t h e d eFi nitive sour c e F o r tr ad i ng ne ws

vol xliii issue 29 11 - 17 AuGust 2011 www.wallstreetletter.com

In ThIS ISSuE news people moves 05 news Buyside quant platform adds risk to traditional tCA05 Focus fee char t 15

more news inside

SEC adopts large trader reporting rule

Commissioners at the securities and exchange Commission adopt the large trader reporting rule and hint that approval of a proposed consolidated audit trail is not far behind turn to page 04

Maxim on the prowl for sales traders

maxim Group is looking to hire staff for its institutional sales and sales trading departments in the near term turn to page 08

ITG sets plan for derivatives expansion

itG plans to target the expansion of its derivatives business by expanding distribution to the buyside, according to Jamie selway turn to page 12

effort to allow regulators and industry peers to better track A consortium of industry utilities financial transactions. There are is grappling with the mechanics a number of identifiers, some of the US governments widely distributed and others proposed legal entity identifier proprietary, in use today, but use (LEI) system after receiving is voluntary. The proposed LEI the nod last month as the system would be compulsory for industrys choice to lead the certain types of firms. initiative, according to Dennis The utilities - the Goodenough, senior business International Organization for manager for securities initiatives Standardization, the Depository at SWIFT Americas, who spoke Trust & Clearing Corp. and to WSL. its subsidiary AVOX, SWIFT, The proposed system, which and the Association of turn was included in the DoddNational Numbering to page Frank Act, would assign unique Agencies were identifiers to global financial recommended for the 02 entities and their affiliates in an initiative by the Global
by jeanene timberlake

Industry group gets to grips with LEI initiative

top story

v i s i t wa l l s t r e e t l e t t e r . c o m f o r u p - to - t h e - m i n u t e t r A D i n G n e w s

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POST-TRADE

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Northern exec: Buyside wants communications, OMS help

Buyside firms are looking for more options in outbound communications and order management systems from their service providers, according to Dan Houlihan, head of global fund services for North America at Northern Trust. His comments were part of a presentaDAN HOULIHAN: head of global fund tion on the future services for North America of outsourcing he made during the TSAM North America conference last month in New York.

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Responding to a question about what services buyside firms ask for the most, Houlihan said the top request is related to client and market communication, including things like fund fact sheets, reports, pitchbooks and web deployment. He said requests for order management systems are also heard regularly. Startup clients want us to bring an OMS to the table, he said. Houlihan added that the idea is an interesting one but said it is hard to envision a provider offering a single, static OMS to satisfy many clients needs. Northerns strategy in this case has been to strike up partnerships with OMS providers, such as Charles River. Houlihan also discussed the difficulty of client integrations, noting that the process is still one of the major challenges faced by outsourcing providers. We have

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Financial Markets Association in a document released last month. Goodenough said that recommendation spurred more discussion among the utilities and the industry about how the system could be rolled out in light of mandated time frames. We can build a repository and set up a registration authority, but we need to focus on who needs one [an identifier], and what is the process for getting an LEI? And what is the timeline [for full rollout], because we probably cant do this as a big bang process, Goodenough said. He noted that the implementation is expected to be a phased, multiyear process, and that the first group likely to be assigned the IDs would be the firms identified as systemically important financial institutions (SIFIs). Were very sure the focus for LEIs will be on SIFIs, he said,

noting the number of SIFIs expected may be under 200 firms, versus the 1.5 to 2 million institutions originally estimated to require an LEI over time. The group is also still working out governance structure. Goodenough said one thing that is still under consideration is the creation of a new utility that would manage the process by taking a piece of the process from each of the involved utilities. But he stressed that nothing has been decided either way. We may be able to keep [the pieces] separate, but we will have to have a really tight agreement between the four utilities, he said. The group also still needs a mandate from the government before any concrete decisions are made. Goodenough said its not clear whether the mandate will come from the Office of Financial Research, tasked with adopting a standard identifier for data reporting, or a higher authority.

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Buyside quant platform adds risk calculation to TCA

technoloGy

new platform from TG Optima combines traditional transaction cost analysis (TCA) with a measurement of risk for a more optimized trading strategy, according to Tony Gau, TG Optima CEO. The Investment Optimizer, which was launched last month, targets hedge funds and traditional institutional buyside firms. Gau described the platform as a portfolio construction platform that uses an investment managers risk appetite and desired exposure to help design a trading strategy that might include traditional sellside considerations, such as participation rates and how quickly the trade should be executed over a period of time. He noted that the platform, available now, is in beta testing by potential clients.

Gau said the idea was developed during his time on an equity program trading desk when he noticed that sellside traders had access to more tony GAU: tG technology, to help them optima ceo design trading strategies, than buyside traders. He noted that while buy-side firms have begun incorporating TCA into their trading process, it most often directly correlates cost to the number of trades executed. When people look at transaction cost, people think its just basic cost, like commission and tax, but its more than that. We are talking about market impact cost, said Gau.

flow appears to be predatory because these types of strategies wouldnt normally execute outside a certain range, the exchange said, and while the pricing isnt wrong they would typically only execute against incoming erroneous orders or during a system error. The CBOE also noted that the large numbers of these orders create large amounts of market data, resulting in additional cost to the exchange and degradation of systems performance. This activity also places an undue burden on competition among market participants for complex orders in COB because it creates latency, may impact the ability of other trading permit holders to receive timely executions, and may make it difficult to assess and maintain a fair and orderly market, CBOE added. exchAnGes & Atss

NYSE lowers DMM net liquid asset condition

The New York Stock Exchange plans to lower the level of net liquid assets it will require of designated market makers on the exchange by 50%. NYSE currently requires the level of net liquid assets, or assets readily convertible to cash, to equal $250 million plus an add-on to account for market risk of three times its securities positions haircuts. The level is reduced, as of February 2008, from $1bn. NYSE said it would further reduce this requirement to $125m plus a market risk add-on of one times the DMMs securities positions haircuts. An alternative to the market risk add on that would use a value at risk calculation is also being eliminated, NYSE said. The changes reflect changes to NYSEs market structure, as well as regulatory and trading developments in the last few years, said the exchange in a notice to the Securities and Exchange Commission.

