wall street letter volume xlv issue 28
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IN THIS ISSUENews People moves04 Focus Fee chart14
Broadway targets APAC, bolsters staffBroadway Technology is looking to build its client base of local Asia-Pacific financial institutions through its new New Zealand officeTURN TO PAGE 05
Nasdaq to add to anti-internalization featureThe feature limits the ability for brokers to avoid a situation where buy and sell orders from the same firm interact with each otherTURN TO PAGE 07
WEX to create more options algos Wolverine Execution Services aims to roll out new options algos before the year’s end, according to Kevin Kernan, director of product developmentTURN TO PAGE 10
KCG Futures, the futures division of KCG (the combined GETCO and Knight Capital), is targeting growth supported by new technology following the merger, according to Carl Gilmore, managing director and CEO of the division.
“We hope to see benefits [of the merger] in the future relatively quickly,” Gilmore said.
Gilmore noted the technology synergy of the two formerly individual firms will support a series of new developments taking place in the futures division and said the
entire group is excited about the potential.
Specifically, he cited the development of a new technology offering within the division, but he declined to provide more detail.
“For us, the advantage of the merger is getting access to additional technology,” he said. “So if you take world class technology and take our view that we can offer, and ought to offer, customized services and solutions for key market segments and couple that with the balance sheet and financial strengths that we have… we have an opportunity to grow that business.”
KCG Futures targets tech supported growthBY JEANENE TIMBERLAKE
TOP STORY
VOL XLV ISSUE 28 12 - 18 SEPTEMBER 2013 www.wallstreetletter.com
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EXCHANGES & ATSs
BM&FBovespa to migrate certain BDRs to exchange
BM&FBovespa has set the migration of over-the-counter Brazilian Depositary Receipts to its exchange market as part of a move to register the certificates with the Brazilian Securities Commission (CVM), according to a trading circular distributed by the exchange.
In the notice to its market partici-pants, the exchange operator said the transition would take place on August 30 and would affect unsponsored Level I BDRs, certificates issued by a Brazilian depositary that are not affili-ated with the foreign issuer. All un-sponsored Level I BDRs are currently traded on its organized OTC, but the exchange operator noted in June that it plans to require registration of the certificates in the future. The latest notice said all these certificates will move to the exchange.
BM&FBovespa noted ISINs for all the certificates that are moving, as well as Level II and II BDRs that are already traded on the exchange, will stay the same but the ticker symbols will be updated. Trades in any BDRs that are in the system under the old tickers will be cancelled at the end of trading on August 30, the exchange stated.
Separately, the exchange operator noted it will push back the implemen-tation date for its plan to increase fees for settlement delivery failures. The new system was scheduled to take ef-fect on August 19 (WSL Online, 8/7), but the operator said it would now go into effect on October 1. A further deadline, set in October, will now be set for November, but the December date, for the third phase of the fee increase, will stay the same.
EXCHANGES & ATSs
Nasdaq markets take on more surveillance workThe Nasdaq Stock Market and Nasdaq OMX BX are planning to take on more surveillance work for their markets, according to regulatory proposals from both exchanges.
FINRA currently conducts surveil-lance for both exchanges, though BX and Nasdaq have operational over-sight for real-time surveillance, listed company qualification (for Nasdaq) and options market surveillance.
The exchanges are now looking to add on to these responsibilities to in-clude monitoring the markets to look for patterns of manipulation specific to BX and Nasdaq trading activity, as well as for adherence to rules related to quoting and quote cancellations.
In filings with the Securities and Exchange Commission, both
Gilmore said the futures commission merchant’s plans should support growth of its market share within segments already serviced by the group, including sophisticated electronic intermediaries, market professionals trading electronically and some commercial firms trading futures to hedge risk.
“The thread is automation, technology, electronic trading,” Gilmore said. “We think we can structure solutions to those key market segments in ways to help them operate their businesses better.”
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CARL GILMOREmanaging director and CEO at KCG Futures
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exchanges noted the equities surveil-lance patterns monitored by FINRA are all inclusive but monitoring incorporates trade data from NSYE Euronext exchanges, and just a few patterns monitored by the regulator look at Nasdaq or BX-only data.
The exchanges said internal expertise of the exchanges related to proprietary market structures, “coupled with… continued monitor-ing of these activities in real-time will enable it to enhance existing patterns to better detect improper activity” on the markets.
Added surveillance will be con-ducted through the SMARTS surveil-lance system, and both exchanges said the new process will allow them to flag up more problematic activity to FINRA than before.
Nasdaq and BX said they will relieve FINRA of testing for specific patterns after testing and training procedures have been conducted in-ternally to ensure a smooth transition and prevent surveillance gaps.
EXCHANGES & ATSs
NOM to amend spread differentials for some optionsThe bid/ask spread differentials for certain options will soon be variable under new rules proposed by the Nasdaq Options Market.
NOM told the Securities and Exchange Commission in a filing it wants the option to alter bid/ask spread differentials to be wider than its standard differential “as appropri-ate, in response to high differential prices, market conditions, or other special factors impacting a particu-lar option, option series, or class of option”.
The exchange currently requires bid/ask spread differentials to be no more than $5 for options on equities and index options, though the differ-ential can be wider in in-the-money
SEC names commissioner, adds investment regulation execsThe Securities and Exchange Commission has named Michael Piwowar as its next
vacant by Troy Paredes. Piwowar returns
position in May by President Barack Obama.
