Briefs

JMP Looks To Grow in NYC

JMP Securities plans to triple its market share of institutional commissions in the next five years by growing its presence in New York.

That was the message from JMP chairman and chief executive Joe Jolson to analysts in May during the San Francisco-based institutional brokerage’s quarterly conference call. The executive wants to expand JMP’s market share of the institutional commission pie from 36 basis points to 1 percent.

“To meet our goal, we need to build our sales and trading presence in the greater New York marketplace and improve our corporate access product and its delivery while continuing at the same time to grow the number of companies under coverage by around 30 percent to 450 to 500 names,” Jolson said. “We must also continue our efforts to increase the institutional relevancy of the companies we cover from the standpoint of market cap, as well as liquidity.”

Jolson’s assessment of JMP’s market share is based on data provided by McLagan, a management consultant that works with financial services companies. The exec noted that an increase to 1 percent over the next five years would translate into a doubling of its net brokerage revenues. Last year, the firm took in $22 million in net brokerage revenues, down from $36 million in 2008.

Peter Chapman


Largest Dark Pool Goes Dark on Its Data

Credit Suisse has stopped reporting trading volume data to industry record-keepers for Crossfinder, the largest dark pool.

The international financial services group is no longer reporting equities trading activity on Crossfinder to Tabb Group or Rosenblatt Securities, each of which keeps track of market shares of dark pools. The two industry consultancies get their data from broker-dealers and other dark venue operators.

“While we are disappointed that Credit Suisse has decided to stop reporting, it is hard to argue that continued self-reporting would do them much good,” said Tabb Group analyst Adam Sussman in a statement. “We still feel it is important for the industry to continue to try to measure these numbers, so we have no plans to cancel LiquidityMatrix. At least until regulators feel the same and put in place a better way for the industry to measure the volume and impact of different trading mechanisms.”

Justin Schack, managing director at Rosenblatt Securities, confirmed to Traders Magazine that Credit Suisse “is no longer reporting data to us for Crossfinder in the U.S.”

“We’re disappointed with Credit Suisse’s decision, but respect that the firm must ultimately do what it believes is best for its business,” Schack said.

Credit Suisse spokeswoman Katherine Herring declined to comment.

Merrill Lynch Bank of America, JPMorgan, ITG and Fidelity Capital Markets also do not report their dark pool volumes.

– John D’Antona Jr.


Buyside Wants More Info, Control of Algos

The buyside is looking for even more insight into and control over its algorithms.

That’s the viewpoint of at least one buysider, Mark Kuzminskas, director of trading at Robeco Investment Management, who is searching for more information about how his algorithms operate and how to protect himself from them, should one run amok.

Speaking at the 77th Security Traders Association of New York annual conference in New York, Kuzminskas said he is increasingly unclear as to how the different algos slice up his orders, and how they route and select venues for orders. This means he needs more risk controls and transparency about how algorithms are designed and work, he said.

“It’s not like in the old days, when you had a set of eyes watching each order. Now we’ve got over 40 exchanges, dark pools, etc., and it’s difficult to watch your orders and know everything that is happening,” Kuzminskas said.

Another way Robeco is trying to manage its algorithms is via pre-trade analysis. Kuzminskas said his system looks at various algorithmic parameters, such as where orders are being executed, what the various rebate and fee structures are and how that affects his costs. By looking at these factors, he can then estimate what happens to his order before execution.

“Our orders go to so many various venues, trying to understand the routing strategy and the algo’s decision making process is complicated,” he said.

The need for more control, risk protection and knowledge about algorithm decision-making will only continue at Robeco for as long as the firm continues to trade electronically, Kuzminskas added.

– John D’Antona Jr.  


 

‘Big Red Buttons’ Coming Soon

The major national exchanges are coming close to agreeing on a set of basic standards for how “kill switches” should work across all their markets, according to Burke Cook, managing director at Nasdaq OMX Group.

The plan for the switches, also being referred to as “big red buttons,” could be wrapped up for submission to the Securities and Exchange Commission in June, Cook said at the Securities Industry and Financial Markets Association 2013 Operations Conference in Florida.

The exchanges, broker-dealers, other market participants and the SEC have all been involved in “working out a solution,” Cook said, for preventing the kind of disruption caused last Aug. 1 by the flood of erroneous orders sent out by market maker Knight Capital Group.

