oversight. I also established a new monthly dealing oversight group, which is attended by the chief investment and compliance officers. It covers relevant trading, TCA, regulatory / oversight topics and obligations.

And what are your plans for the future?

I am continuing to develop Gartmore’s strategies to tap into emerging sources of liquidity, dark pools and algo / DMA usage evolution. I’m also refining the current dealer / broker appraisal system, including monitoring more quantitatively performance using current TCA tools. While also revisiting our broker lists, across products, with a view to consolidate somewhat at the expense of poorer execution performers. Another short-term aim is to improve our feedback and granularity of data to our brokers and venues at scheduled reviews throughout the second half of 2010.

[BIOGRAPHY]
Brian Mitchell joined Gartmore in January 2010 in the newly created position of head of dealing. He has responsibility of overseeing all dealing activities including equities, derivatives, fixed income and FX in London, Tokyo and Boston. Mitchell has over 23 years’ investment industry experience, most recently at Barings Asset Management, where he was head of dealing and transaction cost analysis for the last 11 years. Mitchell completed the London Business School, Investment Management Program in 1996, is a member of various industry working groups / advisory boards, including AIMA and the IMA’s – Dealer Group.
©Best Execution

Thomas Bill : ORC Software

By
Ian Rycott
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A MEETING OF TECHNOLOGICAL MINDS.

ORC_ThomasBill_2

Orc and Neonet, which joined forces earlier this year, are hoping to create global player in the in equities and derivatives technology trading space. CEO Thomas Bill highlights the challenges and opportunities.

Since the merger of Orc Software AB and Neonet AB was officially completed how has the integration process gone so far?

While it’s still early days since we started the merger integration after the deal formally completed this April, things have gone as well as we could have hoped and initial feedback is positive. Although still involved in some aspects to the merger, the new group should be fully operational in Q3 2010. Then it’s full speed ahead in defining new combined offerings.

Virtually from day one we managed to generate good results from cross-selling opportunities by promoting Neonet’s technology to Orc customers, as well as selling Orc technology – trading systems – to Neonet customers. Prior to the merger, Orc (as a pure technology company) did not really have a hosted connectivity offering, which Neonet brings.

We’ve identified significant demand within Orc’s customer base for the type of technology Neonet provides, using Orc’s sales force to sell their products to other brokers and trading houses that Orc has as customers.

Trading customers are asking us if they can execute [trades] through sponsored access via Neonet (Xchange Gateway), or to use Orc’s native connectivity, which is perhaps even more low latency for the high frequency trading (HFT) fraternity and for us to execute in Neonet’s name.

What are the challenges that lie ahead in aligning the respective platforms/IT systems, employees, sales & marketing?

As two Swedish fintech companies we share much commonality. Staff who have worked for both companies now work for the other company literally across the road in Stockholm. So, from a cultural perspective it bodes well for successful integration. There will be challenges, but already from day one we had a combined offering, which I think is quite unique.

Technology-wise we speedily integrated systems at a high level. Customers are already using Orc and trading through the Neonet gateways. Some IT aspects were completed before the merger announcement by virtue of certain Orc customers wanting to trade through Neonet and have their market connectivity solutions. With Orc having a much larger sales force than Neonet ever had, it will be Orc’s sales team that sells the Neonet technology (via the Technology Services arm). Neonet Securities will be kept as a separate subsidiary with their own sales force for the Transaction Services side.

How are client relationships being maintained and strengthened?

Looking at Orc’s customer base, we are now able to provide a new, enhanced and wider offering to them. They are really asking us to host connectivity, which Orc had not been able to do before. And, this is something that comes from right across our client base. Increasingly clients want us to take care of much more of their trading infrastructure and have as little to do as possible with connectivity to the market. If you look at Neonet’s customers, they have an appetite for more advanced front-office systems than can be provided through Orc’s portfolio.

In terms of retaining talent, making new hires or cutting staff, how will management approach this?

Within the Engineering teams (product developers) and sales we are increasing our staff. Where overlaps do exist such as in administration and corporate functions (e.g. a single CFO instead of two) we are undertaking some reductions. In terms of stock incentive programs for employees, in future I would like to have more of staff participating in equity incentive programs.

Where is the focus likely to be for new product launches over the remainder of 2010 and into next year?

We are putting out new products to the market both for Orc and for Neonet. Recently we launched a new version of Orc Spreader, a server-based automated futures arbitrage engine, and one can expect further developments later this year. More services and managed services in particular will be very crucial.

