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Q1 • 2016 • Issue #57


Building A Global Firm Eric Böss, Christoph Mast and Kent Rossiter Allianz Global Investors ALSO INSIDE: AXA IM, BARINGS, IIROC, ACORN CAPITAL, SEQUOIA CAPITAL FUND MANAGEMENT, VANGUARD, IOSCO, CAPITAL GROUP In support of

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GlobalTrading’s Editorial Think Tank Dear Readers,

Bill Hebert Alpha Omega Financial Systems, Inc. Co-Chair, FIX Trading Community Global Membership Services Committee

As we know, the traditional institutional trading paradigm is supported by multiple business, operational, technology and regulatory components, functions and people. But from a critical path perspective this paradigm involves the communication between portfolio managers, buy- and sell-side traders and markets / sources of liquidity. Over several years, and as technology, FIX and other factors have evolved how these parties interact, they still remain the primary entities in the equation. Nevertheless, a snapshot of global electronic trading and the electronic products as used in the trading process today would likely inspire a “future shock” reaction from someone involved at the time FIX was first launched. Liquidity access is no longer limited just to exchanges, brokers are becoming more innovative in how they service their buy-side clients, and the buyside is focusing on how both its portfolio managers and traders can make better, more informed investment and trading decisions. In parallel to the ongoing developments in institutional trading, the regulatory powers in many regions are considerably refocusing on how they define their roles and activities in an effort to both service the industry and fulfill their obligations to the public. In this edition of GlobalTrading we have several contributions relating to the above. Allianz Global Investors has kindly provided views on building a global firm in today’s environment including trading desks, trading systems, regulations, asset classes, TCA and working with brokers. We also have perspectives on the roles of regulators, cross border regulations and the prospect of international reporting standards from some noted regional and global authorities. Additionally, we are grateful for articles addressing trading in small caps, the impact of mutual funds on bond trading and analyzing the cost of FX trades.

Carlos Oliveira Brandes Investment Partners

Please enjoy this edition of GlobalTrading. As always we appreciate your interest, support and contributions to GlobalTrading and the FIX Trading Community.

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Bill Hebert Alpha Omega Financial Systems, Inc. Co-Chair, Global Member Services Committee, FIX Trading Community

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Publishers’ Note GlobalTrading is proudly published by HM Publishing in support of the FIX Protocol and the FIX Trading Community. GlobalTrading is the official quarterly publication of the the FIX Trading Community, however, the content does not necessarily represent the opinions of the FIX Trading Community. The opinions expressed in this publication are not necessarily those of the publishers or of the institutions of the contributing author. Although care has been taken to ensure the accuracy of the information contained within the publication, neither the publishers, authors nor their employers can be held liable for any inaccuracies, errors or omissions; nor held liable for any actions taken on the basis of the views expressed, or information provided within this publication. No part of this publication covered by the publisher’s copyright may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, be they graphic, electronic or mechanical, including photocopying, without the written permission of the publisher. Any unauthorised use of this publication will result in immediate legal proceedings. All Rights Reserved © 2016




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7 Building A Global Firm - Eric Böss, Christoph Mast, Allianz Global Investors 13 Three Desks, One Region - Joe Rodela, Allianz Global Investors


32 Measuring The Impact Of Mutual Funds On Bonds - Shane Worner, IOSCO

17 Blocks And The Broker Review - Kent Rossiter, Allianz Global Investors


20 The Changing Role Of Regulators - Philippe Guillot, Autorité Des Marchés Financiers 22 The Evolution Of The Regulator’s Role - Victoria Pinnington, IIROC 24 Cross Border Regulation - Ashley Alder, SFC 27 The FIX Protocol In A Blockchain World - Ron Quaranta, Wall Street Blockchain Alliance OPINION 30 Trading Small Caps: Communication Is Key - Daphne Chang, Acorn Capital

58 Technological Integration - Rob Keller, Eze Software Group ASIA

36 Analysing The Cost Of FX Trades - Daniel Chambers, Sequoia Capital Fund Management EUROPE

A Fixed Income Perspective - Jutta Schneider, Allianz Global Investors


41 Investment Management Working Group: Handing Over The Reins - Paul Squires, AXA IM - Adam Conn, Baring Asset Management 45 A New Model For Fixed Income - Enrico Melchioni, LIST Group 49 Driving Execution Venue Analysis To A Global Audience - Brian Lees, Capital Group - Irina Sonich-Bright, Credit Suisse

61 China’s New FX Regime An Opportunity For RMB Currency Futures Users - Julien Martin, Hong Kong Exchanges and Clearing Limited


64 Finding Blocks – A Case Study – Industry Collaboration in Action - Jonathan Finney, Fidelity International - James Hilton, Credit Suisse - Robert Barnes, Turquoise FRAGMENTATION 68 European Equity Trading Snapshot

52 The Multi-Asset Revolution Part II: Risk, Centralisation And Consolidation - Vincent Burzynski, FIS

INDUSTRY 70 FIX Trading Community Update - Tim Healy, FIX Trading Community


72 FIX Trading Community Members

54 Deepening Risk Management Practice: Technological Glitch - Leo Li, Vanguard

74 Company Profiles

Service And Support: A Minor Consideration Until You Need It - Clayton Meadows, REDI Global Technologies

MY CITY 76 Philadelphia - Anthony Godonis, Aberdeen Asset Management


“It was only after moving the trades into the regions and trading ourselves that we learned that the execution quality (measurable through our TCA tools) improved considerably. This showed us that we can trust our brokers, but when it comes to execution, we would rather have our own traders do it themselves. We would rather give a fixed income trade to one of our fixed income traders in New York or Hong Kong to get better results than giving it to a broker and asking them to trade it overnight.” P.7

Christopher Mast, Global Head of Equity Trading, Allianz Global Investors

“When we sit down with the broker, they know which fund manager or tech team appreciates their service even though we might be paying them through a completely different avenue. In that way, the people who are actually providing the service on the research side get rewarded and at the same time, the brokers can clearly see that we trade with them a lot in a given area” P.17 Kent Rossiter, Head of Asia Pacific Trading, Allianz Global Investors

“Prior to building and implementing this database, important choices needed to be made with regard to how to store data, what to store and how to retrieve it. Once this has been done, it is important to understand what is in front of you, how to produce results from it and how to interpret the results accurately. Having such a vast amount of data at ones fingertips provides you with almost limitless potential for study and analysis.” P.36 Daniel Chambers, Head of Trading, Sequoia Capital Management

“One aspect the outgoing leadership would like our group to move towards is the inclusion of more technical people. In the US, Brian Lees and Scott Atwell are becoming very much more involved, and I think they are exactly the type of people that the FIX group should be trying to involve. We need to work better to bridge the gap between the heads of dealing and the technologists because that’s where the potential becomes really powerful.“ P.41 Paul Squires, Global Head of Trading and Securities Financing, AXA IM

“Asset managers should consider implementing multiple EMSs in order to mitigate the potential risk of losing functionality of its single point system. While the amount of time and resources to implement new systems could appear overwhelming and redundant at times, the asset management industry as a whole could benefit from having multiple systems. The key to success is getting all the traders familiar with multiple systems.” P.54 Leo Li, Equity Operational Risk Manager, Vanguard


Building A Global Firm By Eric BĂśss, Global Head of Trading and Christoph Mast, Global Head of Equity Trading, Allianz Global Investors.

Christoph: Allianz Global Investors historically had a trading setup focussed on equities organised in silos and by regions. Over the last 15 years the system has evolved so that regions are responsible not only for the trading of the portfolio managers in their region, but they are focusing on the time zone trades, regardless of where the portfolio manager sits. For Asian and US portfolio managers, the advantage is that they have a trading desk in the time zone in their respective region. This means they have an increased concentration of specialist traders in a particular stock for their fund, within their region and globally.

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The process has been challenging because we had to get both the trading software in place and also ensure that all the rules and regulations of the different regions and countries were fulfilled. Next we started to broaden the scope of trading to cover all asset classes. Currently we are as involved in trading on the equities side as we are on the fixed income side. There is also a



huge trading business on the derivatives side and an FX trading desk focusing on the FX trades of the portfolio managers. Currently, we are in the process of extrapolating the long-established equity global dealing structure for fixed income to the regional trading desks. We have already moved on a global basis with emerging market fixed income trades over the last couple years but we are now working on a structure which will allow us to trade fixed income and derivatives wherever it needs to be traded and for any of our global accounts. A global setup Christoph: Allianz Global Investors has 24 traders in Europe, seven traders in the US and 18 in AsiaPacific trading all asset classes. So there is a strong centralised trading desk in each region. This structure raises many questions, including: how much do each of the desks trade for their own region? How much do they trade for other regions? How big a market participant are we in a particular region? What’s happening as far as flows are concerned? What is the impact on execution quality and the feedback of the portfolio managers? How much is our business focusing on portfolio management centricity? What developments are not only measuring the performance of the traders but also the input of the portfolio managers as far as information flow goes? Eric: Allianz Global Investors now is a truly global asset manager with operations in all three major time zones, active in most asset classes and running a global trading setup that acts as one platform serving all portfolio managers. Despite our global reach we firmly believe in regional presence and think there is value in regional trading expertise. Taking for example market micro structure and liquidity, these are very different in for example France and the US. So having a US-based trader for the US and Europe-focused traders in Europe and the same for Asia is something that we still consider is the best way forward for equity markets. While on the one hand we want to be regional, we do still have to make sure that we are scalable on a global level. The approach we are taking with fixed income trading is very similar, because fixed income markets are regional as well to some extent. But there are parts of it, like the Treasury market and the related derivatives markets which are very much


global products where the location of the trader is less relevant. However, other segments like covered bonds, corporates, emerging markets or high yield can be fairly local. We are currently building on the successful model implemented in equities in terms of our fixed income trading expertise. That is building regional expertise, connecting it in one trading system and at the same time ensuring that we are not getting too granular – avoiding the risk of not being scalable anymore . This is occasionally a difficult balance to strike. Beyond equities and fixed income there are two more asset classes we trade – FX and derivatives. Derivatives are by definition a group of instruments of their own, so we decided that having derivative specialists within the firm is a valid way to go, especially in an environment where derivatives are used widely. It is extremely helpful to have people with expertise on the instrument side as well as on the related underlying market side. Derivatives, while many of them trade like equities, are settled completely differently. There are margins involved, different exchange rules, and they fall under different regulations. These are the main reasons why we decided to have specialist derivatives teams trading at least in those regions where there is sufficient trading volume to make that a valid decision. Currently those are the US and Europe. We also have a FX team in Europe, which is partly due to the fact that Europe is the most multifaceted market in terms of number and complexity of funds. FX is the least regionally specific market, so trading can be located pretty much anywhere which is why we decided to leave it in Europe where most of the client base active in currencies is located. Going multi-asset Eric: While building our global multi-asset trading capabilities we looked at our existing equities structure, took what we liked about it and translated that into what we wanted to achieve. But extrapolating that to, for example, the rates market is not a simple ‘copy and paste’ operation. There are areas within fixed income which can be handled like stock trading (primarily the super liquid government markets), but for anything that is not primarily


“While building our global multi-asset trading capabilities we looked at our existing equities structure, took what we liked about it and translated that into what we wanted to achieve. But extrapolating that to, for example, the rates market is not a simple ‘copy and paste’ operation.” Eric Böss, Global Head of Trading, Allianz Global Investors

This is precisely the task ahead of us in fixed income because this whole market is still very much a phone and text-driven, bilateral market.

traded electronically, the blueprint doesn’t fit well enough.

Electronic execution and trade supporting tools are moving ahead fast but it is surprising how focussed on bilateral trading the fixed income market still is. We strongly believe in technology and especially in the transparency and scalability benefits of electronic trading. It is certain that going forward, fixed income will be traded on more than one venue and on several platforms so without good technology on the trading floor you will fall behind.

In Europe we already trade 85-90% of our fixed income flow electronically. The plan is to do more than that as a result of all that we have learned in equities. In order to be scalable, we must be technologically savvy – we need to have all the systems we need, but not too many to support. We can already extrapolate some market infrastructure information: questions around best execution and TCA policies, order aggregation and separation which we know from our equity history. But the market infrastructure within fixed income is so different to equities that it requires considerably more thought. One lesson learned in our equities operation following the fall of the exchange monopolies and arrival of competition in the form of alternative execution venues, was the need to re-aggregate the liquidity.

Christoph: Before the introduction of global dealing across our equities business we were happy having our executions done through brokers when we were outside our time zone. We had trusted brokers and gave them instructions on how to execute the trades. It was only after moving the trades into the regions and trading ourselves that we learned that the execution quality (measurable through our TCA tools) improved considerably. This showed us that we can trust our brokers, but when it comes to execution, we


Multi-asset trading and investment management solutions for the world’s financial community.


“We would rather give a fixed income trade to one of our fixed income traders in New York or Hong Kong to get better results than giving it to a broker and asking them to trade it overnight.� would rather have our own traders do it themselves. We would rather give a fixed income trade to one of our fixed income traders in New York or Hong Kong to get better results than giving it to a broker and asking them to trade it overnight. This was one of the main drivers for our decision to go global outside of equities. In addition, MiFID II has put much more emphasis on traders and on the execution for clients. This means that areas which historically we were able to leave to brokers, we now have to monitor much more directly. MiFID II will require buy-side traders to take far more ownership of all parts of the value chain of the execution services than previously. This will require additional resources on the buy-side. Integration of the portfolio managers Christoph: Twenty years ago, portfolio managers were frequently making trades themselves. When centralised trading desks were installed, the portfolio managers were encouraged to leave those trades to our discretion. Trading has come a long way since then, but our main focus, along with best execution is how we better communicate with the portfolio managers. Our aim is that a portfolio manager receives information from the market but also that traders are in a position to advise the portfolio managers on what to make of that information. This process is still evolving but the feedback from our portfolio managers is that it is highly appreciated. Eric: Fixed income traders, almost by definition and by the nature of their asset class, have to be a little


Christoph Mast, Global Head of Equity Trading, Allianz Global Investors bit more embedded into portfolio management compared to equity traders. Looking at fixed income trading in our firm 15 years ago, traders ran portfolios and did execution trading, so the model was much more hybrid. Fixed income portfolio managers now require a different level of expertise from their traders; they need more communication, colour and consultancy so traders have to be more embedded. Christoph: In fixed income we have to appreciate that the asset class as a whole is more complex than equities. Trading US treasuries could be run from virtually anywhere. The requirements of emerging market bond trading, for example, which trade across time zones, include FX in various forms and potentially derivatives are inherently more complex. Then there are areas like credit where knowledge of the market itself is already valid and important for portfolio managers and traders

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in their communication because it is not cross regional. The question is how to slice up that big fixed income execution pie. We are still in the process of finding out what the best execution set-up for certain parts of our businesses is. Client demand Eric: Our traders, if they still want to be a relevant part of the investment process, have to be able to prove their added value. We have always been very keen on monitoring and documenting the quality of our trading, using internal as well as external work and systems. Christoph: When we rolled out full global equity trading in 2004, our global trading policy was expedited. We had to revisit the policy with the advent of MiFID I and now are re-examining it every two years because of ongoing changes to our processes. Our trading policy not only describes our goals but also our processes – we are actually describing the way we want our traders to deal and how we monitor that. Our clients are also stipulating how they want their orders to be monitored and analysed. The same is true for consultants and regulators. In order to stay ahead we must introduce new products and concepts as soon as they are on the market. We were amongst the first to test fixed income TCA from various vendors (and so found out that they were not yet delivering what we require). Eric: We were one of the first firms in Europe to implement electronic RFQ trading for equity derivatives. This was simply because we thought it would make our lives easier and we were able to remove a number of best execution requirements by having RFQ trading instead of the old style mail and phone check systems. The data we can analyse now helps us a lot in improving our broker selection and trade analytics. Currently our fixed income staff are analysing the potential execution platforms coming onto the market in Europe. They are exploring which ones might work and trying to get ahead of the game in terms of technology. Unfortunately, because of the sheer number of new platforms coming to market, their

job has become more difficult and as a result the pre-screening takes more time than a regular trading group can actually afford. At the end of the day, we are traders, not IT project managers. Developing true TCA Christoph: We are currently very much engaged in implementing MiFID II’s proposals. We know the direction it’s headed. The requirements will be refined but they are pretty much fixed from an asset class perspective. As a result, we will re-visit our best execution policy. We have to consider how we want to handle full unbundling and we have to make sure that TCA is operable outside the equity world as well; the need exists but the solution may not be that easy. In the last decade we have been through several providers and various ways of looking at TCA; in fixed income and derivatives, we still need more. If we were to try to find a TCA provider for our whole multi-asset business. No matter what some vendors claim, there is still no one out there who can meet our expectations. This leaves us with the question of how to do TCA until the market has developed sufficient providers to satisfy our own and our clients’ high end needs. This is an area into which we are putting considerable effort. Eric: We need to work on translating or adjusting that to fixed income, derivatives and FX. With FX, once we have more transaction data available, it will be possible to run the same or similar mechanisms used in equities. In fixed income I think the approach will be more holistic and less number crunching. Some parts of derivatives, primarily futures, are close enough to equities in the way they trade, hence we can use the same, proven analytics.Options and swap markets pose more of a challenge. In some asset classes we will have to come up with new ideas on how to define TCA. This is where we will be focussing our efforts over the next six months because it is an important part of improving trading and our client base is already asking for more.



