With the profound changes taking place in Europe’s securities markets, trading firms are now more focused on the middle and back offices than in the past. Whereas the middle office was once regarded as a control step in the trading chain, regional and specialist brokers now realise they can exploit the middle office to deliver superior service to their clients. Additionally, the middle office is playing a role in unifying back-office systems for prime brokers, bringing together the data residing in disparate silos.

MiFID unleashed competition through the introduction of multilateral trading facilities (MTFs), which entered the market with lower cost offerings than those of the incumbent stock exchanges. Along with the MTFs came new central counterparties (CCPs).

This fragmentation in trading and clearing venues was accompanied by a surge in market volumes driven by smart order routing, direct market access and algorithmic trading technologies. MiFID also enabled a move to systematic internalisation, with large broking firms breaking trades up and executing them against their own books.

The financial crisis has also had an impact. All financial institutions are facing greater regulatory scrutiny, risk challenges and competition. Trading firms will have some important decisions to make about their business models and operations during the coming year.

CHALLENGES

This evolving securities landscape in Europe presents a number of challenges to trading firms as they seek to achieve the MiFID requirements of ‘best execution’ for their clients. These challenges include:

1. Market access & more complex instruments

The trend for investment firms to trade ‘anywhere at any time’ has put pressure on trading firms to provide access to a burgeoning number of trading venues.

Post-trade, firms must have access to multiple CCPs, but without widespread interoperability between CCPs they are faced with a plethora of clearing venues with which to connect.

The growth in structured products, exotic derivatives and hybrid instruments is likely to continue. In many cases, trading firms have managed such instruments manually on external spreadsheets or in-house systems at considerable operational risk.

2. High frequency trading

HFT puts significant pressure on trading firms’ operations – being able to handle the throughput of trades in the middle and back offices has become an issue. Moreover, as their clients increase their appetite for more complex instruments, trading firms must also rapidly calculate the complex charging rules associated with those instruments. The ability to provide real-time information has become a competitive differentiator for broking firms.

3. Risk management

Since the collapse of Lehman Brothers counterparty risk has risen to the top of the agenda, a consideration that generates an almost insatiable requirement for data. An automatic assumption that trades will settle is no longer made, and trading firms want to know their exposures to counterparties before they accept an order.

4. Cost pressures

Downward pressure on fees has been exerted all along the value chain. The introduction of competition led to reduced costs in trading, which highlighted the costs of clearing and settlement. In the competitive European landscape, efficiency is being sought all along the trading chain to drive out further costs.

5. Prime brokers’ challenges

In addition to all of the above, the largest broking firms also face a challenge in tracking multiple systems in their global operations and consolidating the information they receive into a single place from which they will have a consolidated view of their position.

SOLUTIONS

There are a number of solutions that will help trading firms to control middle and back office costs while meeting increasingly sophisticated client demands.

1. Netting

The Stream RIMS Netting module can deliver significant cost savings – for example, a user can net down 10,000 or so messages a day to 100-125 per day. Stream RIMS Netting is a stand alone ‘service based’ solution that automatically captures trades from third party front-office systems, identifies them as requiring netting and then automatically creates the net trades from user defined criteria such as counterparty, market, currency and value date etc.

2. ASP Services

In order to deliver flexibility at lower cost, SunGard can deliver hosted services for middle- and back-office processes via Stream RIMS. This ASP-based service helps brokers to outsource the maintenance of securities processing systems, thus freeing up resources to focus on core business and value added post-trade tasks.

3. Real-time information

SunGard’s Stream RIMS Middle and Back Office brings timely information to the front office and to clients without interfering with core processes.

At the middle-office level, brokers use the real-time capabilities to confirm allocations and to calculate charges. A real-time dashboard gives a global view of exceptions across all post-trade operations. For the largest firms, transparency of information is also crucial. The middle-office layer in these firms must be able to take information from disparate silos and feed it into a range of back-office systems, a capability Stream RIMS delivers.

4. Flexibility

Stream RIMS provides access to multiple venues and its Smart Settlement Routing capabilities ensure settlement instructions are formatted and routed to the correct destination according to business rules.

5. Scalability

The HFT and the multi-venue environment in Europe have increased trading volumes, and as a consequence the number of post-trade operations that must be carried out. Via the new EON module, Stream RIMS can support very high trading and messaging volumes as well as managing peak loads according to clients’ business priorities.