The regulatory body also named Jane
the investment adviser/investment com-pany examination program, which is part
-tered investment advisers and investment companies.
The SEC also hired Eun Ah Choi as the -
vestment management. She will be working on administrative, business and operational
-tions, business process improvement, and
a career at Hogan Lovells as a partner in corporate development.
retirement
-
Deutsche Asset & Wealth Management
wealth management in Latin America. His ap-
reporting to Haig Ariyan and Chip Packard,
SageTrader has hired two executives, -
tal Markets in New York. Sean Malloy,
Brokerage Holdings, the parent company to SageTrader, said both executives are longtime colleagues, having worked with Engmann when all three were at Newedge.
Goal Group appoints biz dev, sales managers Goal Group appointed David Gilbert to
manager and Tania Dupoy as sales and re-lationship manager. Gilbert was previously
development, and Dupoy reporting to
relationship management.
P E O P L E M O V E S
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series if the market for the underlying security is wider.
Wider diff erentials could support increased quoting and trading activ-ity, the exchange noted.
“For high premium options, the current fi ve dollar range can expose market makers to disproportion ate risk in dealing with those issues thereby discouraging them from quoting in those instruments,” NOM said.
POST-TRADE
FICC unit cuts grace period for notifi cations of sett lement
Th e mortgage-backed securities division of the Fixed Income Clearing Corp. is planning to reduce the grace period for notifi cations of settlement (NOS) and to increase the late fee for counterparties to a trade where the
NOS deadline is missed, according to fi ling from the unit submitted to the Securities and Exchange Commission.
While the MBSD facilitates settle-ment for most To-Be-Announced trades (TBA), the TBA options and specifi ed pool trades are settled outside the facility and counterpar-ties submit settlement notifi cations to the unit to certify that settlement has occurred.
Members submit a NOS to the utility at clearance and a counterparty must either confi rm or reject the notice, or the initiating party must remove a posted notice.
Participants typically have a two-day grace period during which one of these actions must be taken or they are subject to a $25 per day fee.
Th e MBSD told the SEC it wants to up the fee to $150 per day and cut the grace period to one day to encourage more timely reconciliation.
“Timely submission and matching of NOS to FICC is crucial in order to minimize the risk that MBSD over or
under margins members as a result of calculating Clearing Fund require-ments and mark to market values that are based on positions which – unbe-knownst to FICC – have actually been settled between members,” it said.
Timely reconciliation is also im-portant if one participant is insolvent in order for FICC to determine which positions may need to be liquidated, the fi ling stated.
EXCHANGES & ATSs
ISE, CBOE adjust complex order handlingTh e International Securities Exchange and the Chicago Board Options Exchange are looking to amend the way they handle complex orders off ered on their respective exchanges, according to member circulars distributed by both exchanges.
Th e ISE targeted single-sided complex orders, including those with
Broadway Technology is looking to build its client base of local Asia-Pacific financial institutions through the recently
established New Zealand office, according to Tyler Moeller, CEO and co-founder of the technology vendor.
The focus follows a deal to provide its TOC platform to Australian bank Westpac and the opening of a satellite office in New Zealand in June, according to Moeller. The company is also moving forward with enhancements upon its offerings that cater to unique needs of the APAC market, he noted.
“We have many large banks using the TOC glob-ally, now we are moving towards building out our clientele with Asia-based entities,” said Moeller. “We see potential to expand with other large Asia-based multi-nationals and regional players, both buyside and sellside.”
Broadway Technology is working with the US arm of a large Asian bank now and also works with the
Asia-based business units of large global financial institutions, according to Moeller.
The company broadened its client base to about 30 customers this year and expanded staff across the New York, Austin, Lon-
don and New Zealand offices, which is currently staffed by one person (WSL Online, 4/10). The com-pany currently employs 70 people, 12 of which were added this year, and is planning on further staff expansion, according to Moeller.
New hires for the company are selected from existing industry professionals or from schools such as Stanford, MIT and Cornell, according to Moeller. He noted that the vetting process is stringent, stating that Google and Apple often target the same pool of candidates, and training, which usually takes several months, is vigorous, according to Moeller.
“We try to instill a Silicon Valley culture on Wall Street,” said Moeller. “We marry the crowds of
technology and finance.”
TECHNOLOGY
Broadway Technology targets APAC, bolsters staff
TYLER MOELLERCEO and co-founder, Broadway Technology
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a stock or exchange-traded fund component. Th e exchange told its members these orders can include up to eight option legs. Single-sided complex orders with more legs than that will be rejected from the system, it said.
ISE noted legging will be available for the single-sided complex orders if there are only three legs, but more than three legs in an order will re-quire the order to be executed on the complex order book.
Similarly, the CBOE said it plans to start accepting complex orders with up to 12 legs on a ticket, an increase from four legs. In its circular to members, CBOE said the change will require regulatory approval but it expects to put the rule in eff ect in December.
Complex orders with more than 12 legs will still be accepted but they will need to be entered into the system us-ing multiple order tickets, it said.
EXCHANGES & ATSs
Phlx amends PIXL functionality for simple ordersNasdaq OMX Phlx has notifi ed its members that it will adjust the functionality for simple PIXL orders entered into its system.
In a notice to members via a technical update, the exchange said certain simple PIXL orders entered in error would be rejected from the system and not cancelled. Th e func-tionality was put in place for complex orders last month, it noted.
