Trois nouvelles plateformes de transactions – L’Echo

Ce mercredi à Trade Tech, un panel a été consacré aux nouvelles plateformes de transactionsTrois nouveaux acteurs sont nés récemment pour venir encombrer davantage l’espace déjà bien complet des transactions en actions. Même si d’après leurs présidents, ces nouvelles plateformes s’avèrent différentes de ce qui existe déjà sur le marché.

Commençons d’abord par Aquis Exchange. Cette nouvelle plateforme doit être lancée cette année et est dirigée par Alasdair Haynes, l’ancien patron de Chi-X Europe. Il faut préciser que Haynes n’est pas à l’origine de la plus grande réussite des MTF depuis 2007. Ce titre revient à Tony McKay (sans oublier Peter Randall et Hirander Misra).

McKay est lui sur le point de lancer MarketBourse, la deuxième plateforme de transactions.

La troisème est Squawker, et se veut un dark pool “interactif”. Précisons que le marché européen compte déjà 24 dark pools, toutes différentes les unes des autres.

Aquis Exchange veut concurrence BATS Chi-X Europe avec un nouveau modèle de prix, comme Chi-X Europe l’avait fait en 2007 avec les marchés comme Euronext ou Deutsche Börse. Comme l’a expliqué Alasdair Haynes, Aquis ne chargera pas de coûts de manière pyramidale (où un gros trader paiera moins que les petites à cause du volume qu’il génère). La plateforme ne comptera des frais qu’au prorata de l’utilisation. Un peu comme une carte prépayée vendue par les opérateurs de télécoms. Très simple, selon lui.

MarketBourse se veut elle une plateforme de transactions sur toutes les classes d’actifs. Un vrai challenge, car dans un des autres panels de discussions, différents patrons de Bourse européenne ont rappelé qu’il est difficile pour ces entités de se spécialiser dans différentes classes d’actifs. Un exemple? La négociation des obligations d’Etat et d’entreprises.  Le Forex (les devises) est un autre exemple. Mas la nouvelle régulation des marchés pourrait changer la donne.

Enfin, Squawker se veut une dark pool où les ordres ne sont pas exécutés, mais où les intervenants de marché peuvent entrer en interaction les uns avec les autres de manière cachée pour trouver leur contrepartie.

En marge de ce panel, plusieurs personnes m’ont fait part de leur scepticisme quant à ces nouveaux venus.

Le challenge pour ceux-ci est de créer de la nouvelle liquidité, comme Chi-X Europe y était parvenu depuis 2007 grâce à l’appui d’un HFT venu des Etats-Unis: Getco. Sans cette nouvelle liquidité, ces nouveaux venus vont devoir concurrencer des noms déjà bien établis dans le secteur.

Il ne faut pas oublier qu’en 2006, à Trade Tech, l’annonce d’une nouvelle plateforme de transactions avait peu enthousiasmé les foules. Le nom de celle-ci? Chi-X Europe. “Personne n’aurait misé sur nous au départ” rappelle un des anciens de cette plateforme.

A suivre, donc. En particulier MarketBourse.


Intelligent Design for Institutional Technology, Waters Technology

New technologies aiming to solve problems, rather than paper them over, are a refreshing change of pace.

I don’t think anyone can realistically say that we, and by ‘we’, I mean the world at large, are safely out of the woods yet when it comes to the financial crisis. From an industry perspective, diminished activity in equities is still hurting firms across the market spectrum, commission-only traders are struggling, and even healthy companies are reporting flat financials.

There’s no shortage of companies out there with The Next Big Thing, of course, even if the relatively sparse footfall and low stand count (plus the abridged size) of TradeTech Europe this year gave a stark reminder that most are having tough times. Compliance vendors are having, on the whole, a great time, though, and the apparent solution of throwing everything possible at spot FX, on the part of platform developers, must be paying dividends somewhere. Even if (mostly) everyone agrees that there are just too many platforms. By ‘everyone’, I mean everyone apart from those developing the platforms, of course.

Technology has always been designed to fill a need, ever since ancient man realized that it was a lot easier to kill a lot more people if the rock was sharp and had a handle. Over the past few years, though, it’s felt at times as if firms were fitting around technology, rather than the other way around. It’s alarming, not just because of the spend incurred as a result, but also because we’ll eventually end up being used as batteries, farmed in vast fields by uncaring metal overlords, waiting to be rescued by Keanu Reeves, if that pattern of thought is followed to its conclusion.

