Top stories

Perpetual Corporate Trust joins Calastone’s global transaction network

Jan 28, 2015

Calastone, the global transaction network for the managed fund industry, is pleased to announce Perpetual Corporate Trust is now live on the global Calastone network. Perpetual provides independent responsible entity services to a number of Australian and global fund managers, with over $14b in funds under supervision. Perpetual Corporate Trust will offer Calastone’s automated order routing service to approximately 50 funds it operates as an independent responsible entity.

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James Hay Partnership live on Calastone’s global fund transaction network

Jan 27, 2015

Calastone, the global funds transaction network, today announced that James Hay Partnership, the platform for retirement wealth planning, is now live on the global Calastone network.

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Percentile wins FinTech Trailblazer award

Jan 27, 2015

Percentile, providers of technology for risk management and regulatory compliance, today announced that they have won the first FinTech ‘Tech Trailblazer’ Award for their RiskMine platform, which provides technology for risk management and regulatory compliance to financial services firms. See the information on Percentile’s winning entry here.

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Latest Blog Posts

The Key Characteristics of ETF Trading

Mike Baradas, Bloomberg Tradebook

Jan 26, 2015
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With more than 5,000 ETFs listed around the world, it can be overwhelming for a trader to know the best way to execute an ETF. In the United States, there are more than 1,600 listed, with the liquidity concentrated in the top 50 ETFs. In addition, recent Tradebook studies on ETF trading, indicate that trading ETFs can be far different from executing regular stocks. A large stock order can have a significant splash in the market. Whereas a similarly sized large ETF order, will have less of an impact on the market. This suggests different strategies are required for executing ETFs, and generic stock algorithms will not suffice. Additional Tradebook studies also indicate that block trading should be considered for an optimal ETF execution result. Beyond the benefits of trading ETFs on stock exchanges, the key to successful ETF trading is understanding the key characteristics of an ETF that can guide the trader on the liquidity and prices that can be expected. 1. Creation Unit The first attribute is the Creation Unit of an ETF. The Creation Unit is the Block Size of an ETF that can be created or redeemed with the Issuer. Typically 50,000 to 100,000 shares of the ETF, the Creation Unit is like a “Round Lot” for an ETF. Traders know that in many markets, a different price can be expected for “Round Lots” and “Odd Lots”. Usually, an “Odd Lot” will get an inferior price to trading a “Round Lot”. For example, a trader has a 50,000 share ETF order, and the Creation Unit is also 50,000 shares. Relative to the current market quotes, a trader can expect to see a better price from the liquidity providers for 1 block trade of 50,000 ETFs. Slicing up the 50,000 share order into 5 slices of 10,000 share odd lots, may not realize the best prices. 2. INAV The Indicative Net Asset Value, the INAV, is the intra-day net asset value of the underlying basket, translated into the ETF price. This INAV is defined by the ETF issuer, and published by the exchanges every 15 seconds, based on the last prices of the underlying securities. This “Fair Value” gives a trader “pricing guidance” on where the trader can expect to trade an ETF. More often than not, an ETF can trade at a premium or discount to the INAV. Part of this discrepancy can be due to the delayed nature of the INAV price feed. Some can be attributed to how the INAV is calculated. For example, many fixed income ETF INAV’s are priced with the bid price of each underlying bond. Most bonds don’t trade electronically, and some don’t even trade. Relying on a pricing service for bonds can give an inaccurate fair value of a bond ETF. Buying an ETF would normally mean paying the offer, which would make the price a premium to the bid price calculation of the INAV. 3. Implied Liquidity The implied liquidity provides “volume guidance on the available liquidity for an ETF. An abundance of liquidity in the underlying basket indicates how many ETF shares can potentially be traded in one day. 4. Fund Flows Fund Flows is probably the easiest characteristic to understand. ETFs can be created or redeemed everyday. This net daily inflow or outflow for an ETF gives a good indication of market sentiment each day. 5. %Off-Exchange ETFs trade on and off-exchange. The less liquid an ETF, the more liquidity will trade off exchange, usually in block form, with a liquidity provider on one side of the transaction. These trades are reported to the Trade Reporting Facilities, the “TRF”, in real-time. 30 to 40% of ETF volume is printed off-exchange, and cannot be accessed in the dark pools. The Tradebook ETF RFQ platform gives clients access to multiple liquidity providers who specialize in ETF block liquidity.
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Return of the concentration rule

