OTC trading is sometimes better!

The OCC is reporting a drop in on exchange trading in options on the US markets. At the same time OTC volumes are up! This is certainly strange in view of the increased emphasis on counterparty risk.

However, it looks like other factors are at play. High exchange fees, ease of execution and fear of being picked of by HFT seem to be the main drivers behind the shift in volume. Some arguments do make sense. Having your order executed in 20 tiny exchange trade is not always that convenient.

CBOE seems to be in the centre of the discussion as the have a monopoly on some of the listed derivatives.

Read the full article here (Reuters). The OCC report can be found here.

Virtu IPO... food for thought

A lot has been written and said about the IPO of Virtu and Flow Traders. In his latest post on Mechanical Markets, Kipp Rogers points to some risks topics people often forget when talking about HFT. He hits the nail on the head with his "Expansion in wholly new markets" comment. Interesting read for Monday morning.

Read the full story here.

Dutch newspaper De Telegraaf also published an article about the Flow Traders IPO. You can find it here.

Is the arms race ending as HFT firms merge technologies?

Last month KCG Holdings (the Knight/Getco combination) announced a joint venture with World Class Wireless, a technology company closely related to Jump Trading, to pool their array of microwave towers worldwide and jointly operate them.

Microwave towers are used by HFT firms to be faster than fiberoptic networks to connect them to the various exchanges.

According to the article in Traders Magazine, it signals a shift in the way HFT firms operate and compete. Over the years, these firms were involved in a technology race to be the fasted firm out there. Huge efforts and huge costs were made. Now  the end of this race appears in sight and the costs have come under scrutiny. 

According to the magazine it is a sign of a maturing market. Perhaps the local (and more modest) Dutch players can take a page from this scenario and see where they can save costs by combining their technologies. Click here for the full article.

EU's Economic Committee accepts benchmark rules

The European Parliamant's  Economic Affairs Committee has voted in favor of new legislation protecting European benchmarks such as LIBOR and EURIBOR and other benchmarks from manipulation.

The vote was overwhelmingly in favor of the draft legislation and will now proceed to the full EP for final adoptation.

Read the draft legislation here

Flash vs Flash

The IB times reported a law suit today of Chicago HFT firm HTG Capital Partners. They are sueing another HFT firm for 'spoofing' activities in T-Bonds.

The most interesting thing is that consensus among HFT firms is that 'spoofing' does not happen. The name of the other HFT firm is not mentioned.

read the full article here

Not too big to fail

More pushback from the industry against further regulation. Trafigura, one of the largest commodities traders world wide has issued a white paper in cooperation with Craig Pirrong of the University of Houston. In the paper, titled Not too big to fail, Pirrong argues that even stricter capital requirements on commodity traders are not necessary (as the crash in oil has proven that they can withstand major fluctuations) and can lead to deleveraging and wider prices.

The argument is only made for commodity firms as they do not pose a systemic risk like a major bank.  So, it looks like we continue into a new phase of Mifid busting. "Pick on them, not us". 

Read the full white paper here. 

A new exchange is trying to change the world of derivatives trading in the US

trueEX Group LLC, a fairly new exchange in the US, gained considerable market share in Interest Rate Swaps without support of the big US investment banking community.

Read the full story here.

Prop Roundtable Paper

FOW organized an interesting roundtable discussion in the UK and published a PDF document. Interesting read. If you're familar with the industry, there is nothing new or shocking to discover but it would confirm what you probably already know; the nature of traders is changing to the 'nerdier' type (sorry boys), margins will remain thin, costs to enter, regulatory changes, and difficulty in clearing higher the barrier to enter, discouraging new blood into this industry.

Read the full article here 

Does HFT have a future?

If you're a fan of American tv-series, you will know that the US Patriot Act is often used as a sort of 'enabler' to get things done, bypassing the usual rules.

According to Craig Pirrong, professor at the University of Houston, the same thing could apply to the DoddFrank act and HFT. He feels that, regardless of actual argumentation or merits, the Act can be used to kill off HFT, just because HFT is of inconvenience to some.

Click here for his article and blog.

PWC study outlines growth and opportunities in the ETF market

No need to argue the growth that ETF's have made over the last years. According to a study from PWC, this growth will continue. PWC outline the opportunities for asset managers in this ever growing segment. The full article can be found in our studies section. Click on  the ETF section

Hibernia Project Express advancing steadily.

The new submarine cable between the US and the UK is progressing steadily and should be available summer 2015. This will reduce latency to the US. You can get updates on the progress via: http://go.hibernianetworks.com/project-express