Systematic trading with BlackRock

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August 1, 2024

Chris Minck, BlackRock’s EMEA head of systematic execution, and Meredith Herold, CEO of BlackRock execution services and global head of systematic execution discuss effective systematic trading, the benefits to end investors, and the skills needed to create and run systematic workflows with our sister publication, The DESK.

Operations

1. What are the precursors to effective systematic trading in terms of information and market structure?

Chris: When assessing an asset class for integration with the Systematic Execution Trading desk, we focus on three critical factors: data quality, electronification, and market liquidity. For effective automation of workflows, robust data on market executions is essential to establish sensible parameters. This data is often a byproduct of electronification, which provides a comprehensive dataset of our historical executions, enabling precise calibration of our parameters.

Electronification also facilitates the scaling of our processes, as it allows us to collaborate with trading venues to automate operations where feasible. Lastly, we consider market liquidity to ensure that the volume of trades we execute does not negatively impact the market, particularly when dealing with one-touch or no-touch workflows. This underscores the importance of thorough post-trade Transaction Cost Analysis (TCA) to evaluate our market footprint.

Meredith Herold, CEO of BlackRock execution services and global head of systematic execution.

Meredith: Information and market structure, while distinct, are both crucial elements that significantly influence the effectiveness of a Systematic Trading strategy. These factors are not mutually exclusive and interact in ways that impact the scale and automation of such strategies. Information refers to the access to real-time data and the ability to process this data efficiently. This includes market prices, trading volumes, news, and other relevant data points. The timeliness and accuracy of information are paramount and allow for immediate adjustment in trading models, which helps in making more informed decisions about venue, broker, and execution. For example, knowing which venues offer the best liquidity for certain assets can influence execution strategies as a way to minimise market impact and transaction costs.

Market Structure encompasses the organisation and characteristics of the trading environment. A well-understood market structure allows for better strategising around where and how to execute the trades.

2. Where do these exist in global fixed income markets?

Chris Minck, BlackRock's EMEA head of systematic execution — Chris Minck, BlackRock’s EMEA head of systematic execution.

Chris: The US Treasury market is a natural starting point for us given the depth of market. Since then, we’ve broadened our reach across Developed Markets. Globally, our coverage now spans G3 Rates, Investment Grade (IG), and select High Yield (HY) sectors. Additionally, we’ve diversified into Fixed Income ETFs and Futures.

Meredith: As the market structure evolves, and regulatory regimes pave the way towards more price and transaction transparency in the fixed income markets, more data becomes available in different areas of the market including those that were less conducive to Systematic Execution strategies. For example, in US IG Credit, traditionally less transparent, corporate bond markets have seen increased reporting and transparency requirements. This shift allows Systematic Strategies to leverage detailed transaction data to identify trading opportunities and optimise execution.

3. What are the objective goals of using systematic trading from the end investors’ perspective?

Chris: Systematic Execution streamlines the process of getting trades to market swiftly while simultaneously eliminating any potential trader biases. The majority of the volume processed through the Systematic Strategies competes against bank algorithms, rendering a trader’s added value relatively minimal. This shift frees up our High Touch traders to concentrate on larger, more complex risk transfers, which ultimately benefits our end investors.

Meredith: The impact of systematic trading in fixed income markets varies depending on the perspective of the stakeholder involved. For BlackRock, both the portfolio manager’s and the client’s perspectives are crucial in understanding the benefits and objectives of implementing Systematic Trading Strategies. From our portfolio manager’s perspective, Systematic Trading reduces the time to market, balances our market footprint, optimises execution costs, and increases access to liquidity.

Systematic Execution Strategies enable our traders to provide equal and fair market access regardless of their size or investment mandate. By leveraging advanced trading technologies, BlackRock ensures that all our clients benefit from the same high standards of execution and market opportunities.

4. How can absences of historical data be overcome with heuristics or AI/ML generated data, in trading?

Chris: The US has the advantage of long-standing access to TRACE, providing a wealth of data. The forthcoming consolidated tape in EMEA is anticipated to significantly enhance our data pool, thereby improving our processes. In instances of data scarcity we develop solutions to bridge these gaps, including the use of AI. These tools, combined with our traders’ expertise, are integral to our decision-making process.

