Philippa Thompson, global head of buy-side order management product, Bloomberg (L) and Chris Clodius, global head of buy-side trade automation, Bloomberg (R)
Bloomberg has continued the integration of its trading automation offering into the buy-side workflow, launching an auto allocation capability. Philippa Thompson and Chris Clodius speak to Global Trading about how this service helps to reduce T+1 stress and why automating just part of the workflow is not enough.
“Historically, we’ve had one main automation focus at Bloomberg,” says Philippa Thompson, global head of buy-side order management product at the firm. “Chris [Clodius, global head of buy-side trade automation] and his team have historically been focused on trading execution, which continues to be an important offering for our customers and an important focus. We’ve now shifted to also provide automation capabilities in other areas of the order lifecycle, like releasing the execution to the post-trade space.”
In between those two points is a somewhat neglected space when it comes to automation: allocation. This crucial part of the trading lifecycle is particularly important in markets that require fair allocation, with firms “required to make sure that they are being fair to all of the underlying representative clients that have been participating in that particular order.“
Automation in this area “is something that clients have been looking for for a while, but was really accelerated by the change in the US market to T+1,” Thompson continues. Bloomberg clients were nervous as the US headed into a shorter settlement cycle, particularly given the firm’s global footprint. “We have a lot of clients who sit in Asia, and this change essentially meant that they lose an entire day to meet timeframes around post-trade workflow,” she explains.
Bringing traders into the office once US markets close – at five in the morning, local time – to complete the allocations workflow was not a particularly attractive option. To remedy the issue, “we were able to offer a rules-based conditional allocation, using our Rule Builder technology that has historically been used for our trading execution”, Thompson says. “Rule Builder understands necessary order management information about the trade and the trade object, and uses that rules-based engine to allow our clients to be able to configure their own rules.”
She continues: “For example, if I do an equity trade and it gets fully filled then I would automatically kick off this post allocation workflow and allocate that price and that quantity back to my target funds.”
“There’s a bit of a feeling from the trader that ‘once my trade is done, then I’m good to go’,” says Thompson, considering why the allocation space has been underserved. “But what happens to the trade next is actually a really critical component of the workflow, and can have financial implications if something fails, or isn’t done in a timely manner,” she warns. With T+1, time is against clients. Automation is key to reduce operational risk, improve communication between teams and make the handoff of the trade from trader to operations more efficient.
“Post-trade allocation, which is a very manual task today, shouldn’t be,” Clodius affirms. However well automated the majority of the trading workflow is, having it remain manual at the end “half defeats the purpose of automation”, he notes. “We are trying to help our clients reduce their number of clicks and the more operational tasks, and provide them with tools to help them with their operations.”
Since its launch, 50 firms have adopted Bloomberg’s rule-based allocation service, the company stated. Over the last 10 days, an average 4600 allocations were completed each day using the solution.
Phoebe Nockolds, senior trader at Independent Franchise Partners and end-user of the service, commented: “At Franchise Partners, we are always looking for ways to harness new technology to deliver better outcomes for our clients. Bloomberg’s automation tools fall firmly into this bracket, helping to ensure that our trades are booked in a consistent manner thus allowing us to focus on value-add tasks.”
Broadridge Financial Solutions has acquired CompSci Resources, a provider of cloud-based financial technology software for the preparation and processing of SEC filings for public companies and funds. Details of the deal were not disclosed.
CompSci’s technology platform TransformTM will be integrated with Broadridge’s regulatory filings and disclosure capabilities to provide public companies and funds with a full-suite of collaborative, web-based solutions to simplify and enhance SEC regulatory disclosure preparation, XBRL tagging and EDGAR filing.
Mike Tae, Broadridge co-president of investor communication solutions
Mike Tae, Broadridge co-president of investor communication solutions, said that public companies and funds need to comply with increasingly complex regulatory requirements in the most efficient and cost-effective manner.
“We are modernising the regulatory disclosure process with advanced technology to enable public companies and funds to have more direct control of their SEC filings,” Tae added.
The CompSci platform automates the disclosure preparation process, features AI-assisted XBRL tagging, and enables collaboration among work teams.
The Securities and Exchange Commission has amended Volume II of the Electronic Data Gathering, Analysis, and Retrieval system Filer Manual (EDGAR Filer Manual) and related rules and forms. EDGAR Release 24.2 will be deployed in the EDGAR system on 1 July 2024.
ISDA will develop an industry-wide notices hub, it has announced, following support from global buy- and sell-side institutions on the endeavour.