But critically for Orc it is not to lose focus on the most sophisticated trading segments where we are a key player. As a third-party vendor we believe that we should have by far the strongest and most advanced high-frequency and derivatives trading system.

There is also a big focus within Orc on trade automisation and algorithmic trading. We see good prospects for selling Orc’s trading systems (e.g. Orc Liquidator, our algorithmic trading engine) to their clients. And, we see our clients wanting to have a hosted and managed connectivity and expertise equities, for which Neonet has an infrastructure. We know there is high demand for that type of hosted solution in parts of North and South America.

What are the targets, in terms of clients and geography, for the new group going forward?

The targets do not necessarily have to be confined to exchange memberships, but could also be in terms of offering new markets through partners or other brokers. But what we are really looking at is how can we take Orc’s ultra-low latency software products and start to offer sponsored access, where our HFT customers can trade (e.g. trading in Neonet’s name using Orc’s native connectivity). We believe that is something – both in Europe and in the U.S. on the Chicago markets – that could be very interesting.

Cross-selling opportunities will initially be the “greatest” in Europe, but will this also mean most efforts on integration and expansion will centre on Europe first?

Yes, it will be very much be a staged approach whereby we will increase our activity. Neonet is still pretty much a European-focused company and this is where they have most of their staff. This is where one starts. Yet we also have many clients trading Europe from overseas. If there is a focus on European connectivity it still means we want to sell our trading systems to North American and Asian clients, but perhaps trading into Europe.

Prior to the merger Orc generated 50% of revenues from Europe, with the remainder split equally between APAC and North America. Neonet had far less on that score in those two regions, so we want start selling Neonet’s product portfolio through our Asian and North American sales offices.

While Orc already provides trading access to the Asia-Pacific (APAC) region through its Market and Broker Gateways, how will Neonet complement this?

First of all it centres on connectivity to Europe from the APAC region. That will be the initial focus. And, potentially it will involve selling the Neonet host connectivity to other brokers, banks and retail clients there. Orc Trader and Orc Liquidator in combination with Neonet’s front-end application Neonet Trader, gives Asian clients efficient access to both equity and derivatives trading on the US and European markets. Furthermore, thanks to Neonet’s technology offering, Orc will be able to provide its clients with hosted solutions and hosted access. With Orc’s 100-plus market connections, Neonet can provide its clients with even faster and easier access to global liquidity.

In the context of the term ‘Best execution’ does the merger and respective strengths of both parties play well to this?

Absolutely. We’re eyeing other markets where the liquidity is already fragmented or will become more fragmented like in Asia-Pacific. You will start to see MTFs or alternative execution venues also springing up in the APAC region, so that will be an opportunity for us. There are signs where you can see it in Latin America. One can also see it Canada where they have very strict best execution rules – more strict actually than in Europe. That presents a great opportunity to sell Neonet technology in terms of Neonet’s XG offering. Undoubtedly there are more markets to exploit.

What do Orc’s newer subsidiaries like CameronTec and the CameronFIX offer that is differentiated from the competition?

With most other independent FIX vendors disappearing from the market and/or being acquired by exchange groups, we wanted to increase focus on the standalone FIX business – but still under Orc’s umbrella. So, late last year we re-established Cameron as a separate and standalone company.

Both CameronTec and CameronFIX are entities that have a good opportunity to differentiate themselves, and indeed they are. CameronFIX is universally regarded as the reference standard for reliable/mature FIX engine applications. Cameron has by far the strongest brand and product in the FIX-engine market. Where others may have decreased investment levels in the FIX-engine area, we can make additional investment and put more emphasis on Cameron and their FIX technology.

[Biography]
Thomas Bill, chief executive officer of Orc Software AB since October 2006, was instrumental in the merger with global agency broker Neonet AB announced this January. Subsequently he was appointed new CEO of Neonet and its subsidiaries in April. Prior to Orc, Mr Bill was CEO & president of Protect Data AB and Pointsec Mobile Technologies AB. Almost a decade ago (2001) he was on Front Capital Systems’ executive management, a firm acquired by SunGard. He holds a Masters degree in computer science & engineering from the Royal Institute of Technology, Sweden.
©BestExecution

