Kepler Cheuvreux promotes two at New York office
Kepler Cheuvreux has made two senior US appointments, promoting Chris Carr as deputy head of North America and naming Khaled Yusufi as US hedge fund sales lead.
The two report to Hugo Sarkis, managing director and global head of equities sales, and are based in the firm’s New York office.
Carr has more than 15 years of industry experience, and has been with Kepler Cheuvreux’s European equity sales division since 2018. Prior to this, he was part of the institutional European equity sales team at Macquarie Group, based in Sydney.
Yusufi joins the company from Berenberg Capital Markets, where he handled European and US equity sales for the Tristate area, South Florida and the West Coast. He also spent five years as a UK specialist for equity sales at Peel Hunt, and was vice president of Canaccord Genuity between 2015 and 2016.
Commenting via LinkedIn, Kepler Cheuvreux stated: “Strategic hires and reinforced management presence in New York City aim at consolidating our North American market share gains, foster growth of new talents and expand the footprint of our growing US operations.”
©Markets Media Europe 2024
From the Floor at FIX Asia: Thomas Taw on the Japanese equities explosion
Global Trading editor Laurie McAughtry sat down with Thomas Taw, head of investment strategy for APAC at BlackRock, to discuss the breaking boom in Japanese equities – what’s driving it, who’s benefiting from it, and how international investors can best access the market…
© Markets Media 2024.
ICE accepts SEC penalty for regulatory reporting failure
The Intercontinental Exchange (ICE) has agreed to pay a US$10 million penalty to settle charges that it caused nine wholly-owned subsidiaries to fail to inform the SEC of a cyber intrusion in 2021.
The SEC stated that in April 2021 a third party informed ICE that it was potentially impacted by a system intrusion as a result of a vulnerability in its virtual private network (VPN). This was investigated by the group, the SEC stated, which found that malicious code had been inserted into a VPN used to remotely access the group’ corporate network.
However, the results of this investigation were not reported to legal and compliance officials at the exchange’s subsidiaries – in violation of internal cyber incident reporting procedures. As a result, these subsidiaries did not properly assess the intrusion or contact SEC staff in line with Regulation SCI requirements.
The subsidiaries involved in the case were Archipelago Trading Services, the New York Stock Exchange; NYSE American, NYSE Arca, ICE Clear Credit, ICE Clear Europe, NYSE Chicago, NYSE National and the Securities Industry Automation Corporation. The nine organisations and ICE agreed to a cease-and-desist order from the SEC, alongside the US$10 million penalty to ICE.
Gurbir Grewal, director of the SEC’s division of enforcement, commented: “The respondents in today’s enforcement action include the world’s largest stock exchange and a number of other prominent intermediaries that, given their roles in our markets, are subject to strict reporting requirements when they experience cyber events. Under Reg SCI, they have to immediately notify the SEC of cyber intrusions into relevant systems that they cannot reasonably estimate to be de minimis events right away. The reasoning behind the rule is simple: if the SEC receives multiple reports across a number of these types of entities, then it can take swift steps to protect markets and investors.”
He continued: “Here, the respondents subject to Reg SCI failed to notify the SEC of the intrusion at issue as required. Rather, it was commission staff that contacted the respondents in the process of assessing reports of similar cyber vulnerabilities. As alleged in the order, they instead took four days to assess its impact and internally conclude it was a de minimis event. When it comes to cybersecurity, especially events at critical market intermediaries, every second counts and four days can be an eternity.”
©Markets Media Europe 2024
Meritsoft integrates Taskize platform to enhance settlement efficiency
Cognizant subsidiary Meritsoft has integrated Taskize’s collaboration and workflow platform with its cross-asset Trade Tracking and Exception Manager (TTEM), allowing operations teams to rapidly address issues that might otherwise lead to failing trades.
The integration is designed to enable faster query resolution and reduce trade settlement fails, just as the US, Canada, Mexico and Argentina markets ready themselves for the shortening of the settlement cycle to T+1.
Meritsoft’s TTEM tracks the trade lifecycle to provide near real-time trade matching and settlement status updates, enabling users to identify at-risk trades and take necessary action internally or externally to ensure timely matching. The Taskize platform is used by more than 600 banking and financial firms in more than 88 countries and provides a secure workspace that brings financial operations professionals together to resolve queries.
TTEM users can initiate a trade settlement query in the TTEM Trade Window, simultaneously creating a secure workspace in the Taskize platform. The Taskize platform will connect the TTEM user to the most appropriate individual for resolving the query at the counterparty. TTEM users can interact with counterparties regardless of the communication tool they use without leaving the system.
