Thomson Reuters Introduces Next Generation Elektron Consolidated Feed

Thomson Reuters Introduces Next Generation Elektron Consolidated Feed

Published on Sep 23, 2013

Thomson Reuters announced that it has introduced its next-generation consolidated feed, Elektron Real Time, to new locations in Asia. Launched this month in Sydney, Hong Kong and Singapore, Elektron Real Time will provide customers with full-tick, depth-of-market data from multiple venues around the world. The next generation feed has already been deployed in London, New York, Chicago, Tokyo and Frankfurt and is testimony to the company’s plans to roll out the new high-performance feed worldwide.


The rise of automated trading strategies coupled with the growing requirement for differentiated content has made it more important than ever to connect participants and marketplaces to a technology that offers them a real competitive advantage. As interest in global capital markets from Asian investors grows, the demand for data feeds that can offer enhanced quality of service, lower latency and in-depth coverage has been increasing rapidly in the region.

 “Hong Kong, Singapore and Sydney are at the heart of Asia’s financial centers with sophisticated automated trading requirements fuelling demand for market transparency. This, coupled with the impact of liquidity fragmentation across Australia is promoting demand across the region for greater depth of content coverage and lower latency data delivery,” said Ralf Roth, global head of Equities Feeds and Platform at Thomson Reuters. “The launch of Elektron Real Time in these centers empowers customers to respond to these challenges. The service provides coverage of more than 400 OTC and exchange traded markets – with full-tick, depth-of-market coverage. This ensures customers get the right data at the right time.”

Thomson Reuters Elektron is a suite of trading and data propositions that power the enterprise and connect global markets. Elektron delivers low latency feeds from more than 400 exchange-traded and OTC markets, along with analytics, distribution platform and transactional connectivity to support any financial workflow application. Elektron also powers the most innovative desktop and mobile application in the world, Thomson Reuters Eikon, bringing our global infrastructure to the fingertips of financial professionals, wherever they are and whatever their role. All of those capabilities can be deployed at a customer location or delivered as a fully managed service from any one of our co-location and proximity hosting sites around the globe.

KCG Futures to leverage Getco tech in new offering

KCG Futures to leverage Getco tech in new offering

Knight Capital Group’s (KCG) futures division plans to utilise Getco technology to enhance its offering and focus on high-frequency trading (HFT) and hedge fund business.

Following the merger of Knight Capital and Getco, which formally completed at the end of June, futures commission merchant (FCM) KCG Futures said the business’ direction would be a mix of continuity and change, as it seeks to maintain service levels while also leveraging the advantages of being a combined group.

Carl Gilmore, managing director of KCG Futures, said: “Maintaining continuity in the services we provide is important, but we also want to integrate our offering into the larger group, such as bringing our services to customers in other parts of our business.

“But one of the biggest benefits of the merger with Getco is the strength of the technology that KCG can now offer. There’s a real need in the futures space right now for better technology and this will be a key part of where we anticipate the business will go.”

Listed derivatives volumes, including futures, have suffered in the wake of the financial crisis, and figures from the Futures Industry Association (FIA) show a fall of 15.3% between 2011 and 2012 to 21.17 billion contracts traded worldwide. According to the FIA, a decline in interest rate futures due to the 0% interest rate environment that has prevailed in the wake of Lehman Brothers collapse is largely responsible for depressed volumes.

However, Gilmore believes there is reason for optimism: “I think we’re now on an upswing after five difficult years for FCMs. We think there’s a real opportunity now to push into highly customised offerings, which is what many clients are now demanding in the futures space.”

He also notes that market participants are starting to return to the futures market and improving economic conditions in the US, particularly the tapering of the Federal Reserve’s quantitative easing program, bode well for the asset class.

KCG Futures is also keen to exploit opportunities with HFT and hedge funds by heavily focusing on its automation.

“We really want to be the go-to destination for highly sophisticated investors, and for them it is all about how you use your technology to operate efficiently, so our goal is to offer our services to clients in as automated a way as possible.”

KCG Futures is formed primarily of Knight Capital’s futures division, which itself was created when Knight bought the futures business of trading services group Penson Worldwide in May 2012.

Nasdaq OMX’s European derivatives subsidiary eyes new products

Nasdaq OMX’s European derivatives subsidiary eyes new products

23 Aug 2013 Updated at 12:40 GMT


As Nasdaq OMX’s US securities market deals with the fallout from a three-hour outage on its platform yesterday, across the Atlantic its new European derivatives subsidiary is looking for ways to build its business, potentially through the listing of new third-party contracts.

