Latest Blog Posts

The Future of Best Execution

Steve Grob, Fidessa

Aug 18, 2014

I was chatting with a few work colleagues last Friday about best execution and derivatives. They confidently asserted that without real fungibility (i.e. the ability to trade the same instrument on different venues), price comparison is not possible and so any notion of best-ex was pretty meaningless. By coincidence, I was later looking at the wording in the best-ex policy of my own broker (and yes, it was a slow afternoon). Interestingly though, it reminded me that best-ex is a much broader concept than just price comparison – it needs to take into account the liquidity, tradability and reputation of any venue, together with an assessment of my own sophistication/naivety. read more

Pre-emptive compliance

Christian Voigt, Fidessa

Aug 14, 2014

MiFID II brings with it some significant changes to the Systematic Internaliser (SI) regime. Most importantly, ESMA will introduce quantitative thresholds that determine when a firm is obliged to obtain an SI licence. Given that these thresholds are based on average values across the previous quarter, it all looks pretty sensible and most likely to impact only the larger firms. But on closer inspection things are rather more complicated. Considering that the SI test applies for each instrument separately, and trading volumes can fluctuate massively, it’s likely that even a small brokerage firm will execute a few different stocks every quarter that force them into the SI regime. read more

If it ain’t broke, break it

Steve Grob, Fidessa

Aug 12, 2014

I was hoping to enjoy the last few weeks of summer in relative peace, but it seems that another regulatory storm is brewing. This time it’s over the unbundling of research and it all stems from ESMA’s interpretation that, under MiFID II, research is an “inducement to trade” and therefore cannot be paid for out of commissions. This threatens to completely derail the economics of trading and reduce the quantity and quality of research available (and the resultant investment decisions). read more

Data jigsaw

Christian Voigt, Fidessa

Aug 07, 2014

Under the European Short Selling Regulation (SSR) uncovered short sales are banned and investment firms are required to track their net short positions and report them to relevant authorities/the public if they breach certain thresholds. Implementing this is already quite a tall order, but things could potentially become even more onerous in light of the requirement to flag short sales in transaction reporting outlined in MiFIR Article 26. As an unintended consequence, might we see a requirement for brokers to aggregate their net position across the whole firm in real-time throughout the day? Traders may know whether their own desk or account is going short, but how do they know whether the reporting firm in aggregate is going short? Some respondents to the MiFID II/MIFIR discussion paper suggest the short sale flag should be applied per trading book or account – a reasonable proposal considering implementation efforts. read more

Please lock the door behind you

Christian Voigt, Fidessa

Jul 25, 2014

Under MiFID II European regulators introduce new rules around algorithmic trading. Whether it’s algo IDs, enhanced audit trails or business clock synchronisation, none of these items would have been on the agenda if it were not for the rapid innovation in information technology over the past decade. Now ESMA is extending its reach into cyberspace, discussing issues such as cyber security monitoring for unwarranted access, system or data interference, communication interception or two-factor authentication. read more

Volume Volatility Relationship and Trade Cost of ETFs vs Common Stocks (Part 2)

Jingle Liu

Jul 25, 2014

Volatility and Volume The uniqueness of ETFs is also evident in the volatility-volume relationship. To study this relationship, we compute the linear regression between log⁡(spread × √ADV) and log⁡(price × volatility), where spread and price are thrown in to normalize securities of different scales. For US common stocks (black dots in Figure 1), we find that the regression slope is 1.03 with R2 = 0.72, which implies: price × volatility ∝ spread × √ADV This result is in line with the view that the trading volume and spread is the major source of volatility and that the volume plays the role of time in random walk. read more

Money Market Funds – what cost safety?

Matt Grinnell, Fidessa

Jul 22, 2014

Tomorrow the SEC’s five member Commission is expected to vote on new changes to rules for money market funds (MMFs), but will the changes be safer or costlier? The two main changes will see ‘prime’ funds move to a floating NAV and boards permitted to impose redemption fees or even suspend redemptions on a temporary basis. This is all designed to make MMFs less susceptible to runs that could harm investors, but it has not been universally well-received by the Investment Company Institute (ICI), by large fund complexes or by a group of 20 United States senators. read more


Gary Stone, Bloomberg Tradebook

Jul 18, 2014
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All Alternative Trading Systems (ATSs) are required to file a Form ATS with the U.S. Securities and Exchange Commission (“SEC”) to describe how their system operates. The Form ATS is typically kept confidential between the SEC and the brokerage firm operating the ATS. In recent weeks, many U.S. equity securities trading ATSs have started to make their Form ATS available to the public. In many cases, the Form ATS simply describes the operation of the matching engine. We want to raise the standard of transparency. read more