Week 47-2011: Platforms, Trading, Clearing & Settlement, Polic
Platforms
Direct Edge to Launch Exchange in Brazil
The exchange will be headquartered in Rio de Janeiro and launch, if all goes according to plan, by the end of 2012. Direct Edge Brazil will be a rival to BM&FBovespa.
Direct Edge Examines Clearing Options in Brazil
The operator of the EDGA and EDGX exchanges said it has reached out to BM&FBovespa for possibly handling its clearing. But it has “no announcement” to make.
PLUS LAUNCHES EXCHANGE TRADING PLATFORM; TAPS QUANTHOUSE MARKET DATA FEED
http://www.finextra.com/news/announcement.aspx?pressreleaseid=42074
Hong Kong Exchanges will now acknowledge orders in two milliseconds, a 70-fold improvement
Hong Kong Exchanges and Clearing Limited (HKEx) announced today (Wednesday) that an upgrade of its securities market trading system (AMS/3) from the current AMS/3.5 version to AMS/3.8 will be rolled out on 5 December 2011 (Monday). The rollout plan follows the successful completion of a series of market rehearsals and Exchange Participants’ (EPs’) confirmation of their readiness.
The upgrade will increase the securities market’s efficiency and transparency and pave the way for future growth. It will increase the trading system’s processing capacity over the current capacity by about 10-fold to 30,000 orders per second, scalable to 150,000 orders per second, and reduce latency to 2 milliseconds on an average trading day, about 70 times faster than present and better than the project target of 9 milliseconds at 30,000 orders per second.
http://www.hkex.com.hk/eng/newsconsul/hkexnews/2011/111116news.htm
Pipeline Will Divest Its Trading Operation
Milstream Strategy Group LLC, sought to predict the trading intentions of Pipeline’s customers and trade elsewhere in the same direction as customers before filling their orders on Pipeline’s platform, the SEC said.
TOKYO AND OSAKA EXCHANGES AGREE MERGER
The Tokyo and Osaka stock exchanges have agreed to merge in 2013 as they seek to strengthen their positions in a global market in the midst of a wave of consolidation.
Full story: http://www.finextra.com/news/fullstory.aspx?newsitemid=23184
Former EuroCCP chief takes up LME role
The London Metal Exchange (LME) has announced that Trevor Spanner has started in his role as managing director of post trade services, a further step towards self-clearing for the commodities exchange
http://www.assetservicingtimes.com/assetservicesnews/article.php?article_id=2763
BIDS Wins Patents on Block Trading, Portfolio Balancing
BIDS Trading said it was awarded patents on block trading and on real-time balancing of portfolios.
Clearing
NASDAQ OMX UNVEILS RISK MANAGEMENT PLATFORM FOR NORDIC CLEARING HOUSE
http://www.finextra.com/news/announcement.aspx?pressreleaseid=42075
Italian Clearing Buoys LSE's Bottom Line
Strong growth in its post-trade clearing operations helped grow income for 2011 79 percent from the year-earlier period.
The post-trade service unit’s total income, including net treasury income, grew 64 percent and revenues increased 8 percent, mainly driven by growth in clearing volumes. Interest earned on loans to clearing members of CCG including Italian banks increased a whopping 225 percent to 54.3 million British pound sterling, the LSE says.
Bankers worried by uncertainty of market reforms
http://www.efinancialnews.com/story/2011-09-20/uncertain-outlook-for-market-infrastructure
Policy
ISDA analysis on COSTS vs benefit of Mandatory Electronic Execution for OTC Derivs
The paper finds that:
- OTC derivatives pricing is extremely competitive, compares favorably to similar futures products and, unlike futures execution, is available in large transactions.
- The electronic execution mandate and the proposed new regulatory framework will limit choice for end-users and ultimately increase transaction costs.
- The possible benefits for small end-users will be no more than $1,000 for a $10 million interest rate swap before fees for execution and clearing. Any net benefit for small end-users will be dramatically outweighed by costs to the market as a whole.
- Estimated initial set-up costs to market participants from the new rules are more than $750 million while ongoing costs are more than $250 million per annum.