Based on predefined rules, TTEM AI uses historical trade matching and settlement data combined with current live lifecycle statuses to initiate queries in Taskize without user input, further increasing the efficiency of the platform.
Daniel Carpenter, CEO of Meritsoft, said: “The process of manually identifying and intervening to prevent or resolve a failed trade takes significant operational resources and all too often relies on a web of email and phone communication. In the context of T+1 and growing pressure to resolve settlement issues quickly, the integration of Taskize into our trade tracking and exception management system is a significant step in helping market participants to streamline their settlement processes.”
Taskize CEO James Pike said: “Financial markets are becoming more complex and interconnected; as trading volumes increase, new regulations are implemented, and new markets rise to the fore. In this context, interoperability of post-trade systems is essential. Our integration with Meritsoft is a testament to our commitment to connecting front and back-office teams, enabling the smarter allocation of work to speed up time consuming manual exception resolution tasks and, as a result, navigate the increasingly complex market environment.”
©Markets Media Europe 2024
T+1: Time to face the music
With just one working day to go before the T+1 transition, the perspective is shifting from preparation to mitigation – what will the key pain points be once the US settlement cycle is shortened, and where should firms be focusing their efforts? The FIX EMEA Committee talks exclusively to Global Trading about why T+1 issues right now are “basically a game of whack-a-mole”.
The upcoming transition to T+1 in North America has been a central talking point for so long that it might seem as though there’s nothing else to be said. But these discussions often end at the point of implementation. In reality, though, “there’s still a lot of work to be done after the fact. When you look at the migration of T+1, we’re only at the starting point,” – or so says Matt Coupe, co-chair of the FIX EMEA Committee.
“We will get over the line,” affirms Rebecca Healey, managing partner at Redlap Consulting and Coupe’s co-chair; but just like India’s transition last year, “there will be some papering over of the cracks”. While the initial implementation will work, it won’t be sustainable in the long term, they suggest. As such, the industry needs to identify its pain points now – and prepare to fix them as soon as possible.
Perhaps the most [visible] issue is that different parts of the industry are viewing the transition in silos, focused solely on their own cog in the machine. It’s not just a back-office issue, though, as Coupe points out. While some in the front office might be keen to pass the responsibility over to back office teams, such a major overhaul requires participation across the whole business.
“It has to be a complete conversation,” Healey adds. Because the settlement cycle covers the whole trade lifecycle, “there’s always going to be an issue that you haven’t thought of. You constantly have to rethink and reengineer what your workflow process needs to be.” FIX can help with this, she says, bringing people around the table to collaboratively improve workflows.
The plumbing and pipes are important, but the real difference will be seen in how business processes evolve after the go-live, Coupe continues. “That’s when you start shaking things out, and you start to see things really changing.”
Pain point #1 – Have I got the funds to make the trade?
“The first thing we need to look at is two different settlement cycles. One is the funds settlement cycle, and one is the transaction settlement cycle,” explains Coupe. On the fund settlement side, most funds are operating on models between T+2, T+3 and even T+4, while the securities settlement is in T+1.
While end investors may expect that once their money is put into the fund the trade is realised, this structure means that the fund does not actually get the money for a number of days. “But if you don’t actually have the cash, and you have a settlement cycle that’s operating in T+1, then what do you do?” Coupe asks. “This is the first pain point.”
“Everybody’s operating within a different fund system and fund structure, which means the impact is going to be different based on what the setup is and how the firm chooses to respond,” Healey adds. “This is part of the reason that we’re in this predicament, and why there isn’t a simple solution to the problem.”
The options are to delay the investment – “which would lead to a very interesting conversation with your end investors”, Coupe notes – or to finance it — which comes with a cost, especially given the fact that interest rates are hitting historic highs, or running higher than normal cash deposits, which will also drag on performance.
Delaying or extending the settlement would require agreement with both dealers and brokers and certainty as to how the process will function on a systematic basis. “Some people already have extended settlement built into their trades, but a lot of this is done manually,” Coupe says. “The amount of flow that’s going to go though this is going to increase, but it is difficult to estimate the full demand, and the cost…” and with more information comes the need for more automation.
“Today’s processes have been refined to a point where they work within the existing timeframe,” adds David Pearson, co-chair of the FIX Global Post-Trade Working Group, and product manager at Torstone Technology. But with the compression that T+1 will bring, there’s going to have to be a change of approach. Rather than elements of the workflow being completed sequentially, some tasks will need to be completed simultaneously. “In order to do that, you’ve got to apply real-time processing, system automation and workflow automation.”