Three Desks, One Region With Joe Rodela, Head of US Equity Trading, Allianz Global Investors

US Trading at Allianz Global Investors operates within a global trading platform – but with a regional approach. We now work out of three locations in the US. Our trading used to be solely San Francisco based but when we merged a number of boutique firms owned by Allianz, we integrated them into our global trading platform. It is still one US trading platform but it now operates out of San Diego, San Francisco and New York City. Most equity-related trading takes place on the San Diego and San Francisco desks. Most derivatives, futures and some emerging market debt trading takes place out of New York, where we have two very highly experienced options/derivatives traders. We used to trade some derivatives out of San Francisco but two years ago transitioned that flow to New York. The reason for having trading activities in the different locations is because we have portfolio management activities there and our experience is that there is added value in having traders operate in the same location as portfolio managers. But I must emphasise that even though we are located in three different places, we really do function as one desk. We all use the same trade blotter so whenever a portfolio manager enters a trade, we can all see it. Similarly, we use the same turret system to our brokers, so if a broker calls the desk, the call comes into the three different locations simultaneously; any one of us can pick it up and service that call for any other trader.

We follow all the same policies and procedures and our commission management and broker voting systems are identical. Our view is that we are ‘one desk, one team’. It just happens that we are sitting in three different locations. In order for it to work, I rotate through our San Diego office once a month, and I go to the New York office every quarter. At least once a quarter our other traders will play musical chairs as well and work from the other locations. In that way we enhance the ‘one desk, one team’ culture. There are often times when I will be sitting on the New York desk but I’ll still be trading for the portfolio management teams in San Francisco, or I could be in San Diego doing the same thing. The way our telephone systems and trade blotters are set up means that it is unlikely that the portfolio manager will actually know which office I’m in. They can reach me just as they would any other time, – regardless of where I am sitting, they will know how to contact me. They will only know where I actually am if they physically try to come and find me. Technology has helped make this transition relatively seamless. In addition, there is an intercom system set up between the desks. We just have to hit a button and we connect between the traders in San Diego or New York instantly, and they can do the same thing back to us. We have carefully examined the risks and rewards of this type of set up. We need to keep



“The way our global trading platform is set up gives us centres of expertise. It works in a similar way for the portfolio manager team regardless from where they operate.” For portfolio managers, analysts, and traders, the process is pretty seamless regardless of where they are sitting. Joe Rodela, Head of US Equity Trading, Allianz Global Investors united as one team given that we are physically in different locations. The technology available to us and the fact that the traders are willing to rotate around the offices means it works well. Another advantage of having three desks is for business continuity and disaster recovery purposes. For example, there could be an emergency in San Francisco which might prevent us from getting into our offices. All we would need to do is put a call through to San Diego or New York in order to have them pick up trading activities for the day. Global positioning The way our global trading platform is set up gives us centres of expertise. It works in a similar way for the portfolio manager team regardless from where they operate. If a US-based portfolio manager wants to enter a trade in Taiwan, they put the order in the system as normal. The only thing that is different is the desk to which they route the order. For example, for Taiwan they would just highlight our Hong Kong desk which takes care of pan-Asian trading. They hit the enter button and the order will appear on our Hong Kong desk; so when the Hong Kong traders come in the next morning, they will see the order on their blotter just as we would see it here and they work it just as they do for the local Asian-based portfolio management teams in Asia.


Strategy If a firm is to set up a global trading platform to trade anywhere in the world there are three ways of approaching it: • The firm could operate out of one location which would mean the desk would require 24-hour cover, so there would be shifts of traders coming in around the clock. • A firm could have one location but base the hours on whichever region the desk is in. So in the US, they would have US hours and when the traders go home, they would simply hand off orders to the brokers who would hand them off to the regions. The traders would need to be on call 24 hours a day in case anything happened with the order that needed attention, regardless of the time of day or night. • The third option is the way we operate: having specialised trading desks in the regions so as to have experts in each market. It allows for the promotion of best practice within each specific region. We adopt the same policies and procedures on a global level, but there are also regional sub-sets of policy for each specific region.


A Fixed Income Perspective With Jutta Schneider, European Head of Fixed Income Trading, Allianz Global Investors

We currently trade 80-90% of our fixed income electronically, so we are ahead of the curve compared to many other involved counterparties. Over the last two years an increasing number of new trading platforms has been introduced to the market to meet the new requirements and provide trading possibilities despite low liquidity. We took this opportunity to continuously test and evaluated those different trading systems in order to stay well informed and ensure best liquidity for our trading. Obviously, we cannot test all of them, as there are over 40 new initiatives by now. Nevertheless we have met with a representative sample (new trading platforms as well as new information systems) which for instance also opened up buy-side to buy-side access in addition to the usual buy-side to sell-side trading we usually do. A mandatory requirement for onboarding a new system is the direct connection to our OMS. This is true even for those systems that allow us to only monitor liquidity as opposed to a trading system. We have witnessed that the markets are becoming increasingly illiquid and sophisticated due to new regulations and capital control measures. This implies that the requirements for trading overall is becoming more complex. In this demanding environment the question whether the buy-side will become a major provider for liquidity arises more and more. As far as I can estimate neither the buy-side desks nor the numerous new trading platforms will become the new major liquidity sources. This will continue to be the task of the sell-side. However establishing new possibilities for the buy-side counterparties to match interest directly on an anonymous platform is opening up new opportunities and increasing transparency. Taking all this into account it remains essential to maintain close relationships with the sell-side for

Jutta Schneider, European Head of Fixed Income Trading, Allianz Global Investors sourcing liquidity and being able to trade efficiently in the market. Another key area for us is the internal relationships between traders and portfolio managers. At Allianz Global Investors we have established an intensive communication and interdepartmental cooperation which has been running a long time now. This means we are not only focused on the pure execution but providing an extended function by supporting the portfolio managers in various ways. We provide feedback on liquidity, present trading ideas and show them relevant axes. Yet we are not only involved in secondary business but also for the setup of new portfolios and new trading instruments. Usually the PMs ask us for our opinion on any planned bond purchase and schedule to carry out the planned set up.



Blocks And The Broker Review By Kent Rossiter, Head of Asia Pacific Trading, Allianz Global Investors

There are risks around everything we do, and every decision our traders take impacts the final results of our executions. We need to understand the signals and act to the best of our abilities. Risk is central to what traders do, day-in, and day-out: we need to look at the benefits of risk instead of fearing it. Too often a trader’s natural instinct is to hedge themselves by dragging trades out through the whole day even when they’ve got strong conviction that they’d be better off taking another course of action. This is the type of behaviour we monitor on the desk and look to change. We have to be open to new technology; some new vendors are very innovative, while others appear to have little differentiation from established products and don’t appear to add any real value.

We work with brokers every day and we’ve known a lot of our counterparts for decades. Over this long time we’ve come to know who’s likely to be the most helpful or knowledgeable about different trading situations and markets. Naturally we want them to be there to help us in the future, so we need to pay the people who can benefit our clients trading activities. Those brokers most successful in matching up IOIs are likely to be the brokers getting our highest votes as well. However, the voting is not just restricted to that one important service. It also rewards them for good trading calls, execution skills, being able to watch our orders carefully, responsiveness to our IB chats, and so on. And so it’s not just focused on blocks but the end-result of the whole execution process.

Broker review For equity TCA we constantly review our brokers on a global basis. We feel it’s important to view our results as best we can against our peers, and our TCA vendor arguably has the largest peer data-set with which to work. Monitoring our executions is an ever-improving process but we are very pleased with our long-term TCA results and peer rankings.

Globally AllianzGI has three main regional voting groups which are the European-based investment teams, the investment teams based in America and the investment teams based in Asia. Each of the different regional team members will vote for the brokers they feel provide the best service. But for example, if the US team votes a certain amount of money to go to one broker, and we don’t end up trading with them in Asia,



“When we sit down with the broker, they know which fund manager or tech team appreciates their service even though we might be paying them through a completely different avenue.”

Kent Rossiter, Head of Asia Pacific Trading, Allianz Global Investors then that broker can be paid by the US and European trading desks. Or if we are getting exceptional service from a particular broker we may trade a lot with them here in Asia, in which case the US and Europe may trade with them far less. Another situation is where the PM might be voting for that broker because they like the US consumer research analyst, but from a trading standpoint, we find that broker to be excellent in Korea, Taiwan and Japan tech names so instead trade a lot with them out here in Asia to pay them. And there are situations where some brokers just are poor at executions or technology everywhere and we don’t feel comfortable paying them through trading activities. In this case we have Commission Sharing Agreements (CSA’s) in place and can pay them from that pool. As a consequence it is very important that we sit down with the brokers and be transparent as to where


they’re getting the votes from. Every half year, our main brokers come in and we all sit down and go over with them who from our regions are voting for them. When we sit down with the broker, they know which fund manager or tech team appreciates their service even though we might be paying them through a completely different avenue. In that way, the people who are actually providing the service on the research side get rewarded and at the same time, the brokers can clearly see that we trade with them a lot in a given area, and because of that, the broker can assume that they have a good franchise servicing that need. Generally as an outcome of the vote we have 75 or 80 different brokers or research outfits tagged. The latter research outfits don’t have execution capabilities so we end up trading with one of our top brokers who we have the aforementioned CSA program set up with. And then every half year we’ll figure out how much from the CSA program we need to pay these external research providers and organize the payments so they still get rewarded. Blocks Actual market liquidity in a stock we want to buy or sell doesn’t necessarily exist when we need to be doing that buying or selling. When orders are of block size it often doesn’t make sense to test the waters getting small executions because we might not make much progress before we find ourselves pushing the stock price. By putting out some feelers in the right places we often get a look at contra-liquidity before an order goes into the market. Patience doesn’t always pan out


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however. Finding and trading blocks is therefore often a timing decision, with a bit of good luck thrown in. It is not worth immediately going to the market just because we happen to get the order at 10:08am. If the liquidity is not there, we might want to wait and be a bit more patient to try to line up blocks by talking with our contacts or using the technology which is out there.

“By putting out some feelers in the right places we often get a look at contra-liquidity before an order goes into the market. Patience doesn’t always pan out however. Finding and trading blocks is therefore often a timing decision, with a bit of good luck thrown in.” We’re able to do the searching ourselves but the fact is we still find most of the flow through our large panel of brokers. Without the information from these brokers, we would have far fewer matches and fewer trading opportunities. Many crossing platforms are very innovative and they’re moving in the right direction. Often we’ll see five IOIs in a name from brokers so we decide whether we want to negotiate with the broker or try our luck in the anonymous electronic matching systems.

get to execute size that wouldn’t have ever been there in the market if it weren’t for that initial call. And sometimes a broker comes to us. They know that we’re a big holder, either because we’ve traded the stock with them before in size, or they can see us as a significant shareholder on the Bloomberg HDS page or another reporting system. The broker will come and tell us that they have a chunky size in case we’re interested. Even though I might not have an order on my desk, it provides the perfect opportunity to go to the PM and see if they want to take advantage of the unexpected liquidity. The great thing about doing this is that there was only one side of the trade to start with. The other side didn’t exist and yet because we work with the broker and PM together, we are able to create something. Accomplishing this requires communication with our PM’s, and skill and trust between the brokers and the buy-side, something that won’t likely be automated anytime soon. DISCLAIMER § The views and opinions expressed in this document, which are subject to change without notice, are those of Allianz Global Investors Asia Pacific Limited and/ or its affiliated companies at the time of publication. § Some of the information contained herein including any expression of opinion or forecast has been obtained from or is based on sources believed by us to be reliable, but is not guaranteed and we do not warrant nor do we accept liability as to adequacy, accuracy, reliability or completeness of such information obtained from or based on external sources. § The information contained herein including any expression of opinion is for information purposes only without consideration given to specific investment objectives, financial status or particular needs of any person, and is given on the understanding that it is not a recommendation nor investment advice and any person who acts upon it or otherwise changes his or her position in reliance thereon does so entirely at his or her own risk without liability on our part. § This is not a recommendation or offer to buy or sell or a solicitation or incitement of offer to buy or sell any particular security, strategy, investment product or services. Issuer of this material: Allianz Global Investors Asia Pacific Limited.

One of the most satisfying results, which only happens rarely, is trying to match up flow and let PM’s know of outsized block flow we may see on the Street, even when we don’t have live orders. When our PM’s hear about such opportunities they can be quite responsive and generate an order on the back of it. That’s a win-win for both sides; we each



The Changing Role Of Regulators With Philippe Guillot, Executive Director, Markets Directorate, Autorité des marchés financiers

The entire regulatory process incorporating how the regulators enact incoming rules, and how we interact with the industry is changing. MiFID I was voted on in 2004 and implemented in 2007, then there was the financial crisis of 2008 which led to further talks resulting in MiFID II, which was voted on in 2014 and is due for implementation in either 2017 or 2018. From these timescales it is clear that ‘legislator time’ is completely different from ‘market time’. The legislator makes regulatory changes every ten years or so whereas markets move every microsecond. Between the two, there is a need for constant vigilance in the function of markets. This has created a new role for the regulators, which we call ‘dynamic regulation’. Even a few years ago, this extension was not really possible because regulators were only enforcers. The evolution has come about due to the increased electronification of the industry, linked to the fact that there is now more data available, an increased capacity to store that data and new methods of comparing data. This is the big ‘data evolution’ experienced by every industry, but in particular the financial services industry. The amount and quality of information available over the last 20 years has completely changed the processes undertaken by proprietary traders, execution brokers and financial analysts. That same information is also


used by asset managers who themselves have a variety of new strategies which changes the trading and regulatory environment. Today’s market microstructure is different from tomorrow’s market microstructure and from yesterday’s. Into that mix, we need to be able to adjust the regulation accordingly. Regulation exists in order to define a floor and a ceiling on what firms can do, must do, and could do. We look at a firm’s actions from every aspect and we see that, in the context of regulation, they can either be doing too much or too little, and what we want is a regulatory environment where everybody can work and trade together in a balanced ecosystem. Added to that, a dynamic regulator has to base its judgements on the data it receives, which largely comes from within the industry itself. As we base our judgements on that data, it is in everyone’s interest to ensure that the data is comprehensive, clean and understandable. We have to look at every link of the data chain because everyone who is producing, cleaning and using that data has to share responsibility for its quality. This puts us all into an environment where we have been benefitting each time there was a new layer of regulation. We all gained from MiFID I because we started to receive data from MiFID I that we were not


“We have to be able to listen to what the industry has to say, but equally be detached enough in order to properly enforce the regulation.” Philippe Guillot, Executive Director, Markets Directorate, Autorité des marchés financiers getting before. EMIR regulation into derivatives resulted in our receiving new data on derivatives that had not been available before. And we expect that we will benefit from MiFID II in the same way because there will be new data available as a result. It’s an ongoing process of learning and adjusting which must be done by each link in the chain. This means we need to collaborate as an industry to ensure that the decisions we make have been empowered by the sets of regulations and are based on proper data. It’s critical that the data received is reliable as this allows us to help prevent problems in the industry rather than merely enforce the rules. Prevention only works through collaboration. For instance, the simple fact that firms need to report new areas, such as derivative positions, puts the industry into a virtuous circle. Companies have come to us saying that new regulatory obligations had forced them to look at what was happening inside their own services, making them aware of operating inefficiencies and areas where unnecessary risks were being taken. Role of global regulation All markets are interconnected and activity in one market will impact on everything else. Regulation is not homogenous, there is local regulation, but it could be national or continental. However, in order for regulation to be efficient there needs to be a global approach. The role of organisations like the International Organization of Securities Commissions (IOSCO) is critical because they are the best link between all the various agencies irrespective of their location.

IOSCO produces a broad set of principles, but if all regulations are taken locally and adhere to IOSCO principles then there will be regulatory convergence. Obviously because IOSCO is global, it cannot go into as much detail as local regulations. However, if we refer back to the earlier point about regulation defining a floor and a ceiling, then IOSCO can describe both of these very easily and from that we can build different layers at a national or international level. Limit to collaboration It is important that we remain close to the industry as when new regulations are implemented, we need to hear what the industry is saying in response to those new regulations. We have to be able to listen to what the industry has to say, but equally be detached enough in order to properly enforce the regulation. During that listening process, it is good to remember (from the regulator’s standpoint) that the industry may have a vested interest in what it is saying, which is why it is important for the regulator to listen to everybody in the industry so as to distinguish what is vested interest and what is genuine concern. The industry can help here too, as the more objective they are, the easier it is to have a constructive dialogue. We cannot say that we must not talk to the industry because that doesn’t help produce proper regulation. But at the same time we cannot say we will do whatever the industry wants because that leads to other problems. We have to meet somewhere in the middle. There has to be a balanced approach.