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come a long way and been successful with all our client conversions, but there is no silver bullet for that, he said. Northern is working with Cadis, an enterprise data management provider, to help with the process, Houlihan noted. The bank is working with Cadis to build out a data dictionary across its many systems to make integration more of a plugand-play process, he said. exchAnGes & Atss

CBOE clamps down on predatory flow

The Chicago Board Options Exchange is amending its rules to prohibit certain orders from resting in the complex order book. The change is an attempt to clamp down on the

potential for predatory flow to aggregate at the exchange, CBOE stated in a regulatory filing at the Securities and Exchange Commission. The new rule would prohibit traders from repeatedly sending complex orders to rest in the complex order book (COB) when they sell orders priced or executed at or above the maximum value of a given strategy or buy orders priced or executed at or below the minimum value for a strategy. The exchange set out the minimum and maximum values for different complex order strategies, six strategies that are two-legged complex orders with a ratio of one-to-one and two strategies for complex orders with three legs with a ratio of one-to-one. The CBOE said there are some trading permit holders that have sent a disproportionate number of these types of strategies at unusually high or low prices to the COB of late. The

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exchanges & atss

Goldman: Canadian ATS to meet current, pending rules

Goldman Sachs Canada (GSC) is standing by a proposal it made to launch a version of its SIGMA X alternative trading system in Canada in spite of comments from the Canadian National Stock Exchange (CNSX) that claim the proposal should be revised in line with recently published regulatory positions. GSC earlier this year proposed to launch SIGMA X Canada with limit and pegged orders (WSL Online, 3/30). CNSX told the Ontario Securities Commission (OSC) it should hold off accepting or denying proposals until expected changes to the Canadian regulatory framework are finalized. In particular, it noted the OSC should consider Goldmans proposal in the context of the joint position paper published earlier this year by the Canadian Securities Administrators and the Investment Industry Regulatory Organization of Canada. It noted that while other proposals havent been held up to the same scrutiny, SIGMA Xs significant U.S. presence and contribution to internalization is a reason to use slightly differetn standards for the ATS. But Goldman noted in its response that the proposal is consistent with current rules and will be compliant with any future regulation. It also addressed CNSXs concerns about minimum price increments and minimum order sizes. On minimum price increments, Goldman said orders entering the system will be held by that standard but that in order to provide price improvement they must be able to match at subpenny increments. The platform also does not impose a minimum order size, which CNSX noted was an issue raised in the regulatory position paper. Goldman noted in its response that no minimum

BOX adds professional trader definition

exchanges & atss

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he Boston Options exchange is adding to its rulebook to define professional traders and require trades from those firms to be marked as professional orders, according to a regulatory proposal from the exchange. The addition follows similar recent amendments by other options and equities exchanges. Members of the exchange would be considered professionals if they are not securities broker-dealers but they trade more than 390 orders in listed options daily, on average during a month, for their own accounts. Those firms will be required to mark their trades as professionals. BOX said it decided to make the change because of the fact that other exchanges had adopted the designation and having a variety of different rules between exchanges could encourage regulatory arbitrage, especially when some of BOXs members are members at other markets.

But unlike at other markets employing a similar rule, BOX said it will not assign a different price/time priority to professional orders, and they will not receive different treatment related to order protection or routing. The exchange did not rule out the possibility that it might adjust routing fees for professionals, noting that it may make adjustments in the future via fee-related filings with the securities and exchange Commission.

has been established but that it will comply with those requirements if and when they are set. post-trade

NSCC moves days end ACATS process up

The National Securities Clearing Corp. plans to move the time for its end-ofday automated customer account transfer system (ACATS) processing up by nearly four hours. The operation, which changes the date for ACATS processing, typically occurs at 8pm EST but will now take place immediately following the fifth intra-day processing cycle for ACATS. That change will mean that anything submitted after the operation, which will be approximately 4:30pm EST, will be processed the following business day.

In a notice to members, NSCC warned this time change will also mean that any ACATS transactions submitted after the fifth intraday cycle starts, at 4pm EST, or before it ends, at approximately 4:30pm EST, will be rejected and must be submitted for next day processing. ACATS submissions sent after the end of the fifth processing cycle will also be rejected if the correct date is not indicated at the time of submission. The change will go into effect after the fifth cycle of ACATS processing on September 9. market structure

SEC adopts large trader reporting rule

Commissioners at the Securities and Exchange Commission late last

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month adopted the large trader reporting rule and hinted that approval of a proposed consolidated audit trail is not far behind. The rule would require traders whose activity reaches certain quantitative or value-based thresholds to register with the SEC so that their trading activity can be monitored and identified in the event that the Commission needs to reconstruct trading activity during a particular period of time. It will also give broker-dealers some responsibility for monitoring clients that are large traders based on the definitions. Any trader or firm trading two million shares (or $20m in fair market value) in a day or 20 million shares (or $200m in fair market value) in a month would be considered a large trader. Authority was given by Congress in 1990 to conduct monitoring of large traders but the Commission never adopted a rule. The issue was raised again in 2010 following the Commissions review of equity market structure and the May 2010 flash crash drove the point home, according to Chairman Mary Schapiro in comments during an open meeting. The final rules will take into account industry concerns that exceptions for certain transactions should be expanded and that providing broker identification numbers might be difficult for a large trader to acquire and provide in the proMARY SCHAPIRO: chairman, SEC posed form among others, according to Richard Holley, assistant director at the SECs Division of Trading and Markets, during his presentation to the Commissioners. In their comments on the rule, Schapiro and other Commissioners noted large trader reporting is just a first step in bolstering the regulators ability to monitor markets and that the consolidated audit trail is the next step. Schapiro noted that the con-