Management

1. Which skills do you need in your team to create and run systematic workflows?

Chris: Proficiency in coding and data science is crucial in our field. Equally important is a keen interest in the financial markets. While our team engages in extensive analysis, our core identity remains that of traders. This dual expertise is what enables us to excel in our roles.

Meredith: An insatiable desire and motivation to innovate, which challenges the status quo, is essential for driving progress and maintaining a competitive edge. By embracing change, leveraging technology, and fostering a culture of continuous improvement, BlackRock can transform stagnant workflows to enhance both portfolio management and client outcomes. This commitment to innovation ensures that Systematic Trading Strategies remain effective, efficient, and aligned with the evolving needs of the market and clients.

2. How does systematic trading work alongside non-systematic trading and what is the triage process for orders?

Chris: Our desks are in a state of continuous dialogue, particularly when managing substantial flows. We collaborate closely, discussing the best approach to execute large orders. This is particularly pertinent in the credit sphere; while an individual trade might be suitable for Systematic Execution, at times it can be more strategic to handle the entire flow through the High Touch desk, such as executing a Portfolio Trade.

Meredith: Collaboration between our trading and portfolio management teams over the past decade or so has led to the development of a sophisticated order raising framework. This framework ensures that each order is executed using the most appropriate execution style, whether through voice trading, RFQ, or auto-execution, thereby enhancing efficiency, accuracy, and overall execution quality.

Orders that require the traditional “voice” execution style will always be routed to a high-touch trader who has deep market knowledge and a specialist in the asset/instrument. Orders that are eligible for auto-execution are typically routed through the Systematic Execution desk, where our traders are generalists.

3. Are systematic investment and trading intrinsically linked or is the trading model applied based on market condition not investment strategy?

Chris: At BlackRock, our Global Trading platform is centralised and distinguished from our investment teams. Whilst distinguished and independent, we are seamlessly connected via our Aladdin technology platform with our investment teams,

4. How has resourcing to systematic trading changed over the last five years, and how have the efficiencies it delivers justified that?

Chris: In the past five years, the resources provided by our vendors have increased significantly. The platforms we utilise now feature Automated Execution capabilities, facilitating Rules-based trading. This advancement has enabled us to scale our trading volume significantly. We have also further streamlined our workflows, allowing the teams to implement no-touch trading. These developments, in tandem, have allowed us to enhance our processes and achieve consistent year-over-year growth in the proportion of Fixed Income trading volume handled by our desk.

Meredith: The Systematic Execution desk’s proactive engagement with vendors and the sell-side has been instrumental in driving innovation and optimising workflows. This collaborative approach ensures that we remain at the forefront of technological advancements, supporting our growth and operational efficiency while maintaining strong industry relationships.

Talent

1. What were your career paths into your current roles?

Chris: I’ve been a part of BlackRock for 14 years, beginning my career in Trade Operations in the US, where I was confirming FI trades, including Meredith’s trades. My career path then led me to London to join the FI trading desk. I’ve embraced multiple roles, from being a part of the Low Touch Desk, a precursor to the Systematic Desk, to my ongoing role as a High Touch Rates Trader as well as Head of EMEA Systematic Execution. This extensive background has given me a comprehensive understanding of the Fixed Income landscape, trading across Rates, Credit, and even dabbling in Emerging Markets. These varied experiences have equipped me with the insight to identify High Touch workflows that are primed for transition to the Systematic Desk.

Meredith: My journey began at a financial solutions company, where I honed my skills in finance, logistics, and project management by structuring technology leasing programs for corporate clients. Seeking to gain more experience with investment strategies and client relations, I then transitioned to a trust company, where I focused on preparing institutional fund pitchbooks and client performance materials, specifically in fixed income. In 2004, I joined Merrill Lynch Investment Management, which was subsequently acquired by BlackRock. I started in a role assisting high net worth portfolio managers and servicing fixed income clients. In 2006, a coveted fixed income trading seat was available, and knowing that was where I wanted to go, I jumped on the opportunity and have not looked back. Over the past 18 years, my trading seat has taken many twists and turns from a junior trader manually executing and processing orders, to now the Global Head of Systematic Execution based in Atlanta, Georgia, which focuses on scaling complex workflows through automation, data driven insights, and trading acumen.