Options Market Structure Outpacing Underlying Technology

By
Creating Digital
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Recent predictions from industry groups suggest US equity option quote volumes will nearly double over the next twelve months, severely straining the technology fabric that underpins the industry’s quoting, trading and risk management systems. We see particular vulnerabilities in processes and systems that require a direct un-throttled options market data feed, such as smart routing engines, algorithmic trading engines and portfolio risk systems, as well as the infrastructure that supports these processes and systems.
Options Market data fed from Options Price Reporting Authority (OPRA) has been steadily increasing at a current annual rate of about 40%. Currently we see around 1.3 million messages per second, with a recent high-level mark at almost 1.5 million messages per second in December. The Financial Information Forum (FIF) is projecting growth to reach 1.8 million contracts in the next twelve months. The projection does not take into account the ramp up of new exchanges or any added expansion of the Penny Pilot, and we know that as these changes go into full effect, growth will only accelerate. We expect that with the new symbology, clients will be able to execute against more strikes in all underliers. The above projections also do not take into account the added granularity in striking which we anticipate will lead to more products filling our screens, adding to the technology crunch.
Given the recent OCC symbology changes, new and existing exchanges will be fighting for order flow with new products and different business models. Some new models include hybrids of payment for order flow and maker/taker for certain names. Some exchanges are trying to attract new business by introducing non-standard options that allow clients to trade options in new ways, such as binary options. More products on more exchanges will increase the need for better, more efficient technologies. The technical hurdles to maneuver this business will likely only get higher and higher as we move forward.
Firms’ needs vary from order routing through an EMS, some of which showcase advanced options analytics, to proprietary technology systems that require a huge amount of technical horse power to consume the ever growing OPRA market data feed. These systems pipe through options algorithmic orders that spawn hundreds of child orders or advanced volatility quoting strategies.
As needs grow, it will become increasingly more important for firms with trading needs to partner up with vendors and brokerdealers who have developed specialties in these spaces and who understand how to efficiently handle the sheer mass of messages being sent now in terms of orders and market data. The underlying technology has become so specialized that it’s no longer a matter of throwing money at a software or hardware problem, but to find the best combination of hardware and software.
It will also be important for all firms involved to smartly throttle the feed to certain processes that do not necessarily need every tick to ensure that sub systems are not over saturated. We expect that every single process that tries to consume OPRA market data will need to be bolstered or re-engineered for almost all existing systems. There also has been a recent push towards publishing the depth of the options market, provided as direct feeds from the exchanges, to trading front ends and algorithmic engines. The thought is that with the proliferation of pennies, the current OPRA feeds, which only reflect the tops of books at each exchange, are less useful when trying to identify liquidity for larger block executions. Besides providing more clarity into the book, direct feeds also tend to be faster than the feeds through OPRA. Tools designed to obtain blocks in the electronic markets will become important when chasing after institutional, larger block trades. There also is some thought that using the depth of book to derive analytics will provide customers clarity into where they may get filled given the depth of book feed.

Low Latency Market Data: Are Proprietary Protocols Needed?

By
rolf_andersson
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By Rolf Andersson

Pantor Engineering’s Rolf Andersson examines the data behind the speed of FIX for low latency market data, settling the question of whether FIX is fast enough.

Rolf Andersson, PantorThe FIX Protocol as well as software implementing the protocol (aka “FIX engines”) have from time to time been said to have a performance that is too low for use where very high throughput and/or very low latency is required. Performance characteristics of the protocol as well as engine implementations have been discussed in previous articles (Kevin Houston’s article “Is FIX Really Slow?” and John Cameron’s “Evolution of the FIX Engine” Vol 2, Issue 7, September 2008). Granted, there are slow implementations in use and the classic FIX tag=value syntax is too verbose for some use cases: e.g. market data.

Recent developments within FPL such as the release of the FAST Protocol and efforts within the FIX 5.0 usage sub-committee to support alternative recovery state models will enable FIX to be used in high throughput, low latency scenarios. This article reviews the various sources of latency and demonstrates that a FIX over FAST implementation can be used in place of a proprietary protocol to provide very high performance and low latency.

An overview of latency sources

There are a number of latency sources that contribute to the total latency for producing, transferring and consuming market data. The impact of different sources varies widely between implementations. The following sources will be discussed:

  • Message processing overhead – the encoding and decoding between transfer format and the internal representation suitable for the processing required in a specific application, as well as safe-storing messages to support recovery of lost messages;
  • Communication processing overhead – the network processing associated with sending and receiving messages;
  • Scheduling delay – the delay in reacting on a request to send a message or reacting on a notification that a message has been received.
  • Transfer delay – the time elapsed between the start and the end of a packet containing one or more messages.
  • Propagation delay – a function of the physical distance between two communicating parties and the speed of light in the medium used to communicate.

These latency sources are to a large extent similar in behavior irrespective of the choice of external protocol, but there are differences as discussed below.