NLX, which launched in June and offers trading in popular long and short-term interest rate derivatives, said it would be willing to consider listing instruments developed by external providers.

Charlotte Crosswell, chief executive of NLX, told Financial News earlier this week: “At NLX, we have the infrastructure, vendors and route to clearing already in place. It’s relatively easy for us to list new products quickly. This gives us the flexibility in how we approach listing new types of products. You might have a new product that works well, but then you need to have the industry backing and bring it to market at the right time – it can be challenging.”

The move comes as US-based Eris Exchange is considering ways to bring its interest rate contracts to Europe and as GMEX Group, a new derivatives venture run by former Chi-X Europe chief operating officer Hirander Misra, is looking at creating new methodologies for developing products across multiple asset classes.

The emerging regulatory environment for swaps trading is presenting opportunities for firms to develop new types of derivatives that offer alternatives to over-the-counter derivatives.

The rules will push OTC derivatives that can be standardised onto electronic trading platforms and through clearing houses. This has led some to look to products that replicate OTC exposures through an exchange-traded contract.

Under the Dodd-Frank Act, the obligation to clear swaps has already kicked in for most US market participants. Exchanges including Eris and CME Group have launched swap futures that mimic interest rate swap contracts in an exchange-traded environment. Mandated trading of OTC derivatives contracts on trading platforms known as swap execution facilities will start in the US from October 2.

The swap futures from Eris and CME are still gaining traction, say market participants.

Nasdaq-listed stocks were halted for almost three hours on Thursday because of a problem with the Securities Information Processor, a system that consolidates and disseminates prices to US markets, according to a statement from Nasdaq OMX.

The glitch impacted the data feed that distributes pricing information for securities listed on Nasdaq and is not believed to be linked to the exchange’s core technology. The bourse said it had resolved the issue within 30 minutes and spent the remainder of the time coordinating with other market participants and regulators to ensure the orderly resumption of trading.

NLX runs on Genium Inet technology, which incorporates the platform that Nasdaq acquired when it purchased the OMX Group of Nordic exchanges in 2007. Nasdaq’s US markets run on Inet, which it bought from agency broker Instinet in 2005.

–write to and follow on Twitter @anishpuaar

CloudMargin launches cloud-based collateral management tech

CloudMargin launches cloud-based collateral management tech

Source: CloudMargin Limited

CloudMargin Limited, a London-based specialist collateral management software developer, has today launched a new, cost-effective approach to OTC derivatives collateral management for the buy-side.

“Until now, much of the buy-side had been priced out of having a dedicated collateral management platform and had no viable alternative to spreadsheets,” commented Andy Davies, co-founder and CEO of CloudMargin. “I am thrilled that CloudMargin’s innovative approach and use of the latest cloud-computing technology means we can offer a full featured, full-cycle collateral and margin management platform that’s well within the reach of even the smallest buy-side firm.”

CloudMargin supports the full process of collateral and margin management, from storing CSA parameters through calculating and issuing margin calls to handling disputes, selecting eligible collateral and instructing market movements. Real-time reporting and a unique dashboard bring a new level of oversight. Furthermore, CloudMargin cleverly supports the drive towards CCP mandated by Dodd-Frank and EMIR, giving a harmonized view of bilateral and cleared derivatives and a simple yet controlled process.

CloudMargin will be bringing this new approach to a broad spectrum of buy-side firms, from hedge-funds and asset managers, pension fund managers and insurance companies through to corporate treasury departments and energy firms. All of these are seeing collateral volumes rocket and operational complexity soar while at the same time internal and external scrutiny over the collateral process has never been higher.

Even for firms below the threshold for central clearing, regulatory changes under Dodd-Frank and EMIR are stretching manual processes and the use of spreadsheets to breaking point.

CloudMargin gives the buy-side an alternative to spreadsheets so they can finally have a secure, controlled, efficient and cost-effective collateral management operation. 

Eurex squares up to CME as swaps battle moves to FX (from

Eurex squares up to CME as swaps battle moves to FX

22 Aug 2013 Updated at 12:49 GMT

With much of the debate around new opportunities for European market operators in swaps currently surrounding interest rate products, CME Group must have thought its strategy of targeting foreign exchange was a relatively safe bet.

