The Dodd-Frank Act signifies the biggest US regulatory change in several decades. According to our industry colleagues, Dodd-Frank will have a substantial influence over an estimated 8,500 investment managers, all the 10-12 US exchanges and alternative execution networks and, by extension, virtually traders globally that interacts in any way with the US.

Whilst a mere 73 of the 221 rulemaking deadlines have actually been met, it is still important that you evaluate whether the systems, processes and people you have in place can support the many requirements of the rules when they eventually do get brought into law, including greater transparency and disclosure mandated by the reform.

Thanks to our good friends at leading research consultancy, Hatstand, we are delighted to bring you this whitepaper that will give you effective takeaways that you can use to help mitigate risk brought on by the impact of Dodd Frank on your OTC swaps and derivatives trading.

Download the Hatstand whitepaper ‘Impact of Dodd-Frank On Derivatives Trading’ from the TradeTech Swaps and Derivatives Download Centre

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The process of algorithmic trading has been debated by a wide number of experts in the financial sector in recent years, yet the debate is far from losing momentum – in fact, it’s hotting up thanks to the onset of the plethora of new regulations.

Although many companies have taken advantage of its benefits, it has also come in for criticism in some quarters.

One of the organisations that has spoken out against the practice is the Dutch markets regulator AFM, which has suggested that more emphasis needs to be placed on the potential risks of using the technology.

Speaking to Reuters, Pete Teeboom, a senior policy advisor at the organisation, said that industry professionals should look beyond the positive aspects of HFT, such as how it boosts liquidity, and instead gain a more realistic understanding of the risks involved.

Mr Teeboom explained that there should be more focus placed on the management of core trading systems, and noted that “circuit breakers” should be implemented when markets reach levels of disorder.

He also suggested suspending trading in such a situation.

This is a snapshot of the opinion of many regulators, which believe that the risks of HFT need to be addressed more carefully in order for transactions to be safe.

Reuters also reported how the European Parliament and the bloc’s member states are advocating the re-launch of the MiFID securities trading rules.

This has been trigged by worries surrounding misuse of HFT, as many critics believe that the approach can facilitate abuse of the market.

The news provider revealed that some European Union lawmakers are seeking a minimum “resting period” for orders on a trading platform.

Tim Rowe, manager of trading platforms at the Financial Services Authority (FSA) in the UK, told the audience at TradeTech 2012 in April: “We are still running on anecdotes. We need more evidence.

“I have not yet heard an explanation why these are a solution to a problem when you don’t yet know what the problem is. I cannot see how resting times work.”

Regulations have already been enforced to clamp down on HFT in India, as the country’s national markets regulator, the Securities and Exchange Board of India (SEBI) has introduced guidelines to monitor the use of the systems.

It has announced that exchanges must guarantee that all algorithmic orders are routed via broker servers located in the country, while sufficient risk-control mechanisms should be in place to lower the risks associated with the transactions.

Technology which checks the price and quantity of orders should also be enforced, the group recommended.

In a statement posted on its website, SEBI announced: “The price quoted by the order shall not violate the price bands defined by the exchange for the security.

“For securities that do not have price bands, dummy filters shall be brought into effective use to serve as an early warning system to detect sudden surge in prices.”

As evidenced in these plans, as well as the proposals seen in European Parliament, there is a strong urge in the market to monitor HFT, but whether the approach will be stopped completely remains to be seen.

The impact of all the new regulations of HFT, and trading technology as a whole, will be discussed by some of the industry’s leading lights at Trading Architecture – Europe’s leading conference that helps you improve efficiency, throughput, capacity and scalability to ensure the most cost effective trading infrastructure.

Find out more at tradingarchitectureeurope.com

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A look into the potential pitfalls of EMIR in the DACH region with Mark Goodmann is Head of Electronic Services – Europe at Société Générale Corporate & Investment Banking.

Mark is a man with his fingers very much on the pulse when it comes to the latest financial regulatory reforms. One of the more recent ones to make the pink papers is EMIR (European Market Infrastructure Regulation) so we at TradeTech DACH set some questions to Mr. Goodman to find out what the possible – if not intended – outcomes of EMIR may be.

If EMIR comes in as proposed, will it be an overall positive change for the DACH nations, and why?

Broadly speaking we should welcome a second wave of legislation to address some of the short-comings which resulted from MiFID I.

Whilst fragmentation in itself is not a bad thing the lack of a consolidated tape has emphasised the downside of this market structure rather than the upside. There has been no viable market response to this and whilst legislation should be the last resort it appears necessary in this instance, and in principal is widely supported by the industry.