2. What are the challenges in recruiting into your team?

Meredith: For Systematic Execution, it is often difficult to properly assess the technical skillset for the specific role prior to onboarding.

Chris: The ideal candidate is someone who embodies a well-rounded skill set, combining technical prowess with the ability to effectively interact and communicate within a trading environment.

3. What advice would you give anyone who wanted to move into a systematic trading role, either from a data science or trading background?

Chris: Learning the Python programming language have proven invaluable for swiftly analysing data and implementing performance tracking reports. When hiring, one of my primary focuses is on candidates’ eagerness for continuous learning. With increasing transparency in the Fixed Income market, we’re presented with a unique opportunity to broaden our horizons. We’re on the lookout for individuals who view this as an exciting challenge to embrace.

Meredith: Systematic Trading indeed requires a unique blend of skills and perspectives. To a data scientist entering the realm of financial markets and execution, I would emphasize the importance of developing a genuine interest in financial markets. Unlike traditional trading, where intuition and experience play a significant role, Systematic Trading relies heavily on data analysis and processes. Therefore, having a passion for understanding financial markets and execution dynamics is crucial for success in this field.

On the other hand, for someone with a traditional trading background transitioning into Systematic Trading, I would emphasise the need to draw upon their experience to quantify trading results to ensure strong performance. While data and algorithms drive Systematic Trading, having a deep understanding of market behaviour and trading strategies can provide valuable insights and help refine quantitative models. By leveraging their expertise, traditional traders can contribute to enhancing the effectiveness and reliability of systematic trading strategies.

4. What are your expectations for the shape of a systematic fixed income trading team in the future, relative to the historic FI trading teams?

Chris: Systematic Traders are poised to handle increased volumes with greater efficiency, requiring less human intervention. As the thresholds for assignments to the Systematic Desk rise, our traders must possess not only a deep understanding of the markets but also the technical acumen to ensure the attainment of the best execution possible.

Meredith: I envision a future scenario where there is no longer a rigid separation between high touch and Systematic Trading; instead, systematic strategies are embedded within the trading infrastructure, enabling a more agile and adaptive approach to execution. This integration allows trading operations to leverage data in real-time to optimise execution outcomes, regardless of the trading style or strategy employed.

THIS ARTICLE WAS FIRST PUBLISHED ON THE DESK

©Markets Media Europe 2024

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EWIFA: Celebrating the industry’s rising stars

By

Lucy Carter

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August 1, 2024

With 2024’s European Women in Finance awards just months away, we at Markets Media are excited to see the nominees for this year’s Rising Star award and recognise the achievements of some of the most impressive members of the trading and finance industry.

At last year’s ceremony, five nominees walked away with the prestigious title of Rising Star. One of the winners, Jessie Li, electronic sales trader and vice president at Instinet, called the awards “a token of our industry’s commitment to diversity. It is reassuring to see all the collective efforts in this business continuously push, promote and champion for a true sense of equality and diversity of all kinds”.

Tania Bachmann, vice president of macro equity at PIMCO, added that the award “is a nice way to reward my work of the past few years and it will drive me to continue working hard in the way I have since joining the industry”.

T. Rowe Price’s Oriane Cochard, Fidelity International’s Louise McCormack and Rathbones’ Emma Saunders were also recipients of the award, further demonstrating the calibre of talent recognised at the event.

This year’s ceremony will take place at the Pan Pacific London on Wednesday 25th September. Nominations are open until August 23rd. We look forward to reading your submissions and celebrating the work of women across the industry.

©Markets Media Europe 2024

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H124: European, Asian prop trading firms outgun US rivals

By

Alex Pugh

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July 31, 2024

Ross Lancaster_Acuiti_900x600 — Ross Lancaster, Acuiti

US proprietary trading firms have fallen behind their European counterparts, thanks in large part to reduced volumes in US options markets.

