FCMs Focus on Execution03.07.2014
The globalization of futures trading is requiring futures commission merchants (FCMs) to innovate with new products and services, as well as changes to workflow as they deal with multiple clearing jurisdictions.
State Street Global Exchange has expanded its (FCM) platform to include futures execution. The platform includes support across the entire trade lifecycle through execution, clearing, collateral management, valuation and risk and analytics for OTC derivatives and futures.
“This was driven by client demand,” said Charley Cooper, senior managing director at State Street Global Markets. “Current and prospective clients client have identified futures execution as a key capability they need. We offer clients the ability to trade on global futures markets in everything from agricultural to energy futures all the way through to financial futures. They have the ability to trade through us as an agent on their behalf where we execute trades or they use our systems to execute trades in these markets.”
Regulations, along with the increased costs from the rise of SEFs and OTFs, may eventually make it financially impossible for smaller FCMs to survive. This phenomenon will continue to concentrate risk globally across a shrinking number of the largest clearing firms in 2014.
“The cost of participation in the new market environment will make it increasingly difficult for all FCMs to sustain profitability,” said Steve Woodyatt, CEO of Object Trading. “Clearly this is not what the regulators intended. In order to maintain a healthy, vibrant marketplace, the FCM community will need to innovate or suffer contraction. Whether global clearers are dominating volhttp://www.istockphoto.com/stock-photo-810916-bull-s-eye.php?st=c5b296dumes or regional clearers are specializing their services, in all cases these firms need scalable trading solutions as markets become more complex.”
State Street’s futures execution capabilities include a global team of traders, direct market access (DMA) and the use of State Street algorithms and analytics with integration into existing workflows. The execution desk provides a global rolling order book, and access to more than 30 global exchanges and third-party platforms.
“There’s a group of clients who not only want to be able to talk to somebody, but they want the ability to have a platform on their desk which doesn’t currently exist,” said Cooper. “What we do is we install the software on their desktop so that they can look at the screen, and we’ll customize it to however they want it to look and when they make a trade, that trade goes through State Street.”
In a recently released report that surveyed nearly 200 asset managers and examined their confidence and investment levels in data and analytics, State Street found that over the next three years, 81 percent of asset managers plan to increase investment in order management and execution systems and 64 percent plan to increase investment in electronic trading platforms. However, despite this increase in investment, only 19 percent have high confidence in their ability to optimize electronic trading strategies.
“As a custody provider and an FCM that operates in the front end as well as the middle and back office, we’re able to provide the platform on which they trade as well as all that downstream work that needs to get done for them to help make the smart decisions,” said Cooper.
Because investment managers typically have clearing relationships with multiple futures commission merchants (FCMs) and custodians, the workflow processes of trade instruction, reconciliation and cash payments are manually intensive and prone to errors.
“The fact that we’re a custody bank means that we can combine the ability to trade and clear through an FCM with our custody services,” Cooper said. “It’s the same product in a safer environment, as well as robust technology and infrastructure.”
Featured image via iStock
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