CONCLUSION

The impact of fragmentation in the European securities markets on the middle- and back-office operations of trading firms has been significant. To offer access to multiple pools of activity while controlling costs requires a thorough examination of how technology is deployed not only in the front office, but also in the middle and back offices. Automation, in the form of netting, ASP Services and real-time information will deliver the efficiency, transparency and flexibility that trading firms, and their clients, require to compete in Europe’s evolving securities markets.

For more information, click here to download the white paper

Moderator: Will Rhode, research analyst, TABB Group

Panelists:

• Peter Randall, chief executive, Equiduct Systems Ltd.
• Lee Hogdginson, CEO, SmartPool and head of European sales and relationship management, NYSE Euronext
• Andrew Bowley, managing director, head of electronic trading product management, Nomura
• Eleanor Jenkins, vice president and head of liquidity strategy, Morgan Stanley Electronic Trading

Jenkins was asked to give an overview of the challenges that exist in transacting in Europe’s fragmented market. She said that technology was fundamental: to transact effectively smart order routing was essential. Not only that but one needed routers for dark markets and lit markets as well as different strategies for passive and aggressive business. This was imperative given that trade-through rules don’t exist in Europe as they do under Reg NMS in the US.

She also said that the significant reduction in average trade size not only massively increased the amount of network traffic – to trade the same amount of notional one now had more executions – but also increased costs: while many exchanges were now moving to basis-point charging, clearing houses were still generally charging per execution.

Finally, Jenkins saw the complexity of the European marketplace – in Rhode’s words “a veritable spaghetti junction” – as a challenge. She said that, regarding clearing, “We don’t have a utility-based model like in the US with DTCC [Depository Trust and Clearing Corp.] – we have many clearing houses – and the situation is likely to get worse as exchanges look to set up their own CCPs [Central Counterparties].”

When MiFID II looks at the question of consolidated tape, dark pools and high-frequency trading

Randall observed that three areas said to be at the forefront of MiFID II were the question of a consolidated tape, high-frequency trading, and dark pools. Despite its lack being a prime concern of the buy-side, “a consolidated tape is not what is required per se. What we need is a consolidate-able tape. We have to get the basic building blocks (basically, the right quality data in a consistent format) that will allow that tape to exist in the first place. That work is critical for the industry at this point.”

He also said that high-frequency trading had appreciably decreased in the last six to nine months. Whether this was a result of the ‘Flash Crash’ or the prospect of additional regulatory oversight was unclear but, when coupled with the fact that there had been fairly marked declines in volumes across Europe as well as declines in the velocity of transactions then “the profitability of some of these strategies is no longer there and I suspect that Europe will follow the US in seeing a decline.”

Finally, Randall made the point that on some measures dark trading is only 2% of total activity which, while important, did not make it of crucial concern.

Bowley thought that many of the issues were linked: “the real challenge is for people to find liquidity and decide where and how much to invest in technology. To optimise your strategies and services you need the best technology. The challenge for the regulators in how to shape the future for MiFID II will be to untangle what is a regulatory challenge and what is a technology challenge.”

Bowley agreed with Randall that “it’s the quality of the data that matters more than the consolidation of it” but said that he feared that under MiFID II there would be imposed a consolidated tape, administered by a bureaucratic organisation, that would expensively add up data that is not necessarily consolidate-able. He reasoned that: “At the moment venues have different flags and approaches and there is no coherent way of pulling it together. That extends to the OTC space – there is a difference between printing and liquidity. Printing is a side effect of the requirement to disclose transactions…a give up to a prime broker is a printable transaction but it is not liquidity. It’s just facilitating the movement of shares.”

Hogdginson also agreed with the views expressed about a consolidated tape and that the main drive should be “to get the existing regime into a framework whereby all trading data, on a post-trade basis, conforms to a granular, consistent harmonised and timely set of regulations; when we have that, the consolidated tape issue will start to fall away.”

He revisited Jenkins’ point about the excessive cost of clearing: “Clearing is the single biggest brake on the evolution of the European securities industry and has been so for the last five years or more. Until this is solved, presumably by inter-operability of some kind, it will continue to be the brake. Back end costs are still substantial.”