people moves Citisoft has hired Roberta Moore as director. In her new role, Moore will leverage her extensive operations and client service expertise across the range of Citisofts advisory services. Roberta has over 25 years of industry experience as a senior leader of operations and technology departments for investment managers including Invesco, Columbia Management, and Scudder, Stevens & Clark. Most recently Roberta has been consulting independently on a variety of strategic advisory and delivery initiatives. eFront has named Vineet Singh as product manager, North America. Singh will ensure eFronts solutions meet customer needs and business requirements in the alternative asset marketplace throughout the U.S. and Canada. Singh will be responsible for developing product roadmaps, taking into consideration business, customer care, usability and technical issues. He will be based in the New York office and report to Eric Bernstein, COO of eFront in North America. Singh most recently worked at Brookfield Asset Management, where he spent three years as senior auditor and three years as manager of funds projects, responsible for planning, implementing and delivering new front-end and database solutions to support the companys private equity and structured lending operations. The Depository Trust & Clearing Corporation (DTCC) has appointed Gail Weiss as vice-president and head of global business development, wealth management services. Weiss, who has over 20 years of experience in the financial services industry, will be responsible for leading the business strategy aimed at securing DTCCs position in the global mutual funds processing arena. She will report to Ann Bergin, DTCC managing director and general manager. Before joining DTCC, Weiss was based in London and held the position of managing director of SunGards wealth management business for Europe, Middle East and Africa. UBS Wealth Management Americas has hired Ajay Mehra as head of manager and fund research and managing director. He will report to Tony Roth, head of wealth management strategies. Mehra will be responsible for delivering investment advice and guidance to financial advisors and clients covering more than $100bn of institutional and retail managed separate account assets and more than $200bn of mutual fund assets. Mehra joins the firm from Columbus Nova, where he was portfolio manager and partner. He also led equity research at State Street Research & Management and acted as lead manager of two top ranked mutual funds. Misys has selected Alan Riegler for the newly created position of banking regional director of the Americas. With over 20 years of experience in the financial services industry, particularly in minimizing risks for customers during business transformation projects, Riegler will lead the Americas solutions consulting team. He is responsible for sales, product support, and client engagement activities, as well as providing input on product roadmaps. He will be based in New York City and will report directly to Tim Goodhind, head of solutions consulting at Misys. Riegler most recently spent three years as a partner at CCG Catalyst Consulting Group. Prior to this he was a principal at Ernst & Young in the management consulting unit and a director at PricewaterhouseCoopers in the financial services industry practice. BNY Mellon has designated Michael ColeFontayn as its new chairman of its Europe, Middle East and Africa (EMEA) region. ColeFontayn will lead the regional management team in executing the companys strategic plans and accelerating growth across this key region. He will continue in his existing role and responsibilities as CEO of BNY depositary receipts. He takes over the role of chairman from Tim Keaney, CEO of BNY asset servicing. Cole-Fontayn joined BNY Mellon in 1984 and has worked within the depositary receipts business since 1992. BGC Partners has engaged Mark Benfield as executive managing director and director of
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solidated audit trail would take more time and work by market participants to implement but would also gather more information from participants than large trader reporting is designed to do. None of the Comissioners specified how soon the proposal on the consolidated audit trail would be finalized, but Commissioner Luis Aguilar said the staff is in the final stages of preparing a recommendation to the Commissioners. Jamie Selway, head of liquidity management at ITG, said he hoped industry effort to effect large trader reporting would be also be applicable to future technology changes. I hope the work done on large trader reporting will be forwards compatible with the consolidated audit trail. But, I understand the point, getting the SEC more information is good, so that it can be a better regulator, he added.
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quote of the week

WE CaN buiLd a rEpOsiTOrY aNd sET up a rEGisTraTiON auTHOriTY, buT WE NEEd TO fOCus ON WHO NEEds ONE [aN idENTifiEr], aNd WHaT is THE prOCEss fOr GETTiNG aN LEi? aNd WHaT is THE TimELiNE [fOr fuLL rOLLOuT], bECausE WE prObabLY CaNT dO THis as a biG baNG prOCEss
dENNis GOOdENOuGH cover story

ExCHaNGEs & aTss

NYSE, Amex clarify oversight over affiliates

The New York Stock Exchange and NYSE Amex are clarifying their rules to indicate that their oversight doesnt extend to the foreign affiliates of the exchanges member organizations. Both exchanges have rules that require people or businesses affiliated with member organizations to register as approved persons on the exchange if these people or businesses assert any control over the member organization. Once approved the exchanges then have jurisdiction over the groups in relation to exchange business. The exchanges want to change those rules to eliminate their oversight of members foreign affiliates because they believe the current definition is overbroad, according to regulatory filings from the exchanges on the issue. Instead, the exchanges plan

to create a foreign securities affiliate category that will allow the exchange to continue to monitor for potential conflicts of interest that may arise in light of the relationship between the U.S. and foreign firms. The application process will also be streamlined, reflecting similar, streamlined processes at other exchanges, but also the fact that the Financial Industry Regulatory Authority or another exchange is the designated examining authority for all NYSE and Amex members. Members would be required to identify foreign securities affiliates and persons and each affiliate must consent to jurisdiction, the exchanges said. The focus on identification of affiliates and approved persons by each member organization and consent to jurisdiction by each approved person... would make the entire procss more efficient while maintaining appropriate regulatory standards, they said. TECHNOLOGY

ASX moves to carve out position with SOR deal

A plan by the Australian Securities Exchange (ASX) to offer its members smart order router (SOR) technology is part of a series of moves by the exchange to carve out a position

for itself under the future regulatory regime, according to David Raper, general manager at the exchange. The countrys regulators have approved the launch and operation of alternative trading systems starting in October, at which point the exchange could cede the monopoly position it has held over the last few years. daVid rapEr: The exchange last general manager at the exchange week announced a partnership with Fidessa to launch ASX Best, which will help traders route orders for best execution across multiple markets. Raper told WSL ASX Best is just one of the offerings the exchange has added in the past few years in preparation for the future competitive environment, including the launch of the Australian Liquidity Center for co-location services, ASX Net, a low-latency fiber network, and the pending launch of ASX Pure, and planned launched of lit and dark ASX venues. These various initiatives demonstrate the resilience and versatility of the ASX Group we are a business providing exchange services beyond traditional cash market trade execution only, he said, adding that diversification will be vital under the new regime. ASX Best, developed by Fidessa,

