Automated Trader Magazine Issue 37 Summer 2015
Whether you like it or not, the financial industry’s infrastructure of the future is happening now. And just like any community living with a massive construction project underway, there’s plenty of dissent, debate and maybe even a bit of fear on how it will change things.
On the trading side, we examine swap execution facilities – the US’ answer to pushing over-the-counter derivatives onto the counter (page 12). It’s still taking shape, proprietary trading firms are actively engaged in development, but there may yet be too much scaffolding up to really see how the architecture fits against the skyline. Could that mean the opportunity is now?
In the post-trade space, we see the struggle between draft plans and actual build. Adam Cox brings us a special report on post-crisis plumbing (page 20). He finds a global industry coming to terms with regulator’s expectations as a number of initials start entering the mainstream – TRs, CSDs, CCPs, et al. We also put the spotlight on CCP risk, which some experts argue is the next too-big-to-fail concern in the making (page 69).
If there is one point of agreement among every corner of the market throughout this process, it is that there is a deluge of data coming (page 39). Neil Ainger checks out how firms are coping with the demands of huge volumes of data and why “it’s like hell on earth”.
Spanning the category of both trade and post-trade is collateral management, which is morphing into some kind of frontback office hybrid in the post-crisis world (page 64). That means technology is becoming more and more sophisticated, and quants are part of the solution in making things run smoothly.
Regulatory think tank JWG Group updates us on the global landscape of shifting legislation (page 60). Even as the structures are going up, there’s architects and engineers battling it out on the ground. Find out where the stress points are.
In our regular buy side interviews, we talk to Risk Navigator (page 32), Katy Kaminski from CTA Campbell & Company, and Risk Warrior (page 52), Miranda Ademaj from Skënderbeg Alternative Investments. They have a lot to say about their views on risk, trading and investment.
We also decided that summer was as great a time as any to visit India (page 47). There may be some ups and downs in the economy, but it’s still arguably coasting on a wave of optimism. And that means firms investing into more sophisticated market tech could see a big payoff. Priyanjana Bengani reports on the algorithmic trading community in India.
The winner of our ‘Best of the Blogs’ (page 62) goes to Bloomberg Tradebook. Gary Stone and John Gardner write on the negative regulatory impacts on liquidity for US equity and index options, and the struggle for buy side to find a match.
Finally, in Peek Ahead (page 80), we think about the lessons learned since the arrest of Navinder Sarao, agent of market meltdown doom operating out of a modest house in a London suburb.
- Dealing with SwapsSwap execution facilities have been somewhat of a slow burner. Even now as they pick up steam, a request-for-quote system remains the popular choice. But a regulatory preference for central limit order book trading means that exchange-like structures will gain prominence as the swaps market place evolves both in the US and Europe. It could also mean a ramp-up in buy side seeking viable hedging alternatives. Anna Reitman reports on how it's all playing out for market participants.
- JWG regulatory trading digestThe G20's 2009 Pittsburgh plan, which was designed by world leaders to ensure that another global financial crisis would be avoided, has recently had its fifth birthday. Five years on, despite the over 50,000 pages of regulation that we have seen published since 2009, regulators across the globe still have a long way to go to finish implementing the full plan.
- Cancelled IOC orders reveal information about potential liquidity in options marketDeutsche Borse's new analytic, the 'Eurex IOC Liquidity Indicator for Options' creates potential for improved price discovery and offers new signalling opportunities.
- SEF TrackerThe FIA has been tracking monthly SEF volumes for over a year now. Automated Trader speaks to Will Acworth, senior vice president, about what story the figures are telling.
- Post-crisis plumbing: Fitting the new architectureThe financial industry has embarked on an intense construction project, building the market infrastructure of the future as CSDs, CCPs and trade repositories take on core roles in the post-crisis era. What does the new plumbing mean for the development of automated systems? Adam Cox takes a look.
- For venues and vendors, the new architecture gets competitive juices flowingWhile so much of the focus on the new postcrisis infrastructure has been about how market participants can adapt, the changes represent enormous challenges and opportunities for other types of firms as well. For both venues and vendors, the new architecture has led to fierce competition.
- Risk NavigatorKaty Kaminski considers herself a divergent risk taker. And though this meant that she tried many different things, ultimately, she pursued her love of mathematics on a path to quantitative finance. Now, she researches divergence and convergence, and applies it to financial markets as a director of research at Campbell & Company, a US-based CTA that's been around over 40 years. We talk to Kaminski about theory, strategy and tech.
- Risk WarriorMiranda Ademaj was born in Kosovo at a time when an undeclared war was ravaging the area. Her parents fled with three children in tow to Germany, leaving everything behind and only uncertainty ahead. She has since worked as a fashion model and in investment banking while finishing an economics degree; took time off to travel the world; and co-founded fund of hedge funds, Skenderbeg Alternative Investments. We ask her about risk and return, and the very different kind of modelling she does today.
- India RisingWhile high frequency trading levels in Europe and US seem to have plateaued, the converse is true for developing markets. At the same time, there is a shift in priorities, namely that it is no longer simply about scraping off microseconds. And while India's economy, along with investment interest, seems set for growth, its markets are adapting and preparing. Anna Reitman and Priyanjana Bengani report.
- The Data DelugeA data deluge is hitting capital markets as new surveillance, trade reporting, regulation and market practices come to fruition. Neil Ainger asks if firms can handle the huge volumes of data, intra-day collateral, repository and other forms of data now required on global financial markets.
- DCAM best practice: Identifiers and instrument IDThe capital markets sector is bedevilled by US v Europe v Asia regulatory differences. Lack of a common entity identification scheme (i.e. global LEIs), as well as common instrument ID scheme (i.e. for tagging collateralised debt obligations CDOs, Exchange-traded funds ETFs, etc) is a problem that the EDM Council is trying to address by encouraging adoption of its benchmarking 'how to' Data Management Capability Assessment Model (DCAM).
- Best of the BlogsGary Stone and John Gardner of Bloomberg Tradebook on buy side challenges in US equity and index options.
- Collateral advantageRegulatory changes and shifts in technology requirements have delivered collateral management to the front office.
- Spotlight on CCP riskRegulators around the world are increasingly looking to central counterparty (CCP) clearing houses as a way to mitigate counterparty risk in the market. But is this just the next too-big-to-fail in the making?
- Peek ahead - To Catch a SpooferThe first response to Peek Ahead's inquiries after the flash crash trader arrest was: "What a load of bollocks." As it turned out, that pretty much summed up the industry's viewpoint.