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Sell-Side Clearing Businesses Turn to Technology to Address Hiring Challenges

By
Press Release
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Strategic Workforce Development: Talent and Technology is free to read. To download your copy, click here

London – 27 November 2023: Sell-side clearing businesses are pursuing technology investment as one of the levers to accelerate business growth as they find it increasingly difficult to hire and retain talent, an ION-partnered Acuiti study reveals.

Strategic Workforce Development: Talent and Technology, released today, is based on a survey of senior clearing executives at 78 firms across the sell-side. The study found that almost half of respondents, including 76% based in Asia, said attracting younger talent to their derivatives business is significantly challenging.

Executives were most likely to report a talent shortage in their clearing operations business, and in margin management.

The reasons behind the increased challenge are complex and varied by region. However, the most common factors cited by survey respondents were the high-pressure working environment in finance and the greater appeal of other sectors.

The difficulties in developing the next generation of talent in sell-side derivatives operations are forcing firms to increase wages. They are also causing significant concern over succession planning and continuity should key staff leave the business.

In response to the challenges, the study found that firms had sought to improve company culture. In addition, firms are turning to process automation to eliminate manual processes and unlock time for higher-value activities, improving morale and work-life balance to reduce employee attrition.

Almost three-quarters of firms had invested significantly in post-trade technology over the past three years. 83% of respondents said this had improved employee satisfaction, while 66% said it improved the work-life balance.

“This study finds that firms across the sell-side are turning to automation and technology investment to address some of the challenges they face in hiring and retaining talent,” says Will Mitting, managing director and founder of Acuiti.

“This challenge has become more significant over the past 12 months as the operational environment in clearing businesses has improved, resulting in greater demand for talent to grow.

“Automation and technology investment will go a long way to solving the challenges faced, but ultimately, firms must also expand their strategies to hire and retain talent and look to non-traditional avenues.”

Francesco Margini, Chief Product Officer for Cleared Derivatives at ION Markets, said: “At ION, we simplify how people work. We do that by automating processes and workflows, and providing value-added information in real time to help people make better decisions. Our mission-critical solutions provide integrated trading and clearing connectivity to exchanges and clearinghouses around the world, enabling customers to execute, allocate, and clear their business seamlessly with increased operational accuracy. The result is reduced stress and greater efficiency, freeing up time to focus on higher value activities and grow the business.”

Gensler: Remarks Upon the 20th Anniversary of the AMF

By
SEC
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Chair Gary Gensler

Paris, France (Via video)

Nov. 23, 2023

Bonjour. My thanks to Chair Marie-Anne Barbat-Layani for the opportunity to congratulate the AMF upon your 20th anniversary.

You know, coming together as a securities regulator, you have an important mission. And while it’s not exactly the same as ours here in the U.S. at the SEC, it captures so much of what we both do. Looking out for investors, ensuring that issuers can access the markets, and—I understand from your mission—it’s about ensuring that material information is put out there to investors. It’s about ensuring for the fair and orderly markets that bring those issuers and investors together.

During the last 20 years, the SEC has counted on the AMF as an important partner in fulfilling our respective missions. Again, though our missions differ, I think at their core there’s some real commonality. We’re disclosure-based regulators ensuring that investors get the material information they need and that issuers can rely on a fair, orderly, and efficient market. It’s about ensuring that there’s not fraud or manipulation in those markets as well.

Here at the SEC, we work to make sure that markets are efficient, competitive, resilient, transparent, and worthy of the public’s trust. And I know at the AMF, while the words might be different, you are working towards a very similar set of goals.

I’ve been privileged to serve not only at the SEC but in prior administrations working alongside your earlier AMF. And what I know from those 20 years—13 of which I actually worked with the AMF alongside of you all—I know that we share these joint missions.

I also know that a lot’s changed in these last 20 years, driven by technology, changes of markets, a further globalization of the capital markets, and, yes, the electronification of markets. Both the AMF and the SEC seek to make sure that we still achieve our missions on behalf of investors and issuers alike—and those fair and orderly markets in the middle—given the new times and challenges.

Of course, there’s new challenges on the horizon, the remarkable change of predictive data analytics, and how artificial intelligence has already changed a lot of what’s happening in the capital markets. And how at just a tap of a button or the use of a cell phone, you can trade nearly 24 hours a day, seven days a week, around the globe.