Regulatory environment and retail investment

Looking forward, Randall foresaw that the retail sector will be increasingly important: “The total executed volume on the reference markets in the first seven months of this year was €2.675 trillion. The volume missing ‘best execution’, i.e. trades that could have found a better price at another venue, was a massive €324 billion – 12.1% of the total.” He felt that it was likely to be predominantly retail investors who were not getting the best prices available. But retail had a new champion in EU finance commissioner Michel Barnier, who appeared committed to improving quality of service for individuals. “As the workers in a beehive are directed by subtle signals from the queen, our community is driven by small movements in M. Barnier’s eyebrows.” But focus on better execution for retail made economic sense too, Randall said. “In some markets it is responsible for 30% of volume, a very big segment and a good place to play.”

Bowley made the important point that best execution was not purely about price, and that slicing an order across multiple venues to achieve the best price would incur greater clearing costs than execution on a single exchange: a slightly worse price might have the cheaper all-in cost. This currently makes it particularly difficult for regional retail brokers to route orders optimally, but this should become less of a problem as clearing got more competitive and clearing fees decreased. Both the MTF (Multi-lateral Trading Facility) landscape and the clearing landscape were still both evolving.

Randall said that many regional retail brokers were ‘hardwired’ into local clearers: “When you are running a retail brokerage the trick is to keep the costs of production as low as possible. You don’t want too much choice and you don’t want too much technology.” A way to compete against the offering of a good deal and a stable connection with a local primary exchange with its own CCP and clearing would be to provide consolidated pricing for retail customers across platforms. But this would require that the prices be supported by market makers prepared to live with the risk of providing the best price at that moment in time in Europe. Randall repeated that “It is about retail going forward” and that there would be a rebalancing of the importance of retail flow versus the previous emphasis on institutional flow.

Looking ahead to MiFID 2 Hogdginson hoped that the right balance will be struck between investor protection and the encouragement of innovation. Bowley agreed, and stressed the importance of regulation tying in with technology as well as confining changes to those areas where they are really needed.

Jenkins saw improvement of transparency as the central issue for MiFID 2, with broker crossing systems and HFT being likely focus points. Randall concluded by forecasting consolidation of “the plethora of platforms”, stating that major exchanges will probably get harder to compete with. And he echoed the point about innovation’s key importance: regulators will need to respond appropriately as the video-game generation builds and uses new approaches to electronic trading.

Notional volumes are about to exceed pre-crisis levels, it looks as if the crisis is over. But in terms of notional amounts 90% of trade is still OTC, only 10% is exchange traded. OTC derivatives also reflect the recovery when considered by asset class, in fact the largest market, interest rate derivatives, are up 17% on pre-crisis figures. CDS volumes are down 22%, however. An interesting consideration is that 97% of the total outstanding amounts of OTC derivatives are owned by five of the largest banks in the world making it an incredibly concentrated arena.

Why is there the drive to put more OTC products through Central Counterparties?

It is believed that systemic risk was a main reason for the crisis and the use of Central Counterparties (CCPs) will reduce this by increasing transparency, increasing operational efficiency and decreasing counterparty risk. Transparency will be increased by electronic price discovery, electronic execution and trade reporting. Operational efficiency will be increased and trade errors reduced. Counterparty risk will be eliminated by the introduction of the CCP with clearing house margining and standardised collateral management standards.

Systemic risk certainly needs to be addressed: in 2008 13% of OTC transactions were left un-affirmed with no confirmation whatsoever. Of those transactions confirmed only 48% were confirmed electronically, the rest were confirmed by the more error-prone methods of fax, email or voice. Compared with exchange-traded derivatives where a lot of transactions are confirmed by T+1, OTC derivatives can take as long as 10 days to be confirmed. This is largely due to the relative complexity of OTC products. Exchange-traded derivatives can generally be confirmed with three pieces of data: product code, quantity and price. OTC derivatives may have many more data variables; the standard ISDA template for swaps is 43 pages long.

The level of electronic confirmation varies by asset class but less that a third of equity OTC derivatives are confirmed electronically. The lack of electronic confirmation gives scope for errors to arise in the front-to-back (FTB) processing chain. According to ISDA data 18% of interest rate derivatives down to 10% of FX derivatives are known to have at least one error in the FTB chain. There is no OTC derivative asset class that has aggregate post-trade workflow automation greater than 57% with interest rate derivatives, comprising trades with the greatest notional amounts the least automated. In exchange-traded derivatives straight-through-processing rates can be close to 100%. Another OTC deficiency is inadequate collateralisation. Use of collateral has increased dramatically over last seven years but still 22% of OTC trades are still not collateralised making those trades far more costly in the event of counterparty failure.