The Evolution Of The Regulator’s Role With Victoria Pinnington, Senior Vice-President, Market Regulation & Policy, Investment Industry Regulatory Organization of Canada (IIROC) Capital markets have undergone significant and unprecedented change in recent years. As a result, regulators and market participants alike have been grappling with challenges and opportunities associated with a proliferation of new products and players, segmentation and fragmentation of markets and the sheer speed of trading across all asset classes. This pace of change in our markets has made it imperative that IIROC, as the national self-regulator responsible for the oversight of all investment dealers and their trading activity in Canadian debt and equity securities, continues to evolve in its role and keep pace to ensure surveillance of the markets remains current and effective. Analysis and consultation IIROC plays a unique and central role in the Canadian regulatory framework based on our mandate to conduct surveillance of all Canadian equity markets, including exchanges and Alternative Trading Systems, both lit or dark, and all Canadian debt trading. We continually invest in and leverage technology to effectively monitor this fast-paced and quickly changing environment. An important way to keep current about the markets we regulate is to study the regulatory data we receive to understand markets’ changing dynamics, emerging


trends, participants and their activity. 水 Another important way is encouraging discussion with the industry which gives us the opportunity to step back and examine the wider question of how our markets are evolving and consider the views and needs of diverse stakeholders. An example is IIROC’s approach to addressing issues related to the growth of High Frequency Trading (HFT). IIROC commissioned and published five academic papers on HFT and its effect on Canadian markets, examining: • High frequency market making to large institutional trades • Role of HFT in market integration/market fragmentation • HFT within the context of both the impact of change to short selling rules and dark trading rules introduced in 2012 • Liquidity provision and market making by HFT To gain industry insights on our comprehensive study, IIROC co-hosted a public forum at which the academics discussed their findings and engaged in a robust dialogue with interested stakeholders. While the results showed that there were no concerns that warranted regulatory action at this time beyond measures already implemented by IIROC, (the implementation of the Electronic Trading Rules,


“The more effective our partnership and coordination, the better we can carry out our shared responsibilities to protect markets and protect investors.” requirements for third-party electronic access to marketplaces and guidance on manipulative and deceptive practices), it demonstrates the importance of IIROC taking a data-driven and consultative approach. Recognising the value of the data to a broader constituency, we are working to implement a data sharing strategy, so that data gathered and maintained as a public good is shared, with appropriate controls, with regulators and other industry stakeholders. The importance of regulatory partnership Another element to managing the challenges is collaborating with our regulatory partners. The more effective our partnership and coordination, the better we can carry out our shared responsibilities to protect markets and protect investors. An example of this is our recent work with the Bank of Canada and the Canadian Securities Administrators (CSA) to improve the timeliness and comprehensiveness of regulatory oversight of Canada’s debt markets. Trading in debt now dwarfs trading in equity, but although greatly important to Canada’s economic growth and financial stability, the debt market has been relatively opaque to regulators and investors. We and our partners at the Bank of Canada and the CSA recognised that robust regulatory supervision and oversight of the debt markets are critical to enhancing market integrity and investor confidence. Last November, we began collecting information on all the debt security trades done by the dealers we regulate. As a result, IIROC is better positioned to monitor and enforce compliance with investor protection and market

Victoria Pinnington, Senior Vice-President, Market Regulation & Policy, Investment Industry Regulatory Organization of Canada (IIROC) integrity rules in a cost-effective way, consistent with the equity market surveillance we already conduct across Canada. The CSA is also working with IIROC to enhance dark market oversight and provide greater transparency to this growing and significant asset class. Under the CSA proposal currently out for comment, IIROC will become the transparency agent or “information processor” for the Canadian corporate debt market. In this role, IIROC will publicly disseminate trade information providing transparency that will facilitate more informed decision-making by all market participants. Conclusion The knowledge gained through our investments in IIROC’s surveillance, oversight and analytical work is especially important at a time when the environment is increasingly challenging securities regulators, the investment industry and all market participants. Going forward, we’ll continue to use and share valuable data, count on insights from our stakeholders and collaborate with our regulatory partners as we manage the challenges and explore the opportunities that come with an evolving market structure.



Cross Border Regulation Edited excerpts from a speech by Ashley Alder Chief Executive Officer, SFC Cross-border regulation IOSCO has been considering how it can address these issues at a global level. First, the basic problem is fairly straightforward. This is that the application of local rules to cross-border financial business which affects national interests can lead to conflicts where one internationally active firm is subject to different conflicting rules. This can ‘Balkanise’ markets and lead to a broader drag on cost-effective financing for growth. And of course the most discussed example is derivatives, where talks are still eating up a large amount of time in the EU, the US and elsewhere. Now the G20 in its 2013 Moscow and St Petersburg communiques introduced a new idea called “deference”. This was meant to solve cross-border conflicts in the derivatives world. This formula was repeated in April of this year in another G20 communique from Washington. The idea is basically a reference to substituted compliance or EU style recognition. But in reality the G20 formula begs a lot of tricky questions. It provides that jurisdictions can defer to another “when justified by the quality of respective regulations and enforcement regimes”, but only if these lead to “essentially identical outcomes” and so long as the rules are “non-discriminatory”. It also says that we all must also have “due respect to home country regulation”. This is asking a lot. And these questions are largely the same as those which IOSCO’s Task Force on Cross-Border Regulation wrestled with for over two years. Now the end result of our Task Force’s work is


that we have a very detailed toolkit for regulators to refer to when looking at cross-border financial activity and the specific factors to take into account when using it. And we also decided to hardwire cross-border considerations such as timing mismatches into all of IOSCO’s standard-setting work. But the Task Force also concluded that “IOSCO should engage more with the G20 and FSB to raise greater awareness of the key issues and challenges faced by IOSCO members on cross-border regulation, including the need for more refined thinking on the concept of deference”. Now what are these issues and challenges? First, we need to understand that national securities regulators are firmly bound by their domestic laws, national interests and national policy objectives when acting on a cross-border basis. Second, the real authority of international standard setters such as IOSCO is inevitably weak because it isn’t based on binding treaty obligations, and as a result, global standards do not trump local law. In fact, global standards are rarely even referred to directly in securities legislation. And if they aren’t, it’s hard for national regulators to take them into account if local law already deals with an issue. Third, peer pressure to apply international standards on a uniform basis can be effective, but this is far harder in securities markets compared to other regulatory


Ashley Alder, Chief Executive Officer, SFC regimes as there is far more diversity and complexity of firms, investors, products, infrastructure and exchange platforms. Fourth, regulators sometimes act protectively if they think that recognition of a foreign regime could cause domestic business to move overseas. In other words, even if differences in rules don’t increase systemic risk or compromise investor protection, if they still imply a difference in the cost of doing business, regulators will react in their national interests. Fifth, recognition or deference becomes harder when the countries involved are at different stages of development, as is the case in Asia. And finally, there is often a basic reluctance to outsource regulation when a failure could end up with blame heaped at the door of the domestic regulator. So we are a long way from the ambition expressed by global firms that any proposed markets regulation that could have a significant cross-border effect must first be decided on as an international standard, before being transplanted uniformly into local law. However, there is light at the end of the tunnel. Our IOSCO report recognises that in reality, regulators have put in an enormous effort trying to overcome hurdles where it matters, normally through bilateral negotiations of different types of recognition or deference agreements supported by MOUs. We have seen how the CFTC and the Securities and Exchange Commission have both progressed their approach to recognition through

“......we are a long way from the ambition expressed by global firms that any proposed markets regulation that could have a significant cross-border effect must first be decided on as an international standard,......” substituted compliance – a big change when compared to the hard line taken a while ago. And it seems that international standards are referred to as a measure of equivalence in new EU legislation about benchmarks. And occasionally, discussions have been multilateral, a good example being an ad hoc group of regulators from major markets that meet to discuss derivatives – called the OTC Derivatives Regulators Group (ODRG). Our IOSCO Task Force therefore concluded that the general direction of travel is fairly clear. “The emphasis is towards more engagement via recognition to solve cross-border overlaps, gaps and inconsistencies through a combination of more granular international standards implemented at a jurisdictional level, and an increasing emphasis on determining when it may be appropriate to recognise foreign laws and regulations as a sufficient substitute or equivalent for domestic laws and regulations”. To conclude, we are still dealing with the fact that participants in global markets are regulated by national regulators, and perfect harmonisation and total convergence of regulatory standards are unlikely. And a global rulebook is an unattainable ideal. But the outlook is far brighter than a few months ago, and I am hopeful that further progress will be made as we start to deal with Europe on the international reach of its benchmark legislation.



The FIX Protocol in a Blockchain World

Ron Quaranta, Chairman of the Wall Street Blockchain Alliance, and Co-Chair of the FIX Trading Community’s Digital Currency/Blockchain Working Group.

For those of us in financial services who have been involved in the world of digital currencies and distributed ledgers (also known as a blockchain), 2015 was the year that this innovative technology finally appeared on the radar of every major bank, brokerdealer, exchange and institutional investor. On a global scale, entire teams within these organisations have been created to research and analyse how blockchain technology might integrate with existing financial markets workflows. Innovation labs have been set up to spearhead the development of this disruptive capability, and hardly a day had gone by that we did not read an article in business and trade publications touting distributed ledger technology and the coming disruption to financial markets. As we enter 2016, we

will likely begin to see the implementation of many of these solutions on a wider scale. Thus, the purpose of this article is to briefly define what a blockchain is, discuss its history to date, and understand how the FIX Protocol may play an integral part in blockchain technology use in global financial markets. What is the Blockchain? The Blockchain is essentially the underlying technology associated with the digital crypto currency known as Bitcoin. As many readers already know, Bitcoin was launched as open-source software in early 2009, by the still anonymous Satoshi Nakamoto, based upon Nakamoto’s published 2008 whitepaper “Bitcoin: A Peer-to-Peer Electronic Cash System”. The system is



Ron Quaranta, Chairman of the Wall Street Blockchain Alliance, and CoChair of the FIX Trading Community’s Digital Currency/ Blockchain Working Group designed as a peer-to-peer online payments system, allowing participants to transact directly without needing an intermediary, with transactions verified by nodes on the Bitcoin network. Without diving too deeply into the more technical aspects of its operation, all transactions in the network are cryptographically recorded in a sequential chain of blocks (hence, “blockchain”), and each transaction references the block before it, thereby making illicit changes to the data extremely difficult. All nodes on the network hold a full copy of this public distributed ledger. Within this ecosystem, the blockchain unit of account is bitcoin itself. So with no central repository and no single administrator, all nodes on the network are incentivised to verify transactions, with their reward being the “mining” or creation of new bitcoin. Bitcoin is the oldest and most widespread of the digital currencies, with a global market capitalisation of over USD6 billion as of late December 2015. However, it is not the only game in town. As of the time of this writing, there were over 650 publicly known digital currencies, many with little value, but most leveraging some form of blockchain technology.


“• Blockchains are meant to be data stores for sequential or chronologically ordered data. • Blockchains are designed to be immutable, or tamper resistant. The ability to rewrite or alter data would be so costly across a wide enough network as to be prohibitively expensive.” So why is this important? Why is the concept of a blockchain relevant to financial services? To answer these questions, it is helpful to put the main characteristics of blockchain technology in focus: • Blockchains are meant to be data stores for sequential or chronologically ordered data. • Blockchains are designed to be immutable, or tamper resistant. The ability to rewrite or alter data would be so costly across a wide enough network as to be prohibitively expensive. • Cryptography and its associated digital signatures, prove identity of, and enforce access by, participants within the network. This also prevents the problem of “double-spending”. • Public blockchains are designed to be transparent and anonymous. The Public versus Private debate At this point, it is important to touch on a topic of significant industry debate, namely the growing discussion about public versus private blockchains. The Bitcoin Blockchain is an example of a public, fully decentralised, permission-less data store that is open


to anyone wishing to participate in the network, and willing to adhere to the consensus mechanisms that enable its functionality. In addition to Bitcoin, Ethereum and Factom are well known examples of public blockchains. A private blockchain is often designed to utilise the most interesting aspects of blockchain technology, while maintaining the closed network aspects of many data systems in financial markets. As opposed to the decentralised model, the owner or administrator of a private blockchain maintains the authority to implement changes and define membership in that blockchain. As we give thought to the many functions within the world of financial services, we start to envision how this capability might make workflows and data processing more efficient and cost effective. For example, how economically beneficial would it be for multiple banks to be leveraging a common, shared data store for a relevant business line? In a world where global financial organisations have literally hundreds of different databases, and every one of these firms has some form of “reconciliation” department, one can imagine the cost savings and growing transactional volume in a world of more efficient data processing. Currently, several firms are working on blockchain based solutions that would re-invent specific segments of financial markets processing, including syndicated loans, securities clearing and settlement and international trade finance. None of the above as yet addresses the concerns that are being encountered within the industry about blockchain technology. How do competing firms leverage this technology while still protecting their own and their client’s data? How will regulators view industry participation? Can transparency make the burden of compliance easier? Are private blockchains simply different databases, and how can the full benefits of a distributed ledger be realised if participation is centralised? These and many other questions are already under serious consideration in the industry, and the landscape will invariably continue to develop over the coming year.

Trading Community are working to define not only integration points, but also potential use cases and best practices for a future blockchain world. In 2015, FIX formed the Digital Currency/Blockchain Working Group, with the mission to “…identify, analyse and define use cases and integration points for digital currency and distributed ledger technologies across the spectrum of capital markets requirements, and recommend best practices for FIX implementation and usage of this emerging technology in financial markets”. The group has a broad membership, with participants from banks, broker dealers, blockchain start ups and more, and all with a wealth of industry experience. Within this group, members have embarked on a series of activities, including: • Educational seminars for Working Group members, to deepen our group understanding of blockchain technology and its implications. • Preliminary review and recommendations of FIX implementation for digital currency trading (with much of the FIX Protocol already quite useful for digital currency trading in the context of FX). • Initiated review of FIX and wider industry standards of digital currency and digital asset identifiers, as well as global marketplace identifiers. • Structured an initial review of securities clearing and settlement via blockchain, with a goal towards understanding impact to FIX related messages. • Created framework for FIX integration in broader distributed ledger initiatives, including smart contracts and alternative digital assets. • Initiated discussion about alternative FIX uses i.e. – embedding FIX messages within a data block, etc. Conclusion This article is meant to be a very basic introduction to the world of blockchain and FIX, and merely scratches the surface of this growing field and its implications for financial markets and beyond. In future articles, we will address specific use cases and well as dive into the capability at a technical and product level. FIX Members are also encouraged to join the dialogue by participating in the Community’s Digital Currency/ Blockchain Working Group.

What is the role of FIX in all of this? Up to this point, we have not really addressed the role of the FIX Protocol in the world of blockchain technology. The reason is simple. Given the dynamic state of this technology and its evolution over the past few years, the financial markets and members of FIX


Itiviti. A new force. Technology solutions and services for a sustainable competitive edge in capital markets. Visit


Trading Small Caps: Communication Is Key With Daphne Chang, Dealer, Acorn Capital

While liquidity is important for all traders, it is crucial for small cap traders. Portfolio managers regularly demand positions of at least 5% of a company’s holdings, so finding and executing block trades is always the priority. Clear communications and close coordination with our PMs is critical to understanding stock valuations and how target weights for the fund are to be established. To have efficient communication, we have regular research meetings with our portfolio managers and analysts to discuss about our portfolio. Apart from the research meetings, we have developed our internal research system for the portfolio managers to upload their research reports or notes at anywhere and anytime. Once their reports or notes are uploaded in the system, the trading desk will receive the notification emails and can quickly pick up the revaluation from the PMs in order to take proper action in the market. In this space, the trading desk’s activities cannot simply be limited to mechanically executing trades. We need to be up to speed in all aspects of the market, whether


monitoring the actions and movements of brokers, IOI, turnover changes, and changes in substantial holders. Armed with this knowledge, our desk has far better opportunities to secure blocks at preferred prices at the right time. Managing relationships Developing sound relationships with local brokers is important, particularly those who specialise in small caps. Well maintained broker relationships keep the trading desk abreast of underlying trading activity, potential placements and other corporate opportunities. We give high rankings for the brokers who can provide good small cap flow, deep knowledge about the small cap market, and good effort on delivering the block trades. In situations where there is high liquidity, our adoption of algo trading strategies has helped us optimize our execution of trades enabling a lower profile in executing larger positions which might create undesired uncertainty in the market. Empowering dealers to act independently is


important in the small cap space because market conditions often require nimble and effective responses. Naturally, PM’s will make the buy-sell decision but how the order is executed must be the province of the trading desk. This is where traders must be au fait with how PM’s have arrived at their valuations and the underlying investment case with catalyst expectations. These provide the desk with guidance for an acceptable price when seeking liquidity. In addition, our dealers can see each

“Traders who have relied mainly on technology for executing their trades may find adjusting to the small cap space challenging initially......” other’s trades at our own trading screen and are all aware of the valuation/target weights of each single trade. By sharing all the information together and working as a team, the trading desk can maximise the performance. By the same token, the communication must go both ways with the PM. For example, unusual price movements and flows must be fed back to the PMs regardless of their buy-sell decision or the progress of the execution. Technology Technology can often have a limited application in small cap dealing. Transaction cost analysis can be of limited use in providing information to analyse trades. The methodology for valuing a trader’s performance is generally not a matter of whether the trader can secure a block above the VWAP price or below the VWAP with 60 days to complete the target position, for example. Performance is generally a function of how efficiently the trader can execute the PM’s decision and achieve the desired portfolio position.