Message processing overhead

The overhead of processing a traditional FIX message is negatively affected by a number of aspects:

  • Message content – FIX messages contain a host of information for the benefit of different communicating parties.
  • Message format – the FIX message format contains redundant information about the message structure. Text is used to represent all data.
  • Recovery semantics – the FIX recovery mechanism is based on message sequencing per session and a contract that a receiver can re-request messages.

Communication processing overhead

The communication overhead depends on the number and size of network packets. Each transferred packet incurs some processing both at the sending and receiving end. One or more messages are transferred in each network packet. Smaller messages mean that less data has to be copied and that more messages can be transferred in each network packet.

Scheduling delay

The scheduling delay is largely independent of message size but implementations may make use of the fact that smaller messages can be packed more tightly together and be transferred in fewer network packets.

Transfer delay

The transfer delay is affected by the size of the messages to be transferred. Each network packet carries a fixed overhead of at least 42-54 bytes depending on the network protocols used. Smaller messages result in lower transfer latency in two ways; network packets will generally be smaller and they will be fewer during peaks.

Propagation delay

The propagation delay is independent of the format and size of messages so there is no difference between FIX and other protocols in this regard.

FIX message processing details

Message Content

Specific rules of engagement are normally agreed upon between two communicating parties, but the current FIX specification contains a number of mandatory fields that may not be needed in a specific context. The inclusion of extra fields increases the message processing overhead as well as the transfer latency, so making more fields optional will allow smaller messages to be used in specific contexts.

Message format

The structure information included in traditional FIX messages is removed in FIX over FAST. A message template is used by the communicating parties to agree on the layout of each message type. Traditional FIX message data is represented as text, whereas in FIX over FAST, numeric data is represented in binary. The binary representation of numeric data in itself results in a space saving of 50 percent and also decreases the encoding and decoding overhead of numeric fields.

Recovery semantics

The traditional FIX recovery mechanism requires a sender to store the sent messages to be able to resend them at a later time if the receiver requests some range of messages to be resent. The safe-storing of messages incurs extra message processing overhead and may render a FIX application unusable in scenarios with stringent latency requirements. The FIX 5.0 working group is considering alternatives that will allow a sender to perform limited or no safe-storing of messages. The receiver is instead required to use some alternate mechanism of recovering from message loss. This is in line with how ITCH and other proprietary interfaces implement recovery.

A summary of latency contributions

As the table above shows, the value range for each of the latency sources is large. As a consequence, there is no single latency source that in general has much greater impact than other sources. It all depends on the specific situation. The propagation delay is not an issue when the communicating parties are co-located. The transfer delay is at the single digit microsecond level or below if 1 or 10 Gigabit interface speeds are used. The scheduling delay will be in the low microseconds if the application code is correctly written and the environment is correctly set up. There are hardware solutions that provide single digit microsecond communication delays. Lastly, it has been previously shown that encoding and decoding of FIX as well as proprietary protocols can be implemented very efficiently.

Comparing ITCH to FIX over FAST

The ITCH protocol has been in production for a number of years. Variants of the ITCH protocol as well as ITCH-like protocols are offered by Nasdaq OMX, CHI-X and BATS. FAST has been in production use since early 2006 and was originally developed by FPL during 2005 to provide efficient support for high volume market data flows. FAST 1.2 is the current version which was released in March 2009. The primary focus in the development of version 1.2 was to further improve the support for FIX flows. It has been argued by some that ITCH is better suited for high volume market data because of its small messages and its low encoding and decoding overhead.

The traditional FIX market data messages carry a much larger space overhead and are significantly more expensive to encode and decode. A test was conducted based on real-world data to determine the bandwidth and processing characteristics of the two protocols.

The test configuration

A real INET ITCH feed was chosen as a basis for the ITCH versus FIX over FAST comparison. FIX over FAST message types were created based on the ITCH message types rather than using the traditional FIX market data message types. The out of band recovery semantics of the ITCH feed was used for the FIX over FAST implementation as well. Mandatory FIX fields that had no corresponding field in the ITCH feed and had no meaningful default value were removed.

Live ITCH market data was then used to re-encode an ITCH data stream as well as a FIX over FAST data stream. The network packet boundaries of the original ITCH stream were preserved in the re-encoded ITCH and FIX over FAST streams to allow close comparison even though more messages could have been packed into each network packet in the FIX over FAST case.