Similarly, on the topic of dark pools, a better definition of broker-owned pools under the category of OTF or systematic internaliser will make it easier for the buy-side to take decisions about their order flow. The lack of definition creates confusion and therefore suspicion which is in no one’s interest.

On these and other topics addressed by EMIR action has been required however much of the detail is still outstanding which makes it impossible to make a judgement on whether Implementing EMIR as is would have a positive benefit.

For example, whilst the clarification of OTF and SI is to be welcomed the requirement that principal flow should not be allowed into an OTF has the potential to force many brokers to create two pools thus increasing fragmentation. The definition is fairly arbitary, indicating a judgement on good versus bad flow which is not necessarily correct; certain client flow may be more toxic than certain prop flow for example.

Further clarification and debate is needed to ensure that the unexpected consequences of EMIR are fully understood and addressed.

Do you agree with Michel Barnier that this means ‘the era of opacity and shady deals is over’?

In as much as opacity leads to the suspicion of shady deals, attempts to provide transparency should be welcomed.

However, transparency should not be an end in itself but a way to achieve the objective of creating and efficient market structure which provides benefit to the end investor.

It is important not to fall into the trap of believing that by executing all trades on a lit exchange the investor automatically benefits. The proposals around mandated end-of-day trade reporting for example will significantly impact the cost of capital, in particular large trades executed later in the day. These costs will have a direct impact on fund performance and negatively benefit the end investor.

Transparency is a means to an end but we must keep in mind the objective we are trying to achieve.

What is the biggest issue you think needs to be addressed, and what outcome would you most like to see?

The biggest single issue we need to address is to improve the ability for the buy-side to make informed decisions about their order flow in the current market structure. This will have a direct benefit on the end investor.

A consolidated tape, clear definitions on non-regulated trading venues and consistent application of MiFID across the EU are all important factors in achieving this.

However, where we must be cautious is in introducing rules which address this issue by reducing choice, discouraging liquidity and generally trying to level the playing field by restricting innovation to the lowest common denominator.

Amongst the fallout from the financial crisis and ever-fragmenting markets, where will the future financial capital of Europe lie?
The question is less where within Europe the future financial capital will lie but more what will the relative importance of Europe’s financial capital be globally.

The prospect of regulatory arbitrage within Europe will weaken the regions attractiveness as a financial centre overall to the benefit of no one. It is important that Europe attempts to present a united front which promotes competition, innovation and transparency without seeing these objectives as mutually exclusive.

See the a complete, in-depth, 15-minute interview with Mark, covering multi and cross-asset trading, EMIR, MiFID II and more, here.

EMIR and all the current and upcoming regulatory reforms in the trading sector affecting the DACH region will be under the spotlight at TradeTech DACH, 4-5 July 2012, Frankfurt.

For more downloads, reports, interviews, Q&As and to find out more about the conference visit tradetechdach.com

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Europe’s financial markets are set to be impacted substantially as a result of the European Market Infrastructure Regulation (EMIR).

The ruling stipulates a number of new measures that banks and companies exchanging financial products will need to abide by, meaning that the businesses will have to adapt quickly to ensure that they are not breaking laws.

A number of proposals are included in EMIR, which has an overall aim to increase stability within the over-the-counter (OTC) derivatives market.

Among its measures are a reporting obligation for OTC derivatives, rules to reduce counterparty credit risk and operational risk for bilaterally cleared OTC derivatives and common rules for central counterparties.

On top of this, regulations regarding the establishment of interoperability between CCPs will be launched as part of EMIR.

One of the other key aspects of the law is the stipulation that all standardised OTC derivative contracts should be traded on exchanges or electronic platforms.

EMIR has been put under the spotlight in recent weeks, with a representative from the European Commission claiming that the European Securities and Markets Authority (ESMA) has a short amount of time to draw up technical standards.

Speaking to Risk Magazine, Patrick Pearson, head of the financial markets infrastructure unit at the European Commission, said: “They [ESMA] need to give me those standards by the end of September at the latest, because that is when the EC will see if we are happy with them, and we will turn those standards into binding legislation that will become applicable on January 1st next year.”

While EMIR is primarily focussed on the European market, regulators have liaised with counterparts in the US in order to guarantee that rules across the Atlantic are consistent, which is particularly important due to the amount of foreign exchanges (FX) occurring across the world.

Many organisations take advantage of FX as a means of exporting and importing products and, as a result, they will need to be sufficiently informed about the varying rules enforced in the different countries that they are trading in.