PIXL orders, which are electronic, are submitted with two sides by a member into an auction to gener-ate price improvement. Th e orders are entered with a Stop Price, which is the price at which the initiating member will guarantee execution for the order.
Currently, orders with a Stop Price that are invalid (such as if the price is not equal or better than the NBBO on the contra side when the order is more than 50 contracts or, if under 50 contracts, better than the Phlx BBO or the limit price of the non-Complex PIXL order), will be cancelled back to the initiator. Phlx said it will change the cancellation message to a reject message.
Similarly, with PIXL orders that are received within two seconds of the end of the trading session, initiators will now receive a reject message instead of a cancellation message.
Th e changes will go into eff ect on August 20, Phlx said.
EXCHANGES AND ATSs
Aite anticipates FX market share batt le
A report from the Aite Group on the FX market predicts a market share battle among venues over the next year and a half. Th e consulting fi rm collaborated with LMAX Exchange on the report.
According to the report, “Electron-ic FX Market 2013: Ready for a Revo-lution?”, the launch of new electronic trading venues for the asset class in the last three years – including venues from LMAX Exchange, GAIN GTX, Fast Match, Molten Markets and ParFX – paves the way for new share competition.
Firms running these new trad-ing platforms are adding features to increase transparency, thus attract-ing participation, in anticipation of increased regulatory scrutiny in the near future, the report stated.
“While success is not guaranteed for the new market entrants, their emergence may signal the next phase in electronic FX competition, char-acterized by increased transparency throughout the trade life-cycle, low latency trading, and client-specifi c li-quidity pools,” according to the report.
Options, a financial services infrastructure
provider, has plans to enhance its network infrastructure in the US, according to com-ments from Ken Barnes, senior vice-president.
“We are gearing up to expand the network,” he explained in an interview. “We’re adding more capacity and reducing some of the la-tency on some of the routes, and so forth.”
Barnes said the enhancements would supplement a larger build out underway at the company that is expected to manifest itself over time.
Part of that expansion is the addition of new clients and trading venues to the net-work globally, the latest being the addition of European dark pools run by HSBC and
AllianceBernstein, which were added last month.
Barnes noted the additions, which have been driven pri-marily by client demand, can be attributed to an increase in client interest related to trad-ing in European dark pools. The other driver is a growing interest in currency trading.
“There is a lot happening there and a lot of new venues
that have sprung up,” he said, referring to recent requests for connections to specific venues.
He said the vendor is also anticipat-ing the potential for new opportunities in terms of new clients and the addition of more trading venues once Dodd-Frank Act rules come into effect from a trading perspective.
TECHNOLOGY
Options plots US enhancements
KEN BARNESsenior vice-president, Options
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Aite noted in the report that market share is still concentrated at incumbents Thomson Reuters, CME Group, ICAP’s EBS, FXall and Bloomberg.
But authors Javier Paz and Howard Tai, both senior analysts, and Sang Lee, founder, noted the evolution of the space is not following a tradi-tional trajectory where old trading models are being replaced with new ones.
“[I]n fact, depending on the type of client and its needs, all trading models have been adopted and are thriving,” they said, noting that an exchange-style trading model, such as the model in operation at LMAX, has a high level of growth potential.
EXCHANGES & ATSs
BOX to create PIP for complex orders
BOX Options Exchange is planning to allow participants to submit complex orders into its Price Improvement Period (PIP) auctions, according to regulatory filing.
The exchange would create a complex order PIP (COPIP) that would function in a way that would be similar to its existing PIP for single option series contracts, BOX said.
In its regular PIP, agency Customer orders can be designated for the PIP and submitted with a matching order on the contra side set at a price that is equal or better than the NBBO. Par-ticipants are notified of the beginning of a PIP auction and they can submit competing orders, the best of which will be matched against the PIP order based on price/time priority.
BOX said the COPIP will similarly allow order flow providers and mar-ket makers to submit complex orders to the COPIP if they are marketable limit orders, BOX-Top orders or market orders. As with the PIP, com-plex orders designated for the COPIP must be submitted with a matching
contra order equal to the full size of the submitted complex order, it said.
In terms of pricing, the contra order must have a single price equal or better than the complex NBBO, the complex BBO and the exchange’s complex order book, or it must al-low for automating price and size of competing orders, BOX said.
Participants will still get a notice that the COPIP has started and the auction will last 100 milliseconds, during which time order size can’t be modified or cancelled, though the price may be improved, the exchange stated.
Orders will be executed against the initial order based on price/time priority, with an exception for BOX book interest, which will have prior-ity over complex orders at the same price, it added.
BOX noted the benefits of the PIP, including increased flexibility, more opportunities for execution and bet-ter pricing, will all be available via the COPIP once launched.
EXCHANGES & ATSs
Nasdaq to add to anti-internalization featureNasdaq Stock Market will add to its anti-internalization feature by offering another option for members using the capability, according to a regulatory proposal from the exchange.
The feature limits the ability for brokers to avoid a situation where buy and sell orders from the same firm interact with each other. The function will also support brokers trading for ERISA accounts by restricting brokers from trading as principal orders for those accounts.
The anti-internalization feature monitors orders for these conditions and if they are met the orders are cancelled.