Currently, under the ISDA Master Agreement, termination-related notices must be delivered under particular prescribed methods – including physical delivery. However, if company address details have been changed or physical delivery is possible, users risk considerable losses.
The new secure, central, online platform will provide immediate delivery and receipt of critical termination-related notices, with automatic alerts sent to the receiving entity. Market participants will be able to update their physical address details through a single entry, with the platform accessible by multiple designated individuals at each firm regardless of geographical location.
The implementation of the service will reduce the risk of uncertainty and potential losses for both senders and recipients of the notices, ISDA stated.
Free for buy-side users and available through S&P Global Market Intelligence’s Counterparty Manager platform, ISDA aims to implement the service in 2025. S&P Global Market Intelligence and Linklaters will participate in the platform’s construction, drafting the necessary documentation and commissioning legal opinions in priority jurisdictions to confirm the validity of delivering notices through a central hub.
ISDA launched an industry outreach initiative on the hub in April 2024. Of those who answered that they would use the data hub in theory, 57% were from buy-side institutions. Two thirds of those in the ‘global primary leadership’ category responded in kind.
Commenting on the announcement, Scott O’Malia, ISDA’s CEO, said: “We’re delighted that so many financial institutions recognise the benefit of having a secure digital platform that allows termination notices to be delivered and received in the blink of an eye. As well as increasing certainty for users, the ISDA Notices Hub will eliminate risk exposures and potential losses that can result from delays in terminating derivatives contracts.”
The Commodities Futures Trading Commission (CFTC) has confirmed the stability of derivatives clearing firms, in the face of extreme market conditions, following eleven volatility simulations.
The CFTC report, Supervisory Stress Test of Derivatives Clearing Organizations: Reverse Stress Test Analysis and Results, outlines the results of its fourth Supervisory Stress Test (SST) of derivatives clearing organisation (DCO) resources.
The report concluded that the DCOs studied hold “sufficient financial resources to withstand many extreme and often implausible price shocks”, even with multiple clearing member defaults.
Jo Burnham, OpenGamma
Responding to the report, Jo Burnham, margin expert at OpenGamma, said: “This report highlights the resilience of derivatives clearing firms and the effectiveness of regulatory oversight in maintaining market stability during unpredictable times. Events like Covid-19, the invasion of Ukraine, as well as higher interest rates to curb inflation have tested the market’s response. It’s reassuring that, despite these highly improbable conditions, the market is much better equipped to handle significant disruptions, ensuring smooth functioning and investor protection.”
Conducted by the CFTC’s Risk Surveillance Branch of the Division of Clearing and Risk, the stress test was the most comprehensive to date, examining nine DCOs across futures and options, cleared interest rate swaps, credit default swaps, as well as foreign exchange (FX) products.
The test used actual positions as of 1 September 2023, and simulated eleven volatile dates since 2020, including market stresses from the COVID-19 pandemic, the war in Ukraine, and recent inflation-related impacts.
Key findings from the report showed that individual DCOs now have sufficient financial resources to withstand extreme market conditions, including highly implausible price shocks and multiple clearing member defaults. In some cases, DCOs could endure defaults of all clearing members affected by such shocks.
Even in the most extreme scenarios, the costs for non-defaulting members were minimal. For instance, in a scenario with shocks three times larger than the most volatile recent days and three synchronised defaults, the costs represented only 0.07% of the tier one capital of the parent companies of the affected clearing members.
The report also found that the interconnectedness among DCOs through clearing members had muted effects. Extreme events at one DCO did not typically cause extreme events at other DCOs, nor did significant losses for clearing members at one DCO severely impact their positions at other DCOs.
AccessFintech has appointed Naveen TV as head of product, based in London.
In the role, TV is responsible for the maturation of the firm’s product suite and for driving product innovation through the expansion of AccessFintech’s feedback loop with the capital markets ecosystem.
TV has more than two decades of industry experience and joins AccessFintech from JP Morgan, where he was managing director and global head of data strategy, integration and AI for securities services. Over his 12 years with the company, he held a number of senior roles including global head of custody and outsourced middle-office operations and global head of prime brokerage middle office and strategy.
Earlier in his career, TV spent over eight years with Goldman Sachs in several leadership roles. He was a vice president from 2006 until his departure from the firm in 2012.
He has served as a board member for both Saphyre and AccessFintech.