The test results

Packet sizes (including network protocol headers) and encoding and decoding latencies were measured based on network traces containing approximately 600 million ITCH messages. The results were in line with what has been observed in other comparisons: The FIX over FAST feed had 50% lower bandwidth utilization on average and up to 65% lower utilization in peak situations. With heavily optimized implementations, the raw encoding and decoding speeds of both protocols were in the range of 10 million messages per second (less than 100 nanoseconds per message). The difference between the encoding and decoding overheads of ITCH and FIX over FAST was marginal, with FIX over FAST being approximately 25% faster.

Conclusions

There are many proprietary protocols other than ITCH, but it was chosen as a representative protocol that has been touted as “lean and mean.” ITCH exists in multiple independent versions that each addresses the needs of a specific market. Its simplicity is appealing but its lack of flexibility makes it costly to deploy and re-deploy as the variants in use are similar but different. The tests performed show that FIX over FAST, not only more than keeps up with ITCH in terms of performance, but offers an advantage in terms of lower bandwidth utilization.

In addition, FIX over FAST offers a repository and framework for expressing variant versions of an interface. The perceived greater simplicity of protocols like ITCH will increasingly be offset by the availability of high performance, high quality FIX over FAST implementations. Some may have other reasons for choosing a proprietary protocol like ITCH instead of FIX over FAST but bandwidth and processing efficiency are no longer valid reasons.

Latin American Electronic Trading: Caliente!

By
Creating Digital
-

Brazilian bankers are migrating back from New York to Sao Paulo because the bonuses are better. Proprietary trading shops of local banks co-located at the exchanges are battling it out with traders who have just flown in from Chicago. Brokerage firms are rushing to deploy new algorithms to their buyside clients. Exchanges are playing “hard to get” with global exchanges eager to bolster their emerging market credentials. Local technology vendors with relationships are trying to keep out foreign vendors with advanced technology. And everyone’s trying to arbitrage local stocks against American Depository Receipts. Martin Koopman, a veteran of the securities trading industry, shares his thoughts on Latin America’s trading arena.
Latin America (LATAM), dominated by Brazil and Mexico, is growing faster than fortune seekers from the global exchanges, banks and vendors can fly south. The major stock markets are up 400% over the last decade, and the Brazilian derivatives market, BM&F, is now the sixth largest derivatives market in the world with growth of 67% in Q1 2010.

Earlier, Brazil and the rest of Latin America did not receive the same adulation as other emerging market ‘rock stars’, but this changed in 2009 as Brazil emerged early and unscathed from the worldwide financial crisis. Latin America’s time has now come! In the last two years, major exchanges have gone public, trading volumes have soared, brokers have rushed to deploy electronic trading services, early mover technology vendors have racked up impressive sales, and high frequency trading has begun.

Exchanges

Brazil dominates Latin American securities trading with BOVESPA being the largest equity exchange in Latin America. The fully electronic BOVESPA offers low latency market data and connectivity, co-location services, and a FIX Protocol interface. It was in 2007 that Bovespa IPO’ed and in 2008 it merged with the derivatives exchange BM&F, the sixth largest derivatives market in the world with strong volume and growth in interest rate and currency futures.

CME and BM&FBovespa have a cross-shareholding of 5% each and have strong order routing and technology co-operation. Todate, regulators have not allowed
any competitors to Bovespa or BM&F and nor are any new exchanges expected to launch.

Broker/Dealers

Local brokerage firms are dominant in Brazil with some being acquired by local banks and out of the 86 Brazilian brokers, 16 are dominant in trading. The largest equity brokers in Brazil are Itau, Brandesco/Agora Senior, BTG Pactual Bank, Citigroup-Intra, Credit Suisse and Socopa, while the largest derivative brokers are Link, Liquidex, CM Capital, Interflow and Arhke. Some local brokerage firms have been acquired by international banks such as Citigroup acquiring Intra in 2008, UBS buying Pactual Bank in 2006 and selling it back to management in 2009, and ICAP buying Arkhe DTVM brokerage in 2008.


Buy-side

The Brazilian buy-side is a broad mix of pension funds, hedge funds, retail and foreign with foreign investors holding a majority  of the value of the market.

Large pension funds/institutional investors hold 21% of the market’s value. Domestic hedge funds trade cash and derivatives using long only, long/short, and quantitative strategies and are quite sophisticated in measuring and managing risk due to a history of volatility in the market. Proprietary trading desks of investment banks and standalone proprietary trading firms are the ones using high frequency trading strategies. This segment has grown in the last two years and there is much interest from USA proprietary trading shops.

There is significant retail flow – 30% of equity trades mid 2009 came from a retail trade blotter provided by Bovespa and brokers called ‘HomeBroker.’