Nasdaq told the Securities and
Exchange Commission it wants to add an option for situations when orders from the same firm would interact which would allow brokers to cancel the newest order. The new feature would supplement the exist-ing features that already cancel the oldest order or cancel orders based on size – either the smallest order or both orders if they are of equal size.
Monitoring will continue to take place by monitoring orders coming in by a specific MPID or from a specific port, Nasdaq said.
TECHNOLOGY
S&P Capital IQ unit looks to add asset classes, markets S&P Capital IQ Real-Time Solutions plans to allow clients to trade Asian FX, futures and commodities using systematic trading within the next year, according to Stephane Leroy, the global head of sales and marketing.
FX trading has risen in popularity, according to Leroy. While FX has typically been used as an instrument to value a portfolio, Leroy says the currencies are now actively traded, volumes have increased and clients are keen for greater access.
Plans to increase staff in Korea and other markets in the APAC region are also in the works for the coming year, Leroy noted.
The unit is also looking to expand its connections to exchanges in the region, with a focus on tier two exchanges targeted for the end of this year. He noted positive feedback about the expansion into tier one exchanges has motivated the move into tier two venues.
In the past year, the vendor’s clients drove a push for the company to expand coverage into Hong Kong, Shanghai and Tokyo, according to Leroy. To do this, he said the unit had to set up a fiber optic network in
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Asia, which required support from S&P Capital IQ. The vendor has received a positive reception due to the revitalization of the technology in these markets.
“Many clients are still using legacy technology for quite a while now,” said Leroy. “As we begin to operate in this market, we suspect that more people will switch from legacy to our solutions.”
Systematic trading played a heavy role in this expansion and will con-tinue to do so as the number of avail-able exchanges opens up to clients, according to Leroy.
POST-TRADE
SWIFT targets GETC practice docs for reposSWIFT is working on a new set of market practice documentation that would focus on use of its Global Electronic Trade Confirmation service with repurchase agreements, according to comments from Paul Taylor, director of global matching.
“We are generating repo-flavored market practice guidelines that we have with GETC, and we’re doing it with four or five firms, buysiders and broker-dealers, in the UK,” Taylor said in an interview.
The work comes as the organiza-tion, which provides a network and messaging infrastructure for the financial services industry, is looking to extend the use of the service into new regions globally and across more asset classes.
Earlier this year the cooperative was in the process of developing mar-ket practice documentation for use of GETC in Asia and Latin America (WSL Online, 5/30).
Taylor said SWIFT has been eyeing the repo space for a year, and clients have been interested in using the GETC messages for these transac-tions as well.
Among the reasons the messages haven’t already been adopted in the space is the fact that some systems in use by the buyside and sellside don’t have the ability to transact the infor-mation that would be needed in order to populate the necessary message fields to confirm repo trades, he said. “Some of the buyside systems needed tweaks to include this extra data, and that is where we are right now.”
Taylor also noted some of the discussion is centering around dif-ferent message fields, and whether certain fields are critical for matching trades for repurchase agreements or if additional fields are needed. “It’s just a matter of time before that gets live traffic,” he added.
TECHNOLOGY
Advise to extend Advent integration to AIFMDAdvise Technologies is looking to extend a recently announced partnership with Advent Software to cover reporting needs under the UK’s Alternative Investment Fund Managers Directive (AIFMD), according to comments from Sean Sullivan, president.
The integration between systems offered by both vendors was recently announced and covers filing for Form PF and for Form CPO-PQR.
Clients using both the Consen-sus RMS platform from Advise Technologies, which automates the process of doing the necessary calculations and making final reports to regulators, and Advent’s Geneva or Syncova platforms offering global portfolio management and capabili-ties for margin and debt financing, respectively, will now have an option for transferring the needed data and creating regulatory reports for US regulators.
Sullivan said data needed for Form PF is very similar to the data that will
be required under the EU’s AIFMD and as such extension of the partner-ship is a logical next step.
“AIFMD will probably be a much bigger challenge than Form PF for a couple of reasons, and this is where this synergy makes an appealing case,” he said, referring to the timing of the first filing deadline for non-EU filers, which will come as firms are finalizing year-end reports, and the fact that rules could be slightly differ-ent for each member state.
These wrinkles “create an even more compelling case to automate it and process it,” he added.
Advise has built out an AIFMD offering on the Consensus RMS plat-form to include the form, which was recently made available, but further guidance is expected that needs to be incorporated, Sullivan said.
The company is also likely to link up with other vendors for similar partnerships if clients demand it, Sul-livan said, adding no one vendor pro-vides all the data needed to comply with existing and pending regulatory reporting requirements.
EXCHANGES & ATSs
Direct Edge: Brazil should consolidate exchange reg functionDirect Edge is backing a multi-exchange market model in Brazil that allows for a single exchange regulator as the country looks to open the market up to exchange competition, according to a comment letter submitted to the country’s securities commission.
In the letter, sent to the Comis-são de Valores Mobiliários (CVM), Direct Edge said the regulator should look to the experience of other global markets as it attempts to set up the Brazilian market to allow exchange competition.
The US-based exchange operator noted while the US started with two
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main self-regulatory organizations with oversight of trading and broker-dealer activity, the current US model with FINRA as the head is more ef-fective in light of the for profit stance of the exchanges in the market and also from a fragmentation perspec-tive with the introduction of more exchanges.
Direct Edge also noted that the current structure in Brazil relies on the BM&FBovespa Supervisao de Mercados, which, though run independently, is funded and staffed by BM&F.
