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.”

Squawker Plucks EU Quote Data from SIX – Inside Market Data

 
Squawker will capture real-time quote data from exchanges and multilateral trading facilities located in 16 countries across Europe via SIX FI’s MDF consolidated market data feed, to support its calculation of consolidated mid-price and end-of-day consolidated volume-weighted average prices (VWAP), which the venue will disseminate to its trading participants.

Squawker began looking for a market data provider to supply quote data for use in its price calculations nine months ago, says co-founder and chief executive Christopher Gregory. “There were only a few providers of a true pan-European consolidated feed, and SIX offered the right combination of cost-effectiveness and quality,” he says, adding that “SIX already had comprehensive coverage—including all the instrument information, as well as the price data,” for all European exchange-listed instruments that Squawker plans to trade, including equities and exchange-traded funds; bonds, warrants and convertibles; swaps, rights, forwards and futures; and currencies, money markets and floating-rate notes.

While Squawker will receive the quote data from SIX FI in real time, it will not stream the real-time prices to its participants, but will instead notify them of the consolidated mid-price or the end-of-day VWAP prices at specific trigger points, such as when a buyer and seller agree to a trade.

“On Squawker, we match counterparties together. We don’t match orders. It’s an introduction between a buyer and seller,” Gregory says. “Users tell us what they would like to buy or sell, and they express their interest in trading at the consolidated midpoint (or at the VWAP), and if both sides agree, we calculate what the consolidated mid-price (or VWAP) is using the SIX market data. Then, if they agree to trade, we use social network techniques to allow them to enter into an anonymous discussion to agree a volume.”

Squawker will connect to SIX FI’s MDF feed via the Radianz financial extranet from telecom and network provider BT, which the venue announced in November will host and manage the technology infrastructure behind its negotiation platform in its datacenters, and will provide brokers with access to its marketplace.

No Block Trade Roadblock Squawker has already completed the integration of the datafeed into its infrastructure in preparation for the platform’s launch, says Gregory, a former senior executive at Fidessa and chief executive of Penson in Europe, who—along with director of sales and trading Christopher Brazier, who was formerly head of UK sales for global execution at BNP Paribas—founded the venue last year to improve the sell-side’s ability to execute institutional block trades.

“As people have used algorithms to execute trades on traditional electronic order books, the trade sizes have gotten smaller and smaller,” Gregory says. “Squawker is not a high-frequency system; it is designed to run at the speed of human beings. There is no high-frequency or algorithmic trading,” he adds.

New Sell-Side Venue Squawker Aims For the Cloud – Markets Media

Squawker, a new pan-European sell-side focused block trading venue that is set to launch early next year, is hoping that signing up with the “financial infrastructure establishment” that is the BT Radianz Cloud Community will allow it to give it the lift-off it needs.

The new London-based negotiation venue, which aims to allow sell-side firms to execute block trades anonymously using social-networking technology, says its agreement with communications provider BT will mean it will use the Radianz services to host and manage Squawker’s technology infrastructure, and provide brokers with direct access to find and negotiate block trades on Squawker.

“What is key to Squawker is that the venue we pick to use is stable,” Christopher Gregory, co-founder and chief executive of Squawker, told Markets Media.

“And the BT Radianz Cloud is part of the financial infrastructure establishment. Basically, everyone is on the Radianz Cloud. There is so much of the order flow and so much of the infrastructure is based on Radianz connectivity and infrastructure.

“It’s a natural place for Squawker to have its systems hosted and for clients to use to access Squawker because they are already on the Radianz Cloud; it’s just another virtual connection and, crucially, not a new piece of infrastructure for the sell side to connect to.”

The BT Radianz Cloud now offers connectivity to over 40 of the world’s leading data centers where significant clusters of capital markets community customers are present, including the data centers of exchanges.

“The BT Radianz Cloud is rapidly becoming the industry standard, linking together the world’s major trading venues and financial institutions, and as such Squawker is an important addition to our cloud community,” said Robin Farnan, managing director of BT Radianz Services and BT Unified Trading.