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will allow traders to route to all ASX venues and any non-ASX venues that are offered in the country. The SOR will be co-located in the liquidity center with the exchanges matching engines and will run over ASX Net. Steve Grob, director of group strategy at Fidessa, said the system will allow multiple users within a single firm see prices across different venues before making a routing decision, and, once the decision is made, an audit trail will be created in order to outline the decision for regulators. Grob added that the platform is also designed to accommodate differences in the Australian market, such as the single symbology and tick size that will be prevalent across markets, as well as differences in trading rules. exchAnGes & Atss

people moves BGc market data, a subsidiary of BGc Partners. Benfield will have global responsibility for BGc market data in his new role and he will also be responsible for the companys intellectual property business. he will be based in the companys Asia Pacific region and will report to shaun Lynn, president of BGc Partners. Benfield is taking over from Bernie Weinstein, who will continue to oversee Kleos, BGcs technology infrastructure and system operations hosting service. Benfield most recently served as regional managing director for IcAP information services in the Asia Pacific region. Wall Street Access has signed Kevin Daley, Jeff Myers and William Smith on to the fixed income and institutional sales teams. Daley, with over 20 years of experience, will serve as vice president of institutional sales. he most recently served as vice president for spear, Leeds & Kellogg. Myers, who has over 15 years of experience in corporate bond trading, was most recently the director of the corporate bond desk at cowen and company. he will serve as the vice president of fixed income trading in his new role. smith, who was previously the business development manager at southstar Lending, LLc, will serve as the institutional salesperson for fixed income. All three will work out of the main Wall street Access office in new York city. the vendor also made new appointments in fixed income. Charles Dugan has been named managing director of fixed income after a stint as a senior vice president at the vendor. he will be responsible for the overall strategy and direction of the fixed income department, and will focus on the ongoing development of a strong team, expansion in regional areas and continuing to build the brand name. Jade Murtha was also appointed to the position of dealer sales manager for fixed income, and Chris Gorman to institutional sales manager. Murtha, who has been at the firm for four years, will now be responsible for managing all broker-dealer relationships. Gorman has been with Wall street Access for five years and has over 15 years of experience. he will now manage the overall sales force in the new York, new Jersey and chicago offices. The National Futures Association (nFA) has chosen Jamila Piracci as vice-president of Otc Derivatives, a new position created to oversee the regulation of over-the-counter swap dealers and major swap participants. Piracci most recently worked at the Federal Reserve Bank of new York. Piracci has also worked at Mayer Brown LLP as an associate and the International swaps Derivatives Association, Inc. (IsDA) where she served as assistant general counsel. Broadridge Financial Solutions, Inc. has made three senior appointments for its growing international investor communication solutions business. the appointments include Naren Patel as director and regional head relationship management, Keir Tutt as senior director of customer services, international and Jonathan Ford as director of sales in London. Patel has been involved in the securities arena for over 25 years and brings a wealth of knowledge having held various senior positions in operations, marketing, business development and strategic global account relationship management. tutt is an experienced operations and customer service professional with a proven track record of international success. Ford joins from Investis where he was head of the mid- and small-cap sales team and client director with responsibility for some of the UKs largest companies. TwoFour has picked Dave Hardy as a regional sales manager based in new York. hardy brings more than 20 years of experience in sales and business development for the financial consulting and software solutions industry to his new role. he most recently served as the regional sales manager for banking in the Americas for Misys. Prior to Misys, hardy was a solution consultant for BIs software, where he provided business development expertise in the international banking and trade finance divisions.

Liquidnet eyes more markets for block trading service

Liquidnet is in discussion with global exchanges in a bid to offer a local block trading service, similar to the companys recent Swiss launch, according to Per Loven, head of international strategy. The existing partnership between Liquidnet and SIX Swiss Exchange allows local Swiss brokers to access the formers global liquidity pool directly while also allowing Liquidnets global buy-side members to access block liquidity on the exchange. Loven said the longer term strategy is to offer similar access in other markets. Its not a one-time deal. We will work to make this offering a successful offering, but we are talking to others, he told WSL, though he declined to name the other exchanges that are part of those discussions. He said the decision to launch this type of an offering in the Swiss market first was based on the fact

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that block trading is prevalent in the market. If you look at what trades on the exchange compared to other markets they have the type of block flow that would suit our community, he said, adding that there are fewer high frequency trading strategies executed in the Swiss market than in others. Loven noted versions of the service Liquidnet could launch in other markets may not be exactly the same as what is available in Switzerland but said the concept was scalable one. For the implementation in Switzerland, Loven said expansion of the offering to include securities from other countries, including the U.K., France, Germany and the Netherlands, is expected to take place in the next few weeks. Once securities from those markets are added, the addition of other markets will be considered, based on client demand, Loven said.
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The timing for the firm is based in part on market conditions, but also on Maxims recent growth. Barker said he has spent his first year at Maxim, building up the research group by hiring new analysts and expanding the corporate access calendar. Combined with the firms fixed income, convertibles and options trading desks, Barker said the infrastructure is in place for the right sales traders to join the bank. Market conditions are also such that the opportunity exists to snap up traders with the bulge bracket experience and contacts, Barker added. Theres a lot of dislocation right now and were using this as an opportunity to hire. post-trade

BNP Paribas rolls out global PB platform

BNP Paribas Corporate and Investment Banking has just launched a new global platform for prime brokerage, providing clients access to securities, reporting and financing in non-U.S. jurisdictions with a single offering. The system, which BNP built from scratch to replace a legacy platform, has been rolled out to the firms clients and Jeff Lowe, head of equities product development, told WSL the bank is already scheduling enhancements to further improve client experience later Jeff LoWe: head this year. of equities product development, Bnp The platform paribas combines financing activities, technology and reporting, global securities lending and execution, and capital introduction. BNP had offered those capabilities prior to this launch, but Lowe said the bank wanted a seamless offering. We could have connected all those pieces together in a Frankenstein approach, but we said, we have the expertise and the local presence,

lets build a prime brokerage platform on top of all of that, he added. Lowe said BNPs clients have been converted to the new platform for a while but the bank wanted to ensure that the system was running smoothly before going ahead with the official rollout. He noted that the bank has already added two clients, each with more than $3bn in assets under management, since completing the system. He also noted that the firm has already begun a staged rollout of enhancements for the system. Since converting existing clients, BNP has added a corporate actions processing capability and will enhance the portfolio accounting system in a few months. That will be followed by an update to the website by the end of the year. post-trade

trading firms

Maxim on the prowl for sales traders

Maxim Group, a boutique investment bank in New York, is looking to hire staff for its institutional sales and sales trading departments in the near term, according to Jamie Barker, managing director of institutional sales and sales trading. The search, which Barker is heading up, is part of the banks long-term plans to increase the firms reach and revenue, which Barker said hopes to double this year and next after the trading group is built up. Barker said Maxim is not looking to add staff just for the sake of increasing staff, so additions will be moderate. We have nine in institutional sales and 12 sales traders now, and we want five more of each, he said, adding that Maxim is looking for staffers with experience and an interest in working with a boutique firm.

