California Grid Operator Asks Geothermal to Help Feed the Duck

California’s 33-percent-renewables-by-2020 mandate is becoming a reality, and the state’s electricity system operator wants the geothermal industry to help keep the grid stable as more generation comes from variable resources.

via Pocket June 30, 2013 at 01:02PM

What the ICE/NYSE Merger Means for the Industry courtesy of the TABB Group

With each passing day, the acquisition of NYSE Euronext by ICE seems more likely to receive final approval. Here are 5 ways the deal will impact the capital markets.

February 15, 2013, marked the end of the Hart-Scott-Rodino Act waiting period in the acquisition of NYSE Euronext by IntercontinentalExchange(ICE). With each passing day, the acquisition seems more likely to receive final approval. As we await the next phase of regulatory approval from the SEC, we wanted to share a few thoughts on how we believe the acquisition will impact current clearing, reporting and trading operations, as well as how the two exchanges can benefit from the merger.

1. Need for Physical Trading Floor

The future format of the NYSE trading floor seems to be on the minds of everyone. There are analyst speculations that ICE’s CEO, Jeffrey Sprecher, will close the trading floor, as was done to the New York Board of Trade in 2012 four years after it was acquired by ICE. However, according to interviews, Sprecher has expressed intentions to keep the physical trading floor intact.

[Related: “It May Be ‘Bye-Bye to the Big Board,’ But the NY Times Should Get Its Story Right”]

Both companies have robust electronic trading, and Sprecher has acknowledged the value of NYSE’s legacy in voice brokering. As technology continues to dominate the exchange space, there has been recognition of the value of voice brokering (by which the NYSE is defined). The market has ironically become too complex to rely only on computer-to-computer trading, showing the physical trading floor still provides an intrinsic value in keeping an orderly marketplace.

2. Impact on Clearing

US-based firms that are major players in the derivative space will benefit by having a local trading and clearing venue, through reductions in clearing costs and operational risks. Typically, coordinating multiple back-office processes and reconciliations between the US and UK calls for duplicate efforts, resulting in back-to-back bookings to flatten balance sheets and delays in handling breaks; having the ability to manage these operational processes will make for a more efficient process.

Title VII of the Dodd Frank Act, which requires central clearing for certain derivatives contracts, has limited NYSE’s presence in the US-based interest rate swaps clearing business. Currently, the NYSE has a small presence in the US-based interest rate swap clearing business, due to a lack of access to a central clearinghouse, now mandated by the Dodd-Frank Act. Through the acquisition, NYSE will be able to benefit from ICE’s presence in European fixed income derivative trading and clearing.

3. Impact on Market Participants

Reductions in clearing costs can translate into cost savings for market participants. Just last year, ICE had to increase its trading and clearing fee due to “regulatory burdens,” and with the merger of NYSE Euronext, ICE will also have to compete with other exchanges on transaction costs. Even if fees increase after the merger, market participants would still fare better than if the two companies operated independently. This newly merged exchange will be able to offer a larger array of products and services, so that market participants can look to fewer companies for trading execution and clearing services, thereby decreasing expenses associated with initial client on-boarding.

4. Impact on Reporting

NYSE’s core data products make U.S. market data free and available, using consolidated tapes, giving transparency to last-sales price and quotes. It also sells its non-core data products to analytics traders, researchers and academics. ICE will be able to leverage NYSE’s experience in data reporting, as it looks to setup its own swap data repository (SDR), in order to meet CFTC mandates for real time swap reporting.

[Related: “Commissioner O’Malia Talks Derivatives Reform: Assessing and Improving the Change”]

ICE has already set up a registered SDR — and the ICE Trade Vault, which will offer both recordkeeping and reporting services for credit default swaps. However, as reporting requirements go live for additional asset classes, it will be necessary to offer data recordkeeping and reporting services to these as well. This is where NYSE’s existing core data products can benefit ICE.

5. Benefits in Merging of Exchanges

Although ICE and NYSE’s product offerings differ vastly, the functions of trading, clearing and settlement demands often overlap, and both are registered with the CFTC as designated contract markets. Efficiencies can be gained when these two exchanges tackle the requirements in swaps reporting and recordkeeping, external business conduct rules and documentation standards in this era of heightened standards for SIFI. As regulatory mandates increase the operating costs for exchanges, it is becoming prudent to explore additional mergers.


TMX Atrium has a wide range of customers including venues, buy side, brokers, clearers, ISVs, market data vendors.

TMX Atrium covers a wide range of the financial community.