This disparity comes amid a wider slowdown for proprietary trading firms in H1 2024, despite conditions improving on H1 2023. The findings are drawn from Acuiti’s Proprietary Trading Management Insight Report, which also looked at buy-or-build considerations, headcount, and the role of India in firms’ future prospects.

Ross Lancaster, head of research at Acuiti, said: “After stellar years in 2020 and 2021, performance for proprietary trading firms has been more challenging over the past two years.

“However, new markets are providing firms with opportunities and overall the environment remains positive compared to the mid-2010s. And with growing uncertainty around the US election results in November, 2024 still could turn out to be a very good year for the market,” Lancaster adds.

The quarterly report is based on a survey of the Acuiti Proprietary Trading Expert Network, a group of senior executives at more than 100 global proprietary trading firms. The latest report found that, while 47% of firms reported better business performance than in H1 2023, less than a third said that H1 2024 has been better than an average year.

Firms cited regulation, a lack of volatility in the market, and competition for fills, as the top three challenges in H1 2024. Regulation has steadily climbed the list of challenges over the past three years – it was cited as a significant or critical challenge by a third of firms in H1 2022 and, most recently, by more than 55%.

Competition for fills has risen from 15% of firms citing it as a major challenge in H1 2022 (and 20% last year) to just over half of firms this period.

Because proprietary trading revenues are highly dependent on underlying trading volumes, muted growth in some key markets has impacted these firms.

Market conditions have also favoured ultra-low latency and predominantly algorithmic firms, with almost 40% of ultra-low latency and predominantly algo firms reporting a better than average H1, compared with just 15% of firms with lower latency or more manual trading strategies.

Further insights

India has been a fast growing market for proprietary trading firms, with 16% of firms already trading in India. Of those that weren’t, 43% were planning to start trading at some point. Of those already trading, just 7% said it was very easy to connect and start trading compared with 14% who said it was very difficult.

The major challenge that firms faced was in understanding local rules. However, firms also reported challenges in dealing with local regulators. Connectivity and colocation set-up was said to be quite challenging, while finding a local lawyer and broker was straightforward for most firms.

On hiring plans, respondents said they are planning to increase the level of hiring of trading staff, developers and risk management compared to last year, with other areas remaining broadly in line with 2023. Almost 90% of firms are planning hires in trading with 75% planning to hire more developers. This compares with 63% and 69% respectively in the same study last year.

On the question of whether to buy or build front office software, the survey found that just under a fifth of proprietary trading firms that outsource their trading screens to an independent software vendor (ISV) are currently planning to build inhouse systems. Of those that build their software inhouse, 27% previously worked with an ISV. All firms that chose to build in house said that control over development was the key reason for doing so.

The move towards in house development would see the percentage of proprietary trading firms that develop systems inhouse rise to above 40%. Currently, just under a third of proprietary trading firms develop their front-office trading screens inhouse with the vast majority of those that outsource working with 3 or fewer vendors.

Aleksey Larichev, CEO of Avelacom, which partnered with Acuiti on the report, said: “As competition increases, firms are driven to equip themselves with better strategies and technologies. The report highlights that algorithmic firms using latency-sensitive strategies have performed better, illustrating the importance of keeping up with market changes.”

Looking ahead, sentiment among proprietary trading firms about business performance over the next three months fell back this quarter but remained high. Overall, 66% of the Expert Network were either very or quite optimistic about the coming quarter. However, 8% were pessimistic, compared to no respondents last quarter. In addition the number of very optimistic respondents dropped from 24% to 14%.

©Markets Media Europe 2024

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FCA listing proposals “a shot in the arm for UK’s public markets”

By

Lucy Carter

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July 31, 2024

Stacey Parsons, managing director and head of fixed income, Primary Bid

The UK Financial Conduct Authority’s new listing regime came into force yesterday, aiming to allow a wider range of companies to issue shares on a UK exchange.

By removing ‘premium’ and ‘standard’ listing segments and bringing in a commercial companies category for equities shares, the FCA hopes to mitigate frictions to growth once companies are listed, ensure that investors have the information they need to make informed investment decisions, and boost growth on UK stock markets.