Christian Voigt, Fidessa

Jan 22, 2015
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A long time ago in a galaxy far, far away… It is a period of calm, with primary exchanges enjoying relatively little competition thanks to concentration rules enforced in many EU countries requiring all equity business to be conducted on exchange. The arrival of a new disruptor, in the form of MiFID I, is about to turn their lives upside down forever. The blanket ban on concentration rules will allow many newcomers to start competing for business, introducing a multitude of innovations and fragmenting and reshuffling order flow across Europe. Fast forward 7 years. The global financial crisis has reset priorities away from innovation, efficiency enhancements and business growth, back to safety, security and compliance. When completed, the ultimate legislation – MiFID II – will re-introduce the concentration rule cleverly disguised as the trading obligation. With brokers once again forced to trade on-exchange, the legislation spells trouble for most OTC trading in European equities.
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Four Things You Need to Know About MiFID II

Magnus Almqvist, Sungard

Jan 09, 2015
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According to a survey conducted by SunGard at Sibos 2014, nearly half of the 130 people polled (47 percent) reported that increased risk and regulations will have the largest impact on how companies conduct business today. One set of regulations that is affecting everyone from small retail investors to tier 1 exchanges is the European Commission’s MiFID II and MiFIR, which seeks to promote a single market for wholesale and retail transactions in financial instruments. In the most basic terms, MiFID II and MiFIR address two broad areas: the conduct of business rules for intermediaries providing investment services the effective, efficient and safe operation of financial markets With the MiFID and MiFIR consultation process well underway, and with the Level 2 texts being finalized, the key items that still need to be addressed are becoming clear. Suitability and appropriateness checks MiFID II mandates that firms have adequate internal controls over their advisory services and their sales channels, including the diligence to not advise on – or even stop selling – a product if clients do not understand it. When complex products are available via a trading platform, they must ensure that client access to products is based on suitability or appropriateness. They must also include suitability controls as part of the advisory services. To ensure that they perform these suitability checks appropriately, they must institute a process to collect relevant client information – which will vary with the complexity of the product – and then systematically verify the suitability of each client transaction against this data. Suitability checks, however, are not the only requirement. When a firm is merely providing access to trading in a product, it is still obligated to actively seek information from a client about his or her ability to understand the risks of the product or service and to afford potential losses. The firm must have the processes to decide whether a product or service is appropriate for the client and take necessary steps if the client is acting outside of what the firm has deemed appropriate. Other related obligations include monitoring the processes that keep the firm’s Know Your Customer (KYC) data up to date to ensure that data is detailed enough for the firm to determine and establish suitability and appropriateness. KYC poses one of the greatest challenges to the financial services industry, according to the SunGard survey. More than half (55 percent) of respondents agreed that KYC is a top challenge to their business. The firm must also provide fair and clear disclosures about all fees and total costs as well as explicit explanations of embedded or wrapped products. This raises questions around monitoring and audit trails. How does a compliance organization get on top of its firm’s sales and account management tasks? Certainly an array of system and process changes will be required. Best execution monitoring Investment firms must provide all clients with a best execution service when executing orders. They will be required to annually publish information on the top five venues that they have used, and markets must publish information on the quality of the execution provided. ESMA, which oversees the implementation of MiFID II, advises that a firm’s execution policy should describe its strategy for obtaining the best possible result for the execution of client orders and explain the importance that the firm places on the execution factors when executing client orders or decisions to deal. Permissible third-party payments should be disclosed within execution policies. Code of conduct and conflicts of interest monitoring Investment firms are required to take all appropriate steps to identify, prevent or manage conflicts of interest within the firm, as well as to maintain and operate effective organizational and administrative arrangements to prevent conflicts of interest and manage code of conduct. ESMA advises that the existing rules will be strengthened to: specify that placing an over-reliance on disclosure without adequate consideration as to how conflicts may be appropriately managed is not permitted ensure that disclosure to clients is sufficiently detailed and meaningful to enable the client to make an informed decision as to whether to proceed introduce a requirement that firms periodically review their conflicts of interest policies and take all reasonable steps to address any deficiencies For a compliance organization, the implications of the above are huge. Firms will need a detailed and efficient process to manage deal teams and associated restricted lists, a tool to monitor staff activity across deal teams, and the ability to compare staff activity vis a vis corporate entities to search for potential collusion and Chinese Wall breaches.      Compliance audit trails For any identified compliance issue, firms must record where senior management deviates from the compliance officer’s assessment and recommendations and explain the remedial action that the firm intends to take. Firms must also maintain an audit trail of their risk-based approach or, alternatively, implement controls and processes that address the full regulatory text. For example, a firm can do a risk-based analysis, decide which parts of the regulation it needs to comply with, and implement reasonable processes and checks to meet its own analysis. This entire process will need to be reviewed on a regular basis, with an associated audit trail that will satisfy any competent authority that may challenge it. Some firms are implementing very stringent rules in anticipation of the completion of the current legal processes and regulatory changes. For example, some firms prohibit any staff that is remotely associated with trading – even someone who simply works on a trading floor – from using a mobile phone, chat application or chat room during office hours. Is this reasonable or counterproductive? Could proper systems and controls that monitor usage and staff behavior in relation to customer, firm and market events help avoid draconian steps that limit staff movements? Finally, another hugely significant point: advisors and firms promoting and selling products created by other firms will have to change their fee structure and information around how they charge for their services. So MiFID II will have a significant impact on not only firms’ practices but those of their employees. It is therefore critical to fully understand the regulation and how to implement processes that support compliance. The good news is that if proper and efficient controls are put in place, firms will have a clear view of its clients and sales force activity, allowing them to act more efficiently on the market. Having control and proper monitoring of staff allows firms to give their staff the flexibility to act freely and with delegated responsibility. And if they act outside of the faith of Code of Conduct and Regulation, compliance will find out, and appropriate actions can be taken.
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Interview