Daphne Chang, Dealer, Acorn Capital What sets us apart, I believe, is the strength of our Portfolio Managers in research and analysis. The fact is, market research for small cap stocks is often very limited and the brokers covering these companies can be very thin on the ground. There are often no research reports from external sources available, which means the quality of our own research needs to be world class. So, the performance of a trader is directly related to the performance of the PMs and the quality of their communications. In this way, our trading desk’s knowledge has been bolstered by regular research meetings where we discuss all manner of topics ranging from broker movements to market flows. Traders who have relied mainly on technology for executing their trades may find adjusting to the small cap space challenging initially if lacking the fundamental experience and knowledge derived from such close relationships.

Adopting our algo strategy has allowed us to better exploit liquid conditions, but traditional knowledge and relationships are still far and away the most important resources for traders in small caps.



Measuring The Impact Of Mutual Funds On Bonds Shane Worner, Senior Economist, IOSCO examines the impact of asset management flows on bond market liquidity.

In the wake of the crisis of 2008, many economies implemented accommodative monetary policies to help alleviate some of the worst effects of the fallout. These accommodative monetary policies have increased the liquidity of primary market corporate bond issuances, driving down interest rates and ultimately lowering the cost of borrowing associated with corporate bonds. Figure 1. Corporate bond issuance - High Yield vs. Investment Grade

Source: Dealogic, figures 2015 estimate IOSCO RD

However, with the US Federal Reserve signalling the normalisation of interest rates, there is continuing concern that the secondary market liquidity has failed to keep up with primary market liquidity and is prone to evaporation. Also in doubt is whether the changing structure of the secondary market will stand up in a stressed scenario. Given their importance to corporate bond markets, the driving factors behind these concerns deserve a closer look. Secondary bond market measures There are a number of traditional measures of secondary market liquidity including: trading volume; bond turnover ratio; dealer inventories of corporate bonds; the bid-ask spread and price impact; and data on trade size. However, many are telling an inconsistent story. Trading volumes in secondary markets have been increasing (see Figure 2), while the bond turnover ratio (BTR), on the face of it, shows secondary market


“However, with the US Federal Reserve signalling the normalisation of interest rates, there is continuing concern that the secondary market liquidity has failed to keep up with primary market liquidity and is prone to evaporation.” liquidity declining (See Figure 3). However, the BTR is biased by a skewed denominator effect. The BTR captures secondary market turnover as a proportion of primary issuances. With record primary issuances, the data highlights that in fact it’s not a question of “less secondary market activity”, but rather of higher primary issuances that have outpaced trading. Figure 2. Trading volume of corporate bonds on US secondary markets

Source: TRACE data from MarketAxess.


Figure 3. Annual bond turnover (12-month rolling turnover)

Economic theory would dictate that any unusual developments in secondary market liquidity should flow through to the price of executing a transaction. The bidask spread is such a measure, but Figure 6 shows the bid-ask spread has in fact decreased since 2008. Figure 6. Bid-Ask Spreads

Source: MarketAxess

Additionally, the decline since 2008 in dealer bank bond inventories has been citied as another indication that secondary market liquidity and the functioning of corporate bond markets have declined. Figures 4 and 5 highlight large declines in net positions since 2008. However, it is not clear from this data what proportion were corporate bond holdings. In an IOSCO research department report, Corporate Bonds: A Global Perspective, 1 the authors also noted that the data on net positions pre-2013 include other types of corporate credit, such as asset and mortgage backed securities, whose issuance declined rapidly after the onset of the crisis and as new regulations were introduced. This trend mirrored a similar decline in dealer net positions. Figure 4. Dealer credit net positions – US

Source: Federal Reserve Bank of New York

Figure 5. US Primary Dealer Net Positions of Investment Grade Corporate bonds, notes, and debentures post-January 2015

Source: Federal Reserve Bank of New York 1

Source: Data from MarketAxess; Chart from the Investment Company Institute

The age of asset management Against this backdrop, assets under management in the funds industry have grown since the crisis of 2008. Although growth has broadly been across all fund assets classes, in an environment of low interest rates and yield search, many illiquid asset classes, such as emerging market debt and high yield bond funds, have seen increases in assets under management, while offering daily redemption facilities. Consequently,

“Although growth has broadly been across all fund assets classes, in an environment of low interest rates and yield search, many illiquid asset classes, such as emerging market debt and high yield bond funds, have seen increases in assets under management, while offering daily redemption facilities.”

R. Tendulkar and G. Hancock, “Corporate Bond Markets: A Global Perspective,” IOSCO Research Department Staff Working Paper, 2014.



concerns relating to potential systemic risks associated with the activities of asset managers in less liquid asset classes have been at the fore of financial stability discussions in recent years.2 Figure 7. Global Total AuM (LHS) and growth rates of AuM (RHS) broken down by region


The concern primarily centres on how the activities of funds will interact with potentially less liquid bond markets. In an environment of rising interest rates, bonds fund performance would suffer, due to capital losses. In response, and perceiving some so-called “first mover advantage”, unit holders will try to redeem, en masse, potentially forcing funds to liquidate their holdings in illiquid markets, amplifying price falls and thereby creating a price decline spiral. This is just one of many other plausible scenarios. Data indicates, though, that bond mutual funds generally experience greater net inflows than outflows and, as the ICI has pointed out, redemptions tend to be quite sticky, especially for retail investors. Additionally, it is important to consider several other factors. First, asset management is just one actor within the corporate bond market space. Based on Figures 8 and 9, bond funds make up a small proportion of global market bonds sales. Second, the investor composition of the market is an important consideration. We would be less concerned with an

investor composition that has a buy to hold strategy than one focused on trading.3 Figure 8. Global Total AuM (LHS) and growth rates of AuM (RHS) broken down by region

Source: IIFA; Dealogic; analysis by IOSCO Research

Figure 9. High yield bond funds’ share of high-yield trading volume; monthly, July 2014–September 2015

Source: Investment Company Institute and FINRA TRACE Note: Data exclude high-yield funds designated as floating rate funds. Aggregate data for high-yield transactions, including 144a transactions, are only publicly available starting in July 2014.

In an attempt to tackle this issue, the US Securities and Exchange Commission’s Division of Economic and Risk Analysis published a staff paper, which examined the US mutual fund industry with particular attention to fund flows, the liquidity of fund portfolios, and the interaction of those characteristics. The SEC staff noted that mutual funds in investment categories that


For example, please see the following: OFR, Asset Management and Financial Stability, 2013; IMF, Global Financial stability report, April 2015; and IOSCO and FSB consultations on NBNI G-SIFIs. ( and http://www.iosco. org/library/pubdocs/pdf/IOSCOPD435.pdf ); comment letter from SEC Commissioner Gallagher ( ); and Speech by Andrew Haldane (


Blackrock reported that both onshore and offshore institutional investors directly held around 60 percent of U.S. high-yield debt, whereas mutual funds held only 28 percent. Blackrock, Viewpoint: Who owns the assets? A closer look at bank loans, high yield bonds and emerging debt, 2014.



Shane Worner, Senior Economist, IOSCO hold potentially less liquid assets are growing quickly and often have volatile flows. Alternative strategies have both the highest average net flow and the highest average net flow volatility of any investment category. Among many other empirical results, the analysis showed that the liquidity of the equity portfolio of US equity funds is greater when flow volatility is greater and that the liquidity of those same portfolios decreases after large outflows. While the SEC staff analysis of the US fund industry provides significant insight into recent experience with equity portfolios, gaps in our understanding regarding vulnerabilities associated with asset managers remain. Conclusion On one side of the coin, corporate bonds remain a popular vehicle for corporations to finance themselves. On the other side, those same corporate bonds remain quite attractive to end-investors, including mutual funds, but concerns about how the two could interact in stressed times remain. It is important to take a holistic approach to the markets, and consider all actors and the substantial changes in the market environment caused by unprecedented monetary policy, a significant wave of reforms, and heightened innovation.

“On one side of the coin, corporate bonds remain a popular vehicle for corporations to finance themselves. On the other side, those same corporate bonds remain quite attractive to end-investors, including mutual funds, but concerns about how the two could interact in stressed times remain.” on the role of funds´ interaction in this market. Many significant options exist in the asset management industry (such as internal liquidity management practices including stress testing) and regulatory policy tools that aid fund managers in meeting this liquidity mismatch and redemptions. Data also show that mutual funds generally experience greater net inflows than outflows and, in aggregate, enjoy a stable investor base. Additionally, funds’ investments in portfolio assets do not currently represent a large portion of the market for these assets as a whole. IOSCO is continuing to work on a number of these issues, alongside other standard setters, namely the Basel Committee for Banking Supervision (BCBS), the Committee for Payment and Market Infrastructures (CPMI) and the International Association of Insurance Supervisors (IAIS). Furthermore, IOSCO is contributing to the work of the Financial Stability Board (FSB), as well as doing work directly for the G20 Leaders, to address these emerging issues.

Significant data gaps exist, leaving important questions unanswered. As highlighted above, the debate around a lack of secondary market liquidity in corporate bond markets is by no means finalised. Nor is the debate



Analysing The Cost Of FX Trades With Daniel Chambers, Head of Trading, Sequoia Capital Fund Management

Sequoia Capital Fund Management (SCFM) is an alternative investment management company specialising in investing via quantitative strategies and returned 13% in 2015 net of fees. Since going live in June 2011, SCFM has managed to provide an average monthly net return of 0.71%. The decision to execute entirely through electronic trading was a natural one to make as it is in keeping with SCFM’s ethos of implementing technology to increase productivity. SCFM has always traded electronically, with varying degrees of sophistication. Two of the main drivers for this decision were the reduced risk of errors during execution and increased efficiency. SCFM executes all orders in the market electronically throughout the European liquid trading hours. Although FX is a 24-hour market, liquidity is not equally distributed throughout. A look at the daily profile of spreads in the vast majority of pairs highlights how much more one can expect to pay to execute overnight relative to in the middle of the European trading


day. This is certainly a consideration that needs to be made with volume constraints measured against a trading day that is not 24 hours long. Execution Process Trades are executed by sending orders via FIX to an aggregator and receiving the information for each clip also via FIX. The trades are sent to the prime broker and matched immediately. As well as matching with the PB, the trades are also matched against the initial ticket to ensure execution took place as expected. All of the processes are automated. Once the trades have been matched, it is possible to view information related to the trading session such as execution costs and share of flow per liquidity provider. This systematic, straight through process is essential when executing multiple times per day in a large number of crosses. The FIX protocol makes the whole process easier and enables us to execute in this fashion and to retrieve all relevant information for analysis conveniently. The orders are placed in the market with the intention of creating as little

Aug/ Sept


“An enormous amount of work has been carried out to quantify, analyse and understand the various components of our execution costs and how they might be reduced.” market impact as possible. A conscious decision was made to execute only with banks, and specifically the large institutions, as opposed to ECNs and other third-party vendors. This provides a level of anonymity when executing. There are undoubtedly other participants with whom we could trade on an ECN, but a direct relationship with the LPs supports communication and assists in reducing market impact. In our opinion, executing with enough liquidity providers directly enables the client to receive the best of both worlds; greater anonymity and diverse flow with extremely tight spreads and great depth. Improving the steps needed for execution is an ongoing process to ensure all measures are being taken to ensure the most secure and efficient methods are being implemented. The back office/operations systems were prototyped by people with relevant business knowledge. This facilitated us being able to create something effective in a short period of time. Cost Analysis A significant amount of work has been carried out to quantify, analyse and understand the various components of our execution costs and how they might be reduced. Costs are measured against various benchmarks, including arrival and risk transfer price. Over the last few years there appears to have been less liquidity available in the G10 space. Particularly difficult have been the Scandinavian pairs, which have been noted to be behaving like emerging market currencies. Building our capability to drill down into each cross and its various cost components has revealed the most useful information. Deep examination highlights information not available

Daniel Chambers, Head of Trading, Sequoia Capital Fund Management through superficial analysis. Although a lot of what has been revealed is in line with what one might expect, such as EURUSD and USDJPY being cheap to trade, there are other very interesting observations to be made such as discovering if trading EURNOK, EURSEK is more cost efficient than going for the NOKSEK directly. Much of the knowledge gleaned leads to enhancements in execution algorithms. We approach it as a four-part process including: • Collect – What data can be collected and stored? • Calculate – What information can be derived from the data? • Input – How can that then be used in any part of your execution strategy? • Monitor – How to monitor and quantify the changes made? This segregation of the different components involved, each with their own elements, allows clear and precise planning for how to implement change. Trade Cost Analysis is a concept that has been around for a while and we have seen a shift from post-trade cost analysis to pre-trade cost calculation or estimation. The ability to determine the optimal time to take executing an order is a progression from simply measuring incurred costs. Typically used for these estimates are factors such as current



volume relative to averages and volatility. The nature of financial markets would suggest that on any individual execution, you’re not guaranteed to be right in your estimation, but over time and with enough observations the estimates should be correct within a margin for error. Being able to store and compare estimated versus incurred is vital to improving confidence in estimates. Market Analysis With China’s circuit breakers active twice in the first four days of trading this year and crude close to $30 per barrel, the theme this year appears to be uncertainty. In a period where the Federal Reserve have recently raised rates for the first time in seven years, more and more emphasis is put on what comes out of the central bank’s meetings in terms of pace of subsequent actions going forward. Other central banks have proved in the last year that they are willing to shock the market with unexpected decisions if seen as being in their best interest and we’d expect this to be the case going forward. The increased volatility impacts all participants executing in the markets and their execution methodology needs to be able to adapt to the environment. Despite this increased volatility, typical spreads have remained consistent with those seen last year with a profile throughout the London day that is to be expected. Below is a plot displaying the aggregate spread in one particular cross for the last three months of 2015 and the start of 2016.

Liquidity Provider Analysis When analysing costs, it is important to go beyond simple market analysis. One step further when looking at execution costs is to analyse differences in costs (impact) and market structure when executing with each LP. This is important in guaranteeing best execution. Being an OTC transaction, it can be


difficult to demonstrate best execution in a similar fashion to other securities. However, the work being done with our LP analysis is another step we’re taking on our side in attempting to ensure that best execution is achieved. This year is likely to include further attempts to regulate market activity, with a spotlight on FX. Various scandals, accusations of rigged markets and numerous lawsuits have pushed clients to allocate resources to monitor the realisation of best execution. As the markets become more highly regulated, monitoring and evidencing best execution becomes more vital.

“In my opinion, the natural progression when looking at execution costs, is to analyse differences in costs (impact) and market structure when executing with each LP. This ensures that each LP is accountable to the client......” The analysis also helps to ensure that each LP is accountable to the client for the methods they use to gain share of your flow and also how they are then working to reduce the risk they have potentially just taken. Potentially, as uncorrelated flow is as likely to be risk reducing for the LPs as it is increasing. Ideally you are executing against the skew of your liquidity providers. This is where an LP has interest in a specific side of the trade as opposed to simply quoting a bid/offer to you with no interest. The reason this is ideal to trade against is because it reduces the likelihood that the LP will need to go to the market as you’ve actually aided them in reducing their risk. In order to conduct analysis, we store all quotes received throughout the day, which amounts to


approximately 40 million. We store several of the fields available including bid, ask and volume. We devote substantial resources to ensure the accuracy and validity of the data. The timestamps and prices provided to us via FIX for each fill we execute are systematically compared to the quotes we were receiving and storing at that point in time from the relevant counterparty on the relevant side of the quote. This ensures that the price quoted to us was a true reflection of what could have been achieved at that moment in time. All fill and rejection rates are measured. Further confidence is gained in the quotes received from the LPs when experiencing a fill rate of 99%. Having such a vast amount of data at ones fingertips provides you with almost limitless potential for study and analysis. Prior to building and implementing this database, important choices needed to be made with regard to how to store data, what to store and how to retrieve it. Once this has been done, it is important to understand what is in front of you, how to produce results from it and how to interpret the results accurately. At SCFM, some of our projects are to quantify liquidity provider-specific market impact. The results of our research thus far have been extremely revealing. It is very interesting to see the magnitude of the disparities between LPs. Additionally, good communication with all of our liquidity providers has been vital in improving execution. LPs are able to price more confidently when there is a clear understanding of the effort you are making to trade responsibly and reduce market impact. Also, the feedback the LPs provide is extremely useful and has helped shape nuances in execution patterns. The future At SCFM, we’ll continue to endeavour to keep costs at a minimum through ongoing analysis and constantly improving execution algorithms.

• Are our cost assumptions accurate and are our incurred costs as low as possible? • Are our incurred trading costs being driven solely by market conditions/structure (liquidity etc.) or by our method of execution? • Are our liquidity providers managing the flow benign to us and each other? • What is the total impact of execution costs on overall performance (returns)?

“We apply a research-based approach to all the work we undertake. Each member of the team brings different qualities to the table and it is because of this that collaborative and peer reviewed work produces the greatest results.” Many of the methods and practices applied when researching this particular area of the business are apparent throughout the organisation. We apply a research-based approach to all the work we undertake. Each member of the team brings different qualities to the table and it is because of this that collaborative and peer reviewed work produces the greatest results. So much of our work is simplified by having an industry standard protocol such as FIX as it facilitates managing enormous amounts of data and a smooth flow of information between market participants.