In the new rules, voting is no longer needed for significant or related party transactions, while enhanced voting rights have been given greater flexibility. Shareholder approval continued to be needed for key events, including reverse takeovers and the removal of shares from exchanges.

Although the rules allow for greater risk, the FCA has stated that it believes the changes will more accurately reflect the risk appetite needed to achieve economic growth. They also put the UK in closer alignment with international market standards.

When the rules were published in early July, executive director of markets and international at the FCA, Sarah Pritchard, said: “’Regulation is only part of the answer in helping the UK achieve sustainable growth. Other factors also play a significant role in influencing where a company decides to list. We’re committed to continually working together with all those who have a part to play in supporting a thriving UK capital market.”

Rachel Reeves, the recently-appointed chancellor of the exchequer, added: “These new rules represent a significant first step towards reinvigorating our capital markets, bringing the UK in line with international counterparts and ensuring we attract the most innovative companies to list here.”

Speaking to Global Trading, Stacey Parsons, managing director and head of fixed income at PrimaryBid, said: “These are welcome reforms. The FCA’s new listing rules represent a significant, competitive and welcome leap forward for the UK’s public equity markets, making it easier for companies to choose listing in the UK.

Parsons draws attention to two other initiatives the FCA is putting in place to strengthen UK capital markets: the replacement of the UK Prospectus Regulation with the Public Offers and Admissions to Trading Regulations (POATRs) and a consultation on proposals to operate a public offer platform.

Under POATRs, companies will be required to publish a prospectus when issuing securities to public markets – as current regulation decries – but now when raising further capital, outside of limited circumstances.

Through this change, the FCA aims to reduce the costs of further capital raising for companies and ensure that investors can access the information they need.

A public offer platform will allow companies to raise capital outside of public markets, including from retail investors, the FCA stated. The association added that the platforms would promote scale-up capital raising for smaller companies, while keeping investors informed of the key terms and risks of an investment.

Parsons affirmed: “Alongside the anticipated reforms to the public offers and prospectus regime, [the listing reforms] should be a very welcome shot in the arm for the UK’s public markets, and the culmination of over 4 years of work.”

©Markets Media Europe 2024

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BREAKING: Six Swiss Exchange halts trading due to technical issues

By

Lauren McAughtry

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July 31, 2024

UPDATE: Six Swiss Exchange issue resolved as of 14:02 CET (13:02pm BST). Equities, ETFs, ETPs and investment funds to resume trading at 14.30pm CET. Rights, options and structured products to resume at 14.45pm CET and bonds to resume at 15:00pm CET.

NOTE: It is an interesting side point that while equities and bonds operate on two different trading systems at Six Swiss Exchange, both asset classes were impacted by the data issue. This is because the On Book Matcher 1 (equities) and On Book Matcher 2 (non-equities) both utilise the Six market data service, Multi-Dimensional Data Flux (MDDX), which feeds directly into the SIX Common Access Portal (SCAP), and thus provides data to both asset classes.

UPDATE: Swiss equities are back down, Global Trading is told by market sources – after being back online for less than a minute. Six Swiss Exchange confirmed at 11.46am CET that trading has been halted again “until further notice” due to technical issues. No matching is occurring.

UPDATE: As of 11.02 am CET, Six Swiss Exchange confirmed that the technical problems with SIX MDDX had been resolved, although the cause of the problems is “still being analysed”. Trading in equities, investment funds, ETFs, ETPs and sponsored funds is expected to resume at 11:30am CET, while rights and options and structured products will resume at 11:45am CET. Bond trading is expected to resume at 12:00pm CET.

A reported market data issue impacting Six Swiss Exchange (XSWX) and Bolsas y Mercados Españoles (BME) has seen trading suspended, impacting MTFs across Europe.

Six Swiss Exchange declined to comment when contacted, but issued a technical notice confirming that: “Trading has been halted at 10:00 am CET until further notice due to technical problems with SIX MDDX. Order maintenance is possible. No matching occurs.”

Global Trading understands from market sources that as of 10:50 am CET (09.50am BST), Spain was back trading, with Swiss names expected to resume by 11:30 am CET (10.30am BST).