I also know from my years of experience working alongside the AMF and knowing the dedicated staff of the SEC that what really makes a good market regulator—or a good supervisor, if I use your term—is somebody who’s dedicated to the public. Somebody who every day comes in with a little bit of humility but comes in fearless to protect the public, to look after those investors and issuers alike, to do right by the public, and instill confidence and trust in the markets.

For me, speaking as chair of the SEC, I can’t help but think of a quote from a critical SEC report that came out 60 years ago, in 1963. The report said, and I quote, “No regulation can be static in a dynamic society.”[1]

You think about that. Everything’s changing so quickly.

Further, the report continued, and I quote, “Unanticipated changes in the markets and the broader public participation should be accompanied by corresponding investor protection.”

The focus on investor protection.

And in recent decades, we’ve seen tremendous growth and change in our capital markets in France and the U.S. alike—more people trading than ever before, using tools and technology that were unavailable and maybe unthinkable even a few years ago. Further, the technology is rapidly evolving. From electronic trading and the cloud, artificial intelligence and predictive data analytics, these changes are transforming how our markets operate, how businesses conduct business, how investors invest.

The challenges that we both face at the AMF and the SEC, I think at the core, are how we continue to drive efficiencies, promote financial stability, meet the match of the bad actors to protect against fraud and manipulation, and yes, modernize our rulesets—as markets grow and evolve.

Our mission—serving Americans here and you serving your public there—demands no less.

After all, no matter how remarkable our country’s respective capital markets are, we cannot take them for granted.

Look, we all know a gold medalist doesn’t become a gold medalist unless they train and they continue to train. Well, I guess given that France will be hosting next year’s Summer Olympics in 2024, this point might already be on your minds.

I congratulate the AMF again on this 20th anniversary. I thank you for working so closely with us here in America these last 20 years. And I wish your team and your public success in the decades to come.

Source: SEC

[1] “Report of Special Study of Securities Markets of the Securities and Exchange Commission” (1963), p. IV, available at https://www.sechistorical.org/collection/papers/1960/1963_SSMkt_Chapter_01_1.pdf.

ON THE MOVE: Mike Sparacino Returns to Matrix; PGIM Gets Sancia Dalley

By
Anna Lyudvig
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Mike Sparacino

Matrix Executions has welcomed back long-time sales trader and career derivatives industry professional Mike Sparacino to the Matrix team as the company’s Head of Options Routing Strategy. Sparacino brings over 15 years of experience to the table and a unique understanding of both derivatives and routing to Matrix’s clients. Sparacino re-joins Matrix Executions from Cboe Global Markets where he spent two years as Sell Side Accounts Sales and Coverage Director. Sparacino initially joined the Matrix Executions team in 2018, holding roles in both Electronic Sales and Business Development. In his new role, Sparacino will be working on several Matrix initiatives to assist with development and strategy in Matrix exchange navigation, order routing, algo strategy, and analytics projects. He will also provide tailored support to the company’s Sales and Sales Coverage Teams.

Sancia Dalley

PGIM, a $1.2 trillion global investment management business of Prudential Financial, has hired Sancia Dalley as a managing director in the PGIM Office of Diversity, Equity & Inclusion (DEI). In this role, Dalley will oversee the DEI Investment Portfolio and HBCU Investment Strategy. Dalley comes to PGIM from Robert F. Kennedy Human Rights, where she served as senior vice president of investor engagement. Early in her career Dalley worked with the former U.S. Ambassador to the United Nations Richard Holbrooke to build the Global Business Coalition, a CEO-led organization to drive resources and policies to much-needed countries impacted by critical health issues.

Michel-Alain Proch

Michel-Alain Proch has been appointed Chief Financial Officer and a member of the Board of London Stock Exchange Group (LSEG). Reporting to David Schwimmer, he will join LSEG on February 26, 2024 before joining the Board as CFO on March 1, 2024, subject to regulatory approval. Current CFO Anna Manz will step down from the Board and leave the Group. Proch is currently Group Chief Financial Officer for Publicis Groupe. Prior to this, he has held several listed company CFO positions, notably at Ingenico and Atos, where he was also CEO, North America and Group Chief Digital Officer.