High Frequency Trading

High frequency trading grew quickly in 2009, but only BOVESPA, BM&F and Mexder (Mexican Derivatives Exchange) have enough liquidity for high frequency strategies. The historically high (but declining) market volatility helps strategies, however the lack of alternative marketplaces holds back strategies dependent on fragmented liquidity. 65% of trading volume on BOVESPA is DMA while 10% of trading volume is estimated to be algorithmic trading. On BM&F, 18% of trading volume is DMA with 4% being high frequency trading. In the last two years BOVESPA, BM&F and Mexder have all launched co-location services and low latency connectivity and investment banks have rushed to develop high frequency trading strategies, and to provide algorithms to buy-side clients. New broker equity algorithms are being launched each month from local and international brokers, with similar strategies to what is offered in Europe and the US.

Mexico

The Mexico Stock Exchange is the second largest equity exchange in Latin America, but a distant second with only 1/10th the trading volume of Brazil. The market is stunted by large family holdings and restrictions on foreign participation. The Mexican Derivatives exchange is more developed than the equity exchange, and is fully electronic. The most traded contracts are short term interest rate futures and a new partnership with CME, beginning in 2011, is expected to increase trading volumes.

Chile, Argentina, Peru, Columbia

The Santiago Stock Exchange is an equity and fixed income with limited derivatives. It competes with the Santiago Electronic Stock Exchange and the most important investors are private pension funds, which are funded through a compulsory pension program similar to a USA 401K plan. Approximately 70% of trading of Chilean companies happens through American Depositary Receipts traded on American markets. The Argentinean Market is greatly held back by a volatile economy and foreign exchange restrictions. The equities market is small as corporations tend to raise money through debt. The three largest brokers in Argentina are Bank of America/Merrill Lynch, Allariaa and Raymond James and there are three exchanges including the Buenos Aires Stock Exchange. Columbia and Peru have very small trading volumes, but are hoping to grow. Columbia in particular has recently upgraded its technology and is aggressively trying to attract high frequency traders.
Brazilian bankers are migrating back to Sao Paulo to earn bigger bonuses as Brazil and to a lesser extent Mexico have trading volumes today that are impossible to ignore. Caliente! Should you be interested in the full report, please visit TABB Group.

Malaysia and India: DMA and Algos, Linking Markets Across Asia

By
Creating Digital
-

Stephanie Lawton reports on the latest from the Face2Face Forums in Mumbai and Kuala Lumpur.

Few exchanges have seen such dramatic transformations as those in India. Technology looks set to play a major role in meeting market demands with the BSE announcing its adoption of FIX 5.0 and the NSE using FIX 4.2, with plans to upgrade to 5.0 as needed. Both the NSE and BSE seem determined to not only meet, but exceed their members’ expectations and have aggressive plans to build on existing capabilities and develop new products.

Bringing together the Exchanges
Three exchanges (NSE, BSE and MCX) came together to debate the role of technology, regulators and, of course, competition.

Jim Shapiro, head of market development for the Bombay Stock Exchange (BSE), stated that the ability of an exchange to innovate and stay ahead of the market, would be the key to its success. Correctly reading how the regulators may react to situations and evolve regulations in India would also be key, he added. Vidhu Shekhar, vice president of new products for the National Stock Exchange of India (NSE), agreed that keeping pace with market growth was essential. “You need to keep your eye on the ball,” he urged. “We need to recognise what’s going on outside India and decide how we, as an exchange, respond to the challenges and opportunities of globalization.”.

Latika Kundu, head of market operations for the MCX-SX, focused on the role of technology. “It’s about awareness of products on the market and how we ensure maximum accessibility to these new products,” she argued.

Looking at the progress of DMA and automated trading, the BSE felt the process was still in its infancy, with DMA still showing market constraints. However, algorithms were attracting a lot of interest from most market participants. New players, in particular, were ramping up this aspect of their technology and product offerings, with the BSE keen to attract these new market entrants.

On the subject of regulatory changes, all the exchanges agreed that the regulators had come a long way in engaging with the market and the exchanges. The main concern centered on systematic risk and in better understanding their clients’ requirement. On the idea of a MiFIDstyle system, the exchanges said that though the issue of best execution was being actively discussed, it still remained a complex issue. According to Shapiro, dark pools wasn’t high on the regulators’ priority list and block trading provoked more interest.

The Keynote – High Frequency Trading

High Frequency Trading as the New Market Makers was addressed by Ronald Gould, Chief Executive Officer, Asia- Pacific, Chi-X Global.

