www.securitiesindustry.com
NOVEMBER 12, 2007
NEWS DESK
Liquidnet reports record third-quar-
ter results; SecFinex has a new chief
executive; Tokyo exchange gets go-
ahead for Beijing office. PAGE 3
PERSPECTIVES
GUEST COMMENT: Financial firms
are increasingly employing hybrid
approaches to outsourcing in which
ownership of some components is re-
tained through offshore subsidiaries
while low-value processes are han-
dled by third parties, writes Milestone
Advisors’ Jess Varughese. PAGE 4
ORIGINAL SOURCES: “We would be
failing in our duty if we did not use
the turmoil in the credit markets to
review our regulatory framework,”
says EU commissioner Charlie McCreevy, but “rushing to legislate
afresh is not the sensible answer to
a crisis.” PAGE 6
DEPARTMENTS
TRADING: Hedge fund replicators are
generating growing interest from in-
vestors, and debate about
the strategies they use to
emulate fund performance. “The hedge fund
models used by the banks
could fail in a bear market,” claims
Partners Group’s Lars Jaeger, touting
his own, rules-based methodology.
PAGE 8
(BOX), in which BSE owns a 21.9
percent share, but it did give Nasdaq equity- and options-exchange
licenses as well as one of two existing clearing-agency licenses—
the other is held by PHLX.
BSE’s exchange license will enable Nasdaq to establish a “
second quote,” powered by technology from the former Inet electronic communications network
(ECN), that is expected to draw
sizable order flow, given that Nasdaq will be routing orders to it.
The second quote will also give
Nasdaq flexibility with order and
Continued on page 17
DATA MANAGEMENT: For complex
structured products, Société Générale
Securities Services is employing the
cross-asset Xenomorph TimeScape
platform, which is getting an upgrade.
PAGE 8
IBMKC IBM11/17/07C115*
GWNXD GOOG12/22/07P920**
JXBWX SPX11/9/07P1500***
*Call option on IBM stock expiring Nov. 17 at strike price of $115
**Put option on Google stock expiring Dec. 22 at strike price of $920
***Standard & Poor’s 500 index put option with weekly expiration,
expiring Nov. 9 at strike price of $1500
STANDARDS&PROTOCOLS:
Regulatory agencies will need to get involved if
the divide between payments and securities-transfer mechanisms is to be
resolved, say a panel of industry experts.
PAGE 10
TRADING: MarketAxess saw its revenues
and corporate bond volumes decline
during the third quarter, but credit default swaps trading grew fourfold year-over-year. PAGE 12
Growing a Global Market in Dubai With PHLX Purchase, Nasdaq Is
Chief executive Per Larsson Gaining an Options Alternative
on DIFX’s international aims On heels of BSE deal, Nasdaq acquires more licenses
The Dubai International Fi- BYJOHNHINTZE
nancial Exchange (DIFX), he Nasdaq Stock Market
which opened in September 2005 T last week announced it will
and is located in the Dubai Interna- buy the Philadelphia Stock Ex-tional Financial Center (DIFC), change (PHLX) for $652 million
touts itself as a unique entity in the in cash, its second major acquisi-Middle East. While there are other tion in as many months and a deal
exchanges in the region, they have that will jump-start its options-ex-governance and regulatory issues Per Larsson ecution volume and add to its col-that prevent them from competing lection of exchange and clearing-on the international stage, says chief pany for DIFX and the Dubai Fi- agency licenses.
executive Per Larsson. DIFX, on the nancial Market, in which Dubai The transaction is expected to
other hand, is in “a separate legal will receive a 19.99 percent stake close in the first quarter of 2008,
environment with its own laws.” in Nasdaq as well as Nasdaq’s 28 around the same time as Nasdaq’s
Its global ambitions were af- percent holding in the London acquisition of the Boston Stock
firmed recently by an agreement Stock Exchange; Nasdaq will in Exchange (BSE), announced Oct.
between the Nasdaq Stock Market turn obtain the borse’s shares in 8. That agreement did not include
and Borse Dubai, the holding com- Continued on page 16 the Boston Options Exchange
SEC Is Scrutinizing Options Symbology Gets a Makeover
NSCC’s Proposed Ban OCC’s new nomenclature will eliminate
On Trade Compression exchanges’ proprietary work-arounds Old Symbol New Symbol
BYJOHNHINTZE BYCHRISKENTOURIS
The Securities and Exchange ith the publication last month of an imple-Commission, following a W mentation timetable, Options Clearing Corp.
meeting with a group of high-pro- (OCC) and the U.S. options exchanges are profile industry players last month, is ceeding with their efforts to overhaul the symbols
reportedly taking a closer look at used to represent exchange-traded options contracts
the data behind the National Se- despite the operational burdens for member firms.
curities Clearing Corp.’s (NSCC) Instead of the current five-character designation,
proposal to eliminate trade com- which meets the criteria of the Options Price Repression, a change that would di- porting Authority (Opra), the new options configu-rectly affect high-volume broker- ration will consist of up to 21 characters.
dealers and could raise overall ex- The exchanges and OCC, the clearinghouse for
ecution costs. all U.S. listed options, said they will devise record
Representatives from about a layouts for new data fields by June 30; firms can use
dozen broker-dealers met in Wash- the remainder of 2008 to conduct system-readiness
Continued on page 17 testing. While firms must be able to accept options
data in the new format by the end of June, they won’t
need to send it until July 2009.
In January 2009, OCC, the options exchanges
and their members will begin a six-month period of
scripted testing of in-bound and outgoing communications. All firms will need to fully convert to the
new formats for all data elements, except symbols, by
Continued on page 13
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On the Web
Sifma’s Lackritz remains
‘bullish’; Townsend links to
BNP Paribas; and more.
See Breaking News at:
www.securitiesindustry.com.
Exchange Dreams Move Closer to Reality for BATS
BYJOHNHINTZE lates into 10.53 percent of tape C can no longer “maximize its busi-
The BATS Trading electronic Nasdaq stocks, 9.06 percent of tape ness and returns for its owners
communications network B stocks listed by the regional ex- without taking on exchange eco-
(ECN) on Nov. 5 filed its anticipat- changes, and 6. 7 per- nomics.”
ed application to become an ex- cent of the New York Citadel, one of the
change, formally starting a lengthy Stock Exchange’s tape largest order routers,
process that, if successful, should ben- A stocks. is a BATS member and
efit customers and give the new ex- “When an ECN an investor in Direct
change more control over its future, reaches critical mass, Edge, a successful
and saddle it with new obligations. exchange status be- ECN started by Jersey
The Kansas City-based ECN comes necessary for City-based Knight
has seen its average daily execution the economics of its Joe Ratterman Capital Group that
volume rise from 380 million in business,” said Neil Fitzpatrick, may also seek exchange status.
June to just over 600 million shares head of retail execution at Chica- Fitzpatrick noted that ex-as of early November. That trans- go-based Citadel Investments. It Continued on page 15
