www.securitiesindustry.com
FEBRUARY 25, 2008
NEWS DESK
Belzberg launches a next-genera-
tion options platform; Irish trans-
fer agents adopt Clearstream’s post-
trade service for funds. PAGE 3
PERSPECTIVES
GUEST COMMENT: Finra’s guidance
on electronic communications offers
“principles that member firms should
consider when establishing supervi-
sory policies and procedures,” ex-
plains LiveOffice’s Matt Smith, who
says that meeting the guidelines
“should not cause companies any sig-
nificant hardship.” PAGE 4
ORIGINAL SOURCES: Calling the ver-
tical structure of U.S.
futures exchanges “one
of the best-functioning
pieces of our financial-system plumbing,” CME chief executive Craig Donohue argues
that regulators “should not, and
likely cannot, mandate the establishment of a single monopoly
provider” of central counterparty
clearing services. PAGE 6
DEPARTMENTS
TECHNOLOGY: The rollout of Euroclear’s third backup facility reflects the financial services industry’s ongoing efforts to beef up data
continuity. PAGE 8
Cross-border Clearing
Inches Across Europe
Voluntary initiatives alone
may not bring fungibility BYKATHERINEHEIRES
BY JOHN HINTZE emantics—the study of mean- Swiss exchange virt-x’s clearing Sing in language—may date back unit is actively seeking fungi- to the ancient Greeks, but only
bility with other European ex- now is a technological take on the
changes, bringing cost and collat- subject gaining traction on Wall
eral benefits to customers and of- Street. Due in large part to the
fering a sign of the industry’s ef- ever-escalating volumes of data that
forts to overcome one of the trading firms must digest on a daily
biggest obstacles of the Markets in basis—Aite Group reports a near-
Financial Instruments Directive quadrupling of U.S. equity mes-
(MiFID). saging since December 2006—they
Virt-x clears and settles through are turning to so-called semantic
affiliate SIS x-clear, which is aim- technologies for help.
ing to finalize a relationship with Semantic technology applies
LCH.Clearnet, the clearer for the meaning, or markers, to disparate
London Stock Exchange (LSE), data and text in a standardized
that would permit members of manner, making them machine-
both exchanges to connect to a sin- readable and interoperable, which
gle clearer for transactions execut- allows computers to more easily
ed over either exchange—clearing correlate information, communi-
fungiblity. cate about it, and then make the
SIS x-clear is also working to es- big jump—performing tasks that
tablish a link to the Frankfurt Stock call for reasoning and inference.
Exchange’s (FSE) clearing unit, Firms such as Ameriprise Fi-
among others. “We’re in the nancial, Aon and Citigroup have
process of setting up additional recently initiated internal projects
clearing opportunities in different to explore the potential benefits of
markets,” said SIS x-clear CEO semantic technologies, according
Marco Strimer. to “Semantic Wave 2008,” a report
MiFID, which went into effect issued last month by Washington,
Nov. 1, permits securities to trade D.C.-based research firm Pro-
Continued on page 16 ject10X. Credit Suisse, HSBC,
For Wall Street, a Matter of Semantics
New standards, technologies,
products prompting adoption
NYSE Purchases
OTC Valuation
Unit, Rolls Out
Buy-Side Service
Gerry Campbell
Morgan Stanley, State Street Corp.
and Wells Fargo Bank have been
identified by vendors and industry
reports as having or considering semantic-based technology initiatives.
There are “pockets of semantic
tech development in almost every
large organization in the financial
services community,” said Eric
Miller, a computer scientist affiliated with the Massachusetts Institute
of Technology and CEO and
Continued on page 14
TRADING: The Securities and Exchange Commission has opened up
BATS’ exchange application for
comment. PAGE 8
STANDARDS & PROTOCOLS: As Swift
phases out ISO 15022 in favor of
20022, Euroclear is developing
messages to address gaps in the two
formats. PAGE 10
ASSET SERVICING: More brokers and
advisers are likely to consider switching
employers in the coming year, according to a survey. PAGE 11
BY SHANE KITE
NYSE Euronext’s new
Web-based pricing service will help buy-side firms
place market valuations on their
complex structured products
and illiquid securities, the exchange said last week.
The system, Prime Source,
is powered by EuronextValue,
a fixed-income asset valuation
platform that Euronext
launched in 2004, and Independent Valuation & Risk Services (IVRS), an over-the-counter derivatives valuation
service that Euronext’s derivatives subsidiary, Euronext.liffe,
has acquired from Lombard
Risk Management, a London-based risk management software vendor. Lombard announced the sale on Feb. 18,
one day prior to Prime Source’s
unveiling.
The new service will leverage the two platforms to cull
valuations and prices from
dealer contributors, markets
and valuation models. The
OTC derivatives technology
and processes of IVRS, which
allow for automated daily valuation of fixed-income, credit
and equity products, will be
Continued on page 17
TRADING: Fixed-income e-trading
continued to increase last year in
Europe, despite the tumultuous
market, concludes a Securities Industry & Financial Markets Association study. PAGE 13
▼
People in the News
Company Index
People Index ▲
p3
p18
p18
On the Web
Oliver Wyman buys Celent; the
Thomson-Reuters merger gets
the green light from regulators.
See Breaking News at:
www.securitiesindustry.com.
Speed of Data vs. Limits of Physics
In the pursuit of lower latency, collocation has limitations
BY JOHN SANDMAN nent that sits alongside the engine
As increasing volumes of mar- or whether it cross-connects,” Ryan
ket data flow ever-more rapid- Eavy, associate director of enterprise
ly across a growing number of architecture at the Chicago Mer-venues, the industry’s technology cantile Exchange (CME), said at the
infrastructure may not have the ca- Financial Technology Congress con-pacity to meet traders’ desire for ference in New York on Feb. 6.
low latency. Approaches such as “One thing we have to do is
collocation—reducing limit the depth of
latency by putting com- market data—how
puters in or near trad- many quotes are at
ing destinations—have the top of the book,”
become widespread. said Eavy. “The black
But many observers boxes that are doing
foresee a day when such a lot of the automat-solutions run into the ed trading really need
limits of physics. Mark Akass market data quick. If
“I see things getting closer and it’s a half a second behind, it’s no
closer to the engine, whether you good. Market data is what we
configure your own trading compo- Continued on page 14
Regulators Taking
Aim at 12b-1 Fees
SEC’s Cox calls forthcoming
proposal a ‘complete overhaul’
BY CAROL E. CURTIS
After years on the back burner,
the Securities and Exchange
Commission’s rule governing mutual fund marketing fees is in store for
a “complete overhaul,” according to
commission chairman Christopher
Cox.
Fees paid under Rule 12b-1,
adopted in 1980, provide nearly $12
billion a year from mutual fund assets to the broker-dealers, banks, insurance companies, financial plan-ners and fund platforms that market and distribute the funds. The
fees are levied by more than 70 percent of all U.S. mutual funds, in an
industry that has over $11 trillion
in assets and more than 90 million
shareholders.
The SEC recently completed a
reevaluation of 12b-1, and the commission’s division of investment
management is set to issue a rule
proposal this spring. In a speech on
Feb. 8 at the Practising Law Institute in Washington, D.C., Cox
Continued on page 18
