Special Report: Securities Finance, page 11
www.securitiesindustry.com
AUGUST 20, 2007
NEWS DESK
A new CEO for StreamBase; a
CMO for optionsXpress; and more.
PAGE 3
PERSPECTIVES
GUEST COMMENT: Financial institutions covet a projected $20 trillion in
intergenerational wealth transfers
over coming decades, but Accenture
consultant Mark Halverson says that
they won’t come automatically. Successful advisory services to younger,
tech-savvy investors will need to
blend “the wisdom of experts and the
wisdom of crowds to deliver a sophisticated, tailored and branded experience,” he writes. PAGE 4
SPECIAL REPORT
Middle- and back-office efficiencies
and straight-through processing have
become crying needs in
the burgeoning securities finance sector, and
vendors, transactional
platforms and other infrastructure
entities including SunGard and Depository Trust Co. are stepping up.
“The last big change in this business
was in the late 1970s when we moved
from delivering recalls by hand to
using faxes,” observes Pershing’s Irving Klubeck. Also in this report: Icap
and eSecLending. PAGE 11
DEPARTMENTS
CLEARING & SETTLEMENT:
Depository Trust & Clearing Corp.’s Acats
system will be ready in October to reduce by two days, to five, the time it
takes to transfer a brokerage account
from one firm or bank to another.
PAGE 6
CLEARING & SETTLEMENT: The continuous linked settlement system of
CLS Bank International has not only
reduced foreign exchange settlement
risk, but has contributed to transforming the asset class in ways that
“would have been unrecognizable five
years ago,” says CLS marketing chief
Jonathan Butterfield. PAGE 10
Event Processing Goes
Beyond Algorithms
BY KATHERINE HEIRES
In the financial services industry,
complex event processing
(CEP)—technology that can monitor, analyze and find correlations
among seemingly unrelated events,
and then react in milliseconds—has
primarily been used in algorithmic
trading, where its ability to reduce
latency has proved invaluable. But
many on Wall Street are discovering that CEP, or stream processing, platforms can be used for a far
broader range of activities.
Regulators have begun to deploy the technology as a way to
monitor trading patterns and stop
abuses as they occur. Risk managers
are applying it on a trade-by-trade
and tick-by-tick basis to recalculate
value-at-risk analytics in real time.
And firms’ compliance officers are
using CEP to assess potential trade
events and check them against
compliance requirements, to avoid
costly errors.
“Complex event processing can
be used for a lot more than algo equity trading,” says Brad Bailey, senior analyst with Aite Group, which
predicts that stream processing will
continue to see increased, and increasingly diversified, take-up. The
Boston-based research firm sees
event processing applications for
several asset classes and upward of
33 different functions, including
market making, order routing, Reg
Continued on page 21
Exchanges for Climate Change
Chicago market leads the way in emissions
trading; truly global solutions remain elusive
B Y J.R. MAGEE est-rate futures, of the Chicago Cli-
If there is a market solution to the mate Exchange (CCX).
problem of global warming, then An unlikely trio? Melamed and
it stands to reason that Chicago might Sandor, historically affiliated with the
be the place to hit upon Chicago Mercantile Exit. The city where physi- change and Chicago
cist Enrico Fermi engi- Board of Trade (CBOT),
neered the first con- certainly go down in the
trolled nuclear chain re- same history books—
action in 1942, and which will also record the
where Leo Melamed recent merger of those
founded the Interna- two derivatives ex-tional Monetary Market, Richard Sandor changes after years of bit-introducing the first financial futures, ter rivalry. As for Fermi, the power he
30 years later, also saw the launching helped to unleash ended a world war
three decades plus one year after that, but later failed to deliver on hopes of
in 2003, by Richard Sandor, previ- clean and abundant atomic energy.
ously known as the pioneer of inter- Continued on page 20
U- 5 Process Could Compound Job Problems
BY CAROL E. CURTIS known as Form U- 5. As increased
While investors may be wor- oversight compels broker-dealers to
ried about losing money in be forthcoming with information
the current volatile market, securi- on these documents, licensed pro-ties industry professionals have a fessionals can find themselves
self-interest at stake: their jobs. In barred from the industry if negative
what could be a leading indicator, information gets into the hands of a
Bear Stearns Companies said potentialemployer.
Thursday that it is cutting 240 jobs The upshot, according to ex-in its mortgage lending unit. perts, is likely to be a proliferation
Aside from the workforce cuts of challenges seeking to strike from
that tend to accompany down cy- the record negative information on
cles, terminations in this age of rep- Form U- 5. The process requires an
utational risk also bring with them arbitration proceeding conducted
a blinking red light in the form of by the Financial Industry Regula-the Uniform Termination Notice tory Authority (Finra), the self-reg-for Securities Industry Registration, Continued on page 19
Volatility a Boon
To New Wave of
Dark Liquidity Pools
BY JOHN HINTZE
Trading volumes have been
surging in recent weeks
across market centers including
some of the newer dark books,
which appear poised to ramp up
further with an influx of institutional investors. Paradoxically, in light of these platforms’
newness, continued volatility
may also likely work in their
favor.
The Level and Block Interest Discovery Service (Bids) alternative trading systems (ATSs),
which are joint ventures of leading Wall Street firms and still
serving relatively few participants, have seen execution volumes jump since volatility picked
up in July.
Bids CEO Timothy Mahoney said he is reluctant to
focus heavily on numbers, since
the ATS only started matching
orders in April and is connected to only ten market participants, seven of them Bids investors. But the system exceeded 20 million shares daily in the
week of Aug. 6, compared with
17 million in July and 9 million
in June.
Level, which has been operational since January, has seen
bigger jumps, hitting 87 million
shares Aug. 10. Through Aug.
15, the dark book was execut-
Continued on page 19
TRADING: A linkage between Linedata and a Goldman Sachs unit shows
how distinctions between order management and execution management
systems are blurring. PAGE 18
▼
People in the News
Company Index
People Index
In Options, Will Nasdaq Be the Lucky Seventh?
Planning fall launch, exchange aims to flex electronic muscle
Consolidation and economies interest at a price executing first, search firm Aite Group, sees some
of scale are orders of the day followed by non-displayed interest promise in Nasdaq’s move. “The
for securities markets around the at the same price. structural changes that the U.S. op-world, but the fast-growing U.S. Some industry ob- tions market is undergo-options market is about to see the servers question the need ing due to electronifica-entry of its seventh exchange: the for an addition to the tion, institutionalization
p3 Nasdaq Options Market. An offi- current domestic options and the regulatory-en-
p22 cial start date has not been set, but market roster of the forced decimalization of
p22 officials are working toward a Chicago Board Options themarketarecreating
launch this fall, with a primary cus- Exchange (CBOE), In- an opportunity for Nas-tomer base of agency-trading and ternational Securities Ex- Adam Nunes daq,” Bailey said. “
How-proprietary broker-dealers. Set up change (ISE), NYSE Arca Options, ever, this opportunity for Nasdaq will
to trade equity and index options, American Stock Exchange, Philadel- depend in many ways on the nature
the Nasdaq Options Market will phia Stock Exchange and Boston Op- of the expansion of the penny pilot,”
also allocate executions on a price- tions Exchange (BOX). But Brad Bai- the limited introduction of a mini-time priority basis, with displayed ley, senior analyst with Boston re- Continued on page 22
▲
On the Web
Nasdaq’s Portal goes live and
looks ahead to fixed-income
trading. See Breaking News at:
www.securitiesindustry.com.
