May 2007


Looks like Cantors are selling BGC Partners to eSpeed…..thus merging voice and electronic businesses again.

eSpeed were in for MTS (and therefore BondVision) in 2005 but I haven’t heard any rumblings of looking into the B2C market for them lately. It seems dominated by ICAP rumours and, of course, MTS possibly allowing Prop Houses and Hedge Funds into their inter-dealer world.

As I’ve asked before, why shouldn’t these types of entities enter the B2C market place?….This is different to merging B2B and B2C but a step towards it and an exchange like marketplace.

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TABB Group have just released some research into European Institutional equities. Some interesting findings which may be of some interest for the future of FI eTrading.

I refer quite a lot to specific ECNs on this blog; TradeWeb, LiquidityHub, Bloomberg etc, etc. Rarely do I mention the specific banks that are good or poor on these ECNs. So who are the best and worst of these 30+ liquidity providers?

Perhaps the best way to express this is to have a tiering system, much like that which these banks employ to categorise their clients. I have considered this for Europe only and thus the ranking doesn’t take into account their prowess in the US, for example. Likewise it will not contain all the banks, more an educated selection.

Tier 1: Global Bank with a total demonstrable commitment to FI eCommerce.

Tier 2: Global Bank with a less demonstable commitment to FI eCommerce

Tier 3: Regional Bank with a less demonstable commitment to FI eCommerce

Now Tier 3 may be harsh on some regional players who do their best, but ultimately for them their technology and, especially, product coverage will not allow them to be considered Tier 1 or 2. Of course a Tier 1 in a certain geographic location in a certain product set (e.g. Capitalia with Italian Govies in Italy) will probably mean a Tier 3 ranking overall. Likewise a strength in a product set across all Europe but not the main product (Euro Govies) will probably mean a Tier 2 rating (e.g. RBC with retail credit). Euro Govies will have a stronger weighting over other govies and credit, given it is what drives the e-Trading market in Europe at present.

So here goes:

Tier 1: Barclays Capital, Deutsche Bank, JP Morgan

Tier 2: ABN Amro, BNP Paribas, Credit Suisse, Dresdner, Goldman Sachs, HSBC, Merrill Lynch, Morgan Stanley RBC, RBS, Soc Gen, TD, UBS

Tier 3: Calyon, Capitalia, Danske, KBL, Nordea, UBM/HvB, Winterfloods etc

The Tier 1 guys stand out for me, as they have really created e-Brands in Europe with Autobahn, BARX and JPEX. No surprises that these will be amongst the leading Swaps dealers when LiquidityHub gets going.

Within Tier 2 there are, as they say in Bordeaux, “super seconds” (Citi and Morgan Stanley) and those who maybe deserve Tier 3 status except they’re just too big overall (I’ll resist saying whom, but you probably know). Tier 3 simply will struggle to make Tier 1 but could be Tier 2 with better organisation and consolidation (UBM and Calyon???).

Please note this expresses my opinion, gathered over the past four years, so please let me know what you think. I’m very happy to be told I’m wrong, but at least let me know why! 🙂

In February I discussed the concept of OMS vendors providing direct access or point-to-point services in trading between banks and customers in Fixed Income.

Since then there has been little development in this space and indeed corporate actions like LatentZero being taken over by Fidessa will no doubt delay matters further.

A banking friend of mine was and remains a huge believer in this. They think it benefits both sides by providing a more discrete service than via an ECN. Essentially a bank will be more inclined to price better and thus a client will benefit.

As I said in my Fenbruary piece I can understand the benefits for non-vanilla product but not for the likes of Euro Govies. My friend disagrees. They believe it is good for all. The OMS will aggregate the feeds and essentially replicate a multi-dealer price discovery GUI…….this is where we disagree….why bother if you already have an ECN doing that and can integrate it with your OMS? She felt that it would mean more sizable trades moving electronic….perhaps.

Anyhow, it seems to be stalled and I truly think these OMS vendors should concentrate more on delivering a module that handles OTC derivatives such as Swaps and CDS. This is what I’ve heard a number of their clients ask for. But what do clients know? 😉

From today’s FT regarding MTS allowing Hedge Funds into the inter-dealer market.

Must be a slow news day as this says little we didn’t already know…..

OK, so we all know that LiquidityHub is to be distributed via Bloomberg and Reuters (regardless of the sale to Thomson in the later’s case). But what exactly will be offered to clients via these portals?

The following are a few items I’ve picked up around the traps recently. Nothing earth shattering (in fact much is repetition for which I apologise) and all seems quite logical, with a bit of my opinion thrown in for good measure:

* Essentially LiquidityHub is a swaps platform, plain and simple. Sure US Treasuries will be offered in phase 2 and probably Euro Govies in Phase 3 (phase 1 being EUR and USD Swaps) but the crux of the matter is the consortium being in control of the swaps market going “e”. Likewise the bond component is starting with Benchmark issues only….with a plan to add off-the-runs later.

* Price Discovery is via a composite LiquidityHub price (no idea how that will be calculated at this stage). There will be no market depth as both Bloomberg and Reuters will receive feeds solely from LiquidityHub and not directly from the 15 Banks.

* Request For Stream (RFS) is the selected method, over Request For Quote (RFQ). The reason being that the banks feel this is the fairest method for both sides of the market. It provides true real-time pricing rather than the time-to-live (usually a few seconds) seen with the RFQ model.

* In terms of Competitive RFS, there will be the ability to select up to three dealers only, unlike the current market standard with Competitive RFQ of up to five dealers. Given the Off-Balance Sheet nature of swaps, this seems fair enough.

* But is it fair enough that the trades are not centrally matched? Essentially the dealer always has last look, or at least his/her pricing engine does. The good news on this front is that at least if a bank rejects an “accepted” price (is that ever acceptable????) the RFS is meant to automatically start again.

* STP is to be provided, initially via Swapswire but with a view to expanding the options.

Overall I think it seems a solid offering to start and most importantly it has liquidity (as the name suggests 😉 ) via the backing of these 15 Banks. Can you say the same about other swaps platforms in or around the B2C space?

As reported in the FT yesterday, looks like TradeWeb have gone live on USD Convertibles with backing from Lehman, Citi, Merrills & UBS……all part of the LiquidityHub consortium. Draw your own conclusions there.

As for TradeWeb themselves, given the modest showing of a number of their non-government products (in Europe at least), you wonder if it is products for product’s sake at times……(sigh)

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