Last week the media was inundated with the very interesting news that EBS (part of ICAP), one of the leading global wholesale FX electronic platform, was starting a consultation with its clients to change its business model: it would potentially remove the “first in, first out” (remember that FIFO rule in accounting?), for entry order and put a system that batches together all orders that arrive in a given millisecond-based window so that there is no speed advantage for incoming orders, reflecting the industry trend to try to curb potentially damaging HFT flows.

This significant change of strategy, for an FX platform which opened direct access to funds ten years ago, follows its move last autumn away from “decimalization”, so that the fifth decimal point in a quote had to be a “5” or “0”, rather than increments of a 10th. Its aim is to keep having the buy side tap in their liquidity pools, but in a way that is safe for the dealers providing liquidity, as highlighted in our March 2013 report The Blurring of the IDB vs. D2C Models in Fixed Income and FX: Emergence of a Convergence?.

The randomization of trade entry can also be found on another Spot FX trading platform, ParFX, run by competitor IDB Tradition, with the backing of a consortium of 11 global banks. It has launched on April 18th 2013 and trading is already live.

ParFX not only randomizes the value of a trade entry so that it gets matched in an unknown order, but it is also designed as a fair trading venue with an anonymous Central Limit Order Book single matching engine offering executable prices (no second look), that actually even releases the name of the intermediated fund once execution is done to the other trade party, as opposed to the traditional Prime Broker (PB) model whereby the PB keeps anonymous the name of the client fund it has intermediated all the way to settlement. In ParFX the PB uses its name just for the  settlement.

Another differentiating factor to try to promote fairness is the pricing: at ParFX a global bank like Barclays and local bank in Italy pay the same fee (2000 US$/month) to access ParFX’s standard FIX interface that provides the APIs to standard market data consumption, order entry FIX session and post-trade services - Drop-copy. They also pay the same brokerage fee (2US$ per US$ equivalent), no discounts for large sizes or levy for price makers. An All-to-All, level-playing-field platform.

Have we mentioned that TulletPrebon, another leading IDB, had also launched a competitor  FX Spot platform called tpSPOTDEAL? And what about Thomson Reuters? Will they merge the FXAll multidealer-to-client activities they acquired with their wholesale platform in some way or another? Competition is fierce in the revolution of FX Spot trading. We will certainly keep watching this space…

On my walk into work this morning I was thinking about the new Google Glass. Marc Andreessen announced he was impressed with it and would be funding new application developments for Glass. This got me thinking- what types of apps could be created for the securities and investments industry for Glass?

In one sense, Glass could simply be the next mobility device- a device that people bring to work with them (BYOG- bring your own glass) and which allows them to be remote from their desktop/tablet/mobile and yet still get their work done through alerts, conferencing, messaging, etc

But I also think that Glass could not only be about push, but about pull. Meaning, Glass could pull/capture information that could be fed into some type of capital markets activity. Certainly, Glass could be a convenient way for (buy and sell-side) analysts to record meetings, company visits and conferences and thus have a useful record of conversations and presentations. Analysts could even collaborate on investment ideas in real time with other analysts, sales and traders.

For advanced trading the applications gets far more theoretical. Could Glass simply be thought of as capturing just another type of unstructured data for the trading process? Clearly, if we are using sentiment data /social media data to feed trading strategies and applications, Glass could capture something useful as well. Video, photos of events/places/things could be fed into an investment decisioning tool. Glass data could compete with or even supplement satellite images and public domain web cameras. One example could be traffic into a leading retailer (indulge the HAL 9000 type conversation)

Analyst: standing outsider XYZ retailer “Glass- analyst consensus is that there are 5,000 unique visitors to XYZ retailer on any given Friday…how many did you count in the last 15 minutes”…

Glass: “50 which equates to 2,000/day according to posted hours…Google search satellite data also show that automobile traffic to this parking lot is 50% below trend in the last 4 weeks”

Analyst “This is well below trend….Glass, short 1,000 shares of XYZ retailer and send order to my trader”

Sales/trader “Confirmed”

While this all seems futuristic, at least one immediate benefit of Glass is apparent: it could make existing and in-development trading applications better. Developers could issue Glass to users of existing or beta products to capture data about trader eyeflow i.e. where they look at on the screen, how often they look away, which pop ups/alerts are actually useful, etc – developers can design/redesign GUIs to be more eyeflow/workflow efficient and appealing. With pop-up overload in many trading systems, including bonds, eyeflow data could be the difference between failure and success.