Venue City Country
Alpha Trading Toronto Canada
BATS Europe London UK
BATS US Weehwken USA
BME Madrid Spain
BOX Secaucus USA
CBOE Secaucus. USA
CNSX Toronto Canada
Borse de Luxembourg Luxembourg Luxembourg
Burgundy. Stockholm Sweden
CHI-X Canada Toronto Canada
CHI-X Europe Slough UK
CME Chicago USA
Deutsche Boerse Frankfurt Germany
Direct Edge Secaucus USA
Equiduct London UK
FX All Weehwken USA
HotSpot Jersey City USA
International Sec Exchange New York USA
LMAX London UK
London Metal Exchange London UK
Match Now Toronto Canada
Montreal Exchange Toronto Canada
Moscow Exchange Moscow Russia
NASDAQ OMX (Nordic) Stockholm Sweden
Oslo Bors London UK
Nordic Growth Markets Stockholm Sweden
NYSE Euronext (Europe) Basildon UK
NYSE Euronext (US) Mahwah USA
Omega ATS Toronto Canada
Pure Trading Toronto Canada
Sigma-X London UK
TOM Stockholm Sweden
TRAD-X London UK
TSX Toronto Canada
Warsaw Stock Exchange Warsaw Poland

Overview of CME EOS Trader Platform

CME EOS Trader

Web-based front-end system for trading options


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For more information on CME EOS Trader or how to get started, email

Futurised Swaps – Video of the CME and LCH Point of View at the CFTC Roundtable

Futurised Swaps – Video of the CME and LCH Point of View at the CFTC Roundtable
The CFTC had a large meeting to discuss futurised OTC products, below is a 15 minute extract of the full 6 hours where Kim Taylor (President of their Clearing Business) and Dan Maguire (President of Yorkshire, and a Senior in SwapClear US), speak about the topic.

Key points from Kim

Capital was insufficient to cover market losses in the crisis, leading to a spiral of margin calls and a bail out, Dodd Frank is the US approach to solving this problem
The DFA is one solution, to redesign the OTC market, and enhanced use of Futures is also a legitimate approach to the same goals
There are 40-50 ‘line items’ for Deliverable Swap Futures, meaning 40-50 distinct products
There were 60,000 ‘line items’ for Lehman in SwapClear. BH: I don’t count each slight permutation of an IRS as a distinct “product”, so an IRS based on ACT/360 isn’t so different from a swap based on ACT/365, in my opinion
The diverse set of line items in the OTC market prevents liquidity formation. BH: I disagree, true liquidity can be measured from market activity by looking inside MarkitWire / SwapClear, and then into the CME Deliverable Swap Future stats.
Compare turnover of trades to open positions, in futures the market rotates 25 times per year, in OTCs about 2.5 times (no background data provided)
There are an estimated 5m participants in the futures market, compared to 30,000 in the OTC market.
BH comments:
But do those 5m all trade deliverable swap futures? And would they step up to take the other side of a DSF when CME were trying to sell off a defaulters portfolio?
The SwapClear model mandates that surviving members must participate in the auction process, of which there are now around 70 corporate groups representing a large proportion of the whole swap market.
Are traders in DSFs obliged to participate in a liquidation situation?
The reduced number of line items means trade netting is an order of magnitude better in futures than OTC
BH: Both CME and SwapClear provide trade netting of OTC IRS in their CCPs, it’s relatively easy, although not intrinsic to the IRS product the way a future contract is
Methods of liquidation in Deliverable Swap Futures
Open market sale
Private negotiated sale
Competitive auction
For an OTC default CME only use a competitive auction, due to the different profile of an IRS portfolio
An FCM must post the minimum CCP margin, but can collect more if they wish
Key points from Dan

SwapClear contains 60-70% of the global OTC IR swap market
SwapClear has cleared $19trn of the $20trn buy-side Swaps anywhere in the world (i.e. other CCPs have only captured $1trn of buy-side business)
SwapClear clears $2trn notional per day, higher than implied by Kim perhaps
Also torn up $170trn of IRS (I assume he means in partnership with TriOptima / TriReduce)
Workflow for OTC is now more standardised, the flow from execution to clearing is much smoother
OTC products hedge non-standard risks – the raison d’être of the market
The portfolio at SwapClear when Lehman defaulted was 66,000 IRS in 5 currencies, $9trn of notional, maximum maturity of 30 years
30% to 40% of Lehman’s IM was used during the Default Management Process, the remainder returned to the estate of Lehman / their administrators
No-one in SwapClear lost a penny as a result (is that a US cent or an English 1p?)
Rate risk can be transferred and transformed, but doesn’t “disappear” so transmuting OTC Swaps into Futures will just move the problem, not solve it
Why would a $10m DV01 in exposure attract a 2 day VaR holding period on an Exchange, and the same risk as an OTC cleared product attract a 5 day holding period?
The key is: do you have access to liquidity in a default?
Shouldn’t the holding period in any market be derived from the liquidity [and other key issues in a default], rather than by top down regulatory mandate?
I cut Dan off slighty short on the video, sorry Dan.