Despite the current low trading volumes and uncertain macroeconomic environment in Europe, Gregory is confident that Squawker will be a success when it is set to launch at the end of the first quarter next year.

“Squawker will provide a new solution to the block trading challenge that the industry has been grappling with for a while,” said Gregory. “Squawker is part of the vanguard of the next generation of trading systems.”

Gregory says that Squawker will be targeting the “OTC block market”, the 10%-15% of pan-European equity trading that is still negotiated predominantly over the telephone.

“There is no venue for the sell side to find and negotiate block trades,” said Squawker.

“Squawker is based around the idea of putting matching counterparts, by introducing natural buyers and natural sellers together, and they decide and negotiate—they interact—as people together to agree a trade.

“At the moment, there is no central venue and the way it is done is that if you don’t know who has the block and who the natural counterpart is, to trade you have to either open up to a competitor, try to go through an agency broker, go through a market maker or you may use an inter-dealer broker.

“It is kind of manual. Relationships will always be there so people will always trade through relationships. But if you don’t know who to call because you are trading in some mid-cap stock, say, it is very hard to know how to pick up the phone. What happens at the moment is a lot of that order flow ends up into an algorithm and gently fed into the order books and so the sell side at the moment are paying a significant implementation shortfall because they have to gently drip the orders into the order book when really ideally they want to be able to find the natural counterpart and do it as a block.”

Squawker, Gregory says, is targeting the whole of the sell side—investment banks, market makers, agency brokers, proprietary and principal trading firms—and says that the new venue will not allow algorithmic flow “which causes so much concern and angst in the industry”. Every trading decision will be made by humans and Squawker says it will keep computer-generated algorithms at bay which “may attempt to game other counterparts’ order flow”.

Squawker is registered as a discretionary system and is therefore regulated as an investment firm, not a multilateral trading facility, under current MiFID rules. Under the new MiFID II rules, which are expected to come into force by late 2014, these investment firms may need to become either an MTF or a systematic internalizer, although this is still somewhat up in the air and Gregory says that he hopes that Squawker will fall under either the organized trading facility or broker crossing system banners—both of which may not even make the final MiFID II cut.

Squawker Chooses BT Radianz for Infrastructure Provision – Waters Technology

Squawker, an electronic trading venue due to go live in the first quarter of next year, has entered into a strategic partnership with BT Radianz.

Through the partnership, BT Radianz will host and manage Squawker’s technology infrastructure and provide brokers with access to the venue.

Squawker will be a ‘toxic-free’ venue, with all trades enacted by humans, as opposed to computer-generated algorithms. The venue incorporates elements of social media into its apparatus, as covered by Sell-Side Technology earlier this year.

“Squawker will provide a new solution to the block trading challenge that the industry has been grappling with for a while,” says Christopher Gregory, co-founder and CEO, Squawker. “By collaborating with BT, we are able to ensure the highest-quality trading venue for our global clients, with easy access to our services via a proven, trusted and established provider.”

Squawker plots 2013 launch with BT Radianz connectivity – Banking Technology

Start-up trading venue Squawker is to use BT Radianz to host and manage its technology infrastructure when it launches early next year.

Squawker is a sell-side to sell-side block trading venue that is based on social networking principles, in which participants can choose which counterparties they wish to expose their orders to. The idea is to encourage sell-side firms to post large blocks of liquidity, without the risk of causing excessive market impact.

Under the deal, BT Radianz, which operates a financial extranet, will handle connectivity to Squawker through its cloud technology. The advantages of cloud technology are its relatively low cost and high scalability; the main disadvantage is that large financial institutions have previously expressed concerns over its security. However, with the rise of companies such as Amazon Web Services, which recently concluded a high profile with Nasdaq OMX, the technology is gradually becoming more accepted in financial services.

“By collaborating with BT, we are able to ensure the highest quality trading venue for our global clients, with easy access to our services via a proven, trusted provider that is well known among the sell-side,” said Christopher Gregory, co-founder and chief executive at Squawker. “Squawker will provide a new solution to the block trading challenge that the industry has been grappling with for a while.”