The trend in the market appears to show that more organisations, particularly large institutional funds, are attempting to assess and reduce transaction costs. There are a number of vital questions that must be asked by any participant executing orders in the FX markets and we would suggest they include, but are not limited to:



Investment Management Working Group: Handing Over The Reins With Paul Squires, Global Head of Trading And Securities Financing, AXA IM and Adam Conn, Head of Dealing, Baring Asset Management The Investment Management Working Group (IMWG) had been set up to support other streams within the FIX Trading Community and to encourage buy-side involvement at the annual conference. As a group, we identified three main topics: the automation of IPOs, application of FIX for fixed income and execution venue reporting for equities. (See article on page 4, Q1 2014, Issue 49). We decided to focus specifically on those topics knowing that discussions would quickly broaden out to other areas. We wanted to apply one of the central values of the FIX Trading Community – which is to be practical – and follow these discussions through until something was delivered. What followed on the venue work was a series of best practice documents that were distributed to the FIX Trading Community. They focussed on three main FIX tags: 29, 30 and 851. A survey had been undertaken nearly two years previously with the aim of calculating the extent to which the buy-side was able to collect this information. Perhaps not surprisingly tag 30 was pretty commonly used, 29 was sporadically captured and 851 almost never captured. More recently when Adam Conn and I have attended talks about ongoing FIX work, we have found that people now systematically capture 29 and 30. There is also more discussion around the implementation of 851 so awareness has certainly grown. It is hard to represent the depth of the discussions behind such reports because, for example, there was much debate around the classification of FIX tag 29

(capacity) and the level of granularity we required; we had to be careful about legal definitions and regulatory implications. The papers we produced were always intended to be documents that the buy-side could use without needing to be hugely FIX-heavy technologically, so the buy-side could simply ask their algo brokers for the three FIX tags they needed. Fixed income work Project Neptune was in its very early stages, but it had caught our imagination as it was likely to be an interesting prospect for buy-side fixed income traders. What is interesting is not just the concept behind Neptune but that some of the areas being addressed are already more accessible than people realise. For example, indications of interest and streamed prices were already identified FIX tags but nobody seemed to know of anyone who was building the infrastructure at that point to receive the information via FIX tags. Looking at the new fixed income trading world of multiple vendors, applications and platforms, it relies more than ever on the work already being done by the FIX Trading Community to standardise the way we receive information. However, we need the infrastructure to be able to do something with that information, and of course we need the banks to send us the information. This process can be helped by use of a standardised document that is put in front of brokers and the IT team which simply lays out what is required. It is then up to the buy-side traders to pull the data out from that.



“In that respect, Neptune is doing all the right things and meeting people’s requirements in terms of the direction of travel. But certainly on the buy-side, we are characterised by being somewhat reluctant to jump in.”

Paul Squires, Global Head of Trading And Securities Financing, AXA IM Fixed income is a really interesting area that has already seen a number of new market initiatives. It will continue to change significantly. Neptune has been an interesting exploration of buy-side/sell-side and vendor collaboration with ‘FIX-like’ values and concepts at its heart; those being standardisation of data and recommended practices with the objective of driving costs lower for everyone. While Neptune continues to progress at a relatively slow pace, most people would say it has to happen that way because there are many other ongoing projects out there and buy-side time is stretched. With the Plato Partnership project, for example, the industry is trying to do something collaboratively, which means being very inclusive and allowing everyone to have their say. This does slow the pace of progression somewhat because everyone has a slightly different view on things, which makes consensus difficult to achieve. In that respect, Neptune is doing all the right things and meeting people’s requirements in terms of the direction of travel. But certainly on the buy-side, we


are characterised by being somewhat reluctant to jump in. In addition, the sell-side view might be that it threatens a business model that has been commercially very lucrative for them in the past . The transition is a difficult one and therefore technology spend is not necessarily at the top of people’s priority lists. IPO work The IPO initiative that Adam has been running was also built on the best practices document drafted by the FIX group, and involved a number of constructive meetings between the buy-side, sell-side and vendors. The initiative has reached the point where the standards have been delivered and the automation process has been published. Now the focus is on promoting that work to increase awareness of the project and to try to mitigate the risk around transmitting orders electronically for primary deals. However, there is still more to do. Having delivered best practices, we now need the vendors to come through and bridge the gap between applying those standards and giving everyone the software required to be able to do it. There are more fixed income primary deals than there are equity IPOs, and whilst the published document was written primarily based on the equity process, we have been working with vendors with focus on both of those asset classes to make it more an ‘industry-wide’ initiative to ensure FIX Protocol works equally well for both. There is still development work for fixed income


“We need to work better to bridge the gap between the heads of dealing and the technologists because that’s where the potential becomes really powerful.” new issues and the working group is discussing this with the vendors. Our discussions with the vendors have concentrated on explaining what we are looking for, describing our challenges and sharing the information we need to solve the problems. The recommended practice document has been prepared and now it can be used by anyone, FIX group or not, to engage with the vendors and decide if they want to take it forward. Crucially, this work, principally to mitigate risk in a currently manual work flow, aims to be equally applicable across all trading regions, be it the Americas, EMEA and Asia. To my mind, this is exactly what the FIX Trading Community is there to do. We work on quite technical documents that become reference documents. It is not intended that we are a lobbying or promotional group or that we advocate anything in particular. As part of the IMWG we have undertaken the technical work required and delivered the resulting reference document. New leadership It is clear that the industry is now far better placed because of the work that has been done on IPO initiatives, fixed income and execution venue reporting. I wouldn’t say that any of us are looking to identify our tangible contribution to any development but now our work is out there and it is available for people to engage with as they see fit. This makes it an appropriate time for us to hand over to the new co-chairs.

Adam Conn, Head of Dealing, Baring Asset Managment There may well be an ongoing reference back to the three topics with new questions, which is completely appropriate. However, it is time for us to find some new topics and challenges. One aspect the outgoing leadership would like our group to move towards is the inclusion of more technical people. In the US, Brian Lees and Scott Atwell are becoming very much more involved, and I think they are exactly the type of people that the FIX group should be trying to engage. We need to work better to bridge the gap between the heads of dealing and the technologists because that’s where the potential becomes really powerful. This is more of an evolution than a completely new direction, but I would like to see the group move forward in that respect. As we hand over to our new leadership we look forward to remaining involved in the group and continue to deliver projects for the benefit of the industry and ultimately our clients.



A New Model For Fixed Income With Enrico Melchioni, Director, LIST Group

LIST’s experience of best execution began in 2007 when the first MiFID directive came into force. In Italy, one of List’s operational countries, the directive was applied immediately to both equity and fixed income.

integrate more holistic pricing and liquidity data, so that when an order is executed, it is done on the basis of a comprehensive and updated set of information, achieving a deal-by-deal, pre-trade best execution.

Back in 2007, the basic approach to best execution was to implement a “static best execution” logic: given the list of venues included in the Investment Firm Execution Policy, the best trading venue for each security (or security class) was defined on the basis of the statistical analysis of historical data performed off-line. Incoming client orders were then routed to the “best venue” simply taking into account the security parameter of the orders.

This model, initially devised for the equity space, has been adapted to also incorporate the specificity of fixed income trading.

We decided to push the best execution process one step further, introducing the “dynamic best execution”: we use the same statistics to prepare a basic ranking of possible execution venues, but just before executing the trade, live market data collected from the different trading venues are analysed, computing an estimated total consideration that includes broker fees and exchange taxes. By bringing a wider variety of broker and venue real time data into the metrics, we can

Move to the buy-side In the past few years the fixed income market has evolved and is now quite a different landscape from the one we were used to 10 years ago. Trends on the buy-side show that there is broad interest in speaking with multiple dealers or to join one of the many new initiatives for fixed income trading which promise peer-to-peer trading or pre-trading facilities. The reasons for this are two-fold: we are experiencing very low rates in the Euro area (that drives investments toward riskier, less liquid assets in search of higher yields), and the increased regulation forces a higher cost of capital onto the banks. The combined effect of these two factors is that it becomes economically



“All these specificities of the fixed income market may suggest that the buy-side industry needs to start thinking like the sell-side in terms of technology; being able to connect with different venues and to analyse data.� Enrico Melchioni, Director, LIST Group difficult for the sell-side to keep a position on a bond and so the buy-side cannot find liquidity when it wants it. In this new scenario, the buy-side needs tools to connect to more than one execution venue, be it a sell-side, a buy-side network or a crossing venue. Technology can greatly help in this process, supporting the trader in retrieving the relevant information from a variety of sources, pulling all the data together in a single place and evaluating the best execution based on the updated and aggregated information. We have already witnessed similar trends in the equity space: when MiFID I went into force, the concentration of trading on national exchanges was removed, so that all of a sudden a number of different exchanges flourished and the same equity was traded in different places. What firms really needed was some reaggregation that allowed them to connect to the different trading venues and reconstruct the trail. MiFID II is now creating a similar scenario for fixed income. Firms need to perform best execution across multiple execution venues, but in this case, the trading models are different: the prevailing market model is not the limit order book; rather liquidity is fragmented across different platforms mainly based on request for quote (RFQ) models.


Our clients ask us to be able to connect simultaneously to multiple platforms and to aggregate data from different sources (regardless of the trading model) so that they can have a comprehensive view of how the market is behaving. When it comes to illiquid products, some logic that works perfectly well with liquid security does not represent the optimal solution. A process that takes into account OTC circuits and RFQ based venues is needed. Last but not least, we are witnessing the birth of several initiatives that propose new business models based on peer-to-peer cooperation and pre-trade information sharing. The trading system must be capable of easily integrating with new trading models to take advantage of new opportunities. All these specificities of the fixed income market may suggest that the buy-side industry needs to start thinking like the sell-side in terms of technology; being able to connect with different venues and to analyse data. This points to many questions including whether to outsource the technology or to develop it, and how best to do so given that the final shape of the regulation is still unknown. MiFID II best execution implementation Any execution desk has best execution as its goal. Most desks already have best execution logic in place. The problem is that MiFID II requires a specific set of


obligations, with varying degree of compliance in each firm. Therefore, the actual impact of implementing MiFID II will vary from firm to firm. MiFID II also requires a standardised approach, which means that even if a firm already has a best execution policy in place, the firm will have to modify the parts of it that are no longer compliant. However, firms that have started work on this will have an advantage when the final regulations are announced. On the other hand, it could be argued that other aspects of MiFID II, such as the post-trade reporting, are very complex and that they are not adding any value to trading activity. So this element is likely to be one that people will try to implement at the last possible moment. Post-trade to pre-trade Trading platforms are generating vast amounts of data, which is only going to increase in quantity over time. These large data lakes contain a wealth of information that can be reaped with the proper technology. Firms need to start thinking in terms of data mining and Big Data technology in order to analyse the information that is already available within their systems. By analysing trading data it is possible to create a link between pre and post-trade worlds: information retrieved from post-trade data can be fed back into the pre-trade activity, enhancing the execution process. Data analysis can help the buy-side in understanding which brokers were efficient in serving a specific bond or bond class. For the less liquid fixed income products, the buy-side and sell-side are both focussed on keeping track of who is willing to trade a particular securities. This requires considerably more data and relationship management than for an automated asset class like equities.

The industry is transitioning from an era where the execution tool was the only item firms needed, into an era where firms also need to manage the information

“Decisions are being driven by those firms who are actively involved with industry initiatives as they try to find ways to solve the problems the market is facing.� alongside the ability to execute because the market is becoming more complex and fragmented. It is a period of transition where firms should try to act on all possible information that is available within the system. A continuation of this transition is the growing importance of industry initiatives that involve the buy-side. Decisions are being driven by those firms who are actively involved with industry initiatives as they try to find ways to solve the problems the market is facing. When firms make decisions about their technological infrastructure, they should envisage an infrastructure that is capable of managing all the exiting trading models and is also open to new initiatives, so that it is easy to integrate with new market models that may arise. The largest buy-and sell-side firms will probably already have internal development teams that can work toward this goal, but smaller companies will be looking to outsource this ability.

Data mining technology can help answering the above needs, and also provide new perspectives. We have been conducting some research in applying advance clustering algorithms to trading data in order to understand what clients are doing and to find temporal correlation among the trading activities. For instance, it can be quite easy to identify those firms that lead and those that follow after a given stimulus from the market.



Driving Execution Venue Analysis To A Global Audience With Brian Lees, Chair, Execution Venue Sub-Group, Global Buy-Side Committee, AVP, Trading Technology Manager, Capital Group and Irina Sonich-Bright, Director, AES Business Development, Credit Suisse, Co Chair of the FIX European Business Practices Subcommittee, Co Chair of FIX MiFID II Transparency Working Group Brian: Many of the execution venue’s sub-group’s most recent updates have been driven by ongoing changes to European regulations around brokers’ execution capacities. There are some aspects that need to be clarified as they are not addressed in the current documentation, including the issue of properly capturing time stamps. This is becoming more important due to MiFID II requirements which include transaction reporting and time stamps. We also need standardisation in the time stamps of the trades in order to conduct proper TCA because we are beginning to use that to match up to market tick data in order to do analysis. If time stamps are inaccurate, then it is hard to find our footprint in the market. The problem goes beyond how granular a time stamp is; we may also have the wrong time stamp altogether. People in the group have found that time stamps don’t actually represent the ‘actual’ time that the order transacted on

the venue itself. Instead, brokers are stamping the order with a time stamp when it passes through their gateway before it is returned to us. We require clarification that it is always the ‘actual’ time stamp that comes back from the venue. Tightening up this process will make it easier to analyse and use the data as it was intended. Irina: I agree that there is still an ongoing dialogue regarding what kind of timestamp we need to give to our clients – would it be the timestamp when the actual execution took place or when the broker sent the execution to the client? In theory you need to know both – time of the execution and time the broker sends the message to you - and without mutual agreement as of what should go into the execution time tag you end up with different interpretations. The next level is the granularity of the execution timestamp. MiFID II is trying to address both of these issues but until it’s



“I am hoping to reboot the whole project, to expand it globally to bring in a much broader representation of the buy-side and sell-side and to get it all moving again.” develop as more specific technical requirements for MiFID II implementation are released.

Brian Lees, Chair, Execution Venue Sub-Group, Global Buy-Side Committee, AVP, Trading Technology Manager, Capital Group finalised, we rely on the collaboration forums like the FIX Trading Community to address the immediate demand. Worth mentioning that just like with the liquidity provision tag (851) in Europe, not all exchanges provide us with the milliseconds granularity right now. However, where we are able to access this data, we can deliver it to clients. We still have clients who do not receive all the necessary information, and if they do receive the information, it may not be consistent when presented by different brokers. There may also be clients who request similar information but in a different shape or form. Also, between the buy-side and the sell-side we have vendors making changes to the data on broker or client requests that might be inconsistent with someone else’s ask. The execution venue paper (in its original form) therefore began a very necessary push towards standardising our approach to these issues of transparency. This is an area that will continue to


Global and sell-side involvement Brian: Another of our ongoing goals is to increase the global reach of the working group (which has been primarily US-based), to try to bring together conversations in Europe and the US. We can bring Asia into the conversation but it has been difficult getting some of the necessary information like tag 851 from the exchanges. So as a result, we are less concerned with Asia; the market structure doesn’t drive as much of a need as it does in the US and Europe. The key to continuing the development of this working group is to get more people involved. I am hoping to reboot the whole project, to expand it globally to bring in a much broader representation of the buy-side and sell-side and to get it all moving again. With all the changes to the regulatory process, we need clarification put out there on how to manage transparency and the associated data – the requirement is only going to grow. A further point to make is that the group was originally a buy-side only working group but we are hearing from brokers that their clients are asking for increased granularity in the data. As a result, we would like to expand the group to include more buy- and sell-side representation, so that we can understand the issues on both sides in order to get our documentation reflective of what we face in these markets. We have to decide on the precise scope of the working group and what should be considered a special case, and we need to work together with the sell-side to figure that out.


“There is considerable dialogue and coordination between the different buy-sides and sell-sides to understand whether what was asked for is actually possible.” We already have a good foundation upon which to build a more detailed framework, and if we reach a broader spectrum of people then we can include more diverse requirements in the documentation.

Irina Sonich-Bright, Director, AES Business Development, Credit Suisse, Co Chair of the FIX European Business Practices Subcommittee, Co Chair of FIX MiFID II Transparency Working Group In addition, we have undertaken mapping of tag 851 values for US exchanges from the exchange hubs themselves, the raw exchange hubs to tag 851 values of 1, 2, 3 and 4. It might be that something similar is needed for the European exchange, but we don’t know if the sell-side is having the same difficulties in mapping these tags as the US sell-side was. Irina: We are also receiving feedback from buy-side firms who are not necessarily participating in driving the change. For example, there are still buy-side firms who are unable to support MIC codes and we need their input to ensure we take their technology into account.