To start his presentation, Ron questioned whether High Frequency Trading is ‘bad’ or just ‘badly understood’. He gradually unfolded the story by looking at the development of HFT in the US and Europe in terms of regulatory evolution and the technology arms race. He also illustrated that an Alternative Trading System (ATS) has a positive impact on trading volume, which was reflected by the explosion of trading activity in Europe and in the U.S. He predicted that Asia-Pacific markets will undergo many of the same changes as the U.S. and Europe with HFT will playing a critical role in many existing Asia-Pacific markets with relatively low liquidity.

What are the major issues for electronic trading in India?

The major drivers were still the foreign institutional investors that were showing a strong appetite for algorithms, explained Murat Atamer, vice president equities, at Credit Suisse AES. “FIXatdl would be attractive to our clients,” said Atamer, adding that India was not a market that should be traded without algos.

Vinay Nayak, Senior Vice President for business management in global markets for Citi, believed that algorithms offered clients the best of both worlds. They could rely on both the brokerdeveloped algos and those customised specifically for them by brokers. Daiwa Securities’ Senior Product Specialist for capital markets, David deGraw, pointed out that in Japan, domestic brokers were handing out algorithms to retail investors. DeGraw said that Daiwa was looking at India in a similar light and felt this could be an approach that would work in this market.

On the issue of Smart Order Routing (SOR), Atamer saw it as a useful tool for price formation that could be applicable to India. DeGraw was concerned that the BSE and NSE were looking at SOR as an either/or issue, however, SOR can split an order across two exchanges and the local operators needed to take this into account.

What are the tech guys saying?

The good news, it appeared, was that the panelists have seen a significant increase in the investment in technical infrastructure and resources. From a technology perspective, exchanges in India were on par with their counterparts in some of the leading global market centres, driving an increase in algorithms, liquidity and price discovery.

The interest in ‘low latency,’ the buzz word over the past two years in Europe, was now moving into India, explained Rapid Addition’s CEO, Toby Corballis. The race to zero never ends, he declared.

Rajashree Thandy, Global Head of capital markets QA, Capgemini, pointed to her clients’ wish list that included flexibility and consistency. “Clients want to know how long it will take to trade so they can plan ahead.”

Wrapping up the discussion, PS Praveen, Transaction Network Services’ country manager for its financial services division, said his clients were looking for remote access, international quality algorithms, free access across exchanges and ‘the holy grail’ of milliseconds to microseconds at domestic exchanges.

And finally to the buy-side …

As always the buy-side debate was the perfect end to the day. Both Viresh Joshi, chief trader equity at Axis Asset Management and Vinoth Ramakrishnan, senior trader at Sundaram BNP Paribas, informed us that getting live updates from most of their brokers had made life more efficient, reduced errors, improved the timeliness of news and the pace of execution. Both also agreed on the interest level in algorithms being higher than ever, with anonymity proving as popular with domestic players as with international firms. The traders highlighted how approximately 15 percent of their trades were now executed using algorithms, with pre-trade analysis helping to establish an algo trade.

A key question for the buy-side firms was on what technical improvements were they looking for in the market. Ramakrishnan pointed to SOR; t
he ability to trade on the BSE and NSE based on best price; better pre-trade analysis; TCA; and (in a perfect world) event-driven algorithms.

Multi-asset class trading and more efficient execution were among Joshi’s priorities for technology development. Both vehemently agreed that India was definitely not close to being saturated with electronic trading providers. The key, they asserted, was that risk management and competition between providers would advance the market towards the goal.

The FIXGlobal Face2Face forum returned to Malaysia this year, once again with the support of Bursa Malaysia, a telling sign of the involvement of the Exchange in the use of FIX as a standard and being at the forefront of innovation in the region. With over 140 delegates attending, the trend was clear, that participants from the local Buy-side, Sell-side and Vendor communities had upped their interest in how Electronic Trading and FIX as a standard could optimize their businesses. This development was very encouraging, especially in a market that is in relative electronic trading ‘infancy’, possibly “Only a third of the way up the curve, in comparison to the US and the UK,” as First Derivatives’ Rob Hodgkinson put it. The upside is clear with the community wanting to know more about how to become involved.

International competition has arrived in Malaysia and the Exchange underlined this to the delegates, with Mr. Chua Kong Khai, Deputy Chief Market Operations Officer and Chief Information officer Mr. Lim Jit Jee giving their updates on DMA, co-location capacity, the ASEAN Link (a cooperative initiative across 6 ASEAN exchanges) and Bursa Malaysia’s partnership with the CME on the Globex platform.