BlueFlame AI has appointed Justin Guthrie as Chief Financial & Strategy Officer. He brings two decades of experience servicing the asset management industry across multiple spectrums. Prior to BlueFlame, he was COO at ACA Group. In addition, James Tedman has joined BlueFlame as Head of Europe and Head of Information Security. He has spent over 20 years working in the alternative investment sector. He also joins from ACA Group. BlueFlame AI has also hired Michael Donnelly as Head of Client Success and Mauri Lowery as Director of Executive Operations.

If you have a new job or promotion to report, let me know at alyudvig@marketsmedia.com

The Algo That Strikes Opportunistically, In and Out of the Dark

By
Shanny Basar
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Liquidnet Barracuda, a liquidity-seeking algorithm that combines dark aggregation with lit trading, has been found to source liquidity expediently and favourably without incurring significant market impact.

Barracuda was launched in 2016 as part of Liquidnet’s Algo suite to combine the firm’s block offering with the opportunity to execute in the broader market ahead of the implementation of the European Union’s MiFID II regulations which capped trading volume in dark pools. The algorithm was designed to simultaneously seek a block in Liquidnet’s dark pool and opportunistically search for available liquidity across other lit and dark markets. Barracuda receives buy-side access to the Liquidnet pool, in addition to extensive reach across EMEA conditional and dark venues. 

The algorithm intelligently executes more when favourable liquidity conditions exist and slows down when liquidity is scarce or less attractive according to Liquidnet. Traders can choose how they want to  balance speed of execution against potential market impact by customising Barracuda’s aggressiveness across both its lit and dark components .

Liquidnet analysed Barracuda orders in EMEA between 1 January and 31 August 2023. Orders that were eligible for opportunistic liquidity capture outperformed by achieving an execution price that was better than the arrival price, and interval VWAP (Volume Weighted Average Price) according to a report. 

Barracuda’s market impact against arrival price was -4.9 basis points. In contrast, if the orders had been executed primarily in lit markets they would likely have incurred significant market impact, which Liquidnet’s internal transactions cost models projected  would have been 22.3 basis points, nearly four times higher that Barracuda’s market impact. 

 Conor Diviney, Liquidnet

“Further, to minimize that potential market impact, many of these orders may have been worked in the market over several days,” added Conor Diviney, equities execution consultant at Liquidnet. “This would have increased susceptibility to price risk, something many traders might not consider suitable, especially for flow with elevated embedded alpha.”

Diviney stressed that Barracuda is first and foremost a dark liquidity-seeking algorithm, with 77% of the notional transacted in the dark and 29% completed on conditional venues.Further, fill size in Liquidnet was over five times greater than the fill size achieved in outbound conditional venues. Executions in Liquidnet saved clients 10.3 basis points of market impact that they would have otherwise incurred compared to 9.5 basis points in outbound conditional venues.

“Relative to trading the algorithm’s dark fills over time in lit markets, the analysis has shown Barracuda delivers 6.2 basis points of savings to clients,” said the report. “Furthermore, the opportunistic logic embedded within the algorithm’s lit slices also yields benefits, saving clients 10.4 basis points on average, if it activates.”

The report gave some examples of how Barracuda has been used. For example there was a $7m buy order of a Spanish mid cap where prices moved abruptly upwards, through the order’s limit, in the first minutes of the order and then gradually reverted back toward arrival during the afternoon, 

“The market had moved as well, and the name remained fairly valued during much of that time, but spreads were relatively wide and touch sizes had not changed,” said Diviney. “In these situations, the opportunistic logic will not activate, ensuring participation rates remain as expected and demonstrating how the three signals working in concert can achieve a better outcome than any one alone.”

Barracuda can be a critical piece of the trader’s toolkit, helping traders to capture liquidity when speed, but also sensitivity, of execution are paramount.

Introducing Tradu: A Powerful New Multi-Asset Trading Platform

By
Press Release
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22 November 2023, London – Tradu is a new, sophisticated multi-asset trading platform for the active trader and investor offering thousands of tradable assets* across listed equities, commodities, cryptocurrencies, CFDs, forex, treasuries and indices. The platform will launch in the UK in December before rolling out globally over the coming months. Tradu is part of Stratos Group International, LLC (“Stratos”), a wholly owned subsidiary of Jefferies Financial Group Inc. (“Jefferies”) (NYSE: JEF).