Global impact of a change adds yet another complexity towards streamlined implementation. We have different regulations and initiatives and sometimes contrasting interpretations of scenarios within different countries. While developing a global standard, people need to tell us when something doesn’t work for them. Any minor changes to the specifications (especially if they override the meaning of a previous figure), are very dramatic because they cause a ripple effect. The sooner more people interact with the group that actually designed these specifications, the better it is for everyone. The FIX protocol used to be perceived as an IT speciality, but changes in the protocol and our ongoing work is increasingly affecting the trading and business parts of a firm. There is considerable dialogue and coordination between the different buy-sides and sell-sides to understand whether what was asked for is actually possible. Brian: We have traders who are now aware of tags 29, 30 and 851. The groundwork has been laid but the key is getting more people involved in order to move this forward and to make sure that the industry’s needs are represented.

This is why we like a proactive buy-side acting as the driving force for the working group. We are trying to be more proactive too, but the message needs to go out that this is now industry-standard and firms need to be involved.



The Multi-Asset Revolution Part II: Risk, Centralisation and Consolidation

By Vincent Burzynski, Executive Vice President, FIS’ Global Trading Business As discussed in the previous issue of GlobalTrading, the question is not if but when multi-asset trading will catch on. Indeed, the move from old style to modern multi-asset trading is well underway on the sell-side. According to a recent research report from Aite Group, The shifting sands of global trading, 62 percent of sell-side desks indicate that they have already organised some trading desks on a multiasset basis – that is, with multiple asset classes traded either on a single desk or multiple but aligned trading desks. The risk-enabled multi-asset trading firm Much has been written about the downsizing of traders and the hiring of compliance and risk management staff literally in their place on the trading desk. This trend is confirmed in Aite’s research. In this survey, sell-side firms also confirm the renewed attention being paid to risk management. This is 100 percent reflected in these firms’ current risk profiles, with more and more preferring to be flat by end of day. Matched or riskless principal trading abounds. Keeping positions is on the wane, and even putting a trade on for a week is not as welcome as it once was. Given the proportion of sell-side trading that is purely customer-driven, sell-side firms’ emphasis on customer risk management is unsurprising.


Multi-prime or centralisation? One of the major services the sell side plans on offering the buy-side is risk management and margining and collateralisation services. To that end, 79 percent of sell-side firms think that consolidating their customers’ trading into a single sell-side platform is necessary and a good idea for the buy-side. Offering cross-asset offset across positions will help buy-side firms optimise margins and collateral and entice them to concentrate more order flow with brokers offering this type of service. But this runs counter to the multi-broker narrative. Some buy-side customers are particularly concerned about information leakage and enjoy being on the multiple platforms that multi-prime affords them. For them, consolidation onto a single sell-side platform is not the answer. Another interesting finding in the report is that the overwhelming majority of sell-side firms surveyed – 88 percent – say they have or plan to have a centrally managed, real-time, pre- and post-trade risk management system through which they aggregate risks. Of course, a centralised risk system with aggregated risk across assets, markets and systems is critical for a complete view of risk, especially given that order books (i.e., client portfolios) are still siloed at 70 percent of respondent firms. In Aite’s interviews,


Vincent Burzynski, Executive Vice President, FIS’ Global Trading Business however, it was less clear how many of these systems actually provide risk management across products and asset classes to the trading desk themselves, though there is sentiment in favour of more cohesive risk views there. Reducing complexity and TCO: Is trading system consolidation the answer to all pains? Sell-side firms’ IT infrastructures are often made up of a mass of disparate legacy systems connected by home-grown integrations. That certainly seems to be the reality for many trading firms. Indeed, the firms surveyed confirm that they have a large number of trading and risk systems. Only the smaller or most focused firms have just one or two systems in place. In follow-up interviews, few think that is sustainable. Will that be followed up by action? Seventy-nine percent of firms indicate interest in consolidating their jumble of systems, with the plurality having the strongest interest. Perhaps we will see progress on this front, for this may be as much a practical consideration as an economic reality for sell-side firms. In fact, Aite found that technology and execution quality have risen to the top of competitive differentiators to win and keep buy-side business. And in multiple conversations with the sell side, trading system consolidation is viewed as a major necessity by most and as an opportunity by a select few.

“One of the major services the sell side plans on offering the buy-side is risk management and margining and collateralisation services. To that end, 79 percent of sell-side firms think that consolidating their customers’ trading into a single sell-side platform is necessary and a good idea for the buy-side.” There are certainly significant system renovation and greenfield projects underway in the OTC derivatives world, including inside sell-side firms. That seems to be consuming the most internal technology bandwidth, at least as of 2015. But sell-side firms do have project renovation in incumbent listed systems underway as well, and a few are taking on the heavy lifting of bringing listed and OTC together more widely in their firms. These efforts are, for now, focused far more on risk management than trading, however. Will that change in 2016? To explore these issues further, download a complimentary copy of the Aite Group report, The shifting sands of global trading, part 1: The Sell-Side’s Multi Asset Migration on FIS’ website: FIS has acquired SunGard. Pushing the pace of financial technology, together we’ll help our clients solve technology challenges for their business



Deepening Risk Management Practice: Technological Glitch Planning

With Leo Li, Equity Operational Risk Manager, Vanguard Many asset managers currently use one Execution Management System (EMS) to manage connections with all brokers. Usually this situation starts with the trading desk on-boarding an EMS to manage all connections, and traders eventually become intimately familiar with the layout and functionality. While there are benefits to having a single system, such as improved operational efficiencies and lower costs of maintenance, this leaves the asset manager with a single point of risk should the single EMS connection become unavailable. Asset managers historically have considered the EMS as part of their internal systems that can be operated and controlled internally. However, as we have seen over and over in the past few years, there is tremendous risk for trading desks if an EMS provider suffers a failure due to connectivity issues, natural disasters, or regulatory sanctions.

could benefit from having multiple systems. The key to success is getting all the traders familiar with multiple systems. Although each EMS provides similar functions, operationally the subtle differences among EMS’ could cause major errors, especially when it comes to selecting the right algorithm and trading strategies.

Let’s think more like risk managers. Asset managers should consider implementing multiple EMS’ in order to mitigate the potential risk of losing functionality of its single point system. While the amount of time and resources to implement new systems could appear overwhelming and redundant at times, the asset management industry as a whole

We should think like risk managers as often as we think like asset managers, consider what could go wrong, and to try to address those areas before any glitch occurs. The hardest part is to anticipate potential points of failure in a relatively low volume, stable environment. From a different perspective, if we take the one FIX connection to EMS out of the trading


We have seen scenarios where a person or team is replaced by a piece of technology / software. At the same time, we also realise that some human redundancy has been reduced in terms of coverage and backups. When an employee is out, there should be coverages for the role and responsibilities, especially when it comes to trading related functions. When connectivity software is down, do all front office operations have a backup?


Leo Li, Equity Operational Risk Manager, Vanguard equation, what would happen to the front office? Does business continuity get impacted? How long can the business function without the single EMS? With that picture in mind, what do we wish for in order to make the situation better (i.e. direct connections, multiple EMS’)? Then start the solution from there. The solution will likely vary from firm to firm as each has its own internal procedures and processes related to the EMS and process of execution. Each firm, for example, should consider the full life cycle of an order; in terms of how the order is generated and how it is executed. At any stage if there’s a single point of failure, especially when it comes to order routing via FIX message, there should be multiple points of access to the top counterparties. This is similar to a stream of traffic travelling over a single bridge. But if the bridge is temporarily unavailable, are there detours? Some questions to consider: • Does the firm have alternative means to router the final destination via FIX message? • Are the front office traders familiar with the alternative EMS in terms of functionalities? • Can the connection also be made directly to the broker and with Order Management System as a gateway? • Can trading be done over the phone? If that is an option, is the compliance group comfortable with pre-trade compliance not running? • Would the counterparties be able to take all the trades over the phone?

“Asset managers should also be cognizant that just by having two EMS’s does not mean redundancy if one relies on the other to be connected.” These are all questions that can be resolved by encouraging firms to have redundancies within their front office operations. Potential solution and approach The cost and complexity of adopting additional EMS’ can vary greatly depending on the firm’s size and trading volume. And the infrastructure may take a long time to establish, especially when an asset manager would like to be connected with a large number of counterparties. At the same time, it is also crucial to ensure that traders become familiar with the alternate EMS’ functions. We should also encourage EMS providers to develop a seamless process for transitions. This could potentially lower the cost of transition for most firms. Asset managers should also be cognizant that just by having two EMS’ does not mean redundancy if one relies on the other to be connected. FIX messaging has evolved many times in the past to accommodate new trading strategies and algorithms, and firms have rapidly adapted to the new standard, we believe it is time for the FIX connection infrastructure to evolve as well.



Service And Support:

A Minor Consideration Until You Need It By Clayton Meadows, Head of Operations, REDI Global Technologies As trading platforms have evolved over the years, their features have grown in number and sophistication. With every technology advancement, regulatory change and market structure shift, new capabilities have emerged for traders to master. At the same time as this explosion in functionality, true integration with the rest of the trading stack has become a reality as well, allowing for a seamless flow of order information straight through the entire investment process.

“Service and support is all too often an afterthought: that is, until it’s needed, when it becomes an extremely important component of the overall client/vendor relationship.” While these new tools and technologies have resulted in clear efficiency benefits, they often come at a price: service. Many software providers treat support as an afterthought, resulting in high employee turnover and under-skilled staffers. This leaves users with myriad frustrations: increased onboarding times, inexperienced support desks and the inability to successfully tackle unique client issues, which not only impacts productivity, but adds business risk as well. Many vendor reviews, however, focus almost exclusively on capabilities, technology and cost.


Clayton Meadows, Head of Operations, REDI Global Technologies Service and support is all too often an afterthought: that is, until it’s needed, when it becomes an extremely important component of the overall client/vendor relationship. In order to save some of the potential headaches that we’ve seen, we offer the following questions to consider when vetting a provider: Initial onboard and setup • What is the average length of time that a vendor’s onboard takes? While the onboarding process requires the client to be an active participant with regards to document completion and such, straightforward onboards should be able to be completed in only a week or two and often as little as a few days. • How large is the client implementation team, and what is the average amount of experience


possessed by the team, both in the industry and with the particular vendor? Account setup can be extremely complicated depending on the quality of the vendor’s internal tools platform, which often receives far less development resources than the client-facing system. As well, the team must be proficient with the entitlements and clearing integrations that are required. Having a knowledgeable group driving user setup can not only make the process run much more smoothly, but also enable you to be back up and trading should an unforeseen issue arise once live. • Similarly, how many FIX engineers does the vendor have, and what is the team’s average experience and tenure? Are the engineers globally dispersed, allowing for 24x6 coverage, or are they all in a single location? In addition, does the vendor maintain its own FIX network, or leverage a third-party? While third-party networks can provide efficiencies, they also create an additional layer of dependencies (read: extra time) when onboarding or troubleshooting. Ongoing service and support • How is training handled? Is it solely via documentation, or is on-site support provided as well? And if so, at what cost? User guide documentation is obviously important, but live training is valued by many users as well. • Where is the vendor’s support staff geographically located, and what is their availability? Are they knowledgeable on not only the system, but overall market structure and the way the various products trade as well?

Understanding how an instrument trades is imperative if an issue arises, particularly in derivatives markets where risk is exacerbated by the notional values of trades that can be in the tens of millions of dollars. • Should you desire it, is the vendor available to shadow your trading and provide proactive suggestions to improve trader workflows? A quality service and support organisation should be able to provide value at all times, not just during an issue. Bespoke Services • How flexible is the system? Can the GUI be customised to meet your workflow needs or emulate a look/feel that you’re accustomed to? If it can, is it provided as part of the relationship, or is there an extra consulting fee involved? • Are development services available to provide bespoke solutions like custom reports or API-/DDE-based integrations? If so, what is the cost? Having access to custom development resources can help improve efficiencies and also enable vendor’s platform to match your needs, rather than vice versa. At the end of the day, good service won’t salvage a bad product, but a poorly run, inexperienced service organisation can definitely outweigh the benefits that even a quality platform provides. Hopefully with a little bit of extra due diligence, you’ll never have to find out for yourself.



Technological Integration With Rob Keller, CFA, Executive Managing Director, Product Management and Development, Eze Software Group

In the investment technology space, we have seen considerable interest in technology integration over the past several years. Investment firms are looking to reduce the number of vendors and correspondingly the number of applications on their desktops. They are looking to engage one or two trusted technology partners to help them solve their current and future technology-related needs. The ultimate aim would be for a firm to have just one partner as their sole support to help them with the needs of their growing technological complexity. Many investment companies are stretching the limits of what standard protocols, such as FIX and Swift, can do for them. The use of standard protocols has helped to integrate the investment lifecycle and allow data to flow between systems, but it can only get you so far. If you want a more fluid workflow between products, standard protocol can have its limitations, specifically where one product workflow ends and another product begins. You are still forced to swivel back and forth between two applications with two distinct workflows.


To address these limitations, a number of technology firms are striving to provide solutions across the investment life cycle by creating a seamless workflow via one platform. One of the critical components is owning the source code itself. Some firms have achieved this and are able to provide a tightly integrated workflow to their clients. The ultimate goal is to provide this integration via a common platform and to have a common product team that can work together on delivery and strategy. The drivers of integration What exactly drives the integration of technology varies between investment firms. For firms with heavy compliance business requirements, it is often the compliance team driving workflows that can affect the trading desk. We are seeing this frequently, where compliance is being further integrated into the trading workflow in order to identify concerns much earlier in the investment life cycle. At other firms, it might be the head of a trading desk who is trying to lower the total cost of ownership and consolidate the number of


Rob Keller, CFA, Executive Managing Director, Product Management and Development, Eze Software Group

“One common theme across all investment firms is the desire to lower overall costs, both explicit and implicit. When a firm is paying for multiple providers the explicit costs increase. At the same time, inefficient workflows implicitly cost firms on incurred slippage or market impact.”

systems providing advanced trading functionality across the various desktops. A further example might be the CTO of a firm, looking across their entire technology stack and trying to simplify and reduce the number of vendors that they have to manage.

requirements that various jurisdictions require at this point. That holistic view is very important to us. If we look back to the implicit costs, the further upstream in the investment process firms can catch one of these violations the better.

One common theme across all investment firms is the desire to lower overall costs, both explicit and implicit. When a firm is paying for multiple providers the explicit costs increase. At the same time, inefficient workflows implicitly cost firms on incurred slippage or market impact.

Challenges There are a number of factors that can pose challenges for investment firms when it comes to integrating technology platforms with other third-party systems. Firms have legacy platforms that they are trying to integrate using standard protocol. It’s difficult to create a truly unified workflow by stitching together disparate third-party systems that do not share the same source code.

From a regulatory standpoint, it is clear that firms really need a single trusted view of their orders and positions. They can no longer have disparate desks that do not integrate until end of day reporting. This is where the term “IBOR” has arisen from; firms have had disparate systems that are specific to a particular workflow but have no centralised place to actually look at their overall portfolio. For additional regulatory purposes, it is necessary to have a real-time holistic view across the entire book of investments to run accurate real-time exposure, counterparty exposure, and ownership disclosure

Additionally, separate systems often have incongruent data structures. Trying to synchronise different data structures across systems in real time can be very difficult. Companies that own all the source code can sync data structures and provide a more cohesive system. Now that we own the source code across systems, we can actually deliver that sophisticated workflow. Furthermore, the additional complexity and desire for more flexible workflows is going to mean that it will continue to become more difficult for



financial firms to stitch together third-party systems through APIs and standard protocols. A challenge for technology firms is that some are reluctant to integrate with competitors. As firms integrate capabilities, they are surrendering some of the best parts of their technology. Without these distinct parts, they can lose their competitive differentiation. For those technology firms that have integrated themselves and own all the necessary source code, they can deliver this streamlined workflow with some further along this development path than others. Finding solutions Advanced EMS and OMS integration is one area that our client base has expressed a need for. What we have done is given our users the ability to benefit from the advanced trading tools available in our EMS, while also taking advantage of important OMS features such as fully integrated compliance, position-checking, and automated allocations. Historically, an order would be created in the OMS where it would automatically run through positionchecking, robust allocation processing, and then compliance. It would then be staged into an advanced trading tool such as an EMS. At this point, the workflow in one system has ended and the order moves into an entirely separate system. If the order needs adjusting outside of that very standard workflow, you have to swivel from the EMS back to the OMS to make that adjustment.


With our EMS/OMS integration, our clients can now work exclusively inside the EMS but leverage all the robust position-checking and compliance tools available in the OMS. In essence, we are matching up the best of both worlds. If the compliance officer is driving the decisions, they will want to ensure that compliance is a seamless part of the new trading workflow. Since we have the same shared source code and development cycles, we are able to provide our clients a fully integrated seamless solution. The future We will continue to see firms building platforms and acquiring products and services across the investment life cycle to ultimately develop a single, seamlessly integrated system. As we develop our platform, we will continue to innovate and add value to our existing solutions so we can continue to differentiate ourselves from our competitors. With increased regulatory pressures affecting all parts of the investment lifecycle, it is becoming harder for investment firms to stitch together the data required to meet these regulatory requirements. Having an integrated solution with centralized data will put investment firms in a better position.