As a discretionary platform, Squawker will be different to other European trading venues such as the multilateral trading facilities, which are bound to offer free access under the upcoming MiFID II legislation being discussed in the European Parliament. Squawker matches participants based on price, volume and time; the final deal is then negotiated bilaterally.

The platform also claims to be free from computer-generated algorithms, which have become ubiquitous on most lit stock exchanges and trading venues. On Squawker, all trades will be made by human traders – a measure the platform says makes it the first ‘toxic-free’ trading venue. While alternatives such as dark pools and broker crossing networks exist for buy-side flow, Squawker aims to target sell-side flows, which it says have yet to find a suitable equivalent.

“The sell-side doesn’t have a way of finding their preferred counterparty,” said Gregory. “There are lots of solutions for the buy-side, but the sell-side has nowhere to go for a large order without showing its hand. We are here to change that.”

Squawker® gives BT Radianz Cloud Community Direct Access to Find and Negotiate Block Trades

BT Radianz Services to Host and Manage Squawker’s Technology Infrastructure
and Provide Global Access to Block Trading Negotiation Venue

 London (UK) – 12 November 2012 – Squawker®, the negotiation venue for sell-side block trading, today announced it has entered into an agreement with BT  in which BT Radianz services will be used to host and manage Squawker’s technology infrastructure, and provide brokers with access to Squawker, the world’s first toxic-free* electronic trading venue. Members of the BT Radianz Cloud – the world’s largest secure networked financial community – will have easy access to Squawker’s secure, anonymous forum where they can find liquidity and personally interact, negotiate and build on block trades with their trading counterparts. 

Robin Farnan, MD BT Radianz Services and BT Unified Trading, BT, comments: “BT is absolutely committed to providing the highest quality of managed services, with all the stability, fault-tolerance, disaster recovery and continuity that is expected and required for today’s trading venues. The BT Radianz Cloud is rapidly becoming the industry standard, linking together the world’s major trading venues and financial institutions, and as such Squawker is an important addition to our cloud community.” 

Christopher Gregory, co-founder and CEO, Squawker, comments: “Squawker will provide a new solution to the block trading challenge that the industry has been grappling with for a while. By collaborating with BT, we are able to ensure the highest-quality trading venue for our global clients, with easy access to our services via a proven, trusted and established provider.” 

Squawker is currently in its production environment implementation phase and is due to go-live in the first quarter of 2013.

 

BT Radianz Services to Host and Manage Squawker’s Technology Infrastructure
and Provide Global Access to Block Trading Negotiation Venue

 London (UK) – 12 November 2012 – Squawker®, the negotiation venue for sell-side block trading, today announced it has entered into an agreement with BT  in which BT Radianz services will be used to host and manage Squawker’s technology infrastructure, and provide brokers with access to Squawker, the world’s first toxic-free* electronic trading venue. Members of the BT Radianz Cloud – the world’s largest secure networked financial community – will have easy access to Squawker’s secure, anonymous forum where they can find liquidity and personally interact, negotiate and build on block trades with their trading counterparts. 

Robin Farnan, MD BT Radianz Services and BT Unified Trading, BT, comments: “BT is absolutely committed to providing the highest quality of managed services, with all the stability, fault-tolerance, disaster recovery and continuity that is expected and required for today’s trading venues. The BT Radianz Cloud is rapidly becoming the industry standard, linking together the world’s major trading venues and financial institutions, and as such Squawker is an important addition to our cloud community.” 

Christopher Gregory, co-founder and CEO, Squawker, comments: “Squawker will provide a new solution to the block trading challenge that the industry has been grappling with for a while. By collaborating with BT, we are able to ensure the highest-quality trading venue for our global clients, with easy access to our services via a proven, trusted and established provider.” 

Squawker is currently in its production environment implementation phase and is due to go-live in the first quarter of 2013.

