Special Report: Advances in Algorithmic Trading, page 9
www.securitiesindustry.com
AUGUST 11, 2008
NEWS DESK
Osaka exchange cancels MOA with
International Securities Exchange
to build Japanese options platform;
Omgeo adds settlement notification
feature to Central Trade Manager.
PAGE 3
PERSPECTIVES
GUESTCOMMENT: “Mergers and acquisitions are executed successfully
less than 50 percent of the time,”
according to Milestone Financial
Services Consulting’s Jess Varughese and Peter Bond, who share
lessons learned from successful integrations. PAGE 4
SPECIAL REPORT
Amid financial turmoil, algorithmic
trading remains a major focus for sell-side firms, who are devoting signifi-
cant resources to expanding their offerings
across options and foreign exchange and into
regions such as Europe
and Asia-Pacific. Customization of
strategies and a simplified trading
process are priorities at Morgan Stanley, says Andrew Silverman, adding
that “several years ago, it was a race to
see who had more algorithms. Now,
the ongoing focus is on how we can
reduce our offering to just several algorithms with a simple user face.” Also
in this report: Investment Technology Group’s Tony Huck stresses
anonymity and transparency; the New
York Stock Exchange gives its trading
floor access to algorithms; and more.
PAGE 9
Could South Dakota Bring
An End to Short Selling?
Ballot measure has industry trade group nervous
BYJOHNHINTZE A short sale occurs when an
Bringing the issue to the people, investor sells a stock with the ina lobbying firm that has sup- tention of ultimately buying it
ported efforts to curb so-called back at a lower price and pock-naked shorting in multiple states has eting the difference. Regulation
placed an initiative on the general SHO, which went into effect in
election ballot in South Dakota that January 2005, requires that a
could outlaw short selling across the trader have at least reasonable
country. grounds to believe he can borrow
The not-for-profit American En- the stock to cover the sale, al-trepreneurs for Securities Reform though it provided some flexibil-
(ESR) helped promote bills to ban ity if the borrowed security was
Social networking site Financial Modeling Community’s home page naked short selling that were intro- not delivered within the required
Facebooks for Financial Services duced in the Virginia Senate and three days. Naked shorts occur
Arizona House of Representatives when a borrowed stock is never
in late 2006 but quickly withdrawn. delivered, and opponents say the
Social networking sites emerge for professional investors The group has also been active in uncovered sales can be used to
BYKATHERINEHEIRES seeking to move some of those ac- movements in several other states. drive down a stock’s price.
Ever since those first gatherings tivities online. Utah, in May 2006, passed a law to Although the Securities and
under a buttonwood tree, the Professional investors who want stop the practice, but the Securities Exchange Commission last year
business of Wall Street has been to post questions, share informa- Industry & Financial Markets As- closed one Reg SHO loophole
highly social, with personal con- tion, debate issues, find jobs and, sociation (Sifma) filed an injunction that enabled naked shorts and
tacts, access to information and net- in some instances, cut business to postpone the legislation and it is reexamining another, critics
working abilities playing a crucial deals in a password-protected en- was later overturned. The South say it has dragged its feet. How-role. Now, several companies are vironment are finding an array of Dakota initiative, however, appears ever, in reaction to recent fi-taking a page from social network- Web-based communities comprised to be the first time voters will ad- nancial turmoil, the SEC issued
ing Web sites like Facebook and Continued on page 20 dress the issue directly. an emergency order, effective
July 21, that mandates at least
a bona fide arrangement to borrow a security and tightens up
the three-day delivery requirement. That order applies only
to the stocks of 19 of the biggest
financial services companies, including bulge-bracket firms
such as Lehman Brothers and
Goldman Sachs, which, ironi-
Continued on page 19
▲
On the Web
Clash on Investment
Bank Oversight May
Spell Problems for
Treasury’s Blueprint
BYCAROLE. CURTIS
When Congress returns from
vacation Sept. 8, a top priority will be regulatory reform of the
financial markets as laid out in the
Treasury Department’s March proposal. However, differences within
the administration are emerging
over how reform should be accomplished—especially with respect to
p3 supervision of investment banks—
p22 and could become a major stumbling
p22 block on the path to any changes.
The four largest investment
bank holding companies—
Goldman Sachs, Lehman Brothers,
Morgan Stanley and Merrill Lynch
& Co.—are part of the Securities
and Exchange Commission’s voluntary consolidated supervised en-
Continued on page 22
DEPARTMENTS
TRADING: Tradeweb plans to roll out
an electronic market for covered
bonds backed by U.S. residential
mortgages. PAGE6
Next-Generation Dark Liquidity
Aggregators Look Into the Light
COMPLIANCE: Treasury’s Financial
Crimes Enforcement Network is
ending its magnetic media filing program for Bank Secrecy Act reports.
PAGE 6
TRADING: SunGard Data Systems has
entered into a definitive agreement
to purchase Paris-based trading systems provider GL Trade. PAGE 18
▼
People in the News
Company Index
People Index
Citi to return $7.5 billion to
ARS investors; prime brokers
select Swift for same-day matching. See Breaking News at:
www.securitiesindustry.com.
Firms rethink algo strategies
as gaming concerns grow
BYJOHNHINTZE
Algorithms designed to aggregate dark liquidity are becoming more closely tied to the displayed markets as their creators emphasize increasingly sophisticated
features to protect users from opportunistic traders.
Agency brokerage Instinet earlier this year integrated its Jeff Brown
Nighthawk liquidity-aggregation (volume-weighted average price),
technology into all of its algorithms to maximize the benefits of both
and in July enhanced its clients’ approaches.
ability to control exposure to un- “The fundamental shift we’re
friendly market players. Meanwhile, seeing today is people either want
Knight Capital Group’s Edge Trade to be in the dark—through an al-subsidiary is launching Smart Vol- gorithm or a DMA [direct-market
ume Tracker, which integrates access] program—or in a strategy
dark-liquidity seeking algorithms that is both displayed and dark,” said
with more traditional displayed Andrew Silverman, head of Mor-market strategies, such as VWAP Continued on page 19