“Without any clear guidance and action to highlight total independ-ence, concerns will exist among brokers and new exchanges like that the supervisory authority of the BSM could be abused,” it said. “While Direct Edge believes that BSM
currently operates with the highest degree of integrity, the mere existence of this concern (with or without jus-tification) can affect the behavior of market participants in a manner that potentially impedes competition.”
The exchange also commented on best execution, which it said should be determined based on the inves-tor segment, and consolidated trade data, which it said should be offered by multiple data consolidators that should meet certain standards.
On data, Direct Edge noted that private consolidators could be used or a single utility can be chosen. But in the first instance, inconsisten-cies could crop up and in the latter instance there could be additional overhead. Using a utility “also car-ries somewhat elevated risk that a dominant exchange could have a
conflict of interest in serving as both the consolidated and a competitor to other organized exchange markets”, Direct Edge stated.
EXCHANGES & ATSs
Phlx to allow ISO orders in PIXL auctionsTraders sending intermarket sweep orders to the Nasdaq OMX Phlx will soon be able to submit those orders into the exchange’s price improving electronic auction (PIXL), according to a proposal from the exchange submitted to the Securities and Exchange Commission.
The order type is intended to allow additional choice for PIXL orders and
A CTIV Financial aims to broaden its clientele in EMEA and the Asian markets in the near term, according to Frank
Piasecki, president and co-founder of ACTIV Financial. As part of its move in that direction, the vendor has hired Ben Collins as its director of sales for the EMEA region.
The data management vendor is looking to increase its sales efforts in Germany, France, Austria, Turkey, South Africa, the Netherlands, India, Thailand, Malaysia and China, according to Piasecki.
“We’ve been in these markets, but with more regional or local data, and enhanced commercial leadership, we’re attacking them with vigor,” said Piasecki, adding the focus is based on interest from local and international clients.
“In spirit of outsourcing, many firms and vendors in these regions are turning to specialist vendors like ACTIV,” said Pias-ecki. “Their needs vary by region, product type and function but this is the story globally.”
ACTIV hired Collins due to his experience in data sales garnered
from working at Morningstar. He will oversee regional technical sales and account management in EMEA as well as emerging Asian markets, Piasecki noted.
Working from ACTIV’s London office, Collins and his team will collaborate with a support team in Cambridge to wrangle clients who may employ legacy data management integrated into their business, Piasecki said.
By offering streamlined data management capabilities on a platform that allows for third-party data feeds, ACTIV hopes to convince clients to replace legacy data vendors systems requiring a plethora of hardware and capital to run, according to Collins.
“Current data management legacy platforms are hardware infrastructure intensive,” said Piasecki. “The immediate benefit of ACTIV’s offering is reducing the technology footprint from 50 servers at an investment bank to two or three.”
The vendor offers real-time, multi-asset financial market data and solutions that is used by 450 clients worldwide by the buyside and sellside.
TECHNOLOGY
ACTIV Financial looks to expand geographically
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to keep up with competing markets, Phlx said.
Traditional PIXL orders initi-ate auctions as long as they off er certain levels of price improvement determined by the size of the order, whether it is bigger or smaller than 50 contracts, and who the trader is trading for, whether it is a public cus-tomer or a non-public customer.
Traders routing ISO orders to the exchange must also direct ISO orders to other exchanges to execute against the displayed size of protected bids and off ers if those protected quotes are better than the limit price of the ISO order.
In the case of PIXL ISOs, Phlx said traders will be required to submit orders that comply with all of the traditional guidelines in terms of simultaneous routing of ISO orders to exchanges with protected bids or off ers if the quotes are superior to the starting PIXL price and in terms of required price improvement levels.
Phlx added that the only diff erence will be that it will not protect away prices. “Instead, order fl ow providers will bear the responsibility to clear all better priced interest away simultane-ously with submitting the PIXL ISO order,” it said.
EXCHANGES & ATSs
BX, Nasdaq add prop trader education requirement Nasdaq Stock Market and Nasdaq OMX BX have both adopted continuing education requirements for proprietary traders, according to proposals from the exchanges that were fi led with the Securities and Exchange Commission.
Th e proposals come following work with other exchanges and FINRA to develop a proprietary trader registra-tion two years ago, they said.
Th e educational program, to be administered by FINRA, is based on
the Series 56 exam and is designed to ensure traders are up to date on regulation and trading practices.
Th e exchanges said proprietary traders will be required to complete the regulatory element of the pro-gram two years aft er initial registra-tion and then every three years and proprietary traders must complete the program in order to continue to conduct business on the exchange.
If a trader is registered in more than one category, only one regulatory ele-ment is required to meet registration obligations, the exchanges said.
For the S501 program, which will be applicable to proprietary traders, the fee will be $60, payable to FINRA, they stated.
TECHNOLOGY
FlexTrade targets new client base
FlexTrade Systems is aiming to bring in prospective clients from new fi elds through a full integration with OTC Link ATS, a subsidiary of the OTC Markets Group, according to Greg Ludvik, the CEO of FlexTrade.
“Th e target market is broker-dealers handling customer orders and making markets in OTC securities,” said Ludvik. “Our goal is to improve the strategic profi le of our products competing in the OMS space, and we want to make sure that we extend and
Wolverine Execution Services aims to roll out new options algos before
the year’s end, according to Kevin Kernan, the director of product development at WEX, who spoke to WSL.