 

BT Radianz Services to Host and Manage Squawker’s Technology Infrastructure
and Provide Global Access to Block Trading Negotiation Venue

 London (UK) – 12 November 2012 – Squawker®, the negotiation venue for sell-side block trading, today announced it has entered into an agreement with BT  in which BT Radianz services will be used to host and manage Squawker’s technology infrastructure, and provide brokers with access to Squawker, the world’s first toxic-free* electronic trading venue. Members of the BT Radianz Cloud – the world’s largest secure networked financial community – will have easy access to Squawker’s secure, anonymous forum where they can find liquidity and personally interact, negotiate and build on block trades with their trading counterparts. 

Robin Farnan, MD BT Radianz Services and BT Unified Trading, BT, comments: “BT is absolutely committed to providing the highest quality of managed services, with all the stability, fault-tolerance, disaster recovery and continuity that is expected and required for today’s trading venues. The BT Radianz Cloud is rapidly becoming the industry standard, linking together the world’s major trading venues and financial institutions, and as such Squawker is an important addition to our cloud community.” 

Christopher Gregory, co-founder and CEO, Squawker, comments: “Squawker will provide a new solution to the block trading challenge that the industry has been grappling with for a while. By collaborating with BT, we are able to ensure the highest-quality trading venue for our global clients, with easy access to our services via a proven, trusted and established provider.” 

Squawker is currently in its production environment implementation phase and is due to go-live in the first quarter of 2013.

 

BT Radianz Services to Host and Manage Squawker’s Technology Infrastructure
and Provide Global Access to Block Trading Negotiation Venue

 London (UK) – 12 November 2012 – Squawker®, the negotiation venue for sell-side block trading, today announced it has entered into an agreement with BT  in which BT Radianz services will be used to host and manage Squawker’s technology infrastructure, and provide brokers with access to Squawker, the world’s first toxic-free* electronic trading venue. Members of the BT Radianz Cloud – the world’s largest secure networked financial community – will have easy access to Squawker’s secure, anonymous forum where they can find liquidity and personally interact, negotiate and build on block trades with their trading counterparts. 

Robin Farnan, MD BT Radianz Services and BT Unified Trading, BT, comments: “BT is absolutely committed to providing the highest quality of managed services, with all the stability, fault-tolerance, disaster recovery and continuity that is expected and required for today’s trading venues. The BT Radianz Cloud is rapidly becoming the industry standard, linking together the world’s major trading venues and financial institutions, and as such Squawker is an important addition to our cloud community.” 

Christopher Gregory, co-founder and CEO, Squawker, comments: “Squawker will provide a new solution to the block trading challenge that the industry has been grappling with for a while. By collaborating with BT, we are able to ensure the highest-quality trading venue for our global clients, with easy access to our services via a proven, trusted and established provider.” 

Squawker is currently in its production environment implementation phase and is due to go-live in the first quarter of 2013.

 

The Road to Recovery – The Trade Blog

The Trade Blog – Chris Hall

To scan the headlines of the financial press is to fear for the future of this industry. The reasons for a gloomy outlook are many: endless scandals; criminal trials; technology failures; static investment returns (at best); economic uncertainty; political stasis. The list is seemingly endless.

After a period of too-light regulatory oversight, leading to an unprecedented global financial crisis, we should expect the hangover, in terms of changes to business models and regulatory frameworks, to be long and painful. It is perhaps inevitable too, as David Wright, secretary-general at the International Organisation of Securities Commissions noted in a recent interview, “that the regulatory tiller is jerked too far in one direction”.

The result of the corrective process – in combination with the caution that characterises the chastened, debt-laden, post-crisis developed markets – is lower volumes, lower commissions and lower investment: potentially, a spiral into stagnation.

But just as Keynesians argue that the antidote to depression is stimulus, it is in the nature of the financial markets to innovate to overcome problems, rather than be overwhelmed by them.

Hearteningly, there is plenty of evidence of necessity being the mother of invention in today’s markets.

