FCMs Adapt to New Realities
With the lines blurring between the worlds of OTC and exchange-traded instruments, brokers are adapting in order to participate in the multi-asset, multinational marketplace.
A case in point is Newedge’s selection of Fidessa’s trading platform and order management system for its global derivatives and equity trading business.
The platform provides Newedge with a multi-asset trading workflow solution across its front and middle-office operations – incorporating global order management, access to Newedge’s trading algorithms, FIX connectivity and smart order routing tools.
Newedge’s decision suggests a larger trend now in motion, related to how global FCMs are adapting to the new trading environment.
“FCMs [futures commission merchants] have had the luxury of seeing the equities markets go through the sort of fundamental change they are now facing,” said Steve Grob, director of group strategy at Fidessa. “They have seen the opportunities that this sort of change presents for those able to adapt their business and technology.”
Regulations such as Dodd Frank and MiFID II are drawing together previously separate worlds of OTC and exchange traded activity, taking OTC derivatives and moving them on to an electronic trading platform and introducing competition into the exchange trading side for the first time.
FCMs’ workflow will become increasingly complicated as the market sees a growth in the number of electronic platforms and, potentially, the need to route between economically identical (or very similar) instruments that are traded on different venues.
“This will require some of the same techniques that were developed for equities, including smart order routing and greater use of execution algorithms,” Grob said. “And, of course, with the growth in algos we can expect a similar growth in analytics as firms seek to measure the effectiveness of one algo over another.”
Fidessa will provide Newedge with global market data, low-latency gateways to access over 100 derivatives and cash equity markets, and in 2013, will add fixed income to the platform.
Newedge will implement this platform first in London and Chicago and then across Asia later this year.
The Fidessa execution platform will underpin the growth of Newedge’s equities, futures and options business globally.
“Fidessa’s multi-asset workflow offering – including an integrated, multi-asset algorithmic trading engine and centralized pre-trade risk and monitoring tools – will play an integral role to deliver next-generation capabilities to our global clients spanning all asset classes,” said Nicholas Garrow, global head of eSolutions at Newedge, in a statement.
The introduction of SEFs in the U.S. and Organized Trading Facilities (OTFs) in Europe is bringing OTC derivatives activity onto electronic platforms, and bringing together the previously separate worlds of OTC exchange traded activity.
In Europe, a number of entities such as broker crossing networks and interdealer broking systems are seeking OTF status, but regulatory uncertainty and a growing sense of first-mover disadvantage means that completely new platforms have been slow to emerge.
“Whilst the notional outstanding of OTC derivatives is huge, the actual number of daily transactions is small and probably lend themselves more to an RFQ model than a traditional order-driven market,” Grob said. “Concerns over liquidity have prompted some participants to see smart aggregation and routing between the SEFs and OTFs that do exist as the real prize. Just as with equities, market participants will use technology to obtain prime position in the queue for order flow.”
Agency broker moves beyond execution to offer a broader suite of services.
Algorithms have become more prevalent in the spot FX market.
QB’s Algo Suite for futures market trade execution is also being co-located to HKEX.
Breaking data silos is key to deploying automation beyond 'nuisance' orders.
They can be used on quantum hardware expected to be available in 5 to 10 years.