Commenting on the appointment, Roy Saadon, CEO of AccessFintech, said: “We are delighted to welcome [TV] to our team and look forward to excelling in value creation for the benefit of the entire capital markets ecosystem. His strong understanding of the strategic goals of our client base will help him leverage significant growth for AccessFintech in his new role as head of product.”
TV added: “As a leading player in the market driving significant transformation in data management and insights, I am excited to join AccessFintech and look forward to helping clients achieve greater operational efficiencies and transparency across their transactions through enhanced product development.”
Multiple factors including capital savings, access to liquidity and funding, operational resilience, transfer of risk and cost control are driving increased adoption of third-party clearing in the APAC region, found a recent GlobalTrading roundtable held in Hong Kong – with T+1 a key driver in the shift.
Titled ‘Shortening Settlement Cycles Amid Third-Party Clearing’ and hosted by the Hong Kong Stock Exchange (HKEX), the well-attended roundtable generated a detailed and diverse discussion around the market catalysts contributing to the growing adoption of (and interest in) the evolving third-party clearing model. Conducted under Chatham House Rules, the conversation was led by key speakers including Tae Yoo, Managing Director, Markets Division at HKEX; Clive Triance, Group Executive for Securities and Payments at the Australia Stock Exchange (ASX); Tom Jenkins, Head of Financial Risk Management at KPMG; and Kathy Ong, Regional Product Manager for Custody and Clearing Services at BNP Paribas.
A changing landscape
Kathy Ong, BNP Paribas
APAC has seen record trading volumes and increased volatility this year, and this has placed a strain on systems, creating a new need for third-party solutions to mitigate risk and reduce costs. Combined with a changing landscape of investors and new demands for brokers and banks to create intraday liquidity solutions to meet the evolving challenge of regional funding requirements, firms are keen to explore alternative options to self-clearing.
Cost efficiencies and operational resilience are important elements, and there has been a notable focus from regulators around the region in supporting this through post-trade initiatives such as clearing models – with third parties playing an important role, especially where institutions lack self-built scale.
A drive for stronger ROI is fueling the search for efficiency
Clive Triance, ASX.
Over the years, the combination of rising costs and smaller ticket sizes has not created the jaw effect that financial institutions had hoped for to create a sustainable operating model. This has accelerated the review of the operating model in order to seek significant efficiencies and savings. As one speaker noted, there are around 161 actions that need to take place in order for a trade to clear and settle – and most of it is just stuff that “has to happen” with little in the way of differentiation. So why not pay someone else a fraction of the price to do it for you?
The additional pressures raised by new regulatory standards on operational resilience were also a topic of discussion. Not only are regulators now expecting critical operations such as securities settlement and payments to be recoverable within a reasonable timeframe but at the same time the definition of what is considered to be a reasonable timeframe is changing as markets are moving to shorter settlement cycles and introduce T+1 (or even T+0) in some cases. This strengthens the case to engage service providers who can take over this burden, particularly in markets which are more challenging such as those moving to shorter settlement cycles.
“It’s a natural progression – you open up clearing to widen your markets,” said one speaker. Along with cost cutting, it can be seen as a way to expand activity in new markets whilst benefiting from lower entry costs by leveraging clearing and custody network of the provider.”
Outsourcing is on the up
Tom Jenkins, KPMG.
The growing trend towards middle and back office outsourcing is also supporting the third-party clearing model, especially in Hong Kong, where the tradition has long been an account operator model. “What we have done over the last 10 years is really try to push to try and bring more efficiencies, to demonstrate that actually third-party clearing is a stronger model because it brings additional benefits that aren’t available with account operator,” said a speaker.
“And TPC adoption will become higher. We’re seeing other players enter the market, which grows it further. Now more than ever, because of the cost of capital, the increases in volume that need more collateral, more margining, more guaranteed contributions, all those things add to the cost of funding and liquidity. We are seeing a lot more pressure, and even though many of the drivers may be the same as last year, they are stronger this year because it is all more expensive.”
“As an industry, we’re facing a couple of challenges now,” agreed another speaker. “One is cost of operation. The other is the cost of funding different business activities, whether its operations or collateral or trading. And this can vary widely across jurisdictions.”
Hong Kong, for example, unlike the US, does not allow direct market access by exchange members’ direct clients, meaning that much of the buy-side has to use sponsored access through brokers that are providing trading and execution solutions – which can create further sensitivity around competition.
A new breed of investor
The APAC region provides unique, diverse and different challenges, but at the same time, it also has highly diverse liquidity profiles, depending on different jurisdictions, with their own set of eccentricities. We are now seeing these new types of investors studying it, learning it and developing investment strategies around it, which is where we’re starting to see growth.