A notice from Turquoise, released this morning and seen by Global Trading, confirmed that: “Further to technical issues reported by our market data supplier, the XSWX inbound market data feed is not available. As a result, instruments from this market are currently not available for trading on Turquoise Plato (TRQM) and Turquoise Lit Auctions (TRQA). The Turquoise Lit Order Book is trading as normal.”

Aquis Exchange confirmed to Global Trading that it is also experiencing knock-on issues. “Aquis Exchange MTFs EU and UK continue to investigate an issue relating to inbound market data for the AMP (dark) order books in Spanish and Swiss securities,” it said in a member alert. “AMP dark trading in Spanish and Swiss securities remain halted on Aquis. DLO orders will be accepted and will be routed straight to the lit order book. Trading on all other markets and Aquis order books continues as normal.”

The issue follows a previous market outage from Six Swiss Exchange in June 2023, its worst in a decade, with trading halted for three hours due to a matching issue.

Further information is expected to follow.

Vicky Chan returns to HKEX

By

Lucy Carter

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July 31, 2024

Hong Kong Exchange & Clearing Limited (HKEX) has appointed Vicky Chan as managing director and head of post trade, effective 5th August. She replaces Hector Lau, who is leaving the firm.

In the role, Chan will be responsible for leading the post trade team and enhancing HKEX’s clearing and settlement systems offerings. She reports to Vanessa Lau, co-chief operating officer and group chief financial officer.

Chan has three decades of industry experience and joins the firm from insurance firm AIA, where she was a senior management consultant. She has also been head of business development for Asia at 01 Communique, a Canadian remote access network software company, since 2018.

This appointment marks a return to HKEX for Chan, who spent more than 15 years with the firm before relocating to Canada. She held a number of roles during her tenure, including senior vice president for platform development, head of cash and derivatives clearing operations and head of the cash settlement team.

She began her career as a senior consultant at PwC, joining UBS in 1997 and Goldman Sachs in 1999.

On the appointment, Vanessa Lau commented: “We are very pleased to welcome Vicky back to HKEX. As a seasoned operations executive with more than 30 years’ experience, and with her solid knowledge of our clearing and settlement functions, I know Vicky will hit the ground running.

“Vicky joins at an exciting time as we continue to invest in modernising our operations capabilities – particularly with the announcement of our plans to develop the new Orion Derivatives Platform – and as we continue to take our trading and post trade operations to the next level.”

©Markets Media Europe 2024

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“Falling like dominoes”: Could NYSE trading halt lead to industry FIX?

By

GlobalTrading

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July 31, 2024

The halting of trades by the New York Stock Exchange (NYSE) on 6 May 2024 had a domino effect, rippling out across a number of exchanges, dark pools and alternative trading systems (ATSs) in the US. The NYSE halt was reportedly the result of issues with limit up/limit down price bands related to a new software release on the consolidated tape. But could the market chaos finally lead to a more effective industry solution to market outages?

The Consolidated Tape Association (CTA), which oversees the dissemination of real-time trade and quote information in NYSE listed securities, operates the Security Information Processor (SIP), which links the US markets by processing and consolidating all protected bid/ask quotes and trades from every trading venue into a single, easily consumed data feed.

The SIP disseminates and calculates critical regulatory information including the National Best Bid and Offer (NBBO) and Limit Up Limit Down (LULD) price bands among other important information such as short sale restriction and regulatory halts. Many alternative trading venues use SIP to price their trades. And when this is dysfunctional, it can have a ripple effect.

Larry Tabb, head of market structure research at Bloomberg, explains: “When the SIP has problems, it becomes hard, if not impossible to execute at the right price. Now these ATSs may not just use the SIP to price, they may use a combination of direct feeds and the SIP, but if a major component of your pricing feed goes then, same as above, it may impact how you price dark midpoint orders.

“As for only using the SIP, given the time delays inherent in the distribution of the SIP, I am not sure that is the best way to price orders, but, using it as a component, is probably the right strategy.”

Monday’s events have seen calls for better communication from exchanges when trading halts occur, with an emphasis on leveraging FIX to inform market participants.