Historically, multi-asset trading has involved either having many accounts and mobile apps or using one confusing platform with a disjointed experience for each asset class. Tradu is redefining the trading industry by providing clients with an intuitive and advanced platform with a superior trading experience across each of the tradable markets, all from one portal that can be accessed via a mobile app and web platforms.

The multi-asset trading platform offers trading in listed equities, cryptocurrency markets and CFD trading, with the ability to apply leverage on stocks, indices, commodities, forex and cryptocurrencies*. In addition to multi-asset trading, Tradu’s eWallet* provides clients with the convenience of a virtual and physical debit card as well as seamless transfers between trading and eWallet accounts. 

Tradu combines deep market access, state-of-the-art technology, decades of trading expertise and institutional-level pricing to offer an innovative platform that active traders and investors deserve. Clients can trade a range of assets on both a leveraged and unleveraged basis, with competitive and transparent pricing and personalised support with capable and accessible, human customer service. 

Brendan Callan, CEO commented: “Tradu has been built by traders for traders to provide them with the platform they deserve – one that offers access to a variety of markets, all from one seriously powerful, sleek app. Too much of the retail trading industry has focused on gimmicky features, trend-chasing and gamification. Instead, we are laser focused on serving traders’ needs, offering aggressively competitive pricing, professional trading tools and a client service team that strives for excellence. Tradu is launching the next evolution of mobile trading to UK clients and will soon be expanding globally.” 

Sign up at www.tradu.com for more information and to be notified as soon as Tradu goes live in your region.

—

*Products and services offered vary by region

About Tradu

Tradu is headquartered in London with offices around the world. The global Tradu team speaks more than two dozen languages and prides itself on its responsive and helpful client support.

Stratos also operates FXCM, an FX and CFD platform founded in 2001.  Stratos will continue to offer FXCM services alongside Tradu’s multi-asset platform.

Stratos subsidiaries are authorised and regulated in the UK, Europe, Australia and South Africa. 

The Rise of ‘Prime of Prime’: Plugging the Gaping Hole Left by Traditional Prime Brokers

By
MaxxTrader
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By Tracey Kent, Head of Broker Dealer Sales, EMEA, MaxxTrader (an SGX Group company)

In the world of FX, significant changes are reshaping the market as we know it for hedge funds, broker dealers, and prime brokers (PB). According to a recent Acuti Report exploring some of the risks associated with PB consolidation, concern about the dependency on key providers remains high across the industry. The study states that a staggering 70% of hedge funds in this study are either very or quite concerned about the impact that the withdrawal of one or more of their FX PB providers from the market, would have on their business.

Over the past few years, there has undoubtedly been a notable shift as banks have either exited the PB business or become highly selective about the clients they serve. This situation has resulted in smaller funds and brokers experiencing the consequences of being excluded from conventional prime broker services.

As a result of this transformation, the concept of “Prime of Prime” has gained traction. Prime of Prime providers are stepping in to fill the void left by traditional bank prime brokers. While some have proven unsuccessful, others have performed better by extending their services to cater to the lower end of the hedge fund market.

The reasons behind this shift are multi-fold. Firstly, traditional bank prime brokers have set high minimum requirements, making it difficult for smaller players in the market to access their services. In an environment where many brokers are transitioning back to a warehousing model rather than offering a direct connection to market and liquidity providers, they are charging minimum service fees to extend credit lines and market access.

Prime of Prime liquidity providers typically charge higher service fees, yet their value becomes increasingly apparent as the FX market consolidates. These Prime of Primes offer the best means to access a diverse range of liquidity providers all in one place. This is especially significant for smaller players who may possess limited access to tier one liquidity and could be at risk of being offboarded by their prime broker.

Even large broker dealers, which you might not expect, are hedging their bets by engaging with multiple Prime of Prime providers. This diversification of their counterparties acts as a safety net should they find themselves offboarded by a bank prime broker. Establishing a bank prime broker relationship can take 6-12 months, while a Prime of Prime relationship can be established in a matter of weeks or months.