Recently, though, there have been a few technologies that have identified a problem with the market and wrapped themselves around it, though. Tradition’s ParFX (formerly TraFXpure), for instance, aims to mitigate economic advantage from advanced technology through its platform, while Squawker aims to solve the problem of performing block trades in an order book. Initiatives such as that between Liquidnet and SIX Swiss Exchange provide innovative ways to connect liquidity, and cross-platform surveillance tools allow for the search of voice records by keyword.

Essentially, it’s a good trend. It encourages the intelligent use of technology, rather than having it simply because it’s there, and it whittles the wheat from the chaff, so to speak. As always, I’m interested to hear from anyone doing anything exciting and new with technology in the capital markets space.

Liquidity, not structure, key for Europe’s new alternative venues, Trade News

Adequate liquidity provision will be reign as the central issue for the growing number of new European equity venues, senior buy- and sell-side participants agreed at a panel discussion yesterday.

Three emerging equities venues present at the event – MarketBourse, Aquis Exchange and Squawker – all have differentiated structures and fees, but will face tough competition despite being welcomed by buy- and sell-side firms.

For the buy-side, represented by David Miller, senior dealer at Invesco Perpetual, and Neil Smith, senior equity dealer at State Street Global Advisors, the issue of liquidity remains far from easy to solve.

While not being direct participants in the venues, buy-siders Miller and Smith welcomed the opportunity to direct their brokers to interact with ‘custom’ liquidity suited to their specific requirements and preferences under the structures put forward by both Squawker and MarketBourse.

Meanwhile Ben Springett, head of electronic trading, Europe for agency-broker Instinet, said like most brokers confronted with declining commission rates and relatively low volumes, his firm would welcome the subscription pricing model offered as an industry revolution by Alasdair Haynes, CEO, Aquis Exchange. Taking a lead from other industries such as media and telecoms, Haynes postulated that subscription pricing would lead inexorably to more trading and hence narrower spreads and better execution for the benefit of all; an old argument perhaps, but still a good one in the current climate in the industry.

Choose your partners

Rather than focusing on price to grow liquidity, both Squawker and MarketBourse are betting that buy-side clients, nervous about information leakage and toxic liquidity, will back models that allow them to decide what kind of counterparties they want to trade with and instruct their brokers accordingly.

According to Christopher Gregory, CEO, Squawker, the new platform has 36 members live and a further 45 in the on-boarding process. Squawker facilitates ‘private anonymous conversations’ with qualified sell-side counterparties and uses FIX indications of interest to automate the process of identifying possible matches. “Matching counterparties rather than orders” was the way Gregory summed up Squawker’s USP.

This may sound more like a dating website than an organised trading facility, but the buy-side panellists were definitely supportive of the ideas and sentiments underlying it.

Meanwhile, Tony Mackay, CEO, MarketBourse, saw his company as an “exchange between broker dark pools”. The idea once again is to allow buy-side clients and their sell-side brokers to pick and choose the kind of counterparties that see their potential orders. Market Bourse is not as far forward in terms of implementation as Squawker, but again both buy-side and sell-side saw value in its proposition.

New exchanges set out their stalls at TradeTech, Banking Technology

The next generation of trading venues went head-to-head on the first day at TradeTech in London– each keen to present its model of how best to match buyers with sellers.

“This is all about liquidity,” said Alasdair Haynes, chief executive at Aquis Exchange. “In Europe we trade four or five times less value than the US, yet the population in Europe is larger and the GDP is the same. We need to grow the market. Changing the business model will allow for greater liquidity.”

Aquis is a pan-European trading venue that will use a subscription-based pricing model, which Haynes likens to a mobile telephone pricing package that charges users based on how much call time, text messages and data they use, or a TV package in which certain channels are included, based on what the user is willing to pay. Haynes argued that both television and mobile phone subscription models have seen significant growth in the last five years, despite the recession – and insisted that bringing an equivalent model to equities could help to prompt significant growth.

