www.securitiesindustry.com
JUNE 9, 2008 Fidelity Launches
N Creditex Deal Makes ICE a CDS Player
EWS DESK
The Boston Options Exchange Clearing is a focus of the HybridOne To
adds a lower pricing tier for liquid
classes; Morgan Stanley’s latest al- $625 million agreement
gorithm. Capture Coveted
PAGE 3 BYSHANEKITE
PERSPECTIVES n a move that will give it a sizable share of the lucrative cred- Breakaways
COMMENT: While rogue trading is I
not new, the magnitude of recent it default swaps (CDS) market, the BYJOHNHINTZE
losses—and prodding from regula- IntercontinentalExchange (ICE) idelity Investments, a
tors—has banks looking at preven- has agreed to acquire Creditex F major player in the invest-
tion with renewed urgency. PAGE 4 Group, an interdealer brokerage ment advisory and brokerage
VIEWPOIMNTSu: l“tNi-ayBsaryoerskehrave Maunldtpir-oAcesssoer otf crMediut dletriv-aRtivoeus. te Multi-Region support businesses, is integrat-
claimed that market fragmentation The transaction, announced June Jeffrey Sprecher Sunil Hirani ing its operations backing rep-
is a dangerous thing,” says Chi-X 3, will pit ICE against interdealer risk management tools required by anticipate revenues and cost savings resentatives that hold both types
Europe’s Peter Randall. But “what- brokers active in CDS such as GFI dealers and their clients today,” said of $9 million to $14 million in 2009, of licenses—customers that its
ever technology can pull apart, tech-
nology can knit back together.” Group, Tullett Prebon, Icap and ICE chairman and CEO Jeffrey based on recent results and expect- rivals are also pursuing.
PAGE 6 BGC Partners, as well as the deal- Sprecher in a statement. “The cred- ed synergies. Fidelity announced June 3
SPECIAL REPORT ers to which it caters. It also provides it derivatives sector is one of the Creditex is considered a pioneer that it has launched an initia-
the Atlanta-based energy and soft largest segments of the OTC mar- in electronic execution and pro- tive, HybridOne, to more close-
As financial firms apply complex
event processing to an ever broader commodity exchange operator with ket, and we expect that the highly cessing of credit derivatives. In ad- ly align its registered investment
range of activities, technology ven- a seat at the table as the industry tries regarded team at Creditex will con- dition to its hybrid electronic and adviser (RIA) custody business,
dors are introducing functionality for to sort out CDS processing. Credi- tinue to lead with innovative solu- voice-brokered interdealer busi- Fidelity Institutional Wealth
pricing, profit and loss, risk manage- tex is a member of the consortium tions to ensure that liquidity and risk ness, the firm owns T-Zero, an af- Services (IWS), with National
ment and market data, among oth-
ers. Progress Software’s Apama divi- that owns Clearing Corp., which in management tools evolve with these f AirmaNtione, nwovatioLn aannd stdraimght-aFrinkancial, its broker-dealer cor-
sion, for example, is tak- the third quarter will begin operat- markets.” through processing (STP) platform respondent unit. HybridOne
ing aim at real-time ing a centralized clearinghouse for The $625 million deal—$565 that it claims is the most widely will give dually registered reps
market-making across
asset classes. “We expect over-the-counter derivatives. That million in ICE common stock and adopted in the sector, servicing 17 access to all the products and
that firms that adopt this initiative comes amid regulatory calls $60 million cash—is expected to dealers, ten prime brokers and 196 services available to the 85,000
technology early on will become the to improve processing and mitigate close late in the third quarter and buy-side firms. brokers and advisers at Nation-
leaders in their respective markets,” systemic risk. be accretive in 12 to 18 months. T-Zero delivers trade data to al Financial’s 330 correspon-
says Progress Apama’s John Bates. Also in this report: A look at this year’s Together, ICE and New York- Creditex, which will retain its name, downstream matching and confir- Continued on page 27
Sifma Technology Conference, bro- based Creditex “can meet the de- will become a wholly owned sub- mation utilities such as Depository
kerage firms’ IT spending and on- mand for enhanced operational and sidiary of ICE. The two companies Continued on page 30
demand computing. PAGE 13
DEPARTMENTS
COMPLIANCE: Under William Don-
aldson and Christopher Cox, technology has shifted from second Assets Managed by
thought to major priority at the SEC. Transition Managers, 2007
PAGE 8
Fixed-Income
Compliance Is
Moving Upstream
TRADING: Private equity firm Technology Crossover Ventures has taken
a 10 percent stake in bond platform
operator MarketAxess. PAGE 8
Norman Malo
TRADING: The Montreal Climate Exchange becomes Canada’s first operational carbon-trading market.
PAGE 11
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Transition Managers’ Volatile Times
BYCHRISKENTOURIS
Market volatility is making the
job of transition managers a
lot tougher: Not only must they ex-
ecute trades flawlessly across a con-
stantly expanding selection of liq-
uidity pools, but also offer clients
greater transparency behind their
decisionmaking process.
The goal of the broker-dealers,
fund managers and custodian banks
who provide transition manage-
ment services is to mitigate the risks
and costs—both implicit and explicit—involved with helping buy- $31 billion
Asia
$68 billion
European $1.25 trillion
Union United States
Source:Tabb Group estimates
side firms switch their investment
managers, strategies and asset allo-
cations.
“Transition management is built
upon and advanced by the same
factors that impact the trading in-
dustry as a whole, but the sheer size
of transition trades magnifies the
inherent investment, trading and
Schulz, analyst with New York-based Tabb Group, which last
month issued a report on the industry. “As in portfolio trading, innovations in trade optimization and
risk management have given transition managers new ways to mitigate costs.”
Complex transitions involving
BYMARIATROMBLY
Fixed-income products can be a
compliance nightmare. Compared to the thousands of equities
instruments, there are millions in
the fixed-income world, and some
of those might not be traded for
months—or years—making pricing
largely a judgment call.
Firms typically deal with problems late in the process—after a
trade is done, or when customers
or counterparties complain, or regulators notice something is wrong.
But because it takes less money and
manpower to catch a problem before an execution occurs, vendors
are developing tools to help traders
catch mistakes in real time.
The costs confronting firms