Eurex squares up to CME as swaps battle moves to FX

But plans announced yesterday by Deutsche Börse-owned derivatives exchange Eurex to launch FX derivatives on October 7, just under a month after the prospective launch of CME Europe, have given the Chicago-based futures exchange something to think about.

CME Group already has a large FX franchise in the US and wants to bolster its European presence with the launch of CME Europe, a London-based market that will initially offer trading in 30 currency pairs.

The futures bourse took the unusual step of announcing a launch date of September 9 before obtaining regulatory approval from the UK’s Financial Conduct Authority. According to Bob Ray, chief executive of CME Europe, the move was designed to offer a degree of certainty to help customer readiness.

CME’s plans were partly a response to a G20-led regulatory push to trade more derivatives on exchange and through central clearing. The rules created new opportunities for market operators to expand by offering new products that have traditionally been traded privately between banks. The rules will hit the majority of the FX derivatives market, which was worth $67.35 trillion at the end of 2012, according to the Bank for International Settlements.


By avoiding the fierce competition that will play out in the interest rate derivatives market for the time being, CME’s FX play made perfect sense. The exchange group already offers over 60 futures and more than 30 options in foreign exchange and has a ready-made European clearing house from which it has been clearing over-the-counter derivatives in Europe since 2011.

Ray told Financial News: “Around 23% of our total volume already comes from Europe and we already have over 40 years of experience in the FX market. We will be looking at ways to make changes to the contracts we offer on CME Europe that are more aligned with the region’s existing trading conventions.”

So what will Eurex bring to the table?

If CME has the asset class expertise, Eurex has the regional expertise.


FX represents new territory for Eurex, but its main strength is the dominant presence it already has in Europe, not just with its trading platform, but also with its integrated clearing house, Eurex Clearing.

During the last year, the German futures exchange has responded to the regulatory overhaul by encroaching on the turf of its biggest competitors.

A spokesperson for Eurex said: “One of the drivers for our FX derivatives plans was the desire to offer trading services in as many asset classes as possible in light of the OTC derivatives reforms.”

Last November, Eurex started clearing interest rate swaps, directly targeting the dominance of LCH.Clearnet, the clearing house majority-owned by the London Stock Exchange Group that processes the vast majority of cleared interest rate swaps.


Then in June, Eurex renewed efforts to grab market share in short-term interest rates futures based on the Euribor benchmark, a product that has historically been dominated by NYSE Euronext’s Liffe.

In addition to the direct challenge to NYSE Liffe, Eurex’s push into short-term Euribor derivatives and interest rate swap clearing came at the same time as the launch of Nasdaq OMX’s NLX, the US exchange operator’s latest European foray. NLX offers the most popular long and short-term interest rate derivatives offered by both Liffe and Eurex, with the promise of post-trade cost savings by giving members the ability to offset collateral payments that are required under the new swaps rules.

Steve Grob, director of group strategy at trading technology vendor Fidessa, said: “We are entering a really interesting time in the European derivatives market and the regulations could finally spur some genuine competition in this space. However, I do wonder whether Eurex is simply testing the water by bringing the challenge to the CME. It’s a shame that we are seeing more lookalike products, as opposed to real innovation in the European derivatives market.”

Many believe the battle between Eurex and the CME will be won and lost at the clearing level, which is likely to comprise the biggest proportion of derivatives trading costs.

 Anecdotal evidence suggests market participants will want to spread their risk by connecting to more than one clearing house but that the need to manage costs will mean one is likely to be dominant.

One head of dealing said: “We ideally want three clearing houses per asset class to diversify risk and will play them off against each other to a certain extent, which will keep them on their toes.”

The Eurex spokesman added: “Ultimately, the market will decide who comes out on top but we are confident of being able to gain enough traction with our new FX service.”

–write to and follow on Twitter @anishpuaar


Derivatives top agenda for ASX chief (from

Derivatives top agenda for ASX chief

Michelle Price in Hong Kong

22 Aug 2013

The chief executive of the Australian Securities Exchange has said the company will focus on expanding its derivatives business over the next 12 months, as regulatory efforts to overhaul the global swaps market gather pace in Asia Pacific.