Following a period of waning influence of some years due to the easily accessible bank prime broker offerings, we are now witnessing the resurgence of Prime of Primes. Traditional players have been replaced by global names with strong balance sheets that can extend credit to the market. As a result, smaller hedge funds have increasingly turned to their services, as valuable allies.

However, as the risk increases for these remaining Prime of Primes, given their expanding client base, they need to ensure their pre-trade credit risk checks and post-trade automated hedging and reporting, not to mention poison risk management capabilities are the best-in-class.  In an ever-fragmented technology vendor landscape, they require the right technology and connectivity to efficiently price clients and manage the diverse flows into one consolidated tech stack. This transformation is not limited to hedge funds alone. Broker dealers have embarked on a similar journey, although prime brokers initiated the off-boarding process of broker dealers much earlier.

The evolving FX landscape has unquestionably brought about significant changes in the prime broker business. The rise of Prime of Prime providers is reshaping the industry, offering a lifeline to smaller players and diversifying options for even the largest institutions. As the asset class continues to transform, the agility and adaptability of Prime of Primes will remain important for clients seeking a competitive edge in this ever-changing environment.

Instinet Launches BlockCross in Japan

By
Shanny Basar
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Instinet, the agency broker owned by Nomura, has launched its conditional order management platform, BlockCross, in Japan adding to its expansion in Asia this year.

BlockCross has connected to NX, Nomura’s dark pool in Japan.

Gael Vasseur, Head of Global Execution Services, Japan at Nomura, told Markets Media that the bank has been the number one broker in Japan for many years, with a large franchise allowing it to reach and connect with various types of investors including institutions, corporates, and retail.

Gael Vasseur, Nomura

“NX is the largest Japanese dark pool which adds value for both international and domestic investors, and its liquidity is a game changer,” added Vasseur.

Ned Millington Buck, Head of BlockCross, Asia Pacific at Instinet described the launch of BlockCross in Japan as a significant and exciting milestone in the growth of Instinet’s suite of innovative block trading solutions across Asia.

“Leveraging the broad capabilities and harmonized expertise of Nomura & Instinet’s unified Global Execution Services (GES) platform, we offer clients a solution that incorporates the anonymous blotter-integrated crossing technology of Instinet’s BlockCross with Nomura’s scale, strength of client franchise and balance sheet,” he added.

Millington Buck told Markets Media that sourcing quality block liquidity remains one of the most critical challenges for clients, especially in Japan, given the sophistication of the market landscape.

“With Nomura’s partnership, our connection to the NX dark pool, and the breadth of unique domestic liquidity available, we’re delivering a compelling option for investors seeking to elevate execution performance,” added Millington Buck.

He continued that Japan is a highly important market for clients and the depth of portfolio-weighting, global investor sentiment and level of market volumes have all contributed to the anticipation surrounding this launch.

Nomura analysts said in a report that they expect non-resident investors to start buying Japanese equities because they offer a way of diversifying risk in Asia; deflation is coming to an end in Japan; and corporate governance is improving. However, the report highlighted that it will still take around ¥10 trillion in net buying to eliminate the underweight position of non-residents in Japanese equities.

Yunosuke Ikeda, chief equity strategist/head of macro strategy, Japan at Nomura Securities said in a report that an end to deflation in Japan and a long-term rise in share prices could see the Nikkei 225 rising to 45,000 if profit margins at Japanese companies were to rise to the same level as those at European companies.

Vasseur said: “The stars have aligned as there is growing overseas interest in Japan following its performance this year.”

Asian expansion

Instinet has been expanding in Asia by adding securities from Indonesia, Malaysia and Philippines in its dark pool in Hong Kong  in March. BlockMatch Asia had launched with Hong Kong securities in February 2022.

In March Instinet also launched BlockCross in Asia giving clients manual conditional crossing capability against Instinet’s global franchise flows for the first time, following the platform’s growth in the US, Canada and Europe.

 Ned Millington Buck, Instinet

Millington Buck said there has been strong client-led adoption of the platform in Asia and argued this can be attributed to two main differentiators – access to GES global agency flows, coupled with the granular level of user control over counterparty selection to help alleviate concerns over conflicts of interest.

“We are very pleased to now extend these capabilities to Japan as well,” he said.