- The initial and ongoing costs identified in the paper amount to approximately $1,300 per transaction. These costs, of course, do not currently exist in the marketplace.
- Derivatives users believe restrictive provisions in the proposed rules such as the 15 second rule, the requirement for at least five participants to quote through a request for quote (“RFQ”) platform, very high block trade thresholds and very short block trade reporting delays will negatively impact liquidity and push transaction costs up further.
Full 41 page ISDA paper available here:
November 10, 2011. ISDA Publishes Discussion Paper on: “Costs and Benefits of Mandatory Electronic Execution Requirements for Interest Rate Products” (http://www2.isda.org/news/isda-publishes-discussion-paper-on-costs-and-benefits-of-mandatory-electronic-execution-requirements-for-interest-rate-products)
BIS REPORTS ON COUNTERPARTY RISKS IN CCP MODELS
http://www.finextra.com/news/announcement.aspx?pressreleaseid=42065
The macrofinancial implications of alternative configurations for access to central counterparties in OTC derivatives markets
33 page report available here.
http://www.finextra.com/finextra-downloads/prdocs/cgfs46.pdf
Tim Lane, Bank of Canada, also gave an excellent speech on: Curbing Contagion: Options and Challenges for Building
More Robust Financial Market Infrastructure
6 page speech available here:
http://www.bankofcanada.ca/2011/09/speeches/curbing-contagion-options-and-challenges/
The Hon Bill Shorten MP, Assistant Treasurer and Minister for Financial Services and Superannuation has released a discussion paper on the handling and use of client money in relation to over-the-counter (OTC) derivatives transactions.
http://www.treasury.gov.au/contentitem.asp?NavId=037&ContentID=2231
29 Page discussion paper available here:
http://www.treasury.gov.au/documents/2231/PDF/DP_Client_Monies_OTC.pdf
Which bank/country will blow next?
Reuters Breakingviews has an interesting interactive Euro Zone Bank/country stress tester, which shows the impact on bank Tier 1 ratio and capital shortfall (1st tab) of varying Euro zone Debt 'haircuts' using slider control. They also have a similar stress tester for the impact on Euro zone country debt (2nd tab).
http://singledealerplatforms.org/2011/11/01/which-bankcountry-will-blow-next-new-online-game/
The bitter irony here is that many derivatives end users (real money investment funds, industrial hedgers) did not pose any real systemic risk under bilateral structures. But forcing them to clear drives them to utilize funding mechanisms that are systemically risky. As one big corporate end user told me: clearing mandates have transformed credit risks into liquidity risks: I can manage the first, but the second scares me.
http://streetwiseprofessor.com/?p=5698
Participants
Critics of high-speed trading are ignoring the facts
In an interview with Financial News , Remco Lenterman, the managing director of the Dutch firm IMC, argued that academic evidence showing the benefits of high-frequency trading is overwhelming and that its critics aren't being driven by facts.
Lenterman is also chairman of the European Principal Traders Association.
http://www.advancedtrading.com/articles/232200195?cid=nl_at_daily
MF Global's Aussie arm to close, 83 jobs lost
Broker MF Global Australia will be wound up in coming months after no offers were made for the business as a going concern.
Buffett Invests $5 bln in Bank of America
http://www.reuters.com/article/2011/08/25/us-bankofamerica-idUSTRE77N4J420110825
BofA Merrill Announces Ultra-Low Latency Platform
Bank of America Merrill Lynch today announced BofAML Express, the firm’s new ultra low-latency market access and risk control platform for U.S. equities.
The platform delivers sub 10-microseconds of wire-to-wire latency and provides an embedded series of risk controls required by recent SEC regulation, according to the firm in today’s release.
http://www.advancedtrading.com/articles/231002175?cid=nl_at_daily
BNY Mellon and Jefferies partner for clearing
Jefferies has announced that its global execution and clearing services arm has been selected by BNY Mellon to provide support for its FCM offering
http://www.assetservicingtimes.com/assetservicesnews/article.php?article_id=2786
Last Updated (Saturday, 26 November 2011 17:50)
