The Future

MTS coming under more pressure in their Western European stronghold. Even their push into Emerging Markets will not make up for these loses.



Article on eFinancial where Celent are stating that Brokers will cut tech spend by 7%.

If you take into account that short-term tech spend will be up on risk management and various regulatory issues, where does this leave e-Trading and specifically FI e-Trading? At SIFMA the banks said the spend will be level…….hmmmm, it wasn’t convincing then and is less so now.

Brief piece by Larry Tabb, in Advance Trading, on the future of FI e-trading and that the time is right to move towards an agency/echange type model in Fixed Income.

I can’t say this immediately grabs me as a concept, and it certainly isn’t a new concept. I agree that by the time the markets have settled (2009?) there should be fertile ground for change, but as Tabb points out (and as is often the problem with FI e-Trading) who will drive it? Two players he fails to mention are the existing providers of FI e-Trading venues (e.g. TradeWeb, MTS, BrokerTec, eSpeed) and Exchanges (Equities and Futures).

An article in eFinancial News asking why e-Swaps have yet to take off:

Electronic swaps trading struggles to gain traction

Main points and my view:

– 5-10% of IRS traded electronically (I’d lean towards 5% given these markets) but JPM claim 5-30% for them, depending on market conditions
– Huge gap between the best e-Swaps houses (Barx, DB, RBS and JPM) and the rest (Indeed, far more so than Govt Bonds)
– Price transparency (lack of) and market conditions have hindered multi-dealer vs. single-dealer, as has the above dealer “quality gap” (Multi-dealer plarforms need more price transparency if they truly want to take off, but there are tier-1 dealers and tier-10 dealers, and not much in between)
– Multi-dealer (TradeWeb and LiquidityHub) will overtake single-dealer in time (not in these markets) says Goldman Sachs (what are they up to? 😉 ) and e-Swaps will account for 50% of trades in 18-months time according to Quod Financial (based on what? As they’d say in The Castle “tell ‘im he’s dreamin’!!!”)
– TradeWeb does $7bn in swaps a day (bet EONIA covers a good chunk of that) and have 9 fusion banks PLUS another 6 joing for USD IRS (although those 6 are 6 of the Fusion 9)
– SwapsWire adds value to e-Trading (does it? to the big boys making markets it does. Most tier-2 banks don’t use it or don’t even know what it is!)

Speaking of LiquidityHub, not much news of late, however I was chatting with “a source close to” / “a friend of” the system and they tell me that the number of trades have picked up. The most surprising part is that the bulk of them seem to be coming via Reuters rather than Bloomberg! Seems Reuters have a better GUI, so a client was telling me.

I’ve just spent the past two-days at the SIFMA Conference in London. Unlike previous events I must say I found the mood at this one a bit flat. Understandable given my previous post regarding the near-future for FI e-trading.

Chatting to friends and colleagues from the Banks, Vendors and Buyside (Hedgies and Real-money) confirms the feeling that 2008 will be the year of minimal growth in terms of e-Trading development in the FI world.

Panelists were more upbeat, without really saying much, as always. Kudos to the “compere beyond compare”, Holky, for throwing a few curve balls into the session he ran. Unfortunately he told me that the lighting and acoustics meant he was flying blind and deaf on stage! We should even forgive his shameless plugging of his blog, without mentioning mine! 😦

Anyway, the “highlights” for mine:

– Stunned silence from the vendor panelists when asked “who other than yourselves have come through the market turmoil with your reputation in shape?”

– Buyside panel blaming their OMS for why they don’t trade more swaps, in general, and why they do very little electronically. Thus publicly confirming what I said all last year! Although Fidessa LZ tell me they have a great IRS module……hmmmmm

– The CDS panel…(pause)…NOT! If it was two-years away last year, it is still two-years away now!

– Real-money need multi-dealer (compliance, regulation etc), Hedgies were burned by multi-dealer during the credit crunch (poor pricing, no pricing) and now favour between 2-4 single-dealer applications.

– DB’s Kevin Arnold must read this blog, as he repeats my tier-1 of a “German bank, American bank and a British bank”……unless he meant Commerz, BOA and Lloyds? 😉

I avoided the FX sessions as I didn’t want to hear a panel of people saying how many years they were ahead of the FI market in terms of e-trading. FX is a simple, simple market! THAT’S WHY!!!!!!

I can’t help but think SIFMA need to shake things up a bit next year, or we will not see a 5th one. It will be at a new venue, but they need to try and get a few new topics and a few new faces.

In these times people just can’t dedicate the time and money to what is essentially a social gathering with a bit of business thrown in.

Same time last year I rambled about how things hadn’t advanced as much as we’d all hoped.

So what was different in 2007?

– LiquidityHub happened (not quite a life changing event)
– Fusion happened (even less so)
– Swaps went “e”……oh, hang on! No they didn’t did they?

So what’s going to happen in 2008 in the world of FI e-trading?

At the risk of sounding a little negative given the current market environment:

– Nothing
– Nothing, and
– Nothing

PLEASE disagree with me, I beg you!

But with banks losing BILLIONS by the Quarter (and more to come despite tonight’s Fed 50bp cut) how are they going to spend what may be required? I mean, according to the Bond King on CNBC tonight, they’re still trying to flog syndicated loans to investors at 95-96c in the dollar…….please!

In 2008 FI e-Trading will be so far down the priority list of ALL banks that any progress is simply impossible. At best more swaps will be traded electronically on 31 December 2008 than were on 1 January 2008…………..see what I did there? 😉

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