Venues react

A NYSE spokesperson told GT: “After the market opened on the morning of 3 June, 2024, a technical issue involving industry-wide price bands published by the Consolidated Tape Association’s Securities Information Processor triggered “limit-up/limit down” trading halts on up to 40 symbols listed on NYSE Group exchanges. Shortly before noon, the issue was resolved and trading in the impacted stocks resumed. The NYSE is reviewing potentially impacted trades.”

Trading halts on the NYSE are disseminated in real-time on the firm’s market data feeds, which clients/market participants receive. They are also published on a dedicated trading halts webpage.

The CTA also issued a statement regarding the incident on Monday: “Between 9:30 a.m. and 10:27 a.m., CTA experienced an issue with limit up/limit down price bands that may have been related to a new software release. To resolve the issue, CTA failed over to the secondary data centre, which operates on the previous version of the software. The following symbols that were subject to trading pauses on CTA between 9:30 a.m. and 10:27 a.m. were potentially impacted by erroneous price bands due to this software release: CTA SIP Symbol LULD Halt June 3 2024 – Corrected.”

“In other words, CTA had a software glitch that changed the LULD price bands in more than 40 securities,” Joe Saluzzi, partner and co-founder at Themis Trading, said.

Saluzzi said that it was his understanding that the CTA sent out erroneous price bands, which were far away from the accurate price bands, for over 40 stocks, which caused brokers to cancel orders once the message hit their data feeds, essentially wiping out the limit order book in the affected stocks.

“Even though the limit books were wiped in some stocks, these stocks were not halted until trades started occurring at the new LULD prices for at least 15 seconds (this is the way the LULD rules are set up to work),” Saluzzi explained in a Themis Thoughts.

GT understands that due to the fact the NYSE had to halt trading, this caused the dark pools and ATS that quote prices from NYSE to go down as well.

“IEX determined that the quotes were not updating due to a latent software defect that impacted its SIP Publisher application responsible for disseminating quote information to the CTA SIP for symbol range A through D,” said the firm. However, according to a confirmation from an IEX spokesperson, there was subsequently an additional software defect within the IEX platform following the fail over to secondary after the original NYSE glitch. “IEX Technology is currently in the process of updating system code to address the issue. In the meantime, IEX’s failover procedure has been augmented to address this situation until the software fix is developed, tested, and deployed,” the firm told GT.

Industry sources suggest that the bigger issue is that this situation could easily be resolved much faster in the future, if a message was sent out on FIX to inform market participants. However, there are some exchanges that have historically blocked/opposed this, GT understands.

A solution?

Jim Kaye, executive director, FIX Trading Community, told GT that FIX is working on a solution to the market outage communication issue.

“The timing is completely unrelated to the US equities outage, and though outages of any kind are obviously not desirable, they are inevitable. Also, each one is different and provides us with another case study for us to test our design against.

“One thing our work has highlighted, and this recent example confirms, is that an outage can occur anywhere in ‘the system’ and impact any other part of ‘the system’. Here ‘the system’ could be anything from an actual IT system to a venue or market participant, to a market, to the entire financial ecosystem. Here, a market data issue impacts trading in several US shares which no doubt had a knock-on effect on derivatives, other shares, markets, possibly even other asset classes.

“Communication needs to come from any part of the system to, potentially, any other part of the system. It needs to be timely. And the really hard part is it needs to be honest and accurate. ‘Honest’ means if you aren’t quite sure what’s going on (often the case in the early stages of an outage), say so. Accurate means you need to be 100% sure of your facts and communicate them clearly,” Kaye added.

Krishna Omkar joins LSEG, bolstering digital asset business

By

Lucy Carter

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July 30, 2024

Krishna Omkar has joined the London Stock Exchange Group’s (LSEG) digital assets business, it has been reported. The appointment follows an instrumental role at the Financial Conduct Authority (FCA) developing comprehensive listing regime reforms.

Based in London, he reports to Darko Hajdukovic, head of new and private markets and deputy head of digital and securities markets. Hajdukovic took on the latter role in September 2023 as the company expanded its focus on digital assets.