Two weeks ago I attended two very different conferences in London back-to-back: the World Exchange Congress and the AFME Liquidity Conference. After this schizophrenic experience and a week’s holiday, I felt I needed to share a few thoughts. But let me give you the timeline:

1) I stopped covering Equities four years ago, and on the evening before day 1 during the more private debate organized by one of the sponsors, I found myself listening to exactly the same people that were speaking not four years ago but six years ago: remember the old equity guard of Chi-x who used to publicly insult the CEOs of the incumbent European exchanges? Well some of them were there presenting yet a few other upcoming equity MTFs… Thankfully there was also a pinch of salt from some interesting derivative ventures.

2) day 1 of the World Exchange Congress: There was a lot of talk about transparency and how regulators could help increase it, how data and technology are the ways exchanges are making money considering how low the Equity trading fees and volumes are now, and about expansion in emerging markets (e.g. selling technology or data centres to emerging market exchanges or buying smaller exchanges)

3) day 2 of the World Exchange Congress I skipped and went instead to the AFME Liquidity Conference which focused on Fixed Income and FX. Just a reminder for our US based colleagues: the AFME is the European association of the banks (and now buy-sides). Here transparency was an issue, there was a lot of talk on how too-much pretrade transparency would impair liquidity, about single dealer or multi-dealer (bank-led or not) platforms or trading protocols that could be set up to try to concentrate liquidity in discontinuous markets (e.g. credit) and what would be the next asset to create a platform for (NDFs? FX options? IRS? CDS indices?).

By now you can tell why I said schizophrenic, and why all exchanges and dealers or equity and fixed income traders cannot  fully understand each other.

Those exchanges/MTFs that still only speak about equity, please take a look outside of the box at fixed income (cash and derivatives, rates and credit) and fx, all the more so considering the still high margins and/or volumes these assets bring to banks, dealers and OTC platforms Did I mention the multitude of regulation that is overhauling that OTC business model and offering more electronic (and hopefully somewhat transparent) opportunities?

It even comes as a surprise that a company like Getco is so far publicly hiring only top notch Equity people from UBS and GS and is potentially selling its fixed income trading activity. And I have not mentioned that inside Knight Execution Services one can find both an FX and a cash Fixed Income trading platform, namely HotSpotFX and Bondpoint… But that is another story…

Yesterday the Securities and Exchange Commission (SEC) has issued a public statement concerning the publication by the International Organization of Securities Commissions (IOSCO) of the Final Report on “Suitability Requirements with respect to the Distribution of Complex Financial Products”, to underline they did not approve the final report and that they objected its publication.

But IOSCO is an international body that represents 95% of national securities regulators, amongst which the SEC.

IOSCO is known to the wider public for the work it has done and is still doing in response to the G20’s request to provide the Financial Stability Board (FSB) with regulatory principles or indications on how to regulate and supervise exchange-traded, OTC derivative and physical commodity markets. IOSCO’s three main objectives of securities regulation are:

• protecting investors;
• ensuring that markets are fair, efficient and transparent;
• reducing systemic risk.

The most recent topic of debate between the SEC and IOSCO was Money Market Funds (MMFs). Indeed, as mentioned in Celent’s recent Shadow Banking report, the SEC last September tried to add new rules on MMMF, especially to abandon the fixed $1 share price and adopt a variable net asset value structure, but also to require funds to set aside a capital buffer, possibly combined with restrictions or penalties on client redemption/withdrawal. However, there was such a strong campaign against these that the SEC never even got to vote on what consultation to propose to market participants. The issues now have to be taken directly by the Federal Reserve or the Financial Stability Oversight Council (FSOC).

Meanwhile, IOSCO has had come up with proposals to the FSB to regulate MMMFs even beyond what is accepted by the industry as already a significant improvement compared to pre-crisis times. However, IOSCO’s board includes 32 members and required unanimity of vote on those proposals to provide them to the FSB. The regulators that had been the most involved in drafting those rules were the SEC and the French regulator, l’Autorité des Marchés Financiers (AMF), and recently mostly the AMF according to market players; hence there was a big unknown on what kind of proposals would be put through. In November 2012, the FSB published a consultative document on MMFs supporting similar measures to those proposed by tthe SEC as part of its proposals for regulating shadow banking. In particular, the FSB’s consultative document included the idea that MMFs that offer a stable NAV should be subject to measures designed to reduce the specific risks associated with their stable NAV feature and internalise the costs arising from these risks. But that regulators should require, where workable, a conversion to floating NAV. Alternatively, additional safeguards should be introduced to reinforce stable NAV MMFs’ resilience and ability to face significant redemptions.

This latest friction comes in timely: the secretary general of IOSCO, David Wright, is hoping to expand the institution’s mandate to allow it to better enforce consistency across international regulations. And remember that the newly elected governor of the Bank of England, Mark Carney, is also the current Chairman of the G20′s Financial Stability Board, we can probably foresee he will use some of his power to have these recent international regulations implemented internationally.