Derivatives top agenda for ASX chief

During the exchange’s annual results presentation this morning, ASX managing director and chief executive Elmer Funke Kupper said derivatives is “the business where the vast majority of our energy is going in 2014”. The exchange is looking to exploit new rules that will see over-the-counter trades pushed onto exchanges and through clearing houses.

Funke Kupper added: “In 2014 we will be focusing on the implications of the international regulations…International regulations create new business opportunities and they affect our clients as regulators demand that some products that are presently traded OTC are cleared. We are investing in new services that we are bringing to market to help our clients.”

His comments came as the ASX reported net profits of A$348 million ($313 million) for the 12 months to June 30, up 3% on the year-ago period. Revenues came in at A$617 million, up 1.1% on the preceding period.

The first six months of the year acted as a drag on ASX’s full-year performance as subdued trading activity and increased competition in the cash equities market resulted in lower fees from trading and information services. Revenues across both businesses fell 8% for the 12 months to June 30 on the year-ago period.


These declines were offset by a strong performance in ASX’s listings, technical services, and the derivatives franchises, revenues for which grew 5%, 10% and 5% respectively in the 12 months to the end of June, compared with the previous year.

The ASX is one of several bourses in the Asia-Pacific region ̶ including the Japan Exchange Group and the Singapore Exchange ̶ making a play for the region’s $42.6 trillion OTC derivatives market. The company has been building out its OTC clearing house and in July it completed a A$553 million capital-raise that will bring ASX Clear in line with international standards on capital levels at OTC clearing houses.

Funke Kupper described the capital raise as the “most important” development for ASX during the past 12 months and added that the ASX’s new interest rate swap clearing service would begin to clear its first interdealer swaps in coming weeks. The launch of client clearing will take place during the latter half of the year.

The exchange expanded its listed futures business with the launch of new electricity futures contracts in May and is set to launch new volatility futures contracts based on the VIX index, also known as the “fear” index, in October. It is also expanding into collateral services to help meet growing client demand for liquid assets.


–write to and follow on Twitter @michelleprice36

Reuters – Swaps clients plan US bank exodus


NEW YORK, Aug 12 (IFR) – US banks are at risk of losing overseas swaps market share as European clients have begun making every effort to avoid getting caught up in costly cross-border derivatives rules that were finalised by the CFTC last month, and come into effect this October.

European hedge fund and asset managers are threatening to transfer their swaps trading activities away from branches of US banks and towards European competitor houses to ensure they avoid the reaches of Dodd-Frank, which mandates an array of costly compliance measures, including the central clearing of standardised over-the-counter derivatives.

Many European clients would rather ditch their US bank relationships than bear that cost – just one of the unintended consequences of bad rule-writing according to dealers.

“It’s the one rule that risks the most competitive disadvantage,” said a lawyer at a US dealer. “There’s no way these clients are going to clear with us at this stage.”

Swaps executed by a European client with the foreign branch of a US bank will be required to clear through a central counterparty starting on October 9 – the date that an exemption from compliance with the CFTC’s recently finalised cross-border guidance will expire.

US banks say the deadline is unreasonable and compliance will be near-impossible. And at least one of the CFTC commissioners sympathises.

“My frustration has consistently been with the Commission establishing arbitrary dates that we pluck out of thin air to establish compliance without asking, ‘is this possible?'” said CFTC commissioner Scott O’Malia.

“The cross-border guidance should have required notice and a comment period to find out if the time periods for compliance are adequate. We claim to be having a comment period but I suspect that anyone who does so will have their comments completely ignored.”

Conversely, the October clearing deadline comes two months before the CFTC forces US branches to comply with the rest of the agency’s transaction-level requirements, such as trade execution, documentation, and real-time public reporting.

“The CFTC is asking us to pull a rabbit out of a hat,” said an executive at the London branch of a US bank. “They have offered ‘substituted compliance’ but the European rules are not even done yet. Nobody in their right mind thinks we can demonstrate substituted compliance by the deadline.”



For end-user clients, mandatory clearing can be a costly business. Clients must negotiate and document relationships with clearing houses and clearing member banks, and are required to post initial margin against all swaps that are passed through the system.

The CFTC guidance provides that foreign branches of US banks could apply to substitute their home country compliance for US rules in cases such as these if the rules were considered “comparable and comprehensive”.

It is likely to be the longer-term answer for most European branches of US houses, but the European rules for clearing are not yet finalised, leaving nothing concrete for comparison.