Other solutions include Christopher Gregory’s new sell-side negotiation venue, Squawker, which will provide a forum for brokers to interact anonymously with each other and trade large blocks of stock. Squawker will act essentially as a counterparty matching service, rather than matching actual orders, as traditional exchanges and MTFs have done.

“This is a discretionary service, in which participants express to us what they are interested in doing, and who they are willing to trade with,” he said. “Our model will provide clarity in an electronic environment and provide efficiencies. There is a gap in the market, because until now no venue has existed to bring the sell-side together to exchange blocks of stock efficiently.”

Meanwhile, former Chi-X Global founder Tony Mackay has established Market Bourse, a new trading venue that is based around the concept of social networking rules. On Market Bourse, participants will be able to specify who they want to trade with – and who they want to avoid. The venue is explicitly targeted at segments of the market, such as institutional investors, who feel disadvantaged by the current market infrastructure and may wish to avoid certain kinds of participant, such as high-frequency traders.

“We recognise that the market is made up of lots of different constituents,” said Mackay. “Over the last 10-15 years, hedge funds and HFTs have become much more active while exchanges have got rid of all the functionality. I perceive a change on the buy side. They are not happy with what’s going on. We are putting the power back on the buy-side. We are giving them choice about who they don’t want to interact with. If they don’t want to interact with HFT, they can do that and the broker is bound by that. On Market Bourse, users will flag who they want an order to interact with.”

Of the three new entrants, Squawker received the most praise from buy-side fellow panellists.

“Chris’ model is interesting,” said David Miller, head of trading at Invesco Perpetual. “If I choose a broker to trade a big block, Chris’ model will enable the broker I’ve chosen to find the other side. His model is the one that has immediate value for us. It’s about moving blocks from a buyer to a seller as efficiently as possible.”

Neil Smith, senior equity dealer, Europe at State Street Global Advisors, added that his firm typically finds the greatest difficulty in trading small and mid-cap stocks – a situation that has worsened as overall levels of liquidity in equity markets have declined.

“With the market liquidity dropping, it’s become really difficult moving those stocks around,” he said. “That’s where Squawker could add some real value to the buy side. However, my concern for the Squawker model is you’d need a lot of data to start your business. From the buy side, we are very cautious about the way we interact with new ideas. I hope Chris succeeds quickly, because I think he needs to.”

Squawker opened earlier this month; Aquis Exchange plans to open later this year, subject to regulatory approval.

Charting a Return to Block Trading – The Trade News

Greater liquidity fragmentation and the rise of algo trading have fuelled a greater need for specialised block trading solutions, according to Christopher Gregory, co-founder and CEO of sell-side block trading system Squawker.

Squawker will have a staggered launch throughout April and according to Gregory, the growing difficulty to execute in size fuelled its development, as market participants continue to carve up large orders to interact on exchanges and multilateral trading facilities (MTFs).

“Squawker was born out of the fact that machine driven trading of all varieties – high frequency trading, algo or quant trading – is diverging from human driven trading and it’s no longer safe for a human to interact manually on electronic order books,” Gregory said.

The market infrastructure veteran cites the sustained drop in average trade size on the London Stock Exchange in recent years, which continues to decrease around 3% each month, as evidence that order books have become very mature and offer only shallow, fast-moving liquidity. 

While buy-side firms have a number of options for executing block trades, including venues such as Liquidnet and broker dark pools, sell-side firms have no independent mechanism to trade blocks against each other, asserts Gregory.

“Sell-side participants will be invited to join Squawker because unlike the buy-side, they have no solution to trading blocks amongst each other. As sell-side firms collect order flow from their buy-side customers, liquidity is concentrated on a smaller number of firms on the sell-side than on the buy-side, improving the chance of finding a match between firms in the same pool,” Gregory said.

However, the core idea behind Squawker – which hopes to on-board 70-100 sell-side counterparts in April – is not to offer execution, but a basis for two sell-side counterparts to negotiate a block trade anonymously, which is then executed bilaterally.

The platform collects trading interest from counterparties and suggests matches for orders based on the trade information, trading history and profile of they way different firms behave in the system.

Gregory sees this structure as the converging of person-to-person trading and electronic straight-through-processing, as negotiations will generate a FIX message that can be read by order management systems, compliance infrastructure and yield trade performance data.

The venue announced it has selected BNP Paribas Securities Services as its pan-European central settlement provider, while its infrastructure will be hosted by trading technology provider BT Radianz. 