WEX currently has a few algos targeted at equities including its latest offerings, the WEX VWAP and the WEX Basket VWAP, which Kernan said are the most powerful to date. He explained they operate based on a common calculation utilizing the arrival price function in WEX’s Best X algo to aid in determining the average price for an order.
He noted the interest among options traders is spurring development.
“Because algos are less common in the options space, traders are more reluctant to turn their execution over to an algorithm, but this is an attitude we see changing,” Kernan said. “When creating option algorithms there are more complexities, including the larger number of available strikes, which may provide valuable infor-mation since they are all derivatives of the same underlying security.”
Kernan pointed out that clients, and third parties yearning for agnostic offer-
ings, are asking for more offer-ings that can disseminate the available data to accurately target an aver-age price.
“We devel-oped the Bas-ket VWAP for clients wishing to execute a large basket of securities, including both buys and sales, while remaining market neutral,” said Kernan. “This is a common issue for many option market makers, one client segment that has shown the most interest in this type of algo.”
The latest offering was made available to all WEX clients after six months of research and development and an internal testing run executed by Wolverine Trading, the com-pany’s proprietary trading arm, according to Kernan. The algos were cross-tested against two similar functions offered by competing vendors until WEX’s VWAP suite outper-formed the competition, he said.
TRADING FIRMS
WEX to create more options algos
KEVIN KERNANdirector of product development at WEX
11
12 – 18 SEPTEMBER 2013
cover as many OMS workfl ows as we can, while bringing new functionality to the marketplace.”
Th e off ering integrates OTC Link ATS’ capabilities into existing broker-dealer workfl ows for those utilizing FlexTrade’s OMS products. Ludvik noted that a need for integration came from working with existing and potential customers who wanted more front end options to connect to OTC Link’s OTC Dealer. Th e lack of options in the way of order and execution management systems within OTC Link was the catalyst for integration, he added.
He added the vendor also aspires to communicate the integration with its existing client base through the Flex OMS and ColorPalette. Th e integra-tion of this system promotes a vital information link between the buyside and broker-dealers to telegraph natural block interest to people who wouldn’t normally use them in preda-tory function, according to Ludvik.
For instance, information leakage is all but sealed off due to how the of-ferings process natural and theoreti-cal trades, according to Ludvik.
FlexTrade began the partnership with the ATS a year ago with the intent to improve broker-dealer workfl ow in the OTC Link market, according to Ludvik. He added that brokers have the ability to manage network security while making markets without having to jump between integrations.
DATA
Tick Data targets new clients with Forex off eringTick Data is targeting new clients through the integration of a historical currency data archive, according to Tom Myers, partner and senior vice-president of business development at Tick Data.
Th e new Forex Data Set was added to Tick Data’s off ering of intraday
market data on August 19 and is aimed at traders pursuing quantita-tive strategies or those using forex as a hedging tool.
Th e Forex Data set is Tick Data’s fi rst foray into archiving OTC trades, adding
FX data into a product line that also includes equities, futures, and options data, according to Myers. Data will be available in tick-by-tick trades and quotes, tick-by-tick trades, and one-minute trade-only data, Myers noted.
Th e integration will give users ac-cess to historical FX data. Previously, there was no archived, centralized data available for forex data sets, said Myers. He added there are numerous requests from customers for a clean robust archive of FX data.
Th e off ering is comprised of his-torical tick-by-tick foreign exchange data and other data for more than 2,000 currency pairings with contri-butions from over 80 diff erent cities internationally and 180 institutions.
Th e data has been collected since May 2008. It was collected by scratch through a triple archival process in three separate data centers to prevent outages and gaps in the data, Myers stated.
TECHNOLOGY
SunGard targets more Canadian biz with Valdi SunGard is looking to build up its business in Canada following a latency reduction for the Valdi platform and the buildout of partner capabilities in the country, according to James Corrigan, senior managing director for SunGard Valdi.
Th e vendor recently contracted with Pershing to provide direct access
to Canadian trading venues through its Valdi Market Access platform to support a streamlined approach for Pershing related to execution.
In an interview, Corrigan cited the Pershing relationship as an example of what the vendor is looking to do in the country and said SunGard is put-ting more of a focus on the market.
“We can do that today from an OMS and EMS perspective, we have all the market center connectivity throughout our network and we have our partner business in our SunGard brokerage unit that off ers algo trading solutions for Canada as well,” he said. “We think there is a opportunity to be another provider in that market.”
Th e push follows what Corrigan called a replatforming of Valdi to provide speedier technology, for fi rms that want a hosted option for their core order management functionality, he said, adding the vendor is seeing more instances of that request.
“We think that solution will allow us to compete more eff ectively in the tier one space that would tradition-ally do this internally or opt for an enterprise solution,” he said. “Th e system has been proven in terms of its ability to handle [high] volumes on a microsecond basis.”
Corrigan noted the vendor will continue adding to the functionality it has just replatformed for Valdi. Phase two and three rollouts, which he said enhance existing functionality and add new capabilities, are underway now.
”Th at rollout will go through the next year and the migration plan for current clients goes across that same timeline,” he added.
TECHNOLOGY
Fidessa Canada nears completion of algo update Fidessa Canada is looking to release an update to the algos within its existing Canadian Trading Platform
TOM MYERSpartner and senior vice-president of busi-ness development at Tick Data
12
NEWS
by the end of the year, according to Ritesh Patel, the director of client services at Fidessa Canada.