Some banks are moving to plan B, which involves transferring all client relationships from their foreign branches to affiliates – a separate legal entity that would protect European funds from the clearing mandate.

But that would not be easy, considering that firms such as JP Morgan have more than 10,000 clients booked through their UK branches.

“There are a number of impediments; it’s very difficult to move clients to another legal entity. Plus, many of those affiliates have regulators of their own who will raise concerns about wholesale transfers of clients,” said the lawyer.



US banks say they have sent the Commission requests for an extension to the deadline, by way of no-action relief or some other format. Given the Commission’s penchant for issuing no-action relief – the agency has issued more than 100 in connection with Dodd-Frank to date, a pushback of the compliance date seems possible – if not likely.

If history is anything to go by, the CFTC is likely to keep the industry in suspense until the eleventh hour.

“There’s no rhyme or reason for how the no-actions are issued,” said O’Malia. “It creates a confusing ad hoc process that leaves a lot of people trying to understand a lot of moving parts when we are not following the Administrative Procedure Act. We’re using and abusing the no-action relief system.”

The development represents another trough in the often tumultuous process of aligning cross-border implementation of new rules for the OTC derivatives market between Europe and the US.

For the past two years, US banks have been warning that the CFTC’s hurried pace in implementing the rules of Dodd-Frank would put US dealers at a competitive disadvantage.

Just over a year ago, the agency issued proposals that would have forced branches of US banks to comply with all transaction-level requirements in July of this year.

But European entities and US lawmakers levied heavy criticism of CFTC chairman Gary Gensler’s approach to international harmonisation of derivatives rules.

In response, Gensler pledged closer co-ordination with European regulators in a joint statement with the EC’s internal market and services commissioner Michel Barnier just before the original proposals were due to take effect.

The scaled-back proposal reduced the CFTC’s powers in determining whether foreign regulations could be substituted for US rules and issued no-action relief for most requirements until European regulators could catch up.

But the proposal may still have over-reached, according to banks. Whether the US banks are able to move their clients over to affiliates in time or the agency issues a no-action relief remains to be seen, but for the moment banks are facing a significant cross-border dislocation.

Aquis Exchange To Offer Access Via BT Radianz Cloud

Aquis Exchange To Offer Access Via BT Radianz Cloud

Date 29/07/2013
BT given preferred supplier status
Aquis Exchange Members will benefit from subscription pricing
Allows quick and cost-effective access to Aquis Exchange
Enables straight through processing
Aquis Exchange Limited, the proposed pan-European stock exchange*, today announced a new agreement with BT that allows its Members to access its trading platform via the BT Radianz Cloud.
The BT Radianz Cloud — the largest secure networked financial community in the world — helps financial market participants globally to exchange market information, trade with each other and clear and settle transactions.
Under the new agreement, BT will not only be Aquis Exchange’s preferred cloud connectivity supplier, but the Exchange’s services will now be accessible to the thousands of members of the BT Radianz Cloud community globally.
In addition, Aquis Exchange Members can use the BT Radianz infrastructure to connect with Aquis Exchange’s clearing partners using one resilient access point. This allows the full trade cycle to be conducted seamlessly and helps institutions achieve straight through processing (STP).
Commenting on the agreement, Alasdair Haynes, CEO of Aquis Exchange said:
“The opening of our doors to the BT Radianz Cloud community to access Aquis Exchange is important for us. It provides us with an opportunity to gain rapid access to an unrivalled community of market participants, which is why we have selected them as our preferred cloud connectivity supplier. We believe in having the widest possible range of users to strengthen the ecology of our marketplace and extend the benefits of our subscription pricing model to all professional investors.”
Robin Farnan, Managing Director, Financial Technology Services, BT, said:
“We are delighted to have been selected as Aquis Exchange’s preferred cloud connectivity provider. Aquis Exchange now joins over 100 trading venues that are already part of the BT Radianz Cloud community and benefits from reduced time-to-market and cost of technology infrastructure. The availability of Aquis Exchange to the BT Radianz Cloud community is a great example of how technology can accelerate innovation and efficiencies in the financial sector.”
Aquis Exchange’s subscription pricing works on a similar model to that of the telecoms industry and is designed to encourage participation from all categories of professional trading firm. Users will be charged according to the message traffic they generate, rather than a percentage of the value of each stock that they trade. There will be different pricing bands to accommodate varying degrees of usage. There will be a very low usage band for small firms, that are traditionally disadvantaged by the pricing structure of the incumbent exchanges and, at the other end of the pricing structure, will be the top category where usage is unlimited (subject to a fair usage policy).
For Aquis Exchange Members that are not part of the BT Radianz Cloud, access is available in a number of other ways, including via direct line connection or co-location into Equinix’ LD4 data centre in Slough (Berkshire, UK)