Canadian Depository pushes back platform revamp

CDS Clearing and Depository Services (CDS) in Canada has pushed back the implementation dates for a project that would develop a link between it and the Canadian Derivatives Clearing Corp. in a bid to offer fixed income clearing. The change will initially allow for processing of repo transactions and later will process fixed income cash trades. In a notice to the Ontario Securities Commission this month, CDS said phase one enhancements for repos had originally been scheduled for January 10, 2011 and fixed income cash trade processing was expected to follow shortly after. But the steering committee that urged the two organizations to create the link opted to change the effective dates, pushing phase one to October 24 and phase two to February 2012. The new process will allow users to confirm the covered trades and report

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them to CDS. Trades that identify the mode of settlement to be the SOLA netting system (CDCCs trade netting platform) will be sent to CDCC for novation, netting and clearing if the member is a fixed income member at CDCC. Once netted, trades will be reported back to CDS for settlement as part of the trade for trade process. Enhancements to CDSs system will include the ability to direct traders to CDCC and a requirement that repo trades be assigned a repo tag number to link the various legs of the transaction in the system.

technoloGy

BofAML looks ahead at next gen trading expansion

The Bank of America Merrill Lynch is looking to expand its recently launched next generation trading platform beyond just equities, according to Tim Cox, director in Global Execution Services, who spoke to WSL. The firm officially rolled out the platform mid-month for equities trading. Cox said the first expansion under consideration would likely

technoloGy

Hanweck Associates targets expansion

Hanweck Associates is focusing on its plans for expansion of the firms risk management business as it looks at 2010. Hanweck offers real-time, intra-day risk management services. The capability is powered by graphical processing engines for a high performance service. The vendor currently offers services to price options and manage options risk through its flagship Volera Feed offering, which streams implied volatility for equities and futures, and Volera Risk, which provides analysis of large options portfolios. While the firms business has been largely domestic, Jerry Hanweck, founder and ceo, said expansion, targeted for 2012, would take the business into global markets and more asset classes. The firm is also looking to expand its staff with additional quantitative analysts, developers and customer support staff. The focus on expansion is driven by a need in the market for better risk management as more complex instruments are being used by institutions. Banks and other firms spend tens of millions of dollars per user to calculate risk, but it tends to be an end-of-day calculation, he said. But he added systemic risk, and the need for intra-day risk management, continues

target additional asset classes, such as futures and European equities. The firm partnered with Thesys Technologies to develop the platform, relying on the vendors technology but incorporating risk management capabilities native to BofAML. The risk management functions included will allow help the firm, and users of the platform, be compliant with the recently implemented sponsored access rules adopted by the Securities and Exchange Commission. We have a view on risk management and what controls need to be in place, said John Goeller, managing director in Global Execution Services at BofAML. We have a variety of platforms we use for market access, this being one of them, and we want them to be as consistent as possible. The platform was also designed to offer clients a low level of latency, which measures at less than 10 microseconds wire to wire. Cox said the decision to partner with Thesys was also based on the vendors experience with high performance technology. We looked at it as an opportunity to cater to several types of clientele that we serve today, but in a different way than we are currently, he said, referencing both high frequency traders as well as institutional traders with longer trading horizons. mArket strUctUre

09

to increase as highly correlated instruments become the norm. Large-scale, firm-wide risk needs are not being addressed, he said. Most recently Hanweck Associates was one of six firms participating in the FinTech Innovation Lab. Run by the New York City Investment Fund and Accenture, the program is a move to support financial technology innovators in an attempt to help New York City maintain a leading role in global financial services. Chris Wearing, managing director of capital markets at Accenture, said in a presentation last week that the group will start taking applications for the second version of the lab starting in January. n

MarketAxess CEO predicts SEF rules this fall

Rick McVey, ceo at MarketAxess, predicted during the firms earnings call on Wednesday that market participants could rick mcvey: ceo see rules for swap at marketAxess execution facilities as early as this fall, although he cautioned further delays could be seen depend-

news

10 010

ing on how the rules are written. MarketAxess has pushed regulators to provide more definitive timelines for final rules to give the industry a maximum amount of time to prepare for the new regime. A comment letter to the Commodity Futures Trading Commission earlier this month from McVey suggested the Commission set out an implementation schedule of final rules for public comment and noted the lack of a schedule has created increased uncertainty. During the earnings call, McVey noted that there has been some discussion as to whether both Commissions will need to re-propose some rules, effectively starting at the beginning of the process, before issuing final rules due to the number of changes expected. In that case, they would open up another comment period and probably push the timeline for implementation back three to six months, he said. I dont know if SEF rules would qualify but that is one of the risks. market structure

market structure

BATS cuts directed order program

BATS Options Exchange is cutting rules recently approved by the Securities and Exchange Commission that would have allowed the exchange to implement a directed order program. The offering, which was proposed in December, received negative comments from the industry because the rule, introducing sub-penny trading and quoting (WSL Online, 1/7), would have limited exposure to one market maker and was criticized for creating a private market (WSL Online, 5/16). In a filing at the SEC, the exchange said it had intended the program, which was approved on a pilot basis, to increase aggressive quoting and ultimately better execution prices for customers. BATS noted that after receiving negative comments it launched a consultation with its members before and after receiving approval. BATS said its withdrawal is based on those discussions, in spite of the fact that it still believes the proposal is appropriate. The exchange believes there is sufficient reason to withdraw the directed order program and continue analyzing potential refinements that may better achieve the exchanges goal, it said. A spokeswoman declined to comment beyond the filing, referencing the exchanges quiet period. But she pointed to the latest exchange newsletter from Joe Ratterman, BATS CEO, which said that the risks raised by members, including internalization and the possibility it could disincentivize market makers, need to be addressed.