“This is where FIX can help,” continues Pearson. “It can supply standardised messaging and workflow that allows those points down the food chain to receive the information they need earlier, removing manual processes.”
FIX can also help move data further upstream, Healey notes. ”Rather than waiting for the completion of the matching process to happen in the back office, its moving more information relating to the trade upstream in front office matching processes at a more detailed level.” If E-OMS teams can clarify the information they need using standardised messaging, then workflows could be far more efficient.
Pain point #2 – Fund structure
The second pain point that emerged during workshop conversations was fund structure. If structural changes mean that market participants need to spend more to invest in a product, Coupe muses, what is the best way to proceed? “Do I need to start looking at different asset classes or products to trade? Are there like-for-likes I can look at, are there derivatives that I can leverage which might give me a more effective outcome? That starts off a whole different number of questions in terms of funds structure,” says Pearson.
As some consider trading alternatives as an interim solution, firms must focus on “the boring but essential” elements of their activity, Healey adds. “Have you got your agreements in place? Does your fund mandate allow you to do what you want to do?” she
asks. Agreements need to be put in place with relevant counterparties, and with the fund. “It’s not just flicking a switch and saying, ‘we’re going to trade derivatives for 24 hours of exposure’,” she says.
There’s a lot that needs to be considered before what may seem like a ‘quick-fix’ solution can be put in motion. And once the preparations are done, “then you’ve got to start looking at the performance,” Healey continues. “Is it actually beneficial for the outcome of your fund performance? You may think you’ve got the solution, but actually it doesn’t pan out the way that you anticipated.”
Pain point #3 – End of day trading
The industry also needs to consider what needs to be changed in terms of the trading process for settlement to work on a T+1 basis. Coupe notes that equity markets see significant activity at the closing auction. There is also an impact in the credit space, where for a variety of reasons, many trades are also executed at the end of the day. Critically, firms need to understand when they receive the confirmation of trade for block trades or trades that might be done in multiple parts, that they will generally be done after the close.
“From a trading desk perspective, that’s something you need to think about,” he affirms. “That’s going to impact a lot of different operations and departments. Confirmations, allocations and the whole process need to be refined to ensure that everything runs as quickly as possible, hitting cut-off times and preventing run-overs into the next day.”
Pain point #4 – FX and liquidity
This issue leads directly into a further pain point: FX and liquidity. With bank streams cut off and the CME shut, reference prices are likely to be produced on wider spreads. As a result, “there is a blowout at the end of the [trading] day – in some pairs it can be observed that this runs into hundreds of basis points”, Coupe states.
“If you’re doing a trading activity and you’re a foreign investment fund – so if the currency in which your fund is held is not the USD, CAD or peso (to the relevant country), you then need to make sure you’ve got the FX there to deliver the currency and get the trade done.”
Getting the FX trade done as early as possible is key, Pearson confirms, but this can be challenging. “You only want to do the FX based on trade confirmation,” he explains, “once you know exactly what your settlement hours are. But if you don’t get your trade confirmed with your client done by 5, 5:30, then you’ve got a truckload of FX to get done” – and the longer it takes you to get to that point, the worse the spreads get.
As a result, many are wondering about what the alternatives are. Some, Healey reports, are estimating their FX earlier, so they don’t have to put all their risk at the end of the day, and firming it up at the close. The real area to look at is workflow efficiency, she says. Firms should be asking themselves, ‘is there a better way that things can be done so I’m not exposed in a way that I could be?’
On this estimation alternative, Coupe raised concerns that emerged during workshops. “You’ve got to make sure you’ve got the data and the information,” he says. There are a number of pre-trade processes that need to be completed in order for this tactic to work, he explains, and there needs to be interoperability between systems so that the FX department is receiving all the data it needs to make an estimation. “There are a lot of gaps that need to be thought through in terms of data standards and workflow, given that some firms outsource their FX trading, or the FX ownership does not sit on the trading desk,” Coupe reported.
Looking at the broader picture, Healey suggests that this is another step in the multi-asset functionality journey. “The decision that you make in order to trade equities means that you need to make decisions about credit and about FX too,” she said. At the moment, although movement is being made towards more consistent trading approaches, “there are still very distinct ways in how people trade asset classes”, she affirms.