My key points

You can download a spreadsheet of volumes of DSFs here:
More work needs to be done to relate the holding period on a VaR calculation back to the participants in the market, and conditions in a default.
Likewise the legal basis which obliges (or doesn’t) oblige folks to take a defaulters positions need examination
The point about DV01 above is worth more examination
Source videos, 6 hours long:

TESS Connect & Go overview including Customers list

TESS™ Connect & Go is a fully managed, multi-asset marketplace service for trading intensive banks and brokers that will give instant access to proven cutting-edge exchange technology. The service enables banks and brokers to set up a regulatory compliant market within weeks. TESS is a Software-as-a-Service (SaaS) solution, suitable for building and provisioning trading venues such as OTFs, SIs, SEFs and dark pools.

A full-service concept

TESS Connect & Go gives banks and brokers a unique opportunity to access state-of-the-art marketplace technology in a full-service concept. For the TESS customer this means a low-risk investment, superior total cost of ownership and ability to focus fully on core business.

TESS is configured and ready for production within weeks from order. There is no startup cost and the monthly subscription fee covers software, hardware, maintenance, hosting, operations, infrastructure and support. The service is provided from fully redundant ISO-certified data centers globally with 24/7 support and dedicated account management.

Rich and proven marketplace functionality

The core of TESS Connect & Go is the sophisticated multi-asset matching engine used in demanding equities, commodities and derivatives markets with proven speed, performance and robustness.

It can be applied to manage multiple trading models in parallel for liquid as well as illiquid markets including auctions, continuous trading, request for quote (RFQ), dark pool functionality, midpoint matching and OTC trade reporting.

The service can be extended to also include the full-fledged market surveillance system Scila Surveillance. 

Solutions for trading and clearing venues

Product-based solutions that change the world of finance

All Cinnober solutions are based on our TRADExpress™ Platform, built to cater the needs of high-transaction marketplaces and clearing houses with extreme demands on speed, performance and reliability.

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All Cinnober solutions are based on our TRADExpress™ Platform, built to cater the needs of high-transaction

Managed services

In the financial sector, a strong IT partner needs to deliver more than just robust technology. It should help ensure a smooth launch, implementation and operation – as well as provide a flexible path for post-launch developments, since the market never stops changing.

While some customers might have firmly established system operations, their IT departments might already be fully burdened and unable to take on new projects. New marketplaces may start out without an IT department at all, and with very few resources in place. Cinnober therefore offers complete system hosting and operational services, from system dimensioning, through installation, to ongoing operation.

All Cinnober systems can be ordered as fully managed solutions including hosting in ISO-certified data centers, management of infrastructure and hardware, system operations including monitoring, surveillance, backup, system reports and issue management. All clients are backed up by a dedicated Technical Account Manager and the Cinnober Service Desk



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Financial Transaction Taxes for Fun and Profit ( source TABB Group)

A closer look at the EC’s proposed financial transaction tax reveals some definitions of taxable transactions and entities that are real head-scratchers. And that doesn’t portend well for the success of the tax.
The attempts to impose financial transaction taxes (FTTs) have a long, if inglorious, history, so it shouldn’t surprise us that the European Union began looking at them recently. Whether they will work out for the EU is very much up in the air, but it would behoove us to understand at this point what the EU is doing, if we can.

To begin with, taxes are generally imposed for one or both of two reasons: to generate revenue and to discourage certain practices. When the purpose is to generate revenue, the big question is always whether the tax is fair. When the purpose is to discourage certain practices, the question is whether the tax is effective. When both purposes apply — as appears to be the case in the EU FTT — the question is whether the tax accomplishes either objective. In order to accomplish both, the EU tax planners attempted to jump through some complicated hoops, and they may have done something of a face plant in the process.

There have been other attempts at, or discussions of, FTTs in the past, including several times in the US. In each case, the effort was abandoned when legislators concluded that the taxes would be difficult to collect, easy to avoid, and counterproductive. The well-publicized threats by investors and market-makers to move their transactions to other venues were often enough to close the discussion and send the lawmakers in search of other revenue sources.