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China’s New FX Regime An Opportunity For RMB Currency Futures Users By Julien Martin, Head of FIC Product Development, Hong Kong Exchanges and Clearing Limited (HKEX) On 30 November 2015, the International Monetary Fund’s (IMF) Executive Board decided to include the Renminbi (RMB) in its Special Drawing Rights (SDR) basket, giving the RMB a 10.92% weighting. The SDR inclusion is essentially an endorsement by the IMF of the RMB internationalisation process. It puts the RMB on par with the likes of the US dollar (USD), Euro (EUR), Japanese Yen (JPY) and British Pound (GBP). The short-term impact is likely to be limited, with a 10-month delay until the new SDR weighting becomes effective on 1 October 2016. Over the longer term, however, the acceptance of the RMB as a reserve currency will trigger asset re-allocation and facilitate foreign capital inflows into China’s capital market. The market estimates that at least US$1 trillion of global reserves will switch into RMB assets following its SDR inclusion1. Moreover, the SDR inclusion will probably push the Chinese government towards further financial reforms, including gradual removal of quota controls on cross-border investment and increasing depth and openness in China’s capital markets.


RMB internationalisation accelerated in 2015 On 11 August 2015, the People’s Bank of China (PBOC) adopted a new daily fixing framework based on the previous day’s closing rate in conjunction with supply/ demand factors and movements in other currencies. On 11 December 2015, the PBOC introduced a CNY (onshore RMB) trade-weighted index, CFETS CNY TWI, published by CFETS2 which covers 13 currencies3. The PBOC highlighted the index as an important and more appropriate reference for the market, as it was overly fixated on the bilateral USD/CNY rate. The move was consistent with the PBOC’s stated policy goal of maintaining the RMB exchange rate “basically stable at an adaptive and equilibrium level”. From a macro perspective, with USD on a tightening cycle, the PBOC’s action should help de-link the RMB from a strong USD.

“From a macro perspective, with USD on a tightening cycle, the PBOC’s action should help de-link the RMB from a strong USD.”

An inclusion could spur as much as RMB6.2 trillion (US$999 billion) of net purchases of China’s onshore bonds by end-2020, Standard Chartered estimates. AXA Investment Managers estimates that about 10% of the US$11.6 trillion of global reserves will flow into RMB assets.


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On 4 January 2016, the PBOC extended the onshore RMB, or CNY, market’s trading hours to 11:30 pm in order to allow onshore RMB traded during London business hours under an SDR price fix, and prepare for more international hedging flows. Liquidity in the offshore RMB (CNH) market continues to develop along with the rapidly growing RMB crossborder trades and offshore deposits. Turnover has nearly quadrupled over the last four years, and the market expects 15-20% YoY growth in the near future,

“Over the longer term, demand for CNH will be supported primarily by rising levels of trade (imports and exports) in RMB, cross-border fund flows and CNH asset creation.” according to a key industry group. Daily spot trading volumes in USD/CNH now stands at over US$25 billion, according the City of London, and a major international bank estimates daily forward and swap trading volumes stand at around US$20 billion. Both are at a comparable size if not bigger than onshore volumes. Over the longer term, demand for CNH will be supported primarily by rising levels of trade (imports and exports) in RMB, cross-border fund flows and CNH asset creation. RMB’s two-way volatility the new normal With the RMB’s recent two-way movement, the market is beginning to accept RMB volatility as the new normal. On 4 January 2016, the PBOC surprised the market by setting the daily reference rate for RMB below 6.5 against the USD, the lowest in more than four years. Furthermore, the 332 pips weakening in the CNY fixing on 7 January 2016 was a record single-day decline 2 3

China Foreign Exchange Trade System USD, EUR, JPY, GBP, AUD, NZD, CAD, CHF, HKD, SGD, MYR, THB, and RUB


since the new fixing framework in August 2015, and it represented a five standard-deviation fall in price over the course of the past five years. Since early November 2015, the spread between the CNH and CNY exchange rates against the USD has seen spikes, reinforced by recent measures limiting offshore entities’ tapping of the onshore repo market and restricting onshore banks’ lending to offshore banks via nostro accounts. On 7 January 2016, the spread climbed to over 2,000 pips, the highest in four years. Such divergence reflects the difference in sentiment towards CNH, which has no restrictions on its use and price range, and the heavily regulated CNY.

In December 2015, Chinese FX reserves declined by a record US$108 billion to US$3.33 trillion, indicating that the currency was supported through government FX purchase operations. To curb arbitrage between offshore and onshore rates, the PBOC recently imposed measures that included a halt on offshore banks’ borrowing from domestic markets through bond repurchases along with a suspension of new applications in a programme that allows domestic investors to buy RMB-denominated assets overseas. CNH likely to remain volatile The PBOC has been maintaining a managed floating exchange rate system based on market supply and demand with reference, but no peg, to a basket of currencies. The CFETS CNY TWI had historically tracked closely with the US dollar index (DXY), but began to decouple recently. From 11 December 2015 to 15 January 2016, the DXY was up 1.4% whereas the CNY TWI rate was down 1%. Such decoupling is in line

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with the PBOC’s intention to de-link the CNY TWI from movements in the USD.

HKEX RMB Futures Provide Best Liquidity under Two-way Volatility

According to the recent remarks by Dr Jun Ma, the Chief Economist of the PBOC, the RMB fixing will be adjusted to reflect China’s economic fundamentals. As RMB becomes more integrated into global FX markets, China’s central bank is expected to gradually introduce more flexibility into its exchange rate regime. Two-way volatility and market-driven pricing are consistent with the PBOC’s commitment to accelerate RMB convertibility and marketisation.

“With the CNH-CNY spread, China is unlikely to let a wide spread persist in the longer term because wide spreads would prevent it from meeting SDR requirements.” With the CNH-CNY spread, China is unlikely to let a wide spread persist in the longer term because wide spreads would prevent it from meeting SDR requirements. Increased integration and further opening of China’s capital account could narrow the gap and reduce the risk of decoupling. Risk management and opportunities amid RMB volatility Ahead of the Lunar New Year holiday on 5 February, HKEX’s RMB Currency Futures volume surged to 6,748 contracts (US$674 million notional), the secondhighest single-day volume ever, and open interest level reached 32,009 contracts (US$3.2 billion notional), an all-time high, and by far the highest open interest level among exchanges offering RMB futures. The number of institutions providing RMB Currency Futures brokerage to end clients has been growing and now stands at 92. Users of the contract include financial institutions, small and medium-size enterprises with cross-border business, and retail investors with RMB exposure.

DISCLAIMER All information contained herein is provided for reference only. While HKEX endeavours to ensure the accuracy, reliability and completeness of the information, neither it, nor any of its affiliates makes any warranty or representation, express or implied, or accept any responsibility or liability for, the accuracy, completeness, reliability or suitability of the information for any particular purpose. HKEX accepts no liability whatsoever to any person for any loss or damage arising from any inaccuracy or omission in the information or from any decision, action or non-action based on or in reliance upon the information. The information does not, and is not intended to, constitute investment advice or a recommendation to make any kind of investment decision. Any person who intends to use the information or any part thereof should seek independent professional advice. Modification of the information in whole or in part, in any form or by any means are strictly prohibited without the prior written permission of HKEX. Futures involve a high degree of risk. Losses from futures trading can exceed your initial margin funds and you may be required to pay additional margin funds on short notice. Failure to do so may result in your position being liquidated and you being liable for any resulting deficit. You must therefore understand the risks of trading in futures and should assess whether they are right for you. You are encouraged to consult a broker or financial adviser on your suitability for futures trading in light of your financial position and investment objectives before trading.



Finding Blocks – A Case Study – Industry Collaboration in Action With Robert Barnes, CEO, Turquoise, Jonathan Finney, Head of Systematic Trading EMEAA, Fidelity International, and James Hilton, Co-Head AES Sales EMEA, Credit Suisse Robert: In an order book environment that naturally leads to small trade sizes, investors that wish to outperform benchmarks are calling for innovation in electronic block trading. To answer this call and still trade in the presence of anticipated MiFID II double volume caps, one needs a respected and working trading mechanism that can match orders above 100% of the Large In Scale (LIS) threshold determined per stock by ESMA. Turquoise has a working LIS innovation: Turquoise Block Discovery, which matches undisclosed Block Indications that execute in Turquoise Uncross. Turquoise design reflects active collaboration with the buy-side and sell-side. 1 , 2 Jonathan: With impending MiFID II legislation, Fidelity as a whole has commended much of the innovation that has happened in the markets and been actively engaged on several projects, many from inception. However, as a large institution we also very much err on the side of caution and, when Turquoise approached us about their proposed new venue, we met this with cautious optimism. Our concerns were varied but were mainly focussed on due diligence, risk and control analysis and general policing of participant behaviour. We could definitely see potential in their proposals but we felt there was also a lot of granular detail which needed to be worked through for us to be comfortable as a firm from a best execution perspective. Therefore, when Turquoise Block Discovery first launched, we were not one of the first initiators but we definitely had a interest in its success and were actively engaged with Turquoise, buy-side peers and sell-side counterparts in the meantime in discussing what we needed to be 1

comfortable with engagement. By understanding how their reputational scoring worked, having increasing comfort in the transparency of their policing mechanisms, and attaining greater understanding of the types, size and quality of trades occurring, as time went on, we felt we were in an increasingly strong position to justify adding Turquoise Block Discovery to our selection of venues via brokers, especially using the conditional order type. I am pleased to say that, though success has been relatively scarce as adoption is still in its early growth phase, the quality of liquidity has scored well across a variety of external metrics. James: There have undoubtedly been challenges to implementation of this solution. Even before you look at the technology development, you have to spend some time to understand and get comfortable with the model – it’s relatively unique. And clearly, we had to garner feedback from clients to see whether there would actually be a demand for it. Once we’d established that it would be a viable model, and clients wanted to use it, we invested in the technology development. Luckily for the buy-side, the heavy lifting definitely falls on the sell-side. Supporting the full conditional nature of the service has required some effort, and there are still some key brokers working on that. Because of the model, Credit Suisse offers access to the service on an opt-in basis. So, whilst you have some brokers not offering full functionality, and buy-side having to positively opt-in, invariably it takes time for the momentum to gather. The key to the service is that there’s virtually no opportunity cost. We have been meeting a lot of clients to talk about the service, and explain why this is something we feel is worth supporting and the majority are signing up. turquoise-uncross%E2%84%A2/turquoise-block-discovery%E2%84%A2/turquoise-block-discovery%E2%84%A2-explained 2 how-does-turquoise-block-discovery%E2%84%A2-work



James Hilton, Co-Head AES Sales EMEA, Credit Suisse

Robert Barnes, CEO, Turquoise

“An awful lot has been done in the UK already, and we’re building momentum in Europe. But we need to do more to engage with our US clients, who perhaps aren’t as involved with how the overall European market is evolving.”

from determining the instant of execution. This has been the subject of multiple studies by LiquidMetrix, the independent analytics firm that specialises in venue performance metrics and execution quality analysis. They repeated their analysis in October 2015 and, for the third year in a row, spanning before and after the 2014 launch, and again concluded that trades occurring on Turquoise Uncross had a far lower correlation with sharp market movements on primary venues than trades occurring on 3 other continuously matched MTF Dark Pools.

Key metrics Robert: The metrics that matter include low reversion, large average fill size, and high firm up rates. Low reversion The design of Turquoise Uncross innovates with a random timing mechanism which prevents either buyer or seller 3

Large average fill size Turquoise prioritises orders by size and features innovations that deliver a broker neutral venue that is reversing the electronic trend of shrinking trade size. Turquoise Block Discovery now averages more than €250,000 per trade, and this average is more than twentyfive times larger than the average €10,000 for electronic trades matched by continuous dark order books. High firm up rates We have more than a year’s worth of empirical measurements evidencing consistently high firm up rates. These high firm up rates result from a strict timing mechanism and robust automated reputational scoring,

LiquidMetrix Turquoise Uncross™ – Execution Quality Analysis by Dr Darren Toulson & Sabine Toulson, extracts of presentation to Turquoise Block Discovery™ Buy-side round table, 13 November 2015.



which measures the difference between the original block indication and the subsequent firm order. Since launch, more than 95% of Order Submission Requests (OSRs) resulted with firm orders within the specified time window – under half a second – and with both price and size parameters which pass the minimum requirements of the service defined with input from buyside and sell-side users. Furthermore, in more than 90% of all OSRs, the firm order not only met the minimum requirements but also was at least the full size of the originating block indication. Jonathan: A key advantage as a venue is the ability to utilise the conditional order type. The conditional order type effectively allows us to continue working an order independently, whilst still having potential exposure should liquidity opportunities arise. Whilst, conditional order types are not a new phenomenon in themselves, this was the first example of widespread engagement via brokers in Europe and helped us address numerous concerns, including the real fear of missed opportunities by residing in one venue when liquidity is actually in another. By using conditional orders, the opportunity cost is minimised. Now, whilst Turquoise may argue that this was not the original intent of the venue, this becomes incredibly important in a post-MiFID II world where 4/8% caps on dark will most likely drastically change the European liquidity landscape. One way round this, currently still available via MiFID II proposals, will be the Large In Scale waiver but there-in lies the rub. Current trading behaviour (by both us and our peers) seeks to distribute the order among a variety of venues, thus reducing the opportunity cost of missing liquidity, rather than rest in one sole venue. In a LIS world, there will be much fewer orders that will have the ability to be distributed amongst a variety of “dark” venues and still maintain the LIS integrity per venue. Conditional orders help alleviate this by allowing a virtual presence in Turquoise Block Discovery and thus not disrupting our workflow, a very powerful liquidity-seeking tool in the trader’s arsenal. Increasing routing flow James: From a technology perspective, we’re fully operational, but we did spend a lot of time optimising our work flow. Routing to a venue where you’re sometimes trying to send as large an order as possible (albeit conditional), requires some careful development. From a client perspective, we’re doing all we can to present the benefits to our clients. An awful lot has been


“Since launch, more than 95% of Order Submission Requests (OSRs) resulted with firm orders within the specified time window – under half a second – and with both price and size parameters which pass the minimum requirements of the service defined with input from buy-side and sell-side users.” done in the UK already, and we’re building momentum in Europe. But we need to do more to engage with our US clients, who perhaps aren’t as involved with how the overall European market is evolving. The industry has an opportunity to help build solutions to the liquidity challenges we face, and we believe Turquoise Block Discovery is one of those solutions. Turquoise publishes weekly stats, so we can see that we’re a significant % of the executions. We’re continuing to sign up clients, but it’s important that the wider market engages. It’s crucial that the sell-side supports the full conditional service; otherwise you simply won’t see enough large blocks crossing. The buy-side perspective Jonathan: Whilst Turquoise Block Discovery would not suit all needs or all order profiles (nor do they profess to do so), they do provide a compelling solution to a variety of questions regarding liquidity-sourcing and orderrouting in a post MiFID II world. The problem is that currently there is no incentive to move directly to an LIS model or at any point until it is forced upon us by MiFID II. Average trades sizes are fractions of LIS and current behaviour still needs to account for the large proportion of volume occurring in these smaller trade sizes. The dilemma then is how to transition market behaviour from small dark fill sizes to large-in-scale dark fill sizes in a manner which smoothes out the issues and kinks along


“It is thus incredibly important for buy-side counterparts to get together and discuss advantages and short-comings of potential solutions to MiFID II-shaped problems and, in fact, market structure issues as a whole.” the way. There are clearly venues where similar behaviour takes place currently, but there are several key differences which set Turquoise Block Discovery apart from this and would thus require a change in trader behaviour. The good news is that Turquoise, the sell-side, and the buy-side are all enthusiastic in their drive to find a solution to this and I believe these discussions will drive how our engagement changes with Turquoise Block Discovery and other venues over the coming year and more. How important has it been for Turquoise to have a buyside user group? Robert: Buy-side participation has been integral to defining reputational scoring and other key features that work through sell-side algorithms that access Turquoise Block Discovery.

Jonathan Finney, Head of Systematic Trading EMEAA, Fidelity International workflow that features low reversion, large average fill size, and high firm up rates. Both buy-side and sell-side tell us that the way the buyside works orders will have to evolve, and therefore we look forward to continuing our constructive cooperation with buy-side and sell-side.

While, MiFIR Article 4(1)(c) can allow dark trading for orders received by a venue that are LIS compared with normal market size and not include them in the MiFID II double volume cap calculations, the challenge is to increase size of marketable orders where today less than 1% of trades on European order books trade in sizes greater than LIS.

Jonathan: The question can be expanded out from this to discuss buy-side user groups in general. As previously mentioned, MiFID II could prove to be a major disruptor to current market practice and there have been various innovations proposed amongst several market constituents. It is thus incredibly important for buy-side counterparts to get together and discuss advantages and short-comings of potential solutions to MiFID II-shaped problems and, in fact, market structure issues as a whole. Through intelligent debate we will be able to move forward as an industry in a way which would best serve our end investors, rather than working separately, championing different individual projects, ultimately increasing fragmentation, raising costs and hurting our clients.

The total value matched since launch is above €1 billion. While this amount is niche relative to the addressable market for electronic block trading, Turquoise Block Discovery has a profile – 50% of Turquoise Block Discovery Block Indications and 50% value traded already are in sizes greater than LIS – that is ripe for more activity into quality

With respect to Turquoise Block Discovery, it was through discussions within the buy-side group that we were able to increase practical (rather than theoretical) understanding of the mechanisms behind the venue and take comfort that our views were not extraordinary and which eventually led to its implementation.