Pain point #5 – The thorny problem of CLS
Continuous Linked Settlement (CLS) is an international, independent, and multi-currency payment system, launched in September 2002 for the settlement of FX transactions. It acts as a third party and settlement agent, making sure that transactions are completed. Owned by 69 major financial institutions worldwide, it settles a large number of trades between multiple counterparties, while also providing CLSNet, a bilateral payment netting calculation service, for FX trades.
Earlier this year, CLS decided that it would not make any operational changes prior to the implementation of T+1 in the US – a controversial decision that had some market participants flustered.
READ MORE: No changes to CLSSettlement ahead of T+1
Using CLS “reduces risk within the broader market, because you’re taking out a lot of trades that don’t need to happen because you’ve netted out your own position,” Healey explains. “Then you go to CLS, and you only have to execute the one trade.”
The company already offers a T+1 service for FX in a dealer-to-client model, giving it an edge when it comes to the North American transition. It also provides a T+0 model for interbank transactions.
However, no solution is perfect. Transactions using CLS have to be processed before 6pm EST, and if that deadline is missed then operations will take place on a T+0 basis. “That means you’re going bilaterally and you are going gross unless you have bilateral netting agreements in place,” Coupe says. Additionally, “not all your FX transactions are going to be centred to one counterparty, so you’re losing efficiencies.”
Another issue is the cut-off of custodians to expect trades, as there have been reports that some custodians won’t accept trade post-4pm CET – yet another thing for firms to consider.
The approach CLS takes to FX essentially moves risk around rather than eradicating it, Healey says. “We’re all part of the same whole,” she continues, so wherever the pressure points are they will impact the entire lifecycle of a trade. “For those that can no longer use the CLS service and have to shift to bilateral transactions, they are going to incur more risk and incur more cost.”
“Essentially, cash is the problem for this,” Coupe states. One angle that firms could take is running a cash surplus in the fund, he suggests, given that the current high interest rate environment “is not massively punitive”. However, if and when they drop, things could get tricky.
A more efficient solution would be the automation of the plumbing behind the trade, he affirms. CLS has a strict cutoff time; “everyone has to submit data, get the settlement structures and get the allocations; and this is leading to more STP and more granular data,” he explains. Automation is key here as the workflow becomes increasingly compressed, “and that’s FIX’s forte”.
With wider implications beyond these initial pain points reaching far into the fields of securities lending, repo markets and broader operational changes (watch this space for further analysis on this topic), there is a lot to think about. Instead of being the end of the T+1 runway, 28 May is only just the beginning.
©Markets Media Europe 2024
Swissquote partners with B2C2 to deepen liquidity on SQX exchange
B2C2, an institutional liquidity provider for digital assets, has partnered with Swissquote, to deepen liquidity on Swissquote’s SQX exchange.
B2C2’s presence on SQX is designed to expand the already deep liquidity available to traders, while SQX opens a new stream of market participants to B2C2’s trading ecosystem.
Jan De Schepper, CSO of Swissquote, said: “SQX has proven itself as the biggest and strongest digital assets exchange in Switzerland leading with greater liquidity and faster execution for our customers, strengthening our position as a recognised leader in crypto trading. We are delighted to have B2C2 as a strategic partner at our side. Together, we are committed to providing superior execution, enhanced transparency and an even better overall trading experience.”
Thomas Restout, group CEO of B2C2, said: “We are excited to collaborate with Swissquote, a major financial services provider with its extensive client footprint. We are pleased to deepen liquidity on the SQX exchange, providing clients with enhanced trading opportunities and reinforcing our competitive edge in the industry. Together, we are poised to unlock new growth avenues through liquidity solutions.”
SQX is a central limit order book (CLOB) providing deep liquidity as well as a way to trade cryptocurrencies to a range of market participants. Users can trade, hold and transfer actual crypto assets in their Swissquote account, backed by the security of a regulated Swiss bank.
©Markets Media Europe 2024
ESMA: Broaden access for firms and citizens to grow capital markets
The European Securities and Markets Authority (ESMA) has proposed ways to strengthen the European Union’s (EU) capital markets, so that markets can better serve the needs of European citizens and businesses and remain competitive globally.
The ESMA Position Paper, Building more effective and attractive capital markets in the EU, outlines 20 recommendations, with a focus on broadening access to capital markets for citizens and firms, as well as harmonising regulation and supervision across the EU. The recommendations are directed not just towards regulators, but member states, the European Commission and EU co-legislators, as well as the broader financial services sector. “Faced with urgent financing needs and a necessity to boost the competitiveness of European businesses, a renewed effort to strengthen EU capital markets has emerged,” the paper notes.