Th e update, which is due in No-vember, will optimize existing trading strategies and add novel ones, Patel noted.
“Clients are looking for greater control on certain parameters and more choice in terms of dark pool execution as part of smart routing,” said Patel.
Th ese client demands caused Fidessa to do housekeeping in terms
of updating their platform, he added.
Th e upgrade aims to satisfy the needs of institu-tional investors and market makers, but the functionality is also aimed at retail brokerages, which have become a new
focus for Fidessa, according to Patel.“Whilst volumes are down, retail
investors are becoming more de-manding in terms of asset classes and global access,” said Patel. “Fidessa is able to provide these capabilities as well as allowing for more fl exible routing rules and risk management controls.”
EXCHANGES & ATSs
NFX to alter Market Order functionality
Th e Nasdaq OMX Futures Exchange plans to amend the way its Market Orders function, according to a rule the exchange submitted to the Commodity Futures Trading Commission.
Specifi cally, members can opt to have their orders cancelled aft er a certain period of time in a move to provide more certainty, Nasdaq said.
Th e current defi nition simply states that Market Orders are orders to buy
or sell a specifi c number of contracts at the best price.
But NFX said it would add a provi-sion that will allow the orders to be cancelled if they are not executed aft er 30 seconds or less.
Th e exchange noted it will make a determination as to the length of time the orders can rest before they would be cancelled. A draft trader alert, included with the fi ling, indicated the time period will be set initially at fi ve seconds.
NFX also noted it will start to post system settings on its site to provide guidance to members as to variable functionality. Th e Trading System Settings document would include the Market Order cancel timer, the Wait Order suspend timer, the Acceptable Trade Range Posting Period, and the Order Spread Protection BBO width threshold.
POST-TRADE
Sec industry move to ISO 20022 may need reg mandateA wholesale move by the US-based securities industry to the ISO 20022 messaging standard may require a regulatory mandate, according to comments from SWIFT’s Chris Church, CEO of the Americas and global head of securities.
In a media briefi ng, Church noted that the securities industry in the US is making progress on adopting the XML-based standard, introduced to replace the previous ISO 15022 messaging standard, in the area of corporate actions as part of a broad reengineering initiative.
But he noted there is not an eff ort to adopt more broadly across other activities, due mainly to the expense of switching entire systems to another messaging standard.
“I think that ISO 20022 wholesale for securities will require a regula-tory change,” he said, emphasizing
the perspective is his opinion and not based on any industry discus-sion related to adoption. “I think you need regulators to endorse it and I think the catalyst for doing that will be if the US market says, ‘Maybe we should go to T+2 [for settlement].’”
He added the question fi rms typi-cally ask themselves when making these types of changes is whether they are ready to make that level of invest-ment and what the resulting benefi ts will be.
“Oft en it’s triggered by some kind of change that is happening in your market and that goes alongside of it,” he said. A transition to a T+2 settle-ment date, or a move to go further to T+1, from the current T+3 schedule would be the type of sizable change that could spur the market to make additional changes at the same time, he added.
Regardless of what fi rms decide, Church said SWIFT will not push companies to make a decision either way. “Our offi cial stance is we will support any market that wants to go to 20022… but we are happy for both of those standards to coexist and operate on one network. We will support both of them but we are not going to force entities, organizations or particular markets to go there because we don’t think it’s our place to do that.”
POST-TRADE
OCC to adjust margin considerations to reduce riskTh e OCC has told the Securities and Exchange Commission it wants to change the way it looks at some securities considered ineligible for margin in order to limit the potential for concentration risk to the settlement utility.
In a regulatory fi ling, the OCC said it recently determined that it could be impacted by concentration risk if
RITESH PATELdirector of client services at Fidessa Canada
13
12 – 18 SEPTEMBER 2013
members submit large positions in equity securities as margin.
Specifi cally it noted that if a large number of shares needs liquidating on a low volume day, “it is possible that the listed equities markets may not be able to quickly absorb the equity secu-rities OCC seeks to sell, or without an appreciable negative price impact”.
Th e utility’s rules already allow OCC to refuse to credit its members with margin posted but only if the securities posted are ineligible.
Now OCC said it wants to have the discretion to limit credit for concen-trated positions and accept ineligible securities if they off er a hedge against a short position. “In such a situation, OCC will limit the margin credit granted to the lesser of a multiple of the daily trading volume or the ‘delta equivalent position’ for the particular equity security, taking into account the hedging position,” it said.
OCC noted it doesn’t expect clear-ing members to fi nd the proposed changes diffi cult to accommodate, but it noted it would work with them manually until limits are incorpo-rated systematically.
EXCHANGES & ATSs
Over half of US options exchanges see volume increaseMore than half of the now 12 US options exchanges saw volumes increase over August, according to the latest market share data from the Options Industry Council. Th e increase is in line with the change in
contracts year over year, where August 2013 contracts traded (321,976,044) represent a 3.55% increase over those traded in August 2012.
Th e Chicago Board Options Exchange saw a slight increase in its share to 28.56% from 27.56% in July.
Th e International Securities Ex-change and Nasdaq OMX Phlx have once again switched places with Phlx coming in second aft er executing 15.27% of total contracts, an increase over July share of 14.57%, and ISE coming in close behind aft er seeing its share drop from 14.99% in July to 13.92% in last month.