The European Commission (EC) was all too aware of this history, of course, when it set out to design an FTT, one that wouldn’t be difficult to collect, easy to avoid, or counterproductive. In late February the EC published a proposed directive, 2013/0045, laying out how its FTT would work. Or perhaps how the Commission hopes it will work.

The Transactions

The first difficulty the EC faced was in defining the transactions subject to taxation. The definition needed to exclude those transactions deemed to be beneficial, while including all the permutations that financial engineers might devise to avoid paying. Here is the definition the Commission came up with:

(a) the purchase and sale of a financial instrument before netting or settlement;

(b) the transfer between entities of a group of the right to dispose of a financial instrument as owner and any equivalent operation implying the transfer of the risk associated with the financial instrument, in cases not subject to point (a);

(c) the conclusion of derivatives contracts before netting or settlement;

(d) an exchange of financial instruments;

(e) a repurchase agreement, a reverse repurchase agreement, a securities lending and borrowing agreement;

Now (a), (c), and (d) make some sense to me; but (b) and (e) are head-scratchers. Do you read (b) to mean that transfers of securities or derivatives within a consolidated entity is a taxable event – including the stock of a subsidiary? Me, too. And imposing a tax on repos breaks some new and rocky ground, since the tax on an overnight repo would probably be several times the interest earned on that repo. These definitions, if implemented, may force some significant changes in corporate structuring and in the financing market, both in Europe and worldwide.

The Entities

In addition, the Directive addresses which entities are taxable, and here, again, there are a few head-scratchers. For, example, in the scope section (on page 23) it says:

2. This Directive, with the exception of paragraphs 3 and 4 of Article 10 and paragraphs 1 to 4 of Article 11, shall not apply to the following entities:

(a) Central Counter Parties (CCPs) where exercising the function of a CCP;

And then it says:

3. Where an entity is not taxable pursuant to paragraph 2, this shall not preclude the taxability of its counterparty.

In other words, transactions done with CCPs are taxable for the CCP’s counterparty (as long as that counterparty is taxable). So if two dealers do a clearable trade, is that taxable? Then, when they clear it, are both the trades with the clearinghouse taxable for the dealers? What do you think?

What about non-financials? The taxability of a non-financial depends on whether the entity is “established” in the taxing country. The establishment rules for non-financials read like this:

2. A person which is not a financial institution shall be deemed to be established within a participating Member State where any of the following conditions is fulfilled:

(a) its registered seat or, in case of a natural person, its permanent address or, if no permanent address can be ascertained, its usual residence is located in that State;

(b) it has a branch in that State, in respect of financial transactions carried out by that branch;

(c) it is party to a financial transaction in a structured product or one of the financial instruments referred to Section C of Annex I to Directive 2004/39/EC issued within the territory of that Member State, with the exception of instruments referred to in points (4) to (10) of that Section which are not traded on an organised platform.

But wait. There’s more:

3. Notwithstanding paragraphs 1 and 2, a financial institution or a person which is not a financial institution shall not be deemed to be established within the meaning of those paragraphs, where the person liable for payment of FTT proves that there is no link between the economic substance of the transaction and the territory of any participating Member State.

That certainly clears things up. Anyone doing business in a taxing country (if I may make so liberal a translation of paragraph 2), owes the FTT, unless the transaction has no link to the taxing country. And how do we determine what transaction is linked to the taxing country? Full employment for lawyers!

The Tax Itself

There is one more surprise in the rules. At the bottom of page 26, the EC says:

1. In respect of each financial transaction, FTT shall be payable by each financial institution which fulfils any of the following conditions:

(a) it is party to the transaction, acting either for its own account or for the account of another person;

(b) it is acting in the name of a party to the transaction;

(c) the transaction has been carried out on its account.

So does that mean that each side of a trade pays the full tax? In other words, instead of 0.1% for securities and 0.01% for derivatives, it’s really 0.2% and 0.02%? And what about non-financials? They were listed as taxable earlier in the rule. No longer?

Can we start to see why FTTs have such an inglorious history? And it looks like that string will be unbroken.

To write, or not to write? – The Dilemma for ISVs and their role in the success of a new trading platform,

To write, or not to write?

12 February 2013

Nasdaq’s new trading platform NLX is gearing up for launch in London. Sentiment is shifting in favour of the prospects for the MTF. This highlights the dilemma for ISVs and their role in the success of a new trading platform, argues William Mitting.

Six months ago you would have struggled to find anyone in London who thought that NLX, the new London-based exchange from Nasdaq OMX, would succeed.

