Special Report: Complex Event Processing, page 8
www.securitiesindustry.com
JANUARY 21, 2008
NEWS DESK
NeoNet links to the Australian Securities Exchange; OneChicago
has a new COO; Knight completes its acquisition of EdgeTrade; Aqua connects to Tradeware; and more. PAGE 3
PERSPECTIVES
GUEST COMMENT: Newedge USA’s
Doug Engmann says that, though
the portfolio margining rules have
been “a resounding success,” if the
industry wants to see the full benefits of risk-based margins, “rules
must be drafted that allow all options customers to be eligible, if
only for certain strategies.” PAGE 4
SPECIALREPORT
As the securities industry’s use of
complex event processing extends
beyond algorithmic trading, risk and
liquidity management
will benefit from increasingly sophisticated applications. CEP
can help firms get “a
good, clear picture of what they’ve
got at any point in time for risk
management purposes,” and “
address liquidity issues and satisfy low-latency requirements,” says HSBC’s
Malcolm West. Also in this report:
BEA Systems’ event processing play
is a sign of the technology’s maturity; and more. PAGE 8
DEPARTMENTS
COMPLIANCE: As European banks
prepare to migrate their corporate
clients onto the Single Euro Payment Area system, a group of German companies is raising concerns
about implementation. PAGE 6
NYSE Expands Offerings With Amex Acquisition
Deal affirms concept of a bifurcated options market
BYJOHNHINTZE
NYSE Euronext’s acquisition
of the American Stock Exchange (Amex), announced on
Thursday, gives NYSE the same
number of domestic exchange licenses as archrival Nasdaq Stock
Market while bringing to an end
the independence of a storied stock
market that has struggled recently.
Pending regulatory approval, Neal Wolkoff
NYSE will purchase Amex from its
members for $260 million in Neal Wolkoff added that Amex has
stock—supplemented by the even- recently reduced its staff from 470
tual proceeds from the sale of the to 380.
exchange’s headquarters in down-
town Manhattan. In 2007, Amex
had operating revenues of about
$178 million and a pre-tax net loss
of $36 million.
Duncan Niederauer, who became chief executive of NYSE Euronext in November, following the
departure of John Thain, said on a
conference call that the exchange
anticipates that the deal will result
in $100 million in savings over two
years—stemming mainly from consolidating operations and staff integration—and be accretive in
2009. Amex chairman and CEO
Continued on page 19
TECHNOLOGY: E-trading veteran
Brennan Carley joins Internet monitoring company Monitor110 as
CEO. PAGE 6
TRADING: OMX will implement
trading and clearing systems for the
Bombay Stock Exchange. PAGE 7
DTCC Rolls Out
CLS-Linked OTC
Settlement Service
BYCHRISKENTOURIS
Taking a major step toward
more efficient processing
in the over-the-counter derivatives market, the Depository
Trust & Clearing Corp.
(DTCC) has launched its centralized payment-settlement
service for credit default swaps
(CDS), offered in partnership
with foreign-currency settlement utility CLS Bank International.
The service for single-name
CDS and index trades, which
leverages DTCC’s Trade Information Warehouse, reduces operational risks by replacing
manually processed payments
for bilateral contracts with automated netted ones. Thus far,
14 large investment banks have
signed on.
On Dec. 20—the date of the
service’s first quarterly settlement cycle—trading obligations
requiring financial settlement
were reduced by 98 percent,
from $14.3 billion aggregate to
$288 million net. Gross settlements by the participating
traders—in U.S. dollars, euros,
Japanese yen, British pounds
and Swiss francs—were lowered
from 340,000 to 123.
“Because the Trade Information Warehouse records all
transactions confirmed through
Continued on page 16
COMPLIANCE: The Financial Industry Regulatory Authority has
fined 19 brokerage for overstating
trade volumes. PAGE 14
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Canada issues new soft-dollar
guidance; Sifma names its
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Breaking News at:
www.securitiesindustry.com.
Big ISE Trades Signal Options Traders’ On-Demand CRM
Approval of Automated Block Trading Model Is In Demand
BYJOHNHINTZE “Both are records for the ISE,” she Web-based applications offer
The International Securities said. a customizable alternative
Exchange (ISE) executed two Very large options trades con- B YALEXS. DAI
record-size orders of options con- tinue to be done by floor brokers ustomer relationship manage- tracts this month, an indication that at all but one of the other five U.S. Cment (CRM) company Sales-the institutional investors driving options exchanges—the Boston force.com’s software-as-a-service
growth in options trading are be- Options Exchange, like ISE, is fully model went a long way toward
coming more comfortable trading electronic. But the Chicago Board showing major Wall Street firms that
sizable orders electronically and fol- Options Exchange has introduced Web-based applications can be use-lowing in the footsteps of the eq- functionality to permit electronic ful and reliable. Now a number of
uities market. crosses, and NYSE Arca and the vendors are joining the San Fran-
Jeanine Hightower, director of Philadelphia Stock Exchange cisco-based company in putting their
business development at ISE, said (PHLX), which agreed in Novem- applications online and creating tools
the exchange on Jan. 8 executed a ber to be acquired by Nasdaq Stock that are customizable, scalable, more
two-legged put-spread transaction Market, are both considering them. manageable, and less expensive than
totaling 280,000 contracts; on Jan. “Certain order flow goes to ISE traditional software.
17, it completed a three-legged that works very well in that envi- Private investment bank Boston
spread transaction with 352,000. Continued on page 17 Continued on page 18
Speed of Markets Accelerates Model Degradation
Good risk models require ‘constant innovation’ and ‘blend of art and science’
BY MAUREEN NEVIN DUFFY
Financial models are based on assumptions made by Derman, who is also head of risk at fund of funds
the best and the brightest on Wall Street—the Prisma Capital Partners, wrote in Risk magazine ten
quantitative financial engineers, or quants. years ago that he hoped to “see progress
But when events occur that shake up those in building models that are both market-assumptions, the models degrade. The bank calibrated and evolutionarily realistic.”
that most quickly recovers its models, or His wish has come true: The impetus has
replaces them with new ones, wins. shifted from derivatives to predictive
Not so long ago it was rare for PhDs models, “or models that try to decide
to be trading. “Nowadays many more which electronically traded stocks and fu-quants get involved in not only building tures are cheap or rich,” he says. More of
these models, but running them and being Emanuel Derman today’s quants, according to Derman, tend
principals in the business,” says Emanuel Derman, to work in factor models and prediction.
professor and head of the financial engineering pro- But those models did not hold up under a period
gram at Columbia University and author of “My Life of unusual market volatility in August, generally beas A Quant: Reflections on Physics and Finance.” Continued on page 17