Outsourcing model is not the panacea it’s cracked up to be

Outsourcing model is not the panacea it’s cracked up to be

from Financial news, Ben Wright, 29/7/2013

This month, Societe Generale announced a deal that, though relatively unremarked upon at the time, was in its own way as indicative of the state of modern investment banking as anything else the industry has done this year. But it wasn’t a bond launch or an initial public offering or an M&A deal. No, it was an outsourcing deal and it was the bank that was the client.

Best foot forward: but in which direction?  Best foot forward: but in which direction?

The French firm has outsourced its post-trade processing and settlement services to new providers Accenture and Broadridge Financial Solutions. Such deals have been a long time coming and the reasons why they potentially make sense are well rehearsed. Market and regulatory pressures are vastly altering the economics of the investment banking industry; firms have tried to address costs, mostly through reducing bonuses and laying off staff, but this has barely scratched the surface.

Clive Triance, the head of broker-dealer outsourcing at HSBC Securities Services, recently told Financial News that even if a large broker doesn’t enter any new markets or produce any increase in volumes over the next 10 years, its back-office costs will still increase by between 35% and 45%.

Investment banks have long been engaged in a technological arms race in which they have all employed legions of staff to produce very similar systems. Industry estimates suggest that there are around three support or IT staff for every frontline banker or trader.

A report on the outlook for the investment banking industry by Oliver Wyman and Morgan Stanley in April highlighted the need for firms to alter their operating models if they were to get a grip on this ever-escalating cost base. The report’s authors suggested that “linear bank-by-bank cost reduction efforts are unlikely to achieve the cost flexibility needed – the industry has to focus more on reducing the duplication in basic processes by finding or creating third-party providers”.


Several custodians have pitched to be those third-party providers and have set up broker-dealer outsourcing divisions. But so far they have only picked up business from smaller firms. The bigger players will probably remain reluctant – custodians are, after all, also banks and are therefore likely to compete in some areas with the larger brokers. Indeed a number of custodians have recently set up their own broking arms – BNY Mellon went live with one in Europe in April.

Critical mass needed

Hence, no doubt, the decision of Accenture and Broadridge Financial Solutions to enter this space. Presumably other firms will follow suit. How many different solutions emerge and which gain critical mass will be crucially important. Christophe Leblanc, the chief operating officer for Societe Generale Corporate & Investment Banking, made it clear that the main benefits of the outsourcing deal would only be felt “by mutualizing processing activities and costs across multiple institutions”.

One area in which this is clearly true is in the interactions with central counterparties and central securities depositories. These market infrastructure providers, which facilitate securities settlement, have become central to regulatory attempts to bring greater transparency to the market, especially over-the-counter derivatives. They tend to price their services on sliding scales depending on the volume of trades that a broker sends their way. So, by outsourcing these relationships to a third-party provider that pools volumes from a number of clients, brokers would enjoy benefits of scale even if they didn’t have it themselves.


Such deals will result in banks following the example of their own clients: asset managers have for years outsourced non-core functions to custodians so they could focus on what they believe they do best.

But the buyside and the sellside are fundamentally different in this regard. The business models of asset managers are, though not without their challenges, relatively clear cut; those of the banks have rarely in their history been less so. The brokers who outsource their back-office operations are effectively betting that it is these functions that are going to become increasingly commoditised and that it will be in the front office that they can make their mark. It could just as easily turn out to be the other way round.

At JP Morgan’s annual investor day this year, Mike Cavanagh and Daniel Pinto, co-chief executives of the corporate and investment bank, outlined the future of their business. They did so by trying to quantify the financial impact of new regulations. They said these new rules on margin, post-trade transparency and mandatory clearing trading, along with the rise of swap-execution facilities, could take a $1 billion to $2 billion chunk out of JP Morgan’s revenues each year. These are the kind of numbers that have caused banks to finally realise that their world has changed and to at last consider options such as outsourcing.