NOM adds AON orders, adjusts IOCs

The Nasdaq Options Market plans to add all-or-none (AON) orders to the marketplace and adjust its guidelines for orders designated as immediate-or-cancel (IOC). According to a proposal it submitted to the Securities and Exchange Commission, the exchange is making the adjustments in order to provide more choice in the way it processes order types for its investors, as it compete with other options exchanges. NOM said its AON orders will be similar to the minimum quantity orders already available, such that those orders must be executed for a minimum number of contracts. AONs will

also be limit or market orders that are executed in full or cancelled back to members. If an AON order is received before the opening cross or after market close it will be rejected, the exchange said. Separately, NOM said its IOC designation can only be applied to limit order, but it plans to expand the designation. Instead, members will have the option to give any marketable orders, including limit orders and market orders, an IOC tag. NOM noted the change means that AON orders will also be eligible for the IOC designation. exchanges & atss

Nasdaq eyes additions to prop options contracts

Nasdaq OMX Groups options markets are looking at ways to expand their lines of proprietary options contracts, according to Tom Wittman, president

of Nasdaq OMX Phlx. The exchange has long offered proprietary options, most recently launching tOm WIttman: a series of indices president of nasdaq Omx Phlx based on stock pairs called Alpha indexes (WSL Online, 4/8), with an offering of contracts based on those indexes. The additional offerings under consideration would ideally increase volume to the exchange but could also satisfy demand, which has increased recently in the form of renewed interest in the exchange groups older proprietary products. Wittman said the group expects to adjust its line of proprietary currency contracts and the world currency options it offers. The changes there should create more interest from retail customers, he said. Other areas of expansion will be within the Alpha Indexes line, which pairs stocks with the Standard & Poors 500 ETF. The group has already made headway with

11-17 AUG 2011

plans to expand the line with pairs that would compare the S&P 500 ETF with other ETFs (WSL Online, 7/6). Wittman said additional changes are being considered but he declined to discuss them in detail. MARKET STRUCTURE

BX adds routing service

Nasdaq OMX BX plans to provide an outbound routing service for its members. The service will be performed by Nasdaq Execution Services (NES), the exchange groups routing broker. The service will include seven routing options BTSG, BSKN, BSKP, BTFY, BMOP, and BCRT similar to what is available on the Nasdaq Stock Market. BX noted in its regulatory proposal that the Securities and Exchange Commission has expressed concern in the past with the affiliation between NES and other Nasdaq markets for which it provides routing, but has approved the services by setting strict operating conditions for NES. Those conditions will continue to be applied, BX said. Any members that do not want NES to route orders must enter orders into the system as immediate-or-cancel orders or any other available order type that is not eligible for routing. The exchange said it would offer the service on a pilot basis for a year to ensure the service functions according to the set conditions. MARKET STRUCTURE

accounts. The exchange told the Securities and Exchange Commission in its proposal that the change would create consistency between rules for market maker s and members, as well as enhance liquidity. The exchange has several types of market makers, including streaming quote traders (SQTs), who are members with a floor presence that is allowed to generate and submit quotes electronically in assigned options, and remote SQTs, who have the same permissions but no presence on the trading floor. Both also have permission to trade in their own accounts. Exchange members that are not SQTs are allowed to enter day limit orders for their proprietary accounts but SQTs and RSQTs may not. Phlx said it would give permission to SQTs and RSQTs to enter day limit orders of 10 or more contracts into their proprietary accounts, similar to permissions members are given. If proprietary orders include less than 10 contracts they must be submitted as immediate-or-cancel orders. The exchange said this change will allow market makers to rest more orders in the order book, which in turn will encourage liquidity. Phlx added that the restriction stemmed from concerns that allowing day limit orders could discourage electronic trading and quoting. ExChAnGES & ATSs

tion to accounting fraud allegations. Reverse mergers occur when a public shell company mergers with a private company and the emerging company is the former shell. By becoming a public reporting company via a reverse merger, a private operating company can access the public markets quickly and avoid the generally more expensive and lengthy process of going public by way of an initial public offering, the exchanges noted. But the Securities and Exchange Commission has recently entered enforcement proceedings against reverse merger companies and suspended trading for others due to concerns. The exchanges said that due to these concerns, reverse merger companies will not be eligible for listing until the combined company has been traded for at least a year in the over-the-counter market or on another national securities exchange; maintained a minimum stock price of $4, and provided timely filings with the Commission for all reports since the reverse merger was completed. They noted that the seasoning period would provide greater assurance that the companys operations and financial reporting are reliable. It will also give independent auditors time to ferret out irregularities and give regulators and the market time to scrutinize the company.

11 011

NYSE, AMEX address reverse merger listings

The New York Stock Exchange and NYSE Amex are strengthening their listing rules related to companies that offer public shares after a reverse merger transaction. The move follows a similar rule change by Nasdaq Stock Market earlier this year. At issue are regulatory concerns that have been raised following recent reverse mergers, especially in rela-

Phlx allowes market makers prop day limit orders

Nasdaq OMX Phlx plans to allow some of its market makers to enter day limit orders for their proprietary

AMoUnT ThE nySE plAnS To lowER lEvEl of nET liqUid ASSETS iT will REqUiRE of dESiGnATEd MARKET MAKERS on ThE ExChAnGE

50%

news

ExchangEs & aTss

BOX adds auto cancellation feature

Market makers at the Boston Options Exchange will soon have access to a feature that will automatically cancel executions based on preset parameters. The new feature will help market makers to eliminate risk of overexposure in the marketplace due to large, unhedged principal positions, according to BOXs proposal at the Securities and Exchange Commission. Market makers have an obligation to provide continuous quotes in the marketplace for options contracts that they are assigned to. They use their own systems to determine prices and the sizes of their orders but they can still create the unhedged positions due to the speed at which they have to submit quotes. BOX said the automatic quote cancellation feature will eliminate those positions without any prompting from the market maker as long as it has submitted trigger parameters for the system. Those parameters can include a specific number of contracts across all series in an options class or an aggregate dollar amount traded within a specific options class, among others. If those triggers are hit within a specific time period, the system will cancel all the quotes in that options class. BOX said market makers can also choose to program their own systems to perform the same auto cancellation feature, instead of using the exchange system. Trading firms