There seems little doubt that there is a real need for greater transparency, greater operational efficiency and reduced counterparty risk for OTC derivative products.

What is the current regulatory situation?

The US Dodd/Frank legislation was passed in July but it is only a framework: the SEC and CFTC are to issue series of rules which will result in concrete actions over the next 36 months but none have so far been forthcoming.

Some aspects are certain, however. Financial institutions will have to spin-off non-hedging related derivative activity and will also have to execute transactions electronically, clear through a clearing-house and report trades to a trade repository. However this does not apply to absolutely every OTC asset class, rulings as to the status of some products have to be made, but it will apply to the vast majority of products.

In Dodd/Frank there was also a ‘systemically important’ provision: the SEC, the CFTC, certain other regulators or the Fed can determine that a market participant or a financial market utility is systemically important. Once such an entity has been so defined the regulator will be in a position to enforce the adoption of enhanced risk management procedures and practises such as margining, collateral and capital requirements and counterparty default policies.

In Europe proposals by European Commission were published on September 15 and regulations are to apply by the end of 2012. It is apparent that the regulators have tried to avoid any geographically based regulatory arbitrage and the European legislation is similar to that from the US. Institutions will have to use electronic confirmations, and eligible contracts will have to be cleared and a central counterparty used. However, as with the US legislation, there is still some question over which contracts will be deemed as eligible. Contracts that are not cleared through a central counterparty will have to follow risk-mitigation standards and, of course, all trades must be reported through a trade repository.

What does the market expect next?

There is a question as to whether OTC derivative contracts will become standardised and listed on exchanges. According to a study conducted by Bank of New York / Mellon and Tabb Group 72% of market participants think that it is extremely likely or likely that CDS will become completely standardised. However only 55% think this will be the case with FX and only 30% think this will occur with equity-linked derivatives. The market expects only some standardisation and for good reason. In the FX market, for example, there is less ability to standardise due to the bespoke nature of the products which are constructed to precisely the form that the customer requires.

Additionally, a study by Morgan Stanley tried to estimate the ‘clearability’ of the OTC asset classes. Credit derivatives appear the most clearable (probably because they are already quite regulated and standardised) whereas FX products, even if they represent much smaller notional amounts, seem to be much more difficult to clear or to standardise.

What are the likely impacts on market participants?

In the aforementioned BNY/Tabb derivative survey market participants were asked in what areas they were expecting to be most impacted, where they would need to prepare to make changes: clearing and front-to-back operations were the areas of most concern.

There will also be impact on margining and risk management. OTC derivative products are more complex than exchange-traded ones. Valuation methods necessary for the risk calculation is more complex and therefore more difficult to be implemented by clearing houses. It is expected that a staged approach will take place asset class by asset class. There will be considerable time and investment required to develop the correct margining methods and implement them. Further, clearing houses will have to ensure that once the correct valuation and margining methods are in place, they also have the processing capacity in place to cope with the huge volumes that are expected to flow through them.

The OTC derivative specificities should also increase demand for cross-asset margining and risk management tools. In order to properly address the risk management issues market participants will need to rely on a new generation of tools to get the holistic view on their positions, across assets and systems, to be able to have an overall view of their entire risk exposure.

Participants will need to be able to report their risk exposure to regulators intraday or on-demand. This means that existing reporting systems will need to be seriously enhanced or a new reporting systems be put in place. Reporting complex OTC positions will have implications requiring the market participants to deconstruct their structures in order to report in real time and on-demand on an ad-hoc basis. Technology, as well as good business practices, is going to be vital.

SunGard’s London City Day session on this topic saw two experienced derivatives markets professionals, Anthony Belchambers, chief executive of the Futures and Options Association (FOA), and Nicholas Garrow, global head of electronic trading at Newedge Group, give short presentations on the key developing issues regarding regulating the market, while commenting on the challenges faced in the currently politicised arena.

Belchambers gave us an overview of what is concerning the FOA and its members, while Garrow concentrated on current risk management issues, in particular those presented by the growth of High Frequency Trading.

The world according to the FOA

The FOA’s mission is to sustain industry growth and enhance the integrity of markets and firms through the cycle of regulatory