Competition has increased in Japan since Cboe Global Markets completed its purchase of Chi-X Asia Pacific, an alternative market operator, in 2021. Cboe Japan completed the transition to Cboe technology on 13 November 2023, after a two-year integration effort and launched the first phase of Cboe BIDS Japan, a large-in-scale trading platform.

Execution strategies

Only one quarter, 24%, of domestic Japanese institutions have adopted algorithmic trading, compared to 36% of the offshore institutions according to a report from consultancy Coalition Greenwich.

In addition, foreign/offshore investors plan to execute more than half of their Japanese equity trading volume via algos by 2025. Japanese domestic institutions plan modest increases to bring algo execution to about 40% of overall Japanese equity trading volume according to the report.

“Domestic institutions plan to maintain their reliance on portfolio trades, which are expected to account for 36% of Japanese equity trading volume in 2025, compared to less than 10% among foreign/offshore institutions,” said Coalition Greenwich. “These strong preferences are creating differentiation in the offerings of banks, with domestic banks further strengthening portfolio trading capabilities and the foreign banks pioneering in algorithmic capabilities.”

DORA to Change Sell-Side Third Party Risk Management

By
Press Release
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DORA set to drive significant change in sell-side Third Party Risk Management

London – 22 November 2023: Firms across the sell-side are making significant changes to how they approach third-party risk management to meet the requirements of the EU’s Digital Operational Resilience Act (DORA), a new study from Acuiti has found. 

Third-Party Risk Management in the Time of DORA, which was released today and produced in partnership with Compass Partners, is based on a survey of executives at 106 firms predominantly from the sell-side. The report analyses the challenges that firms will face in meeting the requirements of DORA. 

The study found that the complexity of third-party risk management has increased dramatically over the past three years, driven by evolving regulation and the increased risk of cyber-attacks. 

DORA is the most significant new regulation that firms are facing with regards to TPRM and over nine in 10 sell-side respondents said that they will have to make major changes to how they manage third-party risk to meet the requirements.

These changes are focused on how they map, monitor and manage third-party relationships. Significant changes under DORA include the requirement to have exit strategies in place for critical vendors, something that currently only 17% of sell-side respondents had in place, and the mapping of Nth party relationships, something that only 39% of respondents currently did. 

DORA is set to redefine how financial firms interact with their third-party suppliers. The regulation is intended to ensure that firms have the operational resilience to deal with cyber-attacks and other issues threatening the operations of their information and communications technology stacks. 

DORA will apply to over 20,000 EU regulated entities and has an extra-territorial impact for any firms with operations or activities in the EU. For executives overseeing third-party risk management, DORA is the latest in a web of guidelines and regulation that is exponentially increasing the complexity of the role. 

For many firms, especially those on the buy-side, such as hedge funds and proprietary trading firms, DORA will be an entry point into formalised third-party risk management. 

As part of the study, Acuiti surveyed its asset management and proprietary trading networks on their levels of awareness and the challenges they face in adopting DORA. 

For proprietary trading executives, the challenge was one of awareness with 80% of respondents based in the EU or the UK saying that they were either unaware of DORA or were not impacted by it. As DORA applies to all Mifid II regulated firms, many of these firms will be in scope. 

Other key findings include: 

• The top challenges firms are facing in preparing for DORA include the operational resources required; the criteria to analyse threats and getting information from vendors

• While a majority of sell-side firms already map third-party relationships across their firm, the number that map nth party relationships, a key element of DORA, is much lower  

• Few firms currently meet the full requirements of DORA with exit strategies for critical vendors and the frequency of reviews of third-party relationships identified as key areas of weakness 

• Almost 90% of firms are increasing investment in third-party risk management to meet the requirements of DORA and other regulations and many are considering outsourcing management and compliance on a managed service basis

“With little over a year until implementation, there is significant work to be done by firms across the market to be ready for DORA,” says Will Mitting, founder of Acuiti. 

“Currently, the operational resources required to meet the requirements of DORA is the biggest challenge facing most firms in the market in terms of their preparations for compliance. The industry will need to work together with vendors to streamline processes such as information requests in order to reduce the operational burden.”