012 12

its derivatives business by expanding distribution to the buyside, according to Jamie Selway, the recently named head of liquidity management and derivatives at the agency firm, who spoke to WSL. The firm is making the move now to capitalize on increased interest among hedge funds and traditional longJamiE sELWaY: head only firms, which of liquidity management and derivatives Selway attributed at iTg to the increase in algorithmic and electronic trading, which in turn makes trading derivatives cheaper. ITGs existing options and futures business has been focused on the professional trading community, Selway said. If you can service them, you can service anyone. We want to take the technology weve developed [in derivatives] and distribute it to the buyside. Expansion of the options business in particular is a target as the integration of options into an institutions investment strategy would dovetail with the investors analysis of the underlying stock. Were trying to better integrate our options functionality into the rest of the business, the institutional business, or ITG classic, said Selway. The process will include a focus on technology, like algorithm distribution and direct market access offerings, but it would also include high touch services and access to research. The integration is technology oriented, but the vision is that derivatives could be as big as equities for us, he added. ExchangEs & aTss

multicast data feeds as part of its new trading engine. The trading engine, scheduled for release in November, will be version 5.0, and replaces version 4.5 released earlier this year. The ATS provided details of the data feeds in an alert to its members, noting that the public feeds will require less bandwidth to consume and will help reduce market data latency. All of Alphas public feeds will be available via multicast, including public orders and trades, plus top of the book and top five data, as well as price depth data. Users consuming public and private data via direct feed can continue to receive either or both feed at the same time as consuming the multicast feed. ExchangEs & aTss

NOM introduces bulk quoting

The Nasdaq Options Market is moving forward with plans to introduce a bulk quoting interface, as it continues a project to enhance and improve technology and market making interfaces. The bulk quoting interface will allow market makers to send more than quote or quote update to the system at once. It also allows them to send bids and offers in the same message, according to NOMs regulatory filing on the addition. NOM said the offering will be useful for market makers that are assigned multiple options for quoting as it eliminates the need to submit single, two-sided quotes using the order-based interface for market makers. The bulk quoting interface will also include access to data that would show the state of the options a market maker is trading, such as whether a stock is trading or halted. Auction notices and system event messages will also be included. The information being added to

ITG sets plan for derivatives expansion

ITG plans to target the expansion of

Alpha ATS plans public multicast data feeds

Canadian alternative trading system Alpha ATS plans to offer public

11-17 AUG 2011

these market making interfaces is for convenience purposes so that market participants utilizing them have an additional means to access the information directly impacting their quoting behavior, NOM stated. n

listinGs

BATS Pushes Back Listings Biz Launch

BATS Global Markets has moved the launch of its listings business back three months. The launch of the

business, originally announced in March, was scheduled for September 1. In a notice to members about the delay, the exchange operator said that it now plans to launch listings December 2 to allow firms more time to test and develop systems in advance of the offering. The development would code brokerage systems for BATS opening and closing auction process, which will be in the form of a Dutch auction. The exchange operator has stated that plans to offer the listings market is a move to offer a competitive alternative to the

two U.S. listing markets at the New York Stock Exchange and the Nasdaq Stock Market, particularly in light of exchange merger activity and discussion. n listinGs

NOM Adds Trading Threshold To Market

The Nasdaq Options Market is looking to add further functionality that would limit the range at which trades can execute on the market, in an effort to limit dramatic price swings unrelated to market events. In its regulatory proposal, the exchange likened the functionality, Acceptable Trade Range, to market collar orders in the equities markets, but said its process was superior. A market order is one that is submitted with no price criteria other than the best market price, and adding the collar to the order will limit executions to a maximum or minimum price. NOM said its Acceptable Trade Range capability would apply whether an order is priced or unpriced and if the maximum or minimum price is exceeded the order is not immediately cancelled. The range is decided based on adding or subtracting a pre-determined value to the national best bid or offer and orders will be allowed to execute up (for buy orders) or down (for sell orders) to the maximum or minimum value. If an order is submitted outside the acceptable range, and the limit price is outside the threshold the order will be reposted at the threshold and exposed for one second or less to determine whether liquidity is available. If not, a new threshold will be chosen. NOM said it will set the thresholds so that a market pause is a rare occurrence, though it noted that the one-second pause is shorter than what some equities markets take in

mArket strUctUre

Arca, Amex expand QCC trades to floor

013 13

YSE Arca and NYSE Amex are making plans to allow qualified contingent cross orders to be executed electronically from the floor of both exchanges, completing a process they began in April to allow the trades on the exchange. Amex and Arca were among exchanges that said they would offer the order type in order to compete with the International Securities Exchange, which first proposed the concept. Their original proposal limited QCCs to off-floor executions, but this latest proposal would reverse that restriction. In separate regulatory filings, the exchanges said they would allow floor brokers to submit QCCs from the floor without exposure to their respective systems. Orders would only be accepted if no other customer orders were on the books for the same price and if they were for 1,000 contracts. The exchanges said they moved to change their rule after an analysis of the Securities and Exchange Commissions approval, which found no material differences between entering the orders from the floor or from off the trading floor. But, Amex and

Arca noted that they will prohibit brokers from entering the orders from the floor for their personal accounts. The addition is the culmination of a long industry debate over order types, that began with the International Securities Exchange proposed to allow them in 2009. Amex and Arca, as well as other options exchanges and industry participants, vehemently opposed the rules, saying it essentially allowed orders to cross without much exposure or wide participation, and threatening to launch similar order types if ISE received an approval (WSL Online, 9/25).

news

an attempt to dampen volatility. The acceptable ranges will be the same across all options on the market, though fleixibility will be allowed depending on the volatility of the underlying security. n Trading Firms