Note: The analysis is based on lit venues only for Europe and USA, and lit and dark for all other regions. Venues with smaller than 0.01% market share are not included in the charts but are included in the calculations.


Source: Fidessa


A SNAPSHOT OF EUROPEAN EQUITY TRADING The total value of European stocks traded on-exchange fluctuated throughout 2015. The small decline seen in the final two months of the year has been followed by a healthy opening month in 2016. This does, however, represent a 10% drop compared to January 2015. Conversely, the value of dark trading over the 12-month period remained steady. In January 2016, €83 billion was traded on dark MTFs.

It is interesting to see that the relative share of dark trading in major European indices has increased progressively since 2008, with the FTSE 250 showing the highest % value traded on dark MTFs. The FTSE 100, OLSO OBX and CAC 40 are closely behind.

With the average trade size on dark pools increasing it suggests a greater proportion of trading in larger blocks in European stocks.

The regulators are intent on reducing the amount of trading executed on venues with no pre-trade transparency, so it remains to be seen what the real impact of MiFID II’s dark volume caps will be.

Source: Fidessa


70 | FIX

Industry Collaboration In The Year Ahead By Tim Healy, Global Marketing And Communications Manager, FIX Trading Community

‘As January goes, so goes the year’ is an old Wall Street saying. I’m certainly not going to make any stock market predictions for 2016, but can say with some conviction that the year is likely to be a busy one given how January has started. 2015 was an extremely active year for the FIX Trading Community. Nine new Working Groups were formed through the year, some of which will be mentioned in other articles in this issue. Whilst a number of these did concentrate on MiFID II, the growing global focus on Cybersecurity and Blockchain was not lost on the members as both topics were addressed with new Working Groups. The subject matter on each is wildly different and extremely far reaching. FIX has been lucky enough to call upon experts on each subject to act as Co-Chairs and tangible work is being done with people showing great interest in how FIX fits into these respective areas. The Cybersecurity Working Group completed a review, updated and augmented a white paper with a set of security threat scenarios. The intent is to illustrate the proposals in the white paper with examples of possible strategies an adversary may employ to disrupt,


imitate or modify legitimate traffic between electronic counterparties. The Working Group has begun work on a number of other initiatives to further support its objectives and will look to engage with membership actively over the course of 2016. In addition to this work, a Regulatory Subgroup has been formed to monitor and provide insight regarding emerging global regulations dealing with cybersecurity. In 2015, the Global Post Trade Working Group continued the strong momentum built up in 2014 as it looked to add different asset classes to the list of Recommended Practices using FIX in the post trade space. Equity Swaps, FX and Futures are all being addressed currently and there is also an initiative in the group to cross reference with the Digital Currency/Blockchain Working Group to look further at this technological revolution and the work both Working Groups are doing. At FIX, we are lucky enough to have strong input from a very active global Buy Side Committee. 2015 saw the initiative to make the IPO order entry and allocation process more efficient and less error-prone gain

FIX | 71

greater momentum. The two vendors supporting this electronification became members of the FIX Trading Community and fully engaged with the work the Buy-side had been doing. A set of Best Practices was published in 2015 and the focus will now be to engage with the Sell-side to complete the process fully. In Europe, there has been much talk and focus on MiFID II and timings and demands for all market participants, vendors included, as the industry looks ahead to early 2017. Much of the work that FIX has done over the years, promoting the use of standards, is key to what the Regulators would like to see from the industry. During 2015, further work on Execution Venue Analysis was conducted by the EMEA Business Practices Subcommittee. Under MiFID II, each broker will need to demonstrate where and why they send orders to a

“FIX has been lucky enough to call upon experts on each subject to act as Co-Chairs and tangible work is being done with people showing great interest in how FIX fits into these respective areas.” specific execution venue. Providing venue reference on each execution real time will allow clients to monitor precisely where their orders were executed. An updated version of the Execution Venue Reporting Best Practices was published in October 2015 and is focused on adding further clarity around Last Capacity and Liquidity flag definitions, as well as mandating all executing venues, including broker crossing and alternative trading systems, to supply valid Market Identifier Codes (MICs) on their executions. The group will further be liaising with the buy-side in the US, the original authors of this document, to ensure that there is continuity and collaboration going forward.

Tim Healy, Global Marketing And Communications Manager, FIX Trading Community FIX Service Profile and then renamed FIX Orchestra Working Group, was formed to address the work of generating machine readable rules for FIX Specifications to improve operational efficiency and the value of the FIX Protocol by reducing the time and effort it takes to on-board, certify, and deploy new FIX connections with counterparties. Additionally, in November 2015, we announced the publication of two specifications by the High Performance Working Group published on Github. Although highly technical in nature, there is an additional need for a high performance interface for order routing and market data to support the modern trading venue – a real business need. The work done on this encapsulates the spirit of the FIX Trading Community by addressing changes in the market place and making them accessible freely and publicly, allowing feedback from the market and developers. We strive to include people and will continue to do so and keep the Community and the market fully aware of the work that we do in 2016.

To finish, it would be appropriate to mention the work done by the various members of the Global Technical Committee. A new working group, originally called



FIX Trading Community Members *Premier Global Members marked in bold

360T Asia Pacific 42 Consulting Pte Ltd Activ Financial Actuare AFME- Association for Financial Markets in Europe Albourne Partners Ltd Algomi Algospan Ltd AllianceBernstein Alpha Omega Financial Systems, Inc American Century Investments Ancoa Software Aquis Exchange ARQA Technologies ASIC Australian Securities Exchange AXA Investments Managers Ltd B2BITS EPAM Systems Company Baillie Gifford & Co. Banco BTG Pactual Banca IMI SpA Banco Itau S.A Bank of America Merrill Lynch Barclays Baring Asset Management BATS CHI-X Europe Baymarkets AB Beijing RootNet Technology Co., Ltd. BGC Partners BlackRock, Inc. Bloomberg L.P. Bloomberg Tradebook Blue Ocean Company BM&F BOVESPA BNP Paribas Bolsa de Valores de Colombia Bolsas y Mercados Españoles (BME) Brandes Investment Partners LP Bridline Brook Path Partners, Inc. BSE Limited BT Bursatec SA de CV BVI Cameron Edge Cantor Fitzgerald Capital Group Companies, Inc. Cedar Rock Capital Charles River Development Chicago Board Options Exchange Chi-X Global Inc

CIBC World Markets INC CIMB Securities Cinnober Financial Technology AB Citi CL&B Capital Management Clearing Corporation of India Ltd CLSA Limited CME Group Colt Technology Services Compagnie Financiere Tradition Connamara Systems LLC Convergex Corvil CQG Credit Suisse CSC Daiwa SB Investments Daiwa Securities Group Inc. DATAROAD Dealogic DealHub Deutsche Bank Deutsche Boerse Group Digital Currency Labs Digital Realty (UK) Limited Dimensional Fund Advisors Drebbel DTCC Eastspring Investments (Singapore) Limited Ecodigi Tecnologia e Serviços Ltda Edelweiss Securities Limited Egypt For Information Dissemination Equinix Esprow Pte. Ltd. ETLogic Ltd ETNA Software Etrading Software Ltd EuroCCP Euronext Paris SA EuroTLX Exactpro Systems EXTOL Eze Software Group EZX Inc. FIA (Futures Industry Association) Fidel Softech Pvt Ltd Fidelity Management & Research Co Fidelity Worldwide Investment Fidessa Group First Boston Group FISD Fiserv FIS formerly SunGard FIX Flyer LLC Fix8 FIXNETIX FIXNOX Flextrade UK Ltd

Premier Global Members


Forex Capital Markets, LLC FpML Franklin Templeton Investments Gamma Three Trading, LLC GATElab GETCO Asia GFI Group Inc Goldman Sachs & Co. GreySpark Guosen Securities Ltd Hatstand HM Publishing Hong Kong Exchanges & Clearing Limited HSBC Bank PLC HSBC Global Asset Management ICAP ICMA (International Capital Markets Association) IG Group Holdings PLC Ignis Asset Management Incisus Capital Partners Indata Recon LLC Informagi AB InfoWare Infront AS ING Bank Instinet Integral Development Corp. Interactive Data Intercontinental Exchange (ICE) International Securities Exchange (ISE) Investment Management Association Investment Technology Group (ITG) Ipreo IPC Systems IRESS Limited IS Investment ISITC ISO Itiviti Jefferies J.P. Morgan Jordan & Jordan JP Morgan Investment Management (J.P. Morgan) JSE Limited KB Tech KCG Holdings Kotak Securities LCH Clearnet Linedata Liquidnet LiquidMetrix LIST Group LSE Group M&G MACD Macquarie Securities Limited


MAE - Mercado Abierto Electronico S.A. MarketAxess Markit Marshall Wace Asset Management Mawer Investment Management Metagen Metamako MFS Investment Management Mizuho Securities Morgan Stanley Investment Management Morgan Stanley MTS SpA Nanospeed NASDAQ OMX Neonet NICE Actimize Nikko Asset Management Nomura Asset Management Nomura Nordic Growth Market (NGM) Norges Bank Investment Management OCBC Securities Private Ltd. OMERS OMG (Object Management Group) On Budget and Time Ltd Ontario Teachers’ Pension Plan Board Onix Solutions [OnixS] OpenSettlement GmbH Options Clearing Corporation Options Technology Ltd Oslo Bors ASA Oyak Securities Pantor Engineering AB Peresys (IRESS) PFSoft Pioneer Investments Portware Primary E Trading Principal Global Investors Putnam Investments Quendon Consulting R3CEV R Shriver Associates Rabobank International Rapid Addition Ltd. Raptor Trading Systems, Inc. RBC Global Asset Management REDI Technologies Royal Bank of Canada Capital Markets S&P Capital IQ Real-Time Solutions Santander Global Banking & Markets SASLA (South African Securities Lending Association) Schroders Sequant Shanghai Stock Exchange SIFMA SimCorp

Singapore Exchange SIX Swiss Exchange Skandinaviska Enskilda Banken AB Sloane Robinson smartTradeTechnologies Societe Generale Southeastern Asset Mgmt Spring Securities International AB SR Labs Standard Life Investments State Street eExchange Solutions State Street Global Advisors State Street Technology Zhejiang Sumitomo Mitsui Trust Bank SWIFT Sycamore Financial Technology Symphony Communication Services LLC Systemware Innovation Corporation (SWI) Taiwan Stock Exchange Tata Consultancy Services Telstra Global The Continuum Partners The Nigerian Stock Exchange The Realization Group The Technancial Company The Vanguard Group Thomson Reuters TMX Atrium Tokyo Stock Exchange Tora Trading Services Tower Research Capital India PVT Ltd Tradeflow AB TradeHeader, S.L. Tradeweb Trading Gurus Trading Technologies TradingScreen Traiana (ICAP) Transaction Network Services, Inc. Transatron Systems Trax trueEX Group LLC Tullett Prebon Group Ltd Turquoise TWIST UBS Investment Bank ULLINK Versitrac Systems Corporation Volante Technologies Warsaw Stock Exchange Wellington Management Company Winterflood Securities XBRL Xetra (Deutsche Börse) Zeopard Consulting

New Member FIX Trading Community wishes to welcome the following companies to its growing worldwide membership. For more information, please visit: Clearing Corporation of India Ltd



Digital Realty (UK) Limited

Flextrade UK Ltd




NICE Actimize

Ontario Teachers’ Pension Plan Board

Oyak Securities


Sequant Symphony Communication Services LLC

The Realization Group

Tower Research Capital India PVT Ltd

Premier Global Members



Industry Resources Bloomberg Tradebook

Bloomberg Tradebook® is a leading global agency broker that provides anonymous direct market access (DMA) and algorithmic trading to more than 125 global liquidity venues across 43 countries. With unique tools and unrivaled standards of


Jefferies, the global investment banking firm, has served companies and investors for over 50 years. Headquartered in New York, with offices in over 30 cities around the world, the firm provides clients with capital markets and financial advisory services, institutional brokerage and securities research, as well as wealth management. The

Fidessa group

Exceptional trading, investment and information solutions for the world’s financial community. 85% of the world’s premier financial institutions trust Fidessa


execution, we seek new ways to deliver value to both the buy side and sell side—it’s about putting you first in challenging times. Founded in 1996, Tradebook offers its customer base trading solutions for equities, futures, options, fixed income and foreign exchange (FX) to actively manage complex trading strategies globally. Tradebook has been ranked as firm provides research and execution services in equity, fixed income, and foreign exchange markets, as well as a full range of investment banking services including underwriting, mergers and acquisitions, restructuring and recapitalization, and other advisory services, with all businesses operating in the Americas, Europe and Asia. Jefferies Group LLC is a whollyowned subsidiary of Leucadia National Corporation (NYSE: LUK), a diversified holding to provide them with their multiasset trading and investment infrastructure, their market data and analysis, and their decision making and workflow technology. We offer unique access to the world’s largest and most valuable trading community of buy-side and sell-side professionals, from global institutions and investment banks to boutique brokers and niche hedge funds. $20 trillion worth of

the top Broker for global equity trading in the Institutional Investor best execution league tables for the fifth year in a row. Waters Technology awarded Tradebook as Best Agency Broker in 2015. It also won the Wall Street Letter awards for best Futures ISV, Options Trading Platform and FX platform. Contact details:

company. Jefferies Group LLC’s principal operating subsidiaries are Jefferies LLC in the U.S., Jefferies International Limited in Europe and Jefferies Hong Kong Limited in Asia. Jefferies International Limited is authorized and regulated in the United Kingdom by the Financial Conduct Authority. Contact details:

transactions flow across our global connectivity network each year. Fidessa’s unrivalled set of missioncritical products and services uniquely serve both the buy-side and sell-side communities. Contact details:



Itiviti is a world-leading technology provider for the capital markets industry. Trading firms, banks, brokers and institutional clients rely on Itiviti technology, solutions and expertise for streamlining daily operations, while gaining sustainable competitive edge in global markets.


FIS is a global leader in financial services technology, with a focus on retail and institutional banking, payments, asset and wealth management, risk and compliance, consulting and outsourcing solutions. Through the depth and breadth of our solutions portfolio, global capabilities and domain expertise, FIS serves more than 20,000 clients in over 130


Thought leaders’ perspectives pack the GlobalTrading journal with the latest in industry trends, buy-side insight and global electronic trading news, however, it is only the tip of the iceberg of our offering.

With 13 offices and serving more than 400 customers worldwide, Itiviti was formed by uniting Orc Group, a leader in trading and electronic execution, and CameronTec Group, the global standard in financial messaging infrastructure and connectivity. From its foundation in 2016, Itiviti has a staff of 400 and an estimated annual revenue of SEK 700 million.

infrastructure built for today’s dynamic markets, offering highly adaptable platforms and solutions, enabling clients to stay ahead of competitive and regulatory challenges. Itiviti is owned by Nordic Capital Fund VII. Contact details:

Itiviti is committed to continuous innovation to deliver trading

countries. Providing software, services and outsourcing of the technology that empowers the financial world, FIS is a Fortune 500 company and is a member of Standard & Poor’s 500® Index. FIS’ solutions for capital markets help banks, broker-dealers, futures commission merchants and other financial institutions improve the efficiency, transparency and control of their trading and processing. From market connectivity, trade execution, risk management to accounting, offers our entire searchable archive of industry contributions, meaning that over 10 years worth of leadership commentary and content is available in an accessible format, entirely for free.

data management and tax reporting, our solutions provide cross-asset support for the entire trade life cycle. FIS acquired SunGard in November 2015. For more information about FIS, visit Follow us on Twitter at @FISGlobal Contact Details:

discussion? Contact us about our Face2Face Executive Roundtables. @FIXGlobalOnline and GlobalTrading Journal. Contact details:

Interested in meeting your prospects and clients in a neutral setting for a thought-provoking



My City

Philadelphia By Anthony Godonis, Senior Equity Trader, Aberdeen Asset Management

Best thing about your city? Philadelphia has a rich history. It was once the capital of the United States of America. The Declaration of Independence and the Constitution were signed here. Philadelphia was originally a major migration destination and manufacturing hub for America. Worst thing about your city? The traffic getting into the city is tough, and the sports fans can be pretty relentless. Getting to work? I live in Bucks county, so public transit


is how I avoid the traffic. It’s about an hour long, and many people commute from the suburbs. Thankfully, technology allows me to prepare for the day or decompress on the way home.

And a relaxed spot with friends and family? The Philadelphia Art Museum, the Franklin Institute, followed up by an authentic “wiz wit” cheese steak on Passyunk Avenue in South Philly.

View from your desk? The Ben Franklin Bridge, William Penn on top of City Hall and if I squint, South Philly.

Best place to stay when in town? The Ritz near City Hall. It is in the heart of the city.

Where to take your clients/brokers for dinner? Barclay Prime in Rittenhouse Square. Great atmosphere, service and the best steak in Philly, in my opinion.

Best tourist spot? The Liberty Bell or the Philadelphia Art Museum, where you better run up the steps like Rocky did.

Building A Global Firm - 2016Q1