  • DMA was launched for Derivatives in March ‘08 and for Equities in November ‘09 and even though the exchange is currently seeing volumes only on the derivatives side, the growing demand for lower latency should see the uptake accelerate on the equities side.
  • The exchange informed the industry that they have 4,000 square feet allocated for colocation with room to expand.
  • The ASEAN Link opens up new trading opportunities such as, direct access to trade on different ASEAN exchanges and acts as a local sponsor for inbound business from regional and global brokers, as well as for global buy-side.
  • Finally, the migration of Bursa Malaysia in the 4th quarter of 2010 to CME’s Globex platform will open up the global markets to the local participants.

As these advancements were outlined, alongside other perspectives from the sell-side players, Face2Face’s Buy-side delegates gained greater insight into market development. This was highlighted when a number of buy-side members of the audience expressed their industry perspectives and hopes, for the future.

With the exchange helping to lead the way in the implementation of strategies, technologies and infrastructure, which will enable the Malaysian market to grow, the question turned to the current impediments in the domestic market, in comparison to the international markets. The cost of trading, lack of understanding about the benefits of electronic trading, legacy policies and regulation were highlighted as key. Azura Azman, Head of Equity Broking Division at RHB Investment Bank, and Lim Jong Hau, Head of Equity Derivatives Group at CIMB Investment Bank, agreed that increased understanding of DMA and the deployment of algos to reduce latency and enhance institutional anonymity is starting to address these issues, along with a supportive relationship with the regulator, who is fully engaged with market participants and open to addressing the requirements of the market.

 

Tipping Point: The 8th FPL Asia Pacific Trading Summit 2010, Hong Kong

By
Creating Digital
-


Highlights from the 8th Pacific Trading Summit
Martin Wheatly, CEO of the SFC (Securities and Futures Commission), asked the 424 delegates at the recent Asia Pacific Trading Summit, held at the Marriott Hotel in Hong Kong, what the dictionary definition of a “Tipping Point” was. The answer was given – the level at which the momentum of change becomes unstoppable. Although this momentum has certainly been felt by the industry globally, what has it meant for Asia, from a Regulatory, Exchange, Institutional and Asset Management perspective?
Certainly from the Regulator, the fact that Hong Kong did not make a snap decision of regulation for short selling in response to the Global Financial Crisis solidified their position by understandin  the problem they were facing and learning lessons from other markets, before making an informed decision on any regulatory changes. The Hong Kong Exchanges and Clearing CEO, Charles Li, echoed this sentiment.

Some might pinpoint this discretion as the key differentiating factor between Asia and the US/Europe, saying they want to watch and learn from others to see if it works, and whether it is the path they want to follow. Their focus is on grabbing the China opportunity whilst becoming globally competitive. An investment in IT infrastructure, where they will be increasing 15,000 orders per second to 100,000 orders per second, decreasing latency from 10 milliseconds to 1 millisecond and ensuring a high connectivity to the Mainland, illustrates the Exchanges strategy whilst highlighting the importance of the Mainland market to this region.

So what of Alternative Trading Venues? An interactive voting session posed the question to the delegates, “Are Alternative Trading Venues good for the traditional stock exchange?”. 88% answered “Yes”, however, as aptly pointed out by Angelina Kwan, Managing Director and COO Asia Pacific for Cantor Fitzgerald, even though there is a gradual acceptance of Alternative Trading Venues across Asia, here in Hong Kong, the Exchange will remain a monopoly, as it is protected by legislation and this is unlikely to change anytime soon. However, with the ASEAN Link launching, through Martin Wheatly of the SFC and Hong Kong’s positive involvement in IOSCO, it is clear that Exchanges and Regulators across Asia are aware and addressing the change of momentum that is upon them. To fully capitalize on the opportunities for the region, it is in fact the governments of Asia that need to drive this.

George Molina of Templeton, Matt Saul of Fidelity and Christine To of T. Rowe Price wrapped up the day by talking about their desire for innovation from their brokers, combined with product knowledge as well as, and no less important than, their understanding and knowledge of their clients’ business. Their discussion resonated with a conversation I had the other day with an airline captain who trains pilots to fly the latest, most sophisticated passenger jets. He talked about the advancements in technology available to pilots today and how many of the younger pilots believe they can fly a plane perfectly just by monitoring their instruments and never actually looking out of  the window. The buy-side make the point that they will choose brokers that are not only using the technology available but are doing so whilst looking out the window!

To view the presentations made during the course of the day, please visit www.fix-events.com/hongkong.

My City – Edinburgh

By
Creating Digital
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