August 2007

We are aware that MTS are still looking into ways to allow Hedge Funds/Prop Houses direct access to the MTS markets.

A question for the readership. I assume the proposal is “direct”, as in they trade as Citadel, for example, rather than a Prime Brokerage arrangement where the trades take place as Bear, Goldman, Morgan Stanley etc, etc? Much as Reuters and EBS do in their FX PB offerings, including an API to plug in algo models.

I assume this because the banks could slam the door shut quite easily on a PB/Third Party model.

What is the eSpeed model in the States? Do the Hedge Funds trade in UST under their name or under their Prime Broker/s?


Sources close to LiquidityHub (don’t you love those lines, or maybe is should be “close friends of LiquidityHub say”) that the soft launch will be delayed again, for a week or so. Technical reasons, rather than market conditions (i.e. the swaps market is closed except for very vanilla trades in certain tenors by very good names).

Holky has brought attention to a recent Euromoney piece on “The coming revolution in fixed income e-trading”.

The article sees LiquidityHub and the likely (?) break up of the current MTS model in the inter-dealer space as the catalysts to the “revolution”. Whilst I totally agree that much of the gains in FI e-Trading have been incremental, I don’t see these two events providing the revolution (I wish they were), rather another stage in evolution.

One reason is that the idea of B2C entities, such as LH and TW, gaining opportunity in the B2B or inter-bank market is a bit old. Old because it is already happening and has been for years! I understand that 50%+ of TW EGB volume is done with banks as the “client”. Now I’m not talking Citi, GS, BarCap etc but tier-2 and below banks. That is why MTS established BV in 2001 to try and halt the MTS volumes that TW were getting.

This is fine, if the “Street” consider you a client and the spreads are tighter on a TW/BV than an MTS and there are no trading fees…..why not! But I don’t see Global Market Maker trading with Global Market Maker via these mediums in the near term. So little will change in terms of how business is done, just where.

Secondly, LiquidityHub, as it will appear intitially, looks more evolution that revolution. Very simple, as it needs to be for a new system, but not really going to change how business is done in a hurry.

Interestingly only one comment, from Stu Taylor at UBS, covers client-to-dealer connectivity (incl. STP). Surely this area could go through a little revolution?

I am no fan of the concept of Second Life. I personally find it a bit sad and lonely, however I am a firm believer in freedom of choice, so long may it continue if enough people want to use it.

It seems much of the original escapism element has given way to quick (Linden) buck artists, most of which make nowt. As such the recent market turmoil has spread to Second Life and resulted in a run on one of the virtual banks!!!!!

Oh please, spare me!

Pardon the childish rhyming title, however it looks like Project Boat (the reporting one) will launch this November with 22 customers already aboard.

Project Turquoise (the trading one) still has no aspirational launch date but has appointed a Board.

Also from late last week, Reuters Australia and Yieldbroker announced that they have agreed to offer a trading link between their respective fixed income data, news and information systems. For Yieldbroker this means using Reuters Asian network to gain new investors in AUD and NZD debt product. Looks a win-win at face value.

Yieldbroker claim to do 35-40% of Aussie/Kiwi FI trades, more than over the phone, with Bloomberg being a distant second in the e-trading stakes. This is very impressive (maybe unbelievable, actually) in my books, given the liquidity in the Govy markets “Down Under” make Gilts look like Treasuries! Ah, the benefits of budget surpluses……essentially means there are ACGB’s purely to maintain a benchmark curve for the markets.

Yieldbroker doesn’t have Westpac, NAB or the Commonwealth Bank onboard. The three biggest Aussie banks…..35-40% of ALL trades? I’m a bit dubious about that 35-40% figure, but it seems a good, independent system.

The official line from Thomson and Reuters regarding the merger is “business as usual”, which is fair enough. However most in the market see TradeWeb as becoming the New Reuters FI transaction product when/if the takeover goes through. Indeed New Reuters CEO elect, Tom Glocer has mentioned TW integration with Reuters strong FX products in due course.

All makes sense.

I’m hearing, however, that TradeWeb are quite confident that their position, as it effectively is at Thomson, as a stand alone unit will remain once New Reuters exists. This does not fit with a cross-asset e-trading goal, something shared by Thomson and Reuters separately. I also hear that if New Reuters do plan to integrate TradeWeb, then Project Fusion , where the Banks repurchase TradeWeb, will be escalated. How does this fit with LiquidityHub?

All sounds like the technical side of integration may not be the messiest aspect for New Reuters…..

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