“Compass Partners are delighted to partner with Acuiti on this topic.” says Neil McDonald, Managing Partner at Compass Partners. “The data shows that a lot of firms are unprepared for DORA, and also face significant challenges in ensuring  fit for purpose processes and framework as well as a functional target operating model. As always, data quality and system feeds ensuring accurate mapping will also be a key challenge. Understanding 4th parties and associated risks, substitutability of critical vendors and testing of exit strategies will also add pressure points and complexity, stretching already limited resource. Compass Partners can help firms navigate these challenges and ultimately ensure regulatory compliance and best in class vendor management.”

Download full report here: https://www.acuiti.io/third-party-risk-management-in-the-time-of-dora

Data Normalization Across the Trade Lifecycle: A Critical Driver for Both Front- and Back-Office

By
Broadridge
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By Neha Singh, Vice President, Product Strategy & Innovation, Capital Markets, Broadridge

It’s time for traders to start paying attention to a data revolution underway that is increasingly impacting their ability to both scale their business and provide value to their clients. 

Capital markets firms leading this revolution are using the power of normalized data across the lifecycle to keep up with rapid changes in the industry and to prepare themselves for a future that will be driven increasingly by artificial intelligence and other technologies. Going forward, firms’ ability to become more agile and efficient across the trade lifecycle will be an important determinant of business results. 

Pressure on firms to get this right is coming to a head with the approach of T+1. The Securities and Exchange Commission has set May 28, 2024, as the date for the move to a next-day trade settlement cycle. That looming deadline has set off a scramble to streamline platforms. Many capital markets firms are still running on legacy platforms fragmented into siloes by asset class and region. Those platforms have been coming under stress from surging trading volumes, market volatility, geopolitical uncertainty and increased regulatory scrutiny. According to the 2023 Broadridge Digital Transformation and Next-Gen Technology study, only 35% of firms classed as Leaders in BR’s Digital Maturity Framework are at an advanced stage of replacing legacy systems. 44% of firms classed as Non-Leaders in BR’s Digital Maturity Framework said inflexible legacy systems were their top challenge when it comes to transformation.

This pressure will only intensify when the industry faces future changes that require a substantive shift in how firms operate, for example T+0 settlement. For that reason, front-office personnel should be pushing their firms to focus on data and act quickly, to ensure their ability to compete for clients and trades. Firms need to start thinking differently and normalize data across the trade lifecycle to simplify, innovate and become more agile. As they make the investment of time and resources required to update processes and platforms, firms should look beyond T+1 and focus on creating a data foundation for a future that will someday include not only T+0 settlement, but also the next iterations of artificial intelligence, GenAI and other innovative digital technologies that are transforming how capital markets firms do business. 

A foundation of normalized data

The single most important step firms can take to prepare for this future is to normalize data and break down barriers within sell-side platforms. Normalizing and sharing data across the trade lifecycle creates immediate insights that enhance the ability to add value to clients, and efficiencies that speed-up processes, limit errors and lower costs. These rewards won’t be limited to the middle- and back-offices. To the contrary, seamless data management will create important benefits for the front office, and for the business as a whole. 

Data normalization facilitates the flow of data across front-, middle-, and back-office operations—in both directions. For example, when Broadridge provides dashboards with real-time lifecycle data to the front office, firms see tremendous value in equipping not just their trading desks but their end-clients with valuable insights. The historically siloed nature of the front-to-back technology stack has made it difficult for the front office to track what has happened to an order, resulting in time and effort in chasing down this information. Having a common, real-time view into the status and what issues need to be resolved allows front/ middle/ back-office teams to efficiently move trades through the lifecycle. By providing this view directly to buy-side clients, firms expect to hire fewer people to be ready for T+1. Another example is firms expect to optimize their client revenues with access to real-time client trading activity, alerts based on changes and trends, and the overall economics of the relationship – all of which is being enabled through harmonized data visible across the trade lifecycle.

Data normalization is also the key to unlocking the power of artificial intelligence. AI applications are already creating tremendous value for firms. For example, Broadridge uses AI to parse historical data and predict which trades are most likely to fail. That knowledge allows the front office to factor the costs of potential trade failures into their own decision-making, and allows back-office teams to avoid fails by focusing attention and resources on trades most at risk of failure. Benefits like these are merely the tip of the iceberg for firms that master the data normalization needed to fuel AI applications and drive differentiation.