Omkar spent more than a year and a half at the FCA, working on capital market reforms that were introduced earlier this week. The reforms aim to allow a wider range of companies to issue shares on UK exchanges, with the goal of improving competitiveness and encouraging firms to IPO in the country.

With an extensive legal background, Omkar spent more than four years at King & Spalding, most latterly as a senior associate. Before this, he was an associate at Slaughter and May for more than five years.

He began his career as a legal secondee at Moody’s Corporation, where he advised on a number of governance and compliance matters.

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European ETF trading growth challenges static equities

By

Lucy Carter

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July 30, 2024

Nicholas Phillips, market structure research, Bloomberg Intelligence

While low volatility will leave equity trading volumes stagnant for the rest of the year, European ETF trading is set to keep on growing, according to research from Bloomberg Intelligence analyst Nicholas Phillips.

ETF trading volume is continuing to grow in Europe, according to Bloomberg Intelligence, tripling between 2018 and 2024. Year-on-year, ETF trading in H1 2024 rose by 19% to €1.4 trillion. This trajectory is expected to continue for the rest of the year, the firm stated, predicting that ETFs could capture between 12 and 15% of European trading by year-end.

This strong performance has a number of potential contributing factors, Phillips suggests. Volatility spikes over the past five years, the result of crises including Covid-19 and the war in Ukraine, bolstered European ETF value traded. This hit a peak in H1 2022, with a recorded €1.6 trillion.

Although price swings have tailed off, ETF volume traded growth has not. “This suggests ETFs are finding natural growth, in contrast to equities, which have remained flat amid subdued volatility,” Phillips notes.

In terms of where ETF trades are being executed, lit order book volume has stayed fairly static since 2019, the report says. The focus instead is on request-for-quote (RFQ) platforms, which were used for 46% of European ETF trading in H1 2024 – up from just 18% in H1 2019.

The majority of RFQ trading goes through Bloomberg and Tradeweb, the research states, with Xetra the most active exchange for ETFs on a lit order book. For bilateral trades, LSE and Cboe were the favoured venues in H1.

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One Trading lands regulatory approval for European crypto derivatives trading

By

Alex Pugh

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July 29, 2024

Joshua Barraclough, founder and CEO of One Trading

One Trading, a European crypto-asset exchange, has been granted an Organised Trading Facility (OTF) Licence by the Dutch financial market regulator, establishing One Trading as a MiFID II trading venue.

One Trading is now the only perpetual futures trading venue in the EU and the first cash-settled perpetuals platform in Europe, including the UK, and establishes One Trading as the first regulated derivatives exchange in Europe accessible to retail clients. The OTF licence from The Dutch Authority for the Financial Markets (AFM) is the first new licence granted in the EU in the past three years.

In addition, One Trading is onshoring crypto derivatives as “traded on a trading venue” instruments.

Joshua Barraclough, founder and CEO of One Trading said: “The long-term vision of the company is to enable all customer types to go long or short on any asset, use any asset as collateral, settle everything instantly, and perpetually roll contracts.

“With this licence, we are well positioned to introduce new regulated products and offer institutional-grade solutions to all customer types starting with BTC and ETH products where no onshore EU regulated venue currently exists.”

One Trading claims to be the first trading venue in the world to offer real-time (<1-minute tick level) settlement of all derivatives positions, 24/7 on all markets. One Trading’s technology integrates custody and settlement on distributed ledger technology (DLT), making it the first EU venue to allow the use of crypto-assets as collateral for trading regulated financial instruments.

One Trading general counsel Mario Hoessl-Neumann said: “It has been a great experience working very closely with the Dutch regulators throughout much of this process, and we appreciate their vision and foresight to bring a new market structure for regulated derivatives trading to the EU. By launching a novel form of financial instruments with purpose-built tech and the seamless integration of DLT-based assets on the One Trading platform, we are not just providing European clients with the first onshore alternative to unregulated exchanges.

“More fundamentally, we are complementing – and in some important ways replacing – traditional structures for how regulated derivatives such as futures are traded. It has always been a core value to us to maintain equal capabilities for professional and retail clients, and it is great to see that we are now first in Europe to bring to life a trading venue that truly works for all.”

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