But in the same presentation Cavanagh and Pinto also highlighted new areas of growth. Some of these too – such as over-the-counter clearing and collateral management, which JP Morgan believes could be worth between $300 million and $500 million a year – reside in the back office. Collateral optimisation and transformation has become a crucial new business line for the bank.

 In other words, new regulations are making some back-office functions too costly but are creating other back-office opportunities. This is a process that remains in flux.

All credit to Societe Generale for adopting a clear strategy, because brave is the firm that is happy to make a bet one way or the other. A few other banks without scale and – even more crucially – without the ambition to achieve scale will no doubt sign up for similar deals. But it’s unlikely to turn into a stampede.


Rewiring Europe’s ETP industry

Rewiring Europe’s ETP industry

European exchange-traded products are being delisted at a record rate as the region battles with fragmented liquidity and high running costs.

Rewiring Europe’s ETP industry

During the first half of this year, 231 ETPs were delisted from European exchanges compared with 189 for the whole of 2012, according to data from consultancy ETFGI.

Arnaud Llinas, Lyxor’s global head of ETFs and indexing, said: “There are definitely too many products in Europe. There are more ETPs in Europe than the US. I’m not surprised that the market is rationalising now in terms of number of products.”

Compared with the US, the European ETP market presents a fragmented picture, with issuers required to list products across many regional exchanges, clearing and settlement systems. Each product could be listed on as many as five exchanges.

At the end of June, the European industry had 1,954 ETPs, with 6,156 listings, and assets of $357 billion, compared with 1,478 ETPs, 1,478 listings, and assets of $1.44 trillion in the US, according to ETFGI.


Some of this fragmentation is regulatory-driven: Switzerland, for example, forces providers to list on its local exchange if they want to market their products in the country. In addition, issuers have seen it as necessary to have a shop window in each jurisdiction to target retail customers.

In recognition of how disparate the European market has become, and to concentrate liquidity, issuers are rethinking their strategy.

Deborah Fuhr, founding partner of ETFGI, said: “In the early days of ETPs in Europe, many people thought that marketing and listing should go hand in hand, especially if you wanted to sell to retail and financial advisers. However, there are considerable costs involved with maintaining multiple cross-listings and it fragments liquidity across multiple exchanges.”

The ETFGI data shows the number of new listings on European exchanges has also slowed considerably, from 758 for the whole of last year to 295 so far this year. New listings peaked at 1,589 in 2010.


Leland Clemons, head of iShares capital markets for Europe, Middle East and Africa at BlackRock, said: “We are trying to take a more proactive approach to developing the market structure for ETPs. We would like to see liquidity better consolidated to make the investor experience better. From my perspective, the European ETP market structure or ecosystem has developed a bit from when the proliferation of listings began five or six years ago.”

Clemons said rule changes set to come in with a revised version of the Markets in Financial Instruments Directive are also driving change. The directive is not expected to come into force before 2015, but its draft form calls for increased reporting of trades, and the greater transparency this will bring will highlight products that lack volume, he said. Recent industry initiatives are also thought likely to consolidate the market.

Bats Chi-X Europe, the largest pan-European cash equities trading platform, is exploring using trade order routing techniques to direct investors to the most liquid products. For example, an investor looking to buy the iShares Euro Stoxx 50 ETF, which is traded on six European exchanges, would be directed to the most liquid of these listings.

BlackRock and settlement giant Euroclear have also made a move to improve the European ETP market, with plans to create one international central securities depository that would allow ETPs to be settled in one place rather than nationally.


But issuers say delistings and consolidation will also see some market participants lose out.

The five largest European exchanges have lost 194 listings so far this year, compared with 51 in the first six months of last year.

According to ETFGI, Borsa Italiana has been the worst hit of Europe’s exchanges, having seen 57 ETPs delisted from its platform so far this year (see chart).

NYSE Euronext’s Paris exchange has lost 43 ETPs; German exchange Deutsche Börse, 35; the London Stock Exchange, 34; and Switzerland’s Six Swiss Exchange, 25.


Silvia Bosoni, Borsa Italiana’s head of ETF listing, said despite recent delistings the market remained popular. She said: “There are no Italian issuers of ETFs, which means Italy is often the first market issuers list in after their domestic market. Issuers have to be alive to the fact that most Italian investors in Italy are not very keen to invest in something not listed in Italy.”

