Special Report: Best Execution & TCA, page 9
www.securitiesindustry.com
SEPTEMBER 22, 2008
NEWS DESK
Bank of America and MIT work on
measuring liquidity risk; Japan considers OTC clearing; Tradeweb gets
new CEO; Restricted Stock Partners becomes SecondMarket.
PAGE 3
PERSPECTIVES
GUESTCOMMENT: Regulatory pressure may be responsible for Wall
Street’s adoption of e-messaging
archiving technology, but the ultimate beneficiary will be those firms’
bottom lines, says 17a- 4’s Charles
Weeden. PAGE 4
SPECIAL REPORT
Regulation NMS requires that brokers and exchanges ensure best execution, but when multiple displayed
venues have the same price, many in-
stitutions use algorithms
to find an edge, or a better fill in dark liquidity
pools. As such approaches become routine, some firms are working to incorporate alpha into their algorithmic strategies. But, for the moment,
“there are maybe ten of us with sufficient infrastructures to build models seeking alpha,” said BNY ConvergEx’s Gary Ardell. Also in this report: Best-execution mandates are
helping TCA become a ubiquitous
feature of trading desks on both sides
of the Atlantic; and developed markets in Asia-Pacific could soon have
their own best-execution regulations.
PAGE 9
DEPARTMENTS
TECHNOLOGY: The vast majority of
its clients are in the troubled hedge
fund sector, yet technology provider
Eze Castle Integration is riding a
growth wave. PAGE 6
ASSET SERVICING: Fund managers
registered under Europe’s UCITS
directive have seen rapid product development and growing client bases,
says a new report. PAGE 6
OTC Derivatives,
Stock Lending
Expansion for
LCH.Clearnet
BYCHRISKENTOURIS
LCH.Clearnet unveiled major
initiatives in two sectors last
week, announcing plans to offer a
single clearing platform for most
over-the-counter and all listed derivatives and central counterparty
(CCP) services for stock lending
platform SecFinex.
The new derivatives service will
consolidate three LCH.Clearnet systems currently used for multiple exchanges and add OTC contracts to
the mix. Mumbai-based Tata Consultancy Services (TCS) is working
with LCH.Clearnet on the platform—Synapse Clearing Technology—which is based on an existing
TCS offering. Equities contracts will
remain on a legacy clearing system.
“Our agreement with Tata allows
us to enhance its TCS Bancs Market
Infrastructure system with functionality in the exchange-traded and
OTC derivatives space and have the
final say how it is marketed,” said
LCH.Clearnet deputy account executive Rory O’Brien, who is heading
up the project. In June 2009, the London Mercantile Exchange (LME) will
become the first venue to use the platform, although no timetable has been
set for others such as the Hong Kong
Mercantile Exchange.
Continued on page 21
Repercussions of Wall Street’s Rough Week
Lehman, Merrill
Trading Platforms
Likely to Live On
BYJOHNHINTZE
The currents of the electronic trading world’s order
flow may be shifting in the wake
of Lehman Brothers’ bankruptcy and Bank of America Corp.’s
deal for Merrill Lynch & Co. last
week. However, the trading plat-
Swaps Operations Are Holding Up forms of those investment banks—and any other bulge-
Amid Historic Financial Crisis bracket firms that meet unex- pected demises in the current cri-
BYSHANEKITE functioning admirably, despite un- sis—are likely to find welcom-
The people and systems sup- precedented volatility triggered by ing homes.
porting the credit default the bankruptcy of a 158-year-old Lehman Brothers was a major
swaps (CDS) market are thus far investment bank and the rescue of force in electronic trading, of-weathering the young sector’s the world’s largest insurer. fering leading-edge algorithms
biggest operational test, say mar- There have been spikes in trad- and a dark liquidity pool and
ket players. The situation, howev- ing of CDS linked to those firms holding stakes in several other
er, is continuing to evolve following and the two mortgage giants, as venues. It will become clearer in
the collapse of Lehman Brothers well as sizable increases in unwinds the coming weeks what Barclays
and the federal bailout of Ameri- and novations, or trade assign- intends to do with Lehman’s U.S.
can International Group (AIG)— ments. Novation volumes peaked broker-dealer assets, which it ac-events that occurred within days of as owners attempted to reassign de- quired Sept. 17 through the U.S.
the government’s takeover of Fan- rivatives contracts held with Bankruptcy Court in the South-nie Mae and Freddie Mac. Lehman, which had been a major ern District of New York, but the
The CDS market lacks key stan- player in the market until Sept. 15, U.K. bank clearly will elevate its
dards and infrastructures that when it ceased to exist as a coun- status in the electronic execution
would allow for better management terparty. business.
of counterparty risk, such as a cen- Clearing Corp. (CCorp), Barclays Capital’s PowerFill
tral clearing mechanism that could backed by a consortium of deal- algorithmic suite is well known
help prevent systemic failures. Yet ers, Eurex, Markit Group and for connecting to a wide array of
many who spoke to Securities In- Creditex Group, had expected to global markets, especially in de-
dustry News last week said that begin offering central counter- rivatives. However, it is a rela-processes involving unwinds, net- party clearing for major CDS in- tively small player in the U.S.,
ting, novation and settlement were Continued on page 20 Continued on page 23
TECHNOLOGY: SunGard Data Systems
has introduced a flexible messaging
platform that offers a single Web interface for business and IT users.
PAGE 16
Company Index
People Index
On the Web
p23
p23
Sifma CEO says regulators are
coping with crisis; Omgeo enters OTC collateral management. See Breaking News at:
www.securitiesindustry.com.
InteliClear Emerges as Trade Processing Alternative
BYJOHNHINTZE Reuters’ Thomson Transaction Ser- ing and black-box customers and,
Broker-dealer FolioFN, run by vices—formerly Beta Systems—and more recently, the retail trades of its
former Securities and Exchange Broadridge Financial Solutions, spun Sogo Trade discount brokerage ser-
Commission member Steven Wall- off last year by Automated Data Pro- vice. FolioFN, which provides unman, has begun processing trades cessing (ADP). A few smaller ven- limited trading and the ability to
and performing other back-office dors such as Shadow Financial Sys- build and manage baskets of securi-functions using software from In- tems and Comprehensive Software ties, or folios, for $29 a month, com-teliClear, marking that company’s Systems (CSS) have also arrived on pleted its migration to the platform
emergence in an esoteric but critical the scene. early this month, according to
segment of the securities industry. FolioFN is the third customer of Robert Victor, managing director of
Securities processing, the core Goshen, Conn.-based InteliClear’s InteliClear. A black-box proprietary
back-office function of self-clearing books-and-records system. Two trading firm is also in the process of
broker-dealers, has been dominated years ago, New York-based Genesis adopting the software, added Victor.
over the last few decades by Sun- Securities began using the vendor’s Both Victor and managing di-Gard Data Systems, Thomson processing software for its day-trad- Continued on page 22