But in addition, a new influx of quantitative clients (with higher volume and clearing thresholds) is driving demand yet further. To better service this growing market segment, exchanges and CCPs in the region are keen to develop their offerings.
These quant funds are “chomping at the bit” to pump more money into the market – but at the moment, many are shackled by their post-trade options.
“In Hong Kong, we’re seeing a new breed of investors coming to the market,” agreed Yoo. “That requires a higher degree of clearing services that are much more diversified in terms of the number of players, for the purposes of diversification away from concentration risk.”
Tae Yoo, HKEX.
One example of this is the upcoming rule change in Hong Kong to allow the appointment of multiple clearers in the cash and single stock options market, focused on servicing growing demand of clearer diversification for new and existing investors by allowing clearers and brokers to partner in servicing these clients and their increasingly sophisticated requirements. HKEX has announced plans to roll out a third-party clearing arrangement model to allow Non-Clearing Participants to appoint more than one General Clearing Participant for the clearing and settlement of trades. According to Yoo, the launch of the new third-party clearing model (now approved by the SEC) will provide greater incentive for clearing service providers to invest in their infrastructure and increase operational efficiency.
Shortening settlement cycles is one of the key themes of the year for the custody market, and its impact on clearing is substantial. “It reduces credit risk, but it creates more operational risk for APAC, because of the time zones,” pointed out one speaker. It also places a squeeze on collateral – and some markets are finding it trickier than others. “The further east you fly, the harder it gets,” said one speaker. “By the time you get to Auckland, it’s a real challenge – and you’re a long way away from your investor in California.”
The concern is that customers, the end investors that effectively create the trading, or the institutional brokers, will spend a lot of money on fails and a lot of money on covering those fails or paying fines for those fails. “In some ways, atomic settlement is easier,” suggested one speaker. Hong Kong has T+0 settlement and the challenges of operational compression are similar, especially if the client or the client’s custodian is sitting in the US. “Eventually, as markets start to grow and the pressure on the amounts becomes larger, we’ll need to see some kind of synchronization between the banking system and the equities depositary and clearing house,” warned a speaker. “Currently they’re very disconnected, so you could have a situation where all the operations are functioning late into the night and we are operating in shifts because we are preparing for that sort of thing, to be able to send earlier settlements, but we don’t have the banks open late enough for the US to come in, reinstruct, and make those payments in HK dollars.”
Could this be an opportunity for third party clearers? Currently, if all margins are being squeezed by T+1, clearers could start charging for freebies. “If a bank is having to do T+1 settlement then they’ll have to margin call each day, and that creates a cost which they will have to pass down,” agreed a speaker. “
The ripple effect
However, the general consensus was that T+1 could increase correlated adoption of third party clearing in the region – as long as the clearers work to provide appropriate solutions.
“Every time we create an improvement in the lifecycle of the transaction it reduces capital, and it should allow more bandwidth to trade. I don’t think the move to T+1 will bring down costs entirely, because the shorter settlement cycle creates its own operational challenges, but theoretically the reduction of settlement risk could mean that velocity increases, which will be a positive step,” said Ong. “It will bring initial operational risk, but TPC (outsourcing) can help address that. In today’s environment, the front office should be chasing transformational deals and focusing on their core business, you don’t want to have your capital and your resources tied up in operations, so it’s easier to hand over to a third party to deal with those challenges.”
TPC Roundtable, Hong Kong 2024
With shorter settlement cycles also comes the need to invest in technology to meet the new timelines, and here too, third party clearing can help, by providing a more efficient service that means clients do not have to make the investment (and outlay the effort) themselves. “As clearing becomes more popular, we will see more tech innovation,” predicted another speaker. “We’re having so many conversations right now with people on legacy models who are considering a move to TPC and that will automatically drive more competition, which will lead to more innovation.”
Exciting times ahead
TPC Roundtable, Hong Kong 2024
With technology advancing, competition increasing and imperatives evolving, it’s an exciting time for clearing as the market grows and client demand grows with it.
“In the lifestyle of the transaction, third party clearing moves up the chain. It adds value, does things for you, produces what you do yourself, and creates capital efficiencies,” said Jenkins. “It can offer multi-asset class netting, it can offer multiple benefits. To be honest, I can’t see why more people aren’t taking it up, unless it’s just fear of change.”