FIX Trading Community London Regional Event panel discussion: MiFID II

Dec 09, 2014
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The FIX Trading Community held their London Regional Meeting at the BT Centre on December 2nd, with over 100 members from the buy- and sell-side, as well as vendor communities, to discuss latest thoughts on the MiFID II consultation process and the impact of regulation.

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Discussing Risk Data Strategy: An Interview with Philip Chamberlain

Sep 04, 2014
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Risk data is an area that has been largely overlooked for many years. Today the situation is different and the area is facing increasing regulatory scrutiny, as Systemically Important Financial Institutions (SIFIs) rush to comply with the Basel 239 Principles for Effective Risk Data Aggregation and Risk Reporting. An enterprise’s success depends on its ability to analyze risk data efficiently and effectively, in ways that uncover both risks and opportunities. Being able to extract and escalate critical risk information is nearly impossible without a robust risk management framework supported by a strong technology infrastructure.

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ATMonitor talks to ITG's Ian Domowitz about Best Execution

Jul 17, 2014
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Ian Domowitz, Managing Director of ITG and CEO of ITG Solutions Network, talks to ATMonitor about transparency in terms of institutional trading and how Best Execution can be achieved across different asset classes.

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Survey

The 2015 Algorithmic Trading Survey

Trading Survey THE TRADE invites you to participate in The Algorithmic Survey for 2015, now in its 8th year running. If you are trading electronically, we would appreciate your input on the use of algorithmic trading services. To express our thanks, all participants are eligible for a free one-month online subscription to thetradenews.com. Please rate your algos by completing the online questionnaire available here..

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Research

Liquidity Barometer: Asia Pacific Q3 2014

ITG

Jan 14, 2015
Liquidity Barometer: Asia Pacific Q3 2014

In Asia’s equity markets, liquidity experienced an upward trend during the third quarter of 2014 according to ITG’s Asia Pacific ‘Liquidity Indicator’. The indicator had fallen for three consecutive months in the second quarter, declining from 1088 at the end of March to 1038 at the end of June. It perked up in the third quarter, rising to 1070 in August and September.

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Video showcase

Corvil working with RSJ

Corvil Watch Michal Sanak, CIO, RSJ Algorithmic Trading discuss working with Corvil. read more

Corvil working with Tradition

Corvil Watch Yann L'Huillier, CIO, Tradition and Alex Krovina, CTO, Tradition discuss working with Corvil. read more

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