As execution does not take place on the system, Squawker will not be classed as an MTF, but will have to navigate impending changes to European regulation under MiFID II, which is expected to be implemented in 2015.

“Squawker is a discretionary system and no trades execute automatically, unlike a block match or order book, so it is not be classed as an MTF. Right now, under MiFID, Squawker is regulated as a broker and depending on final rules, may be classed as an organised trading facility under MiFID II,” he said.

Squawker Prepares Algo-Free Equity Market – Banking Technology

Capital markets are broken because liquidity is fragmented and there is no way for the sell-side to pool its liquidity – but that will soon change, according to Christopher Gregory, co-founder and chief executive at start up trading venue Squawker.

Due to launch across Europe next month, Squawker is a sell-side only service that aims to match banks and brokers and allow them to trade large blocks of stock with each other. On the platform, there will be no automated crossing, no algorithmic flows, no high-frequency trading and no market data business. Instead, the company will follow similar principles to an online dating site or a social network: participants will be introduced to each other based on their characteristics, behaviour and interests, but it will then be up to them to negotiate a deal.

“This is about solving a problem for human beings,” Gregory told Banking Technology. “There is a growing divergence between human and machine trading. Order books provide fast, thin liquidity, lots of little orders. But it’s very hard to interact with the market as a human being, because the liquidity is too shallow and is often gone before you can get there.”

Europe’s average equity market trade sizes have consistently fallen in recent years. In January 2012, the average trade size on the London Stock Exchange was £6,081, according to figures provided by Morgan Stanley. A year earlier, the figure was £7,817. Long-term investors often blame HFT for the decline, on the basis that fear of being picked off by predatory HFTs forces participants to avoid market impact by using smaller than average order sizes – a process that produces a gradual downward spiral.

Buy-side venues, such as Liquidnet, have established a strong following by establishing a network based on buy-side only flow, with non-displayed matching to ensure that long-term investors are able to interact with each other. However, according to Gregory there is still a fundamental need to use the sell-side, because Europe’s estimated 3,500 buy-side firms need the span margining and risk management services the sell-side provides, and because it also need a means to ensure its flow is matched against the right counterparty. That is a problem, because the sell-side is bound by a market structure that perpetuates fragmentation.

“If you want to trade a larger block of stock today, the real problem is who to talk to,” said Gregory. “How do you find a counterparty? The sell-side exists to aggregate buy-side flow, but it then becomes siloed because each firm views the others as competitors. What’s missing is an anonymous venue to connect the bigger banks such as Goldman Sachs and Morgan Stanley.”

Gregory’s previous experience in financial markets since the year 2000 includes senior roles at SunGard global execution services, clearing technology provider Penson, a five-year spell at UK technology company Fidessa and most recently a role at the UK capital markets division of IT and consultancy firm Tieto. He began work on Squawker in May 2011.

All the software behind Squawker was written in-house by the firm’s own team, over a period of two years. The servers will be hosted by BT Radianz in its European data centres, allowing users of that service to connect using their existing connectivity. The firm is also expected to announce the identity of its central settlement counterparty imminently.

The factors Squawker will take into account when matching include behaviour, trading size and areas of repeated interest. To protect against users ‘fishing’ or ‘pinging’ for information with no intention of actually accepting a trading match, the venue will allow members to only trade with firms that accept above a certain proportion of their matches. Users will be able to set how they want to trade, for example using a consolidated VWAP trade or consolidated mid-price buy. They will then enter into a private structured conversation through FIX messages. There is no name give-up – participants will remain anonymous.

In addition, Gregory has said that Squawker will not seek to make market data a profit centre. The profits that exchanges are alleged to make from market data have often provoked controversy, with MTF leaders such as BATS Chi-X Europe’s Mark Hemsley accusing the exchanges of obstructing the path towards a pan-European consolidated tape because of their own vested interests. Transactions that happen on Squawker will be published, but each firm will be responsible for doing its own reporting.

“This is unique in the sense that we match counterparties, not orders,” added Gregory. “We’ve made a conscious decision not to make charging for market data a profit centre. This is not just another ‘me too’ platform. We have looked long and hard at other trading venues, learned their lessons and we are solving a real need that nobody else has addressed.”