Market share at NYSE MKT dropped slightly in August down to 12.31% from 13.21% in the prior month, and its sister market, NYSE Arca, also saw a decrease from 11.08% in July to 10.72% in August.
Nasdaq Options Market executed 8.22% of total contracts, a marginal increase over its 8.20% share from the month before. BATS Options saw a slight decrease to 4.10% in August, compared to 4.31% in July, while BOX Options added share, mov-ing up to 2.27% of total contracts executed from 2.14% in July.
C2 Options Exchange and MIAX Exchange topped the list of the four newest venues, with both seeing in-creases in share – C2 executed 1.94% of total contracts and MIAX executed 1.35%. Nadsaq OMX BX Options saw it share drop slightly to 0.85% and ISE Gemini, the newest options exchange, gained 0.49% in its fi rst nearly full month of trading.
TECHNOLOGY
Portware to expand trading tech to foreign marketsPortware is looking to broaden the reach of its Alpha Vision algorithmic optimization off ering to operate across Europe and other markets, according to Scott DePetris, president
and chief operating offi cer. Th e vendor also plans to open the off ering up to trade in the asset classes beyond equities, he said.
Th e geographic expansion is ex-pected to take the platform to Euro-pean markets in the fourth quarter of this year. Beyond that, Alpha Vision will be rolled out to Canadian mar-kets in early-to-mid 2014, while Hong Kong and Tokyo are being targeted for late 2014, according to DePetris. As of now, the platform only operates within the US equities market.
“A major drive for this comes from a global wind of people investing in trade automation across multiple assets,” said De-Petris.
Th e push in Europe follows Portware’s suc-cessful US launch, where it has already on-board-
ed 19 new Alpha Vision clients, including top pension funds, asset managers and hedge funds managing over $3.5trn AuM, and brought 17 participating brokers into the service bureau, including six of the largest global investment banks, according to DePetris.
Th e vendor is also looking to broaden the off ering to operate in the futures and FX markets over the next few years, Depetris noted.
As the off ering is confi gured to-wards European, Canadian and Asian markets, as well as FX and futures markets, client feedback will be in-strumental, according to DePetris.
Th e Alpha Pro and Algorithm Switching Engine technologies, acquired from the Aritas Group in June 2012, are the key components to integrating artifi cial intelligence to the platform. Th e artifi cial intel-ligence technology “allows traders deeper insight because the platform is optimized to act on a real-time loop”, said DePetris.
SCOTT DEPETRISpresident and chief
Portware
14
SOURCE: EXCHANGE RULE FILINGS
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.
S U M M A R Y O F F E E C H A N G E S A T E X C H A N G E SW E E K C O M M E N C I N G 9 S E P T E M B E R 2 0 1 3
NAME OF EXCHANGE
SUMMARY OF CHANGE NEW FEE CHANGED FROM EFFECTIVE
DATE EXPLANATION
BYX Exchange
Establishes continuing education and
exam fees
$195 examination fee for each individual completing the Series 56 exam; $60 session fee for each individual required to complete the S501 Series 56 Proprietary Trader Continuing Education Program
N/A ImmediatelyProprietary Trader registration continuing education by FINRA. Exam and continuing education fees will be collected by the administrator, which is currently FINRA.
BZX Exchange
Amends physi-cal port fees
$1,000 per month for each 1G physical port at the primary or secondary BZX data center; $2,000 per month for each 1G physical port at any other data center where BZX has a point-of-presence; $2,500 per month for each 10G physical port at the primary or secondary BZX data center ; $5,000 per month for each 10G physical port at any other data center where BZX has a PoP
$1,000 per month for each 1G physical port at the primary or secondary BZX data center; $2,500 per month for each 10G physical port at the primary or secondary BZX data center
Aug. 28 -cess to the BZX exchange.
BOX Options Exchange
Establishes continuing education fee
$60 session fee N/A Aug. 19Proprietary Trader continuing education by FINRA.
Chicago Board Options Exchange
Amends Options Regula-tory Fee
$0.0074 per contract $0.0085 per contract Sept. 1 Intended to ensure fees collected under ORF do not exceed regulatory costs.
C2 Options Exchange
Amends Options Regula-tory Fee
$0 $0.002 per contract Sept. 1 Intended to ensure fees collected under ORF do not exceed regulatory costs.
EDGA Exchange
Amends fee for non-displayed orders adding liquidity using Route Peg order for secu-rities priced at $1 or more
$0.0004 per share fee $0.0005 per share fee Sept. 3 Lowers fee due to lower chance of execution and following reduction of standard rate fee to $0.0005 per share.
Adds Step-Up volume tier
$0.0003 per share fee if (1) MPID adds more than 0.10% for the TCV on EDGA daily, measured monthly, more than the MPIDs December 2012 added TCV or (2) if MPID adds more than 0.05% of the TCV on EDGA daily, measured monthly, more than December 2012 added TCV and have added liquidity to added plus removed liquidity ratio of at least 85%
$0.0003 per share fee for MPIDs adding more than 0.10% for the TCV on EDGA daily, measured monthly, more than the MPIDs December 2012 added TCV
Sept. 3 If MPID's December 2012 TCV is zero, the exchange ap-plies a default TCV baseline of 10,000,000 shares.
FOR FURTHER CHANGES AT EXCHANGES, vis it www.wal lstreetletter.com
12 – 18 SEPTEMBER 2013
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