“Everyone is in agreement that we need some form of a big red button,” Cook said.

Target date for launch of the unified systems would be by the end of this year, he said.

The standard approach would follow an outline submitted to federal regulators last fall by an industry working group.

Triggering a potential shutdown of abnormal activity would be a metric called “Peak Net Notional Exposure.”

One large sellside broker, Morgan Stanley, said it did not wait for the Knight event to start working on a kill switch.

“We have a big red button,” said executive director Denise Garrett. “We have it throughout our whole business.”

Actually, it’s “a little bit more like there are several big red buttons” through equities, bond trading and other parts of Morgan Stanley operations, Garrett said.

– Tom Steinert-Threlkeld


 

 

Nothing Left to Trade Soon

How many firms are there in the Wilshire 5000? Just 3,565.

There used to be 8,000 in this broadest index of what makes up American stock markets, according to Georgetown University associate professor James J. Angel, a longtime analyst of finance.

At the current rate of decline, “there won’t be anything left for us to trade in a couple years,” he said April 25 at the 77th annual conference of the Security Traders Association of New York.

Indeed, he said, if the “broken pipeline” for spawning new companies for traders to trade in is not fixed, there won’t be 500 publicly listed stocks to put in the Standard & Poor’s 500 by the year 2060, by Angel’s calculations.

David Weild, chairman and chief executive of Weild & Co., said stock markets need 360 companies to go public every year, just to replace the ones that merge, die or go private.

But the number of companies going public has declined each of the last 15 years, he noted.

The sub-$50 million initial public offering fell off the cliff in 1998, after new order-handling rules defined in 1997, Regulation Alternative Trading System and low-tick-size electronic markets gained ground.

Testing different tick sizes for smaller companies “is worth trying,” said R. Cromwell Coulson, chief executive of OTC Markets Group, which handles trades in 10,000 small companies. “We’re trying to put together an ecosystem for small companies that works.”

– Tom Steinert-Threlkeld


ISE Preps New Options Exchange

The International Securities Exchange will launch its ISE Gemini options exchange at the end of June, pending Securities and Exchange Commission approval.

“We are ready to go,” Gary Katz, ISE president and chief executive officer, told Traders Magazine during the options industry’s annual conference in Las Vegas. “Everything is in place.”

Gemini is intended to complement ISE’s flagship marketplace-and not compete with it-by appealing to a broader group of liquidity providers.

Because ISE does not pay a rebate, except in certain isolated cases, most quoting there is done by dealers hungry for large slices of incoming orders. ISE typically charges both liquidity suppliers and takers.

By contrast, Gemini will pay liquidity suppliers a rebate, according to Katz. That is expected to make it a more attractive venue on which to post quotes for professional traders and retail brokerages.

Despite the switch to maker-taker pricing, Gemini will not alter its order allocation model. It will keep the traditional pro rata model that rewards traders who quote in size. It will not adopt time priority.

– Peter Chapman


 

 

Credit Suisse Says Don’t Avoid the Open

Some equity traders are missing their chance for alpha at initial market openings.

That’s the latest finding from Credit Suisse analysts. In their latest report, “Timing the Trade,” analysts Phil Mackintosh and Ana Avramovic said waiting may cost traders alpha.

“By 9:40 a.m., it seems that the typical relationship between volatility and volume is already in effect,” they argue-and thus, trading should commence. By waiting to trade, traders can miss meaningful volume and will have to increase their participation rate to finish filling their needs in the time remaining, the authors said.

While there is a lot of volume at the open, Credit Suisse said it is also notoriously volatile and spreads are their widest. Knowing this, some traders choose to sit out the open and wait for the initial open trading barrage to end. Many traders also have a similar feeling around the close: Volumes are elevated-but so is volatility, they said.

Credit Suisse said the best day to trade is Thursday because it is the busiest. This makes some sense, the authors noted, as trading momentum builds during the week, but drops on Friday. Traders prepare for the weekend and international markets have already closed. Also, corporate earnings releases also follow this pattern. Credit Suisse also said that Friday has become more active over the years, but the last day of the week can be affected by single high-volume days, such as a triple witching day or index rebalance.

– John D’Antona Jr.

 

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