While some progress has been made to improve efficiency, scale and resilience, EU capital markets remain “underdeveloped”, the paper suggests. At the end of 2023, the EU27 share of global equity market capitalisation stood at just 11% compared to 45% for the US. “Moreover, this share declined over the past 15 years: in 2009 it was 16% for the EU27 and 34% for the US,” the paper notes. Other statistics, such as on public listings, are similar: the EU share of global IPOs from 2015-2020 by value was 15%, less than half the US figure of 32%.
Verena Ross, ESMA chair, said: “Creating effective and attractive EU capital markets requires improving the wider market ecosystem and putting investors and companies at the heart of it. Steps are needed to ensure capital markets can play their role in supporting the financing needs of Europe. Therefore, ESMA today puts forward proposals for how markets can serve the needs of European citizens and businesses.
“Taking into account the current state of the capital markets and leveraging on our expertise and engagement with stakeholders, we have built this comprehensive set of recommendations. As we publish our position paper, I would also like to thank the members of ESMA’s Board of Supervisors for their ideas, suggestions and support, which allows us to bring the voice of securities regulators to the debate.”
Key proposals include giving EU citizens simple and cost-efficient investment options to invest their savings in capital markets by developing long-term investment products and pension systems, as well as broadening financial education.
For EU firms, ensuring diverse and sustainable financing options are available to support growth, with the paper recommending the development of an ecosystem for public companies and fostering pan-European markets by addressing barriers to integration, particularly for market infrastructures.
On the regulation side, the paper recommends modernisation of the EU’s regulatory framework, to account for new tools such as effective forbearance powers. Supervisory consistency among EU supervisors should also be prioritised, and any further centralisation of supervision at EU level should be evaluated.
©Markets Media Europe 2024
IPC and VoxSmart partner on real-time transcription technology
Communications and connectivity solutions provider IPC has partnered with communications surveillance technology firm VoxSmart to offer enhanced financial transcription technology.
The product is able to transcribe at 50 times the speed of previous offerings, the firms stated, and covers all financial languages. Developed in light of increased regulatory scrutiny around communications reporting, the solution will allow for greater accuracy and more robust processes, they added.
Front-office trading desks and sales teams will be able to convert audio into structured data in real-time, granting insights into trading blotters, order management systems and customer relationship management applications.
In turn, this will facilitate the development and implementation of proprietary large language models and natural language processing applications, the companies said.
Oliver Blower, CEO of VoxSmart, commented: “Voice-based communications are the lifeblood of many over-the-counter markets. Until now, they’ve been blind spots for many firms, posing challenges not just for compliance monitoring but also for uncovering valuable business insights.
“Our partnership with IPC seeks to change that, equipping financial institutions with the ability to effortlessly meet evolving compliance requirements while gaining a competitive edge by bridging communication gaps in rapidly expanding markets.”
James Tonks, senior vice president for partner development at IPC, added: “By combining our secure, compliant communication solutions with VoxSmart’s advanced AI-driven transcription technology, we are not only enhancing compliance capabilities but also empowering our clients with unprecedented real-time insights and operational efficiency.”
©Markets Media Europe 2024
Bloomberg makes proprietary alternative data available to quants
Bloomberg has made its proprietary Bloomberg Second Measure (BSM) transaction data analytics feeds available via Bloomberg Data License.
Data professionals and quantitative researchers can now connect this alternative dataset with Bloomberg’s more traditional Data License content.
Drawn from billions of US consumer credit card and debit card transactions, the BSM data analytics feeds deliver insights into company performance and consumer trends in near-real-time at a 3-day lag. The transaction data comes from a subset of a US consumer panel that includes more than 20 million consumers, and covers more than 3,000 public and private companies and more than 4,000 brands across industries.
Tony McManus, global head of enterprise data, Bloomberg, said: “By continuing to build out our interconnected suite of company research products, Bloomberg is a catalyst for change to the typically complex quant workflow that requires sourcing and organizing datasets from multiple providers.
“Delivering our proprietary alternative data directly alongside our traditional financial data through Data License allows quants and research analysts to make efficient, better-informed market projections with unique insights.”
Richard Lai, global head of alternative data, Bloomberg, said: “Making our Bloomberg Second Measure transaction data analytics feeds available for use across the enterprise with Data License is the next step in our effort to lower the barrier to entry for investment analysts to use alternative data for generating differentiated insights.”
Customers can browse, examine and use enterprise datasets at data.bloomberg.com or through DATA <GO> on the Bloomberg Terminal, and access this content via a REST API, SFTP or natively in all major cloud providers.
©Markets Media Europe 2024