These kinds of deals can be especially beneficial when there are fluctuating exchange rates, which can allow firms to save money.

Commenting on the importance of establishing consistency in regulation, Mr Pearson told Risk Magazine: “There is a lot of willingness and understanding that Europe and the US need to get our acts together. What we will come up with we suspect will be followed by the rest of the world: by Asia, by Latin America and further.”

Mr Pearson conceded that ensuring consistency will not be easy because the countries are from their own respective legislative backgrounds.

He also highlighted that people cannot anticipate that the US Securities and Exchange Commission will introduce laws which counteract those that were stipulated in America’s Dodd Frank Act.

In a move that demonstrates the increasing links between the US and European financial markets, NYSE Euronext will open a derivatives clearing house in London during the next two years, according to the Financial Times.

However, for any companies involved in FX, it is also vital that they are fully aware of regulatory laws.

One firm that is helping to do this is TRG Post Trade Services (TRG), which has announced a recent partnership agreement with UnaVista, which is the London Stock Exchange’s post-trade services platform.

Kiri Self, chief executive of TRG Post Trade Services, said that both parties are fully devoted to improving operational efficiency and guaranteeing regulatory compliance.

Thanks to the partnership, TRG will be able to provide clients with consultancy services that focus on challenges regarding regulation, meaning that they will be able to gain help when it comes to rules such as EMIR.

Efforts like these show that companies are looking to help to boost knowledge of regulation in the financial sector, but it is imperative that firms keep up to date and guarantee that they are not breaking any laws.

The impact of EMIR on post-trade will be a key discussion topic at TradeTech Post Trade, 11-13 September 2012 in London. Learn from top-level industry speakers how to increase operational efficiency, mitigate risk and achieve clearing and settlement regulatory compliance across your post trade operations. For more info and to book visit tradetechposttrade.com

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The perils and opportunities of Best Execution in a multi-market structure

We at The TradeTech Blog are delighted to present this brand new whitepaper from Fidessa’s Director of Group Strategy and finance blogging legend, Steve Grob. In this paper Steve examines how Australia’s new Best Execution battleground might play out and how some firms are turning it from regulatory burden into competitive edge…

With a multi-market structure comes fragmented liquidity and competition and at its core lies the concept of best execution or, put another way, achieving the optimum trading outcome for your client.

Two broad schools dominate regulators’ thinking on the subject of best execution: a strict, rules-based stance putting an absolute definition around the concept and its measurement as seen in the U.S. Or a more relative, principles-based approach as seen in the UK that asks firms to adopt their own procedures so long as execution effectiveness is ensured.

The difference between the rules-based or the principles-based approach is like either setting a rigid speed limit or asking every driver to proceed safely along the liquidity highway. While the objective is the same – obtaining the optimum outcome for your passenger – implementation, measurement and enforcement are very different…

Download the whitepaper in full here

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Diana Chan, CEO of EuroCCP writes this exclusive report for TradeTech Post Trade.An essential read for anyone concerned with post trade from one of the leading luminaries of the sector.

Since last year’s TradeTech conference in London, clearing competition among multiple central counterparties (CCPs) in the cash equities space – commonly referred to as “interoperability” – has gained substantial momentum. Within a short period of time since its July 2011 launch, not only did the model prove it is workable operationally, but the sheer appetite among the trading members to begin consolidating their flow through a CCP of their choice – evidence which is tangible in those trading venues that allow CCPs to interoperate – is a proof that this freedom of choice was long overdue.

The prospect for lower costs, netting benefits, better service and more innovation through effective competition on a pan-European scale has been and continues to be the primary driver behind market participants’ demand for competition and choice in clearing. Clearing fees have dropped in price by over 80 per cent in the last four years among the CCPs competing for clearing business on multilateral trading facilities (MTFs). It is, in fact, generally agreed that clearing fees are already at an acceptable low level…

Read the full report at tradetechposttrade.com, the conference bringing you essential insight to achieving cost-effective clearing and settlement compliance; connectivity and collateral management – 11-13 September, 2012, London.

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However, it’s also a sign of an inevitable future; Multitasking is more important and more deeply imbued into society than ever before, and the trading floor is no exception.

The technology behind the markets is often at the pinnacle of what computing power can achieve, boasting faster, bigger data than almost any other industry and with it has come an era of increased mechanical simplicity. From front-end platforms with less complexity to better managed, higher capacity systems and streamlined data architecture and standards that allow more systems to work with each other, more efficiently than ever before.

However, this enhanced simplicity has allowed traders the ability to devise evermore complicated strategies to exploit them. If you’re not trading across cross-asset are you putting yourself out of a job?