And when it comes to shorter settlement cycles, all speakers agreed that no matter what challenges might arise, the market would adapt. “There will always be service providers who will find solutions,” confirmed Ong.
UBS has completed the merger of UBS Switzerland AG and Credit Suisse (Schweiz) AG, with the latter now deregistered from the Commercial Register of the Canton of Zurich and no longer existing as a separate entity.
Clients and operations of Credit Suisse (Schweiz) AG will now migrate to the UBS platform, in line with business, client, and product-specific requirements. During an initial interim period, they will continue to use Credit Suisse platforms and tools to interact with UBS.
André Helfenstein, CEO Credit Suisse (Schweiz) AG, is stepping down following the merger after more than 16 years with the firm.
Sabine Keller-Busse, president of UBS Switzerland, commented: “The completion of the Swiss entities’ merger marks an important milestone in the integration of UBS and Credit Suisse. The migration of the majority of client transactions in Switzerland to the UBS platform will take place in 2025 and will be gradual, with tailored updates to our clients.
“As the integration progresses, our clients will be able to access the capabilities and support of the combined firm. We will continue to focus on providing our clients with comprehensive services to achieve their financial goals and acting as a strong pillar of economic support in Switzerland.”
On Helfenstein’s departure, she added: ”Since the acquisition of Credit Suisse by UBS, André has made a substantial contribution to the stabilisation of Credit Suisse’s business and has been committed to our clients and our employees throughout. We thank him for his commitment and dedication and wish him all the best and success in his next steps.”
BlackRock has agreed to acquire private markets data provider Preqin in a £2.55 billion transaction, expanding its private markets capabilities.
Through the acquisition, BlackRock will combine its Aladdin workflow capabilities with Preqin’s data and research tools to create a private markets technology and data provision.
Mark O’Hare, Preqin’s founder, will join BlackRock as vice chair once the transaction has closed.
The acquisition follows significant growth in the private markets sector, with institutional and wealth investors increasing their allocations to alternatives. To incorporate private asset classes into portfolios and provide fund managers with better data and tools to deliver positive outcomes for clients, investors require standardised data, benchmarks and analytics, BlackRock said.
Rob Goldstein, chief operating officer at BlackRock, commented: “As clients increasingly evolve their focus from choosing products to constructing portfolios, this shift requires technology, data, and analytics that create a ‘common language’ for investing across both public and private markets. We see data powering the industry across technology, capital formation, investing, and risk management.
“Every acquisition has been an opportunity to strengthen our capabilities for clients—and in fact, we have been a client of Preqin for many years, and we look forward to welcoming the talented Preqin team to BlackRock.”
O’Hare added: “BlackRock is known for excellence in both investment management and financial technology, and together we can accelerate our efforts to deliver better private markets data and analytics to all of our clients at scale. I look forward to joining BlackRock and continuing to play a role in the continued growth and success of Preqin and our customers.”
Ofir Gefen, head of international capital markets sales, Broadridge
Laurie McAughtry spoke with Ofir Gefen, Head of International Capital Markets Sales at Broadridge, at FIX Asia Pacific Trading Conference in Hong Kong to discuss trends in the region, changing client demands and how trading technology is evolving.
Longstanding team member Tobias Windecker has moved into the European top spot from his previous position as European head of derivatives trading after 17 years with the firm.
The move comes amid a wider reshuffling of Allianz Global Investor (GI)’s European trading teams, first revealed by Global Trading in April 2024, in which the firm moved its dedicated derivatives traders into the core asset class teams of fixed income and equities.
“Derivatives are so much more mainstream now. PMs don’t think about cash or derivatives, they think in terms of portfolio construction and risk factors – what’s my duration, what’s my exposure, and how do I manage my portfolio with these factors? The good trader should understand the dynamics of futures and swaps as well as she understands the underlying market,” explained the firm’s global head of trading Eric Boss, speaking to Global Trading on the decision earlier this year.
Allianz GI has since created a dedicated technology team within the trading function, covering all of its technology needs, which is also run by an ex-Allianz derivatives trader.
At the Eurex-sponsored Derivatives Forum in Frankfurt last month, Windecker highlighted the challenge that traders are increasingly focused on project work and compliance-related tasks rather than their work at the desk.
Tobias Windecker speaking to The Desk editor Dan Barnes at the Derivatives Forum 2024 in Frankfurt
“The trader can only be a part of the investment process if they have enough time,” he said – one of the reasons why firms are now investing in technology (and teams) that allows traders to focus on value-adding tasks that require their specialised knowledge and experience.
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