December 2, 2013

Industry Wary of Single Platform

By

Peter Chapman

Despite a growing trend of electronic trading in asset classes other than equities, industry officials are divided over the need for a single trading platform to trade multiple asset classes.

Speaking at a recent industry conference, Eric Noll, head of transaction services at Nasdaq OMX Group, noted that his firm bought the eSpeed bond trading platform in April partly in response to broker-dealers' need to move all trading onto a single platform.

"It's not uniform across the Street," Noll said at this year's SIFMA market structure conference, "but we are seeing increased convergence.

Electronic trading is certainly catching on in asset classes besides equities. eSpeed is used primarily for trading U.S. Treasuries, but Nasdaq, in its April announcement, noted it would expand the service to other fixed-income securities. In foreign exchange, new trading platforms, execution management systems and algorithms are becoming part of the landscape. Finally, due to new regulations, former over-the-counter instruments such as swaps are now being traded electronically on new exchange-like platforms.

At least one broker agreed that technology, regulation and economics were driving more asset classes towards electronic trading, but cautioned it was difficult to trade everything on a single platform. "If you have a robust electronic trading platform, that's a good start," Sapna Patel, head of market structure and liquidity strategy at Morgan Stanley, told SIFMA conference-goers. "But many of the different asset classes can't easily be traded on that platform."

Patel noted that different asset classes have different trading characteristics and different regulators. "FX doesn't trade like rates, which in turn don't trade like credit," she said. "You have to take the individual characteristics under consideration if you're trying to trade them over the same platform."

Likewise, a buyside trader in attendance was also skeptical. Nanette Buziak, head of equity trading at ING Investment Management, noted that organizational structure had to be considered. At ING, the fixed-income and equities trading desks are in two different cities.

Still, Buziak is optimistic. "Over time we'll see a bit more convergence onto electronic platforms, but I don't know if we'll ever have one desk that trades everything."

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