Buy-side traders are responding to having fewer trades on their blotters by digging into data to tailor execution strategies to individual PMs in pursuit of every last drop of alpha. A broker recently told me that he had noticed clients requesting use of more parameters on their execution algorithms whereas 102-18 months ago they had wanted fewer. The explanation was simply that portfolio managers were making fewer calls and the trading desks were focusing more of their energy and expertise on doing the best for the trades sent their way.

In addition, technology is being deployed on the buy-side in ever more sophisticated ways to make the investment process cheaper, safer and more transparent, while sell-side firms are adapting their services to a low-capital world, focusing on relationships more than leverage. Both hedge funds and more traditional buy-side firms are investing in new technologies that give PMs new insights and automating rules for different markets so that traders can focus instead on refining execution processes. Forced to compete for business without using balance-sheet firepower, brokers and banks are collaborating more, as illustrated by Deutsche Bank’s recent suggestion that pooled resources and open source technology should play a role in the future development of securities trading systems.

We even see new market structures emerging to better meet the needs not only of institutional investors, but also the end-investors and issuers in the wider economy. In the US, exchanges are developing new services which provide competition to market-markers and may force the trading fees paid by retail brokers even lower. At the same time, innovators like MarketBourse and Squawker are putting together new markets that claim to use social media principles to build trading communities with common interests.

Without wishing to sound like a Cassandra nor Pollyanna, harnessing technology and expertise to an undiluted understanding of client needs and priorities would seem a sound basis for future financial market growth.

Squawker prepares to offer social networking-style trading – Banking Technology

A new trading venue called Squawker is planning to become the world’s first trading venue based on social networking technology.

Designed for sell-side firms as a platform to help investors who want to trade large blocks of stock, the new platform will enable investment banks, market makers, agency brokers and proprietary trading firms to trade anonymously within a single transaction, once it goes live in Q1 2013.

Normally, trading equities in large blocks is difficult in developed markets, because market fragmentation, small tick sizes and the presence of high levels of high-frequency trading activity all mean that a large order would create too much market impact and be too easily exploited by rivals to be viable on most lit exchanges. The growth of dark trading venues such as block crossing networking Liquidnet and many others across the US, Europe and Asia in recent years can be largely attributed to market participants’ desire to avoid the market impact generated by large trades…

The Trade

New UK venue to ‘squawk’ sell-side blocksThe Trade

“Around 10-15% of pan-European order flow is traded between brokers in over-the-counter markets and away from lit and dark electronic order books,” Gregory told theTRADEnews.com. “This type of liquidity is not suited to the small sizes traded on exchanges and multilateral trading facilities (MTFs) but is still ripe for automation and greater efficiency.”

Sell-side participants will use Squawker by advertising their trading interests on the system in the form of indications of interest or actual trades. Squawker then hunts for potential matches in its system and sends out invites to negotiate, without revealing counterparty information or depth of interest to either party.

If the two parties decide to enter into a negotiation, they must first agree on the price they want to trade at – such as at the mid-point, VWAP with or without auction volume or a limit price. The buyer and seller finally agree on volume, with a minimum trade size set by Squawker according to the stock’s average daily volume.

“The system allows the sell-side to control the information it discloses on a step-by-step basis,” said Gregory. “There is no algorithmic trading in Squawker, which completely eliminates the ability for firms to send in small orders and uncover block trading interest.”

Waters Technology

Squawker Targets Anonymous Block Trading with Launch – Waters Technology

Company combines elements of social media technology with compliance and audit trail functionality.

Squawker has announced the launch of its block trading negotiation venue for institutional clients, which fuses anonymized orders with social media technology.

Regulated by the UK Financial Services Authority (FSA) and based in London, Squawker secured series A private investment eight weeks ago. The platform itself, which has a tenative go-live date for the first quarter of 2013, operates with a primary emphasis on human interaction. Trades are negotiated anonymously through the platform, while the ability to evaluate a counterparty adds in a new dimension to operations. Traders will be able to set parameters regarding elements such as failed trade numbers, for instance, to source preferred archetypes of counterparties.