February 2007

Another interesting article from IBM, a good 3-page summary.



See below, from today’s FT. Old news to most in the FI e-trading space, however when the topic came up during the Hedge Fund panel at the SIFMA conference the panelists tended to ask why? Unless you wish to become a bank……

Hedge funds seek access to eurozone bonds
By Gillian Tett in London

Published: February 26 2007 22:50 | Last updated: February 27 2007 00:57

A battle has erupted around the eurozone government bond market with several powerful hedge funds trying to gain direct access to MTS, the main eurozone government bond trading platform.

The move by the funds, which include groups such as Citadel and Vega, could potentially undermine the control that investment banks wield over Europe’s government bond market.”

Personally I can see the appeal of anonymity to these guys….but the spreads on MTS will tend to be wider than on a B2C ECN such as TradeWeb or even MTS’s own BondVision system. In saying that, they will clearly be targeting the genuine, lumpy axes that are posted – whilst adding their own – whilst still trading via the phone/B2C systems.

At the SIFMA Conference earlier this month, there was a panel discussing “Execution Protocols”. Considering the topic & the fact it was held at 4pm after a long day, I guess the nods in the crowd were not necessarily in agreement……yours truly included…..zzzzzzz!

The compare was from FIX so, needless to say, it got a fair share of the airtime. However the most interesting topic discussed was certainly that of the provision of point-to-point services by OMS vendors…in this case LatentZero were represented on the panel & have made no secret of their plans to move this way (see the press release on LatentZero for their latest work in equities).

So what is meant by point-to-point? Essentially an OMS vendor will provide a link from a specific Bank liquidity provider into their Buyside client’s OMS. Thus providing a secure link between bank & client in order to execute trades, send trade ideas, axes etc. It must be said, this would be only for Tier-1 style clients. Those that have the resources to have such an OMS and, more exclusively, a “partnership” style relationship with their tier-1 counterparts.

Of the buyside representatives on the panel, one expressed a concern that they’d require 20 point-to-point links, so would prefer to stick with an ECN – the apparent solution here is that the OMS will “build” a hub……The other buyside had no issue with it, but not at the exclusion of ECNs, so long as they didn’t pay for it. Which raises the question, who does pay for it?

The OMS vendor will hardly do it for nothing, the buyside certainly have no intention of paying for any e-trading or related services – “otherwise we’ll just pick up the phone again” – which leaves the sellside. Now why would the sellside pay for these links when, currently, less than a handful could take full advantage of them anyway? Plus there will be the additional resource required to link to each client etc. I can see the benefits to the buyside (e-access to products & information not currently available, true STP etc) and OMS vendors (added stickiness, fees etc) but not so much to the sellside (“another” e-distribution channel).

If I’m honest, I quite like the concept of point-to-point for the secure delivery of trading in less liquid products, where the multi-dealer aspect isn’t so important, as well as the delivery of sensitive information such as executable trade ideas and axes. But if you are a liquidity provider, why not simply go via your single-dealer portal, be it stand alone or hosted in a Bloomberg or Reuters? Essentially this is where such a point-to-point link would start anyway. Will getting this information into a client’s OMS benefit the bank enough (via STP cost reductions – hopefully) to warrant paying an OMS vendor for the privilege of providing your liquidity to mutual clients?

The answer, to me anyway, seems no!

For those who attended the SIFMA (nee BMA) Conference last year, we were informed by a few of our FX bretheren that FI was at least 5-years behind FX in terms of e-Trading. These sorts of comments have lead to a spate of FX “people” claiming they know the answer to truly taking FI electronic.

Now whether or not you agree (I simply don’t, they are different markets & FI is far more complex), I was heartened to hear some more FX “gurus” stating that FI was 3-years behind FX in e-Trading!

Well done to everyone, we’ve closed the gap….or was this the FX influence in 2006?….hmmmmm.

Interesting piece here on cross-asset trading. The link to e-trading? This is the publicly stated philosophy of the vendor ECN’s such as Reuters, Bloomberg & Thomson.


I was at the, generally, very good SIFMA FI e-Trading Conference in London last week. Certainly the buzz product was Interest Rate Swaps. This confirms what most banks have told me this year, that getting their IRS offering right is their no. 1 priority – as a side issue, CDS was mentioned, but my impression is that this is still some way off, in terms of single-name trading extensively electronically, due to operations issues more than most.

Liquidity Hub were part of the Swaps session and, naturally, believe activity in e-trading of Swaps is about to grow exponentially now that both clients and banks have bought into the concept. The general consensus was that this will be lead by 10-year € Swaps before moving throughout the curve & into $ – although one ECN saw EONIA Swaps as leading the charge.

Whilst counterparty credit risk remains an issue, it is not believed to be an impediment to e-trading of your vanilla swap products, more so the more complex structures – which if traded electronically will remain on a single-dealer arena for now.

The key 3 areas to focus on where given as:
1. Ability to Execute various strategies, such as butterflies, curve trades, asset swaps, ability to unwind swaps once they’re non-vanilla.
2. Automating the credit process
3. Contract standardisation.

STP was a distant 4th, thus maintaining the status quo of “STP is important, but there are many things that are as or more important”.

One of the reasons I can see Swaps taking off (& later CDS), and not discussed at SIFMA, was the fact that there have been so many new buyside traders of the product over the past 2-3 years. These traders have come from bond backgrounds in many cases and have been used to doing their liquid bond trades, up to certain size, via an electronic platform. As a result they should be more e-savvy than your 10-20 year veterans in the market. Make sense or am I clutching at straws?

Either way it all sounds very positive, especially when you hear many of the Hedge Fund managers at the Conference stating that a truly multi-dealer Swaps platform would get their support. The only problem is that they want more than vanilla IRS….they want non-standard dates; curve trades & Forwarding start swaps….and that’s the easy stuff. One in particular sees a future based on an open, public order-matching arena, a.k.a an Exchange. Where as the Sellside see a far greater future for single-dealer solutions for non-vanilla product…..but more on that in another blog.

So what do I mean TradeWeb is the Porsche 911 of FI e-Trading? Well for starters it is both a compliment and a criticism.

The Porsche 911 is an icon, a generally fabulous car beloved by many in the financial markets, but…….in many respects it looks the same as it did when it came to being in the 1960’s.

Now TW is clearly not 40 years old, but it is as near an ECN icon in FI e-Trading as we have. Generally I think it is a very good, simple product. As many buyside have told me when describing why they like it “It does what it says on the tin!”

However a criticism I often hear, and tend to agree with, is that e-Trading is evolving but TW isn’t. It’s look & feel is dated, its functionality isn’t innovative and indeed it lacks what is now considered basic e.g. market depth. The fact a client has to show what they are doing before obtaining more specific price discovery (unlike ALLQ/RTFI) seems very early “naughties” to me. Lack of innovation and dated look & feel are often criticisms thrown at the enduring 911 – usually by Jeremy Clarkson.

Don’t get me wrong, I’m a fan of TradeWeb (& the 911), particularly it’s depth of liquidity in the major Government bond markets, it’s amazing speed and indeed it’s institutional client base. However with the advent of Liquidity Hub and increased competition from particularly Bloomberg &, potentially, the more open Reuters, these are testing times.

Will TradeWeb endure as the Porsche 911 has? Only time will tell and time moves much quicker now than it did in the 60’s.