Concept Capital acquires Alaris Trading

Concept Capital Markets, a New Yorkbased broker-dealer, has acquired Alaris Trading, a broker-dealer also located in New York, according to an exclusive report from WSL sister publication HFMWeek. The transaction took place earlier this month and terms of the deal have not been disclosed. The merged entity will offer institutional brokerage services to hedge funds, asset managers and registered investment advisers worldwide. Bringing our two companies together will allow us to capitalize on each others best practices, enhance our already high level of customer service, and provide our customers with an expanded offering, said Jack Seibald, co-founder and senior managing director of Concept Capital. Alaris is a well-established, fast growing firm with a very strong sales and operations team, and an enviable track record. Alaris is expected to be fully integrated with Concept by the end of the third quarter. The deal continues the ongoing consolidation in the prime brokerage arena that has taken place over the last few years, as many firms have looked to join forces to stay afloat. Last November it was reported that I.A. Englander, one of the largest independent US derivatives brokerage firms, planned to acquire Alaris, but in May the two parties mutually decided to rescind the deal. Concept has also recently launched a registered investment advisor in a move to expand its service to hedge

fund clients. The RIA will allow the prime broker to run separately managed accounts for its strategies. The entity, called Concept Asset Management, runs a separately managed account platform, where both existing and potential investors can either allocate to the entire structure or individual investments. The platform has approximately 300 accounts in mainly liquid strategies. The debut of Concept Asset Managements managed account platform marks an ongoing trend among firms to foray into these more liquid and transparent structures due to allocator demand. Most recently, Lombard Odier Investment Managers, the asset management business of Genevabased Lombard Odier Darier Hentsch & Cie, was slated to migrate its fund of hedge funds portfolios to funds of managed accounts via the platform it established this year. n exchanges & aTss

a slight difference in its share of the market from June, at 10.8%, to July when it executed 10.51% of contracts. BATS Options moved up just slightly, executing 4.15% of July contracts, up from 4.08% the month before. Nasdaq Options Market saw just 3.63% of the market, representing a slight drop in share, while the Boston Options Exchange gained some ground, executing 3.37% of contracts over its 2.37% of contracts in June. C2 Options Exchange also saw a slight increase, executing 1.26% of contracts in July. n PosT-Trade

Direct Access Partners, Paladyne form partnership

Prime broker Direct Access Partners (DAP) and Paladyne Systems, a technology platform for hedge funds and prime brokers, have formed a strategic relationship, according to WSL sister publication HFMWeek. The new partnership will allow DAPs hedge fund managers to use Paladyne FastStart, a front-to-back office technology platform, to calibrate electronic trading, portfolio management, and other attributes. In addition, DAPs prime brokerage clients will be able to use the offerings broker-neutral and managed account platforms for hedge funds that want to establish multi-prime relationships and run separate structures to the fund, respectively. We are committed to provide our clients the best valuebe it capital raising or trading solutions, said Ben Chinea, CEO of Direct Access Partners. The increase of institutional investment in hedge funds requires that our clients have world-class operations and technology solutions. Paladyne is the leading provider to these firms and we are pleased to provide our trading and prime brokerage customers the Paladyne FastStart solution. n

014

CBOE keeps options share lead

The Chicago Board Options Exchange has held on to its market share lead among options exchanges in spite of dropping some market share in the last month. The exchange executed 25.4% of trades in June but dropped to 24.98% in July, according to monthly data from the OCC. Nasdaq OMX Phlx followed the exchange with 22.3% of executions, just a slight drop from its 22.53% of executions the month before. Options trading volume totaled 348,218,171 contracts in July, a nearly 26% increase over the same time last year, according to the Options Industry Council. The International Securities Clearing Corp. executed 16.46% of options volume in July, while NYSE Amex Options saw just 13.33% of the volume, with both differing from Junes executions by less than a percentage point. Similarly, NYSE Arca Options saw just

data

11-17 AUG 2011

week commencing jul 25 2011

name oF eXcHange Boston options exchange summary oF cHange Amends credit and fee for transactions in the BOx Price improvement Period (PiP) new Fee

summary of fee ch anges at e xch anges

cHanged From $0.30 per contract (credits and fees) eFFecTive daTe August 01

source: exchAnGe rUle filinGs

eXplanaTion intended to provide all BOx market participants an additional incentive to submit their customer orders to the PiP and allow those orders the opportunity to benefit from its potential price improvement.The increase will apply where the trade price is equal to or greater than $3.00. Does not apply to QQQ, sPY, or iWM. for orders within a complex order auction, incoming orders will be considered makers, auction responses will be considered takers.

$0.75 per contract (credits and fees)

c2 options exchange

establishes transaction fees for complex orders in all multiply-listed, equity and eTf options.

$0.35 per contract fees to take liquidity (all orders other than public customers); $0.25 per contract rebate to add liquidity for public customers; $0.10 per contract fee to add liquidity for c2 market makers; $0.20 per contract fee to add liquidity for all others $0

n/A

July 25

cBoe stock exchange

eliminates Trading Permit holder (TPh) application fee for August

$2,500

August 01

intended to incentivize broker-dealers and other market participants who are not currently a TPh on cBsx to apply and begin to effect transactions on cBsx. cBsx TPh application fee typically follows cBOe TPh fees; $2,500 application fee was for July TPh applicants to cBOe. equitizes fees between market data ports, order entry and drop copy ports. The first ten sessions will be free of charge.The same fees will apply for eDGx exchange. A customer complex order will receive a rebate for adding liquidity as part of a complex order live auction. Only applies to AAPl, BAc, c, f, GlD, inTc, iWM, JPM, QQQ, slV, sPY and xlf options. Only applicable to those nYse-listed securities with a per share stock price of $1.00 or more. slPs must meet 10% or more quoting requirement to receive the credit. Percentage thresholds will adjust monthly based on the Us average daily consolidated share volume in Tape A securities for that month.

15

edga exchange

Amends fee schedule for market data ports Amends pricing for customer complex Orders

$500 per month, per port

n/A

August 01

nasdaQ omX pHlX

$0.26 rebate for adding liquidity in designated options/$0.00 fee for removing liquidity in designated options $0.0022 credit per share per qualified provide share if added liquidity is more than 1.25% of Tape A ADV or more than 35 million shares, whichever is greater; $0.0021 if added liquidity is between 0.50% and 1.25% of Tape A ADV or between 15 and 35 million shares; $0.0020 for added liquidity of more than 10 to 15 million shares or 0.50% of Tape A ADV

n/A

August 01

new york stock exchange

Amends tiered structure of credits to supplemental liquidity Providers (slPs)

$0.0022 credit per share per transaction if total ADV of added liquidity is 51 million shares or more; $0.0021 for 21-49 million shares; $0.0020 for 10-20 million shares

August 01

disclaimer: Most fee changes are effective upon filing. Wsl notes fee highlights here, but additional changes may be made post publication. Please visit exchange websites for the latest fee changes.

For FurTHer cHanges aT eXcHanges, visit www.wallstreetletter.com

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