Providers say the LSE has benefited from its position as a hub for Europe, cemented by a number of US issuers that have come into the market and used the LSE as a launch pad. The Six Swiss Exchange, meanwhile, has been protected by its regulatory framework.

According to issuers, the primary consideration when it comes to delistings is geographical positioning and running costs.

Although all the exchanges offer deals for multiple listings, new issuers and annual fees, an individual listing of an ETF on Borsa Italiana costs €8,500; on NYSE Euronext, €7,500; LSE charges £5,000 (€5,807); Deutsche Börse, €3,500, and it costs Sfr3,000 (€2,425) plus charges for new equity securities in relation to market capitalisation on the Six Swiss Exchange.


Manooj Mistry, head of ETPs for Europe, the Middle East and Africa at Deutsche Bank’s Asset and Wealth Management unit, said: “Listing fees are a component of the costs so you need to take into consideration that some exchanges are more expensive than others.”

According to ETFGI research, Lyxor has delisted the most products this year with 53, followed by Royal Bank of Scotland, 42, iShares at 40 and ETF Securities with 38.

Matt Johnson, head of distribution for Europe, Middle East and Africa at ETF Securities, said: “The rationale is, of course, based on economics. Multiple listings incur a cost that is both direct, such as legal time, and indirect, such as marketmaker support.

“We’ll certainly be keeping all of this in mind when listing new or cross-listing existing products and as we continue our six-monthly reviews of potential delistings,” he said.


• Global product shutdowns hit record level

The number of closures of global exchange-traded products hit a record 117 in the first six months of this year, according to ETP consultancy ETFGI.

Providers have engaged in rapid expansion in recent years, with the number of global ETPs rising by 217% since 2008 and hitting a growth peak between 2009 and 2010 of 32%.

But this has slowed over the last 18 months, to 8.8% from 2011 to 2012 and 2.6% in the six months to June, according to ETFGI.


Market participants have attributed the change to a smaller number of benchmarks still available for new products and a move by issuers to take stock of their portfolios after high levels of growth.

Deborah Fuhr, founding partner of ETFGI, said: “There has been a decline in the number of new launches as most of the core benchmarks in core asset classes are already covered by ETPs. There is a first-mover advantage when bringing an ETP to market. Many firms are [now] working to grow the assets in their existing products.”

Earlier this month, db X-trackers, the ETP arm of Deutsche Bank, announced the largest number of closures at one time by a single provider, with 36 ETPs set to disappear. The bank attributed the closures to “low levels of interest”.

The figure is not included in the first-half global total because the products are still in the process of being closed.


Manooj Mistry, head of ETPs for Europe, the Middle East and Africa at Deutsche Bank’s Asset and Wealth Management unit, said: “Over the past few years we have very much been in expansion mode in terms of products we’ve launched.

“We felt we reached a stage in our evolution where it made sense to review our product range in terms of whether there had been the anticipated demand and turnover on exchange we had expected.
“Some products had not met these levels after a fair time period of around five years so we have decided to close them.”

The majority of the db X-trackers closures are in niche products that have failed to grow substantial assets, said Mistry. Some issuers said that rapid growth and innovation in the ETP industry had led to a number of more specialist products being created that are harder to market and can take a long time to build assets.

–This article first appeared in the print edition of Financial News dated July 22, 2013

OTC Clearing and Regulations

My views on OTCs and Regulations

Knowledge Problem

Commentary on Economics, Information and Human Action


4 out of 5 dentists recommend this site

Aditya Ladia

Save, Invest & Grow Your Wealth

Soltis Consulting, Inc.

Business Concepts, Ideas, and Information


An Endeavor To Explore The Uncertanity

All About Cyber Security and Financial Technology and Beyond

The Future of FinTech and Cybersecurity are Interlocked: Creating the Secure Future of Financial Technology Today


Read about latest trends in Algo Trading in India or visit our website

Trading Smarter

Thought Leadership, Insight and Product Information from TradingScreen

Tales from a Trading Desk

Noise from an Investment Bank

NPA Computers

Bringing you info about the latest on Internet Technology


An online journal of International Energy Trends, Green Building, Sustainability and Climate, A&E, Data, Security, CryptoCurrency and Social Media

Trade News in Brief

International Economic Affairs & Relations / Regional & International Organizations / Global Commerce & Business


The Single Dealer Platform Community

Carl A R Weir's Blog

A Cross Asset Connectivity and Finance site

%d bloggers like this: