More parties chiming in on TOM vs deGiro

Way back in december 2014, online broker DeGiro issued a paper debunking a claim from competitor Binck that it is better to use TOM's platform for order execution on TOM/Euronext due to the best execution mechanism above executing directly on Euronext.

The paper got quite the media attention in papers, television and financial market blog Amsterdam Trader. And, of course there were the obligatory threats of bringing the suits in. Meanwhile things still did not die down, despite the fact that TOM closed down the stock market section of the TOM MTF as it was not gaining enough market share anyway.

In May, Dutch broadcaster VPRO rekindled the discussion in their ARGOS broadcast. For their research they contacted Alexandre Laumonier, author on HFT and active blogger on the site 'sniperinmahwah', who in response also wrote an article on it today, which in turn is getting a response from TOM itself. 

And so the saga continues. Famous soccer coach Louis van Gaal would probably say: 'it must be getting cucumber time' and nobody who's not Dutch would understand him. (it means that as there is nothing really newsworthy to report, media turns to older stories or human interest stories)

LME looking to improve liquidity

Interested in trading metals? The LME launched a month-long consultation on proposals designed to broaden access to its electronic trading platform. 

According to LME the proposals are crucial to  maximize liquidity and participation. CEO Garry Jones believes that opening up access to trading on LMEselect is beneficial to everyone  active on all LME's venues. 

More flexible application criteria for LME membership may lead to some prospective members benefiting from exemptions from the UK Financial Conduct Authority (FCA).

The effort is an important step in  LME’s liquidity roadmap.

Join Inside ETFs Europe on June 8

From Monday 8 june till Wednesday 10 June a large ETF conference is held at the Okura in Amsterdam.

More than 500 industry professionals will gather to learn more about ETF's and have in-depth discussions on latest trends in the ETF market at the 6th annual Inside ETF's Europe.

We will cover the event at Brokerdealer.eu and summarize the proceedings but do consider joining the event yourself. It looks to be a great event.

The event will kick off on Monday with some ETF basics such as understanding what ETF's are, how to trade them and how to choose the best ETF's for different asset classes. In the afternoon, focus will shift towards Smart Beta ETF's, Fixed Income ETF's, commodity ETF's and currency ETF's. The session is closed with a keynote adress by Professor Jeremy Siegel providing his outlook on Global equity markets and interest rates and a coctail drink session.

On Tuesday the session proceeds with keynote addresses on how ETF's are changing the investment world, a macro economic discussion on finding investment opportunities and the future of ETF's. During the lunch a Q&A session with Dutch football legend Ruud Gullit is held. In the afternoon 6 'track-sessions' will be held with panels consisting of different industry professionals detailing the usage of ETF's for different markets and purposes. After the closing keynote of former White House advisor Pippa Malmgren, a reception is held at the famous van Gogh Museum.

On Wednesday, the conference is closed with a recap, a panel discussion on platforms and Smart Beta, a live trading demonstration on finding liquidity and regulation topics. The final word for the conference is given to Nick Leeson, perhaps one of the most famous 'trader turned big house resident' ever. Leeson now gives speeches on risk and corporate responsibilty using his vast practical experience in that area.

All in all a very worth-while conference to learn about one of the fastest growing sections of our industry and a great place to meet interesting industry peers.

Check out the conference website for more information and registration.

Collateral damage?

Transaction cost shocks in financial markets are known to affect asset prices that banks use to collateralize borrowings in monetary policy operations. 

The ECB published an interesting paper presenting a micro-simulation of the impact by transaction cost shocks on asset prices. The conclusion is that banks will on average suffer small collateral losses while selected institutions may face considerably larger collateral decreases. 

The simulation shows that, when disregarding effects on turnover, a 0.1 percentage point increase in transactions cost causes a decrease of -0.30% in collateral value. When taking the effects on the turnover of debt instruments into account in the order of 25% or 75% the collateral value is shown to decrease by -0.22% and -0.07% respectively. 

The study also shows that different assets are impacted differently. Uncovered bank bonds, central government assets and corporate bonds are affected the most with decreases by -0.96%, -0.91% and -0.34% respectively. 

The fight over FTT continues

Yesterday the EU stated that the EU commission is close on reaching a compromise on the discussed Financial Transaction Tax (FTT). The full Bloomberg article can be found here

It is interesting to note that the EU members remain divided over introducing an FTT, the possible compromise would still be without the UK and the Netherlands participating. The European Banking Union rightfully noted that an introduction of FTT in only some countries of the EU would be inconsistent with the EU efforts to build a capital markets union.

In the States meanwhile, Presidential hopefull Bernie Sanders made FTT a part of his campaign, stating that he would tax 50 cents on every 100 USD traded in equity value to provide better education and shrink trading (effectively killing HFT). According to him, both moves would improve and stabilize the economy. Realistically, it will be a cold day in hell when he gets elected but it does show that FTT is still far from dead and still a great tool for politicians to rally the masses.

Meanwhile it would be good to step away from the rhetoric and look at some studies conducted on the effects of FTT. In our studies collection there is a very interesting study from the University of Duisburg. They looked at Italy where FTT was already introduced and measured its effect. They saw an increase in volatilty and a widening of spreads. Read the article here.

Another interesting document is a study done by the City of London Corporation (perhaps not completely unbiassed). They used another angle and researched how an FTT would affect household savings. That is one of the things that usually gets lost in all the rhetoric of the FTT proponents, at the bottom line it will be the end-client that pays the bill.

Tullet Prebon launches matching engine for alternative investments

Tullet Prebon is one of the largest interdealer broker worldwide. It has now launched a matching engine for alternative investments called TP-AIME. The enigine will also serve as an auction facility for secondary investments in hedge funds, private equity and real estate funds.

The matching engine is the first of its kind and Tullet Prebon believes it will increase transparency and simplify transactions in a relatively opaque market.

Users of the plaform will be 'LP's' (Limited Partners) such as the funds to buy or sell illiquid interests and 'GP's' (General Partners) such as private equity firms looking to run auction events.

Read the full press release here

HFT don't spoof markets, people spoof markets

A debate on HFT was held at the CFA Institute conference in Frankfurt in April. Panelist included Haim Bodek, in the Netherlands best known for his contributions to VPRO's Tegenlicht documentary on HFT and James Freiss, former white collar crime fighter at the US Treasury.

While the opinions on the matter differed, there were a number of things the panelist could agree on.  

First, it is important to understand that HFT in itself is not a strategy, it is a technology. It is nothing more than a tool. HFT as a tool can add liquidity to the markets but it can also be used to for illegal or unethical activities. So, just like with any other tool, it is a question of how to regulate and monitor the people operating the tool and not just condemn the tool itself.

Read the full article here

Putting the Flash Crash in perspective

Mechanical Markets often hits the nail on the head when writing about the trading industry. In his most recent blog he put the flash crash in perspective as well as underlining the fact that exchanges do require additional safety checks. 

You can find the blog here. Check out the other topics as well. It's well worth the read!

An objective look at HFT and dark pools

Sometimes it takes a knowledgeable outsider to bring some perspective and simplicity to a complex environment. That is especially handy when you only need to learn the essentials without becoming an expert.

Enter, PWC. They wrote a clear and concise position paper on dark pools and HFT. A clear explanation of what these phenomenons are and a list of their advantages and disadvantages. 

Read the position paper here

Exchanges crack down on market manipulation

Regardless of the true effect that Sarao had on the 2010 flash crash, one thing seems to be certain. He was manipulating the market and the CME was widely critizized for letting him get away with it for so long.

So, not hard to imagine that in different board rooms at exchanges and regulators, market supervision was a hot topic. The outcome is predictable as well. Read the full article here

How tech startups will become major competitors to HFT trading

It used to be relatively easy for the financial industry to attract the smartest people in the workforce. High salaries, big bonusses and the aura of succes when you'd be working for a major investment bank on Wall Street or the City. Prop trading firms were the first companies to offer more than just a desk and a big paycheck to keep the traders happy. In-house chair massages, play rooms with a bar and football tables, luxurious company outings, design offices, name it and they had it. The mantra was, work hard, play harder.

Tech companies took a page from that playbook, combining a good environment to work in, then work your butt off and reap the benefits from a sky high valuation of the stocks everyone was given. 

The financial industry has rapidly lost its appeal. The outside world identifies the industry with greed, and overpayed risk takers gambling away money and screwing the economy. It will take years (if ever) before the image of the industry will be restored. Tight regulation also does not add to the appeal as it curbs opportunities.

So, the best and the brightest are increasingly looking for opportunities outside the industry and for those with a quant background, Silicon Valley is the way to go. 

Quants, the people that lifted this industry from a gut instinct trading community to a data mining technology driven trading bot are now more popular than ever in Silicon Valley. After all, it is all about data science and optimizing the data. Wheter it be Google, Uber, Amazon, or Goldman, it is all about making sense of the data that drives business.

Working in 'Silicon Valley' is the new sexy. Hard work, long hours, fun offices, chair masages, and huge financial opportunities much like working for an HFT firm. But, witout the negative stigma. And, if trading does not pan out, the experience in working for a tech company can easily be applied anywhere else in the Valley.

In this article, the author signals this trend and foresees that tech companies will not just be the drain of good work force but also become the major competitor to the the industry as they will have the technology, the data and now also the knowledge.

Getting the most out of yourself or your people

"“Until you make the unconscious conscious, it will direct your life and you will call it fate.” Carl Jung

Being successful in this financial industry means you've not only invested successfully in the market, but also successfully invested in yourself. Years of studying and hard work has gotten you where you are now. 

But, there's more to be gained, more from yourself and more from the people you employ. Once you understand what propels you forward or, holds you back, you can get the most out of the qualities you possess.

Psychology helps to understand what makes people 'tick'. And for the financial industry there is an expert out there with his feet firmly planted in both the world of finance and psychology. Brett Steenbarger has been working as a trading coach for several funds and is also an associate professor at SUNY in Syracuse.

If you want to self-develop your skills as a trader, it is recommended to read his books or follow his columns on Forbes or his . It's easy to read and directly applicable to our business.

Flash crasher not a flash boy

After a 5 year investigation, the CFTC finally has found someone they can tie to the infamous flash crash of of May 6, 2010. 

UK resident Navinder Sarao, a relatively small futures trader has been charged with wire fraud, 10 counts of commodities manipulation and 1 count of spoofing.

Sceptics, like Zerohedge see a 'patsy', an Oswaldesq scapegoat found to deflect blame for HFT and a failing controlling body like the CFTC. Regular media meanwhile call Sarao an HFT trader, while industry professionals are quick to point out that someone trading off a spreadsheet, using 'off the shelf' trading software from a residential house in London suburbia can by no means be considered HFT.

Perhaps Sarao was just innocently 'at the wrong place, in the wrong time', perhaps he was a petty market manipulator caught in the 'perfect storm', or even perhaps he was the perfect scapegoat working at the book depository. All these scenario's are better than the idea that a single 'nobody' can crash the market. If that's really the case, there is a serious problem with the way the market operates.

EU think tanks speaks out against FTT

Bruegel is a EU think tank based in Brussels. According to this article in Reuters they have now spoken out against a number of issues that the industry have been rallying against for quite some time. These arguments are now picked up by the Latvian presidency of the EU and quoted in papers for the EU finance ministers.

Bruegel states that an FTT as wanted by 11 EU countries may be detrimental to economic development. They also suggest that the EU should wait with further legislation to have banks isolate their trading activities (market making).

According to Bruegel, the EU needs to set a clear list of priorities to create a true Capital Markets Union (CMU). A CMU can stimulate growth in the EU.

Tradetech Paris

Last week the wise men of the financial world gathered in Paris to discuss the future of the equity markets in the Tradetech conference. A very good blog was written by Tim Cave summarizing the key takeways from the conference. So, for all that were not there, catch up by reading this article.

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.