Future-proof your business

The sell side should view the fast-approaching shift to T+1 as an invaluable opportunity to future-proof their businesses by investing in end-to-end data normalization across the trade lifecycle. Firms unprepared for that transition will face significant business, financial and reputation risks. Those consequences won’t be limited to the back office. To the contrary, the entire business will suffer from any slip-ups.  Regulators will be watching capital markets firms closely and assessing firms’ performance in the compressed settlement cycle. Buy-side clients will also be watching to see how well firms keep pace and innovate in this space. 

That pressure is requiring virtually all firms to marshal significant resources to upgrade their platforms. It’s in the interests of everyone across the trading lifecycle to ensure those resources are allocated strategically. By leveraging the momentum of T+1 into data normalization across the lifecycle, firms have a chance to create a real competitive advantage in a faster, digital and AI-powered marketplace. 

BIDS Trading Looking to Develop Trajectory Cross

By
Shanny Basar
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BIDS Trading, the independent subsidiary of Cboe Global Markets, is excited about developing a trajectory cross as it looks to continue to develop new order types and expand geographically.

Stephen Berte, president of BIDS Trading, told Markets Media that the block marketplace is dynamic and constantly changing due to the rise of systematic and automated ways of executing the benchmark. As a result, most efficient execution may not involve a point-in-time cross and there are an increased amount of streaming liquidity opportunities.

 Stephen Berte, BIDS Trading

“One of the things that we are excited about is the development of trajectory cross that would be a utility for match algos using certain criteria,” he added.

Despite the rise in systematic strategies, Berte continued that clients around the world tell BIDS that their first port of call is a point-in-time cross, which they still find extremely valuable.

Berte became president of BIDS Trading in April 2022 from Tourmaline Partners where he founded and led the Boston office of the buy-side technology provider. He previously held roles at Standard Life Investments, including global head of equity trading and head of investments execution for all asset classes in the Americas across equity, fixed income, derivatives, FX and money markets.

Overseas expansion

He took on his role at BIDS just after Cboe BIDS Canada was launched in March 2022.

“Canada has been an incredibly successful launch,” Berte added. “We have the number one block market share and I think we are just scratching the surface.”

The Canadian exchange group, TMX Group, has announced the launch of a new Canadian trading platform consisting of lit order book Alpha-X and dark book Alpha DRK with the aim of enhancing execution quality.

Berte said BIDS embraces competition and has worked diligently to differentiate itself from competitors.

“Competition makes us better, makes the marketplace better and helps promote the value of the block,” he added. “I am happy for TMX and excited for the Canadian marketplace.”

Cboe BIDS Australia launched in March this year with sell-side access, which extended to the buy side in September. In its third quarter results this year, Cboe said Australian market share grew to 17.9%, up from 16.7% in the third quarter of 2022.

Source: Cboe

In Japan Cboe completed the migration of Cboe Japan to its proprietary technology platform on 13 November 2023 and also launched Cboe BIDS Japan for large-in-scale equities trading. As in Australia, the first phase allows brokers to access the BIDS pool through their trading algorithm and the second phase, expected to roll out in the first half of next year, will enable broker-sponsored buy-side access through the BIDS Trader front-end.

Cboe said the migration equips Cboe Japan with the performance and capacity to accommodate more than double the peak volume directed at Cboe Japan’s Alpha and Select markets, and more than double the market data volume generated by other markets in Japan.

“I am incredibly excited about the opportunity in Japan,” said Berte. “The marketplace is very VWAP focused, but we think there is a lot of momentum and excitement for a point-in-time cross.”

BIDS has started marketing to the asset managers in Japan and Berte said a number of firms are in the pipeline for the buy-side launch. Approximately 500 global buy-side organisations have BIDS on their desktop and Berte anticipates that these firms will include trendsetters who will introduce the concept of a point-in-time cross to their Japanese peers.

“All of these geographic expansions have been in concert with Cboe, our parent company, and it’s been a hugely collaborative effort between the organisations,“ said Berte.  “We have a remit to join them in that journey and we also have a remit to grow our business in markets which Cboe may not look to disrupt, so we are looking at opportunities around the world.”

He gave the example of Brazil, which has introduced the concept of competition and is allowing blocks to trade without an auction and off-exchange.

Cboe maintains BIDS as an independently managed and operated trading venue and broker/dealer, separate from and not integrated with the Cboe U.S. securities exchanges.

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