The prevailing wisdom was the plan to launch six interest rate contracts replicating the most liquid on Liffe and Eurex was too simplistic, the margin efficiencies intangible and the distraction of regulation and rising costs elsewhere too great to guarantee the involvement from the banks and prop trading firms that it needs for a successful launch.

Today all the talk in London is of NLX. After six months of painstaking road-showing and collaboration with local participants by Charlotte Crosswell and her team at NLX there is a real buzz about the launch around the City.

Much of that buzz is coming from the proprietary trading houses. Attracted by the lower fees, the lower participation from HFTs expected on the platform and the belief that the banks, who are expected to benefit from the margin efficiency enabled by portfolio margining across the yield curve, will provide liquidity, London’s largest prop houses are increasingly talking up the prospects of the MTF.

This rapid shift in sentiment poses a challenge for those ISVs who made the call not to write to the MTF for its launch. The highest profile among those ISVs is Trading Technologies, which is not expected to be ready for the launch of NLX.

FOW understands that TT has been in negotiations with NLX over writing to it but has not yet reached agreement on how that will be funded. TT and NLX declined to comment on any negotiations. Initially this was widely viewed as a significant blow to NLX’s chances, but as the buzz around the platform grows, some are asking if TT has made a mistake.

Jeff Mezger, head of market connectivity, told FOW that TT had “not ruled out connecting to NLX” at its launch and see the benefits of margin efficiency but was currently focused in-flight projects such as the connection to Eris Exchange and its beta stage MultiBroker platform.

“We take into account a number of factors when prioritising the projects we work on. For exchange projects we take into account exchange location, familiarity with the exchange platform, connectivity costs, client interest, exchange volume, asset classes, products traded and the changing regulatory environment.

“We also take into account what other projects we have in flight and the availability of resources to work on the project.”

This dilemma of whether to connect to a new trading platform is a relatively new phenomenon in derivatives markets but will become more of an issue as new platforms launch in the wake of industry efforts and new regulations aimed at opening up competition.

All ISVs have limited manpower and resources to write to new platforms and the decision of whether to do so is often made with little visibility as to whether that platform will succeed.

Usually one or a number of customers will help to fund the connection, sometimes the platform or exchange will pay the majority of the cost and for “dead certs” the ISV will fund it in the knowledge that it will see a return on investment. However, what constitutes a dead cert is becoming less clear as markets proliferate.

Steve Grob, director of group strategy at Fidessa, said: “The whole dynamic of ISVs connecting to venues has changed since Mifid was introduced back in 2007. Volumes that were concentrated in two or three exchanges were spread over multiple platforms.”

This altered the economics of connectivity as it meant that brokers were having to spread the same volumes over multiple venues and this inevitably led to downward pressure on gateway pricing. At the same time, the number of platforms launched with uncertain prospects is increasing.

When Liffe launched its Connect platform at the turn of the century, many ISVs wrote to it and made a decent return doing so. As the derivatives market becomes more fragmented thanks to Dodd Frank and EMIR, it is harder to predict which platforms are worth the investment.

“The challenge is picking the markets that have the best chance of success,” says Steve Woodyatt, chief executive of Object Trading, which will connect to NLX on day one.

Hamish Purdey, the chief executive of Ffastfill, which is also going live from day one, agrees: “It takes significant commercial judgement. Any ISV has competing priorities and the challenge is finding the ones with the greatest return on investment.”

For fledgling exchanges, a major ISV writing to it can provide a significant boost and it is not unheard of for exchanges to pay large sums to global ISVs to write to them. However, this is rare and in most instances ISVs must make a call on the commercial benefits of connecting to a new exchange.

The fact that the cost of switching to a new provider can be high means that if a large ISV does not write to an exchange, its customers, if unwilling to fund the connection themselves, are often left with no options and the decision not to connect can be contentious.

However, as competition grows in terms of connectivity providers and software-as-a-service operations makes the process of switching provider less arduous, a shift in sentiment in terms of the market’s perception of the need to connect to an exchange can potentially wrong foot ISVs.

RTS has announced publically that it will write to NLX from launch and FOW understands that Fidessa, Sungard, Object Trading, Stellar and Orc are also among those ISVs providing day one access.

TT and Marex’s STS are among the notable absences from day one trading (although FOW understands STS will be up and running shortly afterwards) but there is still some distance to run and TT could still commit before the launch date, which is expected for early Q2. However, the NLX example has brought to the fore a very modern dilemma for ISVs in the derivatives business.

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