Prior to her appearance at TradeTech, I was joined by Alex Foster, Global Head of Sales, Technical Solutions & Business Development for BT Radianz, to discuss this and several other areas impacted by improving technologies including the cloud, the changing nature of multi-asset trading, regulation impact, consolidated tape and data management.

No time to watch?
We’re working on the transcript right now, so if you want a copy, email me and I’ll send it over when it’s done.

Related Events:

• TradeTech FX
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In this sneak peak preview to his appearance at TradeTech Europe this week, Nick explains how the firm keeps its edge.

How difficult are today’s markets to trade in?
One of the problems today is that people had become too used to benign markets and had forgotten how to adapt to changing conditions. Today, the ride has become a lot harder due to rapidly evolving microstructure changes over short periods of time.

I don’t think markets are volatile but that people are not engaging with them in a way that reflects it. The biggest hurdle cost for traders is how aggressive to be. As spreads have dropped, trade sizes have come down which effectively means that you need to lengthen your execution window or decrease your aggression so as not to show market participants what you are doing.

What has Marshall Wace done to keep its edge?
I think today there is a lot of gain from spending money on technology. Firms can differentiate themselves with the right, scalable platform and intellectual property. We believe that you have to be innovative, constantly evolving and investing
significant amounts of money into building and enhancing products and tools. We build everything ourselves, back-test it and make our own impact assessments. We have invested in our trading platform and infrastructure which all of our funds, including our Trade Optimised Portfolio System, are able to leverage. It enables us to trade efficiently across global markets in real time and capture more alpha for our funds.

As for TCA, we have built our own systems because we can better standardise methodologies and understand each assumption and calculation utilised. We also find it difficult to integrate our trading system with independent TCA vendors to capture all the necessary information to provide us with the depth of analysis and flexibility that we require. Our goal is to ensure that we have cutting edge technology in order to optimise the execution process and to provide an end-to-end service that is seamless for the portfolio managers and investors.

How do you see the hedge fund industry evolving?
If I had to guess I would think that the big funds will get bigger and the small ones will continue to be niche. It will be those in the middle that will be impacted because the running cost is high and regulation will only increase that. Firms will need the economies of scale in order to survive, unless they have a nice product. I think the opportunities for a two man hedge fund with $50m are limited.

What has been the impact of the reams of regulation?
There has been a great deal of regulation over the past few years but I am not sure that the markets have become any more efficient because of it. For example, market data as well as exchange fees are still too high. There is also a lot of talk about high frequency traders but I think looking ahead they will struggle and need to move up the value chain if
they want to survive.

How important is speed?
I don’t think differentiation can be based on who has the fastest computer anymore. It is pretty much a level playing field. There used to be a greater difference but that has been virtually eliminated and there is a limit to what can be achieved in relation to marginal speed benefit implementations. Upgrading hardware is still relatively cheap and will continue to happen but I think we have reached the point where the alpha forecasts being encoded aren’t granular enough to take advantage of the speed with which computers can execute strategies. The costs of marginal speed increases are high relative to revenue. I think people will continue to maintain and try and improve things where it makes sense, but I see the money they previously spent on hardware will over time, be spent on research.

Nick Neilsen will be appearing at TradeTech Europe, 24-16 April 2012 in London – it’s still not too late to join! To find out more and get your ticket visit www.tradetecheurope.com

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Quite simple.

But not quite so simple to combat.

With things like high frequency trading driving up costs for infrastructure investments, impending regulations which could increase costs further and simply getting the job done with less resources, it will be a constant challenge to keep costs down while keeping profits up.

In this interview, he speaks with co-editor of the TradeTech Blog about how he and his firm will combat costs in the years to come. He also give his view on regulations and HFT as they evolve with the industry. Watch the video below.

Emmanuel will be appearing at TradeTech Europe, 24-16 April 2012 in London – it’s still not too late to join! To find out more and get your ticket visit www.tradetecheurope.com

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Since 1949, when South Korea opened its first securities house the country has realized a remarkable change in its capital markets.

Despite having to live under the threat of war with the north and being squeezed between China and Japan, South Korea has grown into a regional powerhouse.

The KRX boasts the worlds largest index options market, underlying the Korean Stock Price Index (KOSPI), dwarfing any found in the west. Recently, it has announced that it will open up to exchange and clearing competition further demonstrating its versatility.

Click the preview image below to see the full infographic:

Click the image to see it in full

If Korea and the Asian regions are critical to your trading business then find out more at TradeTech Asia

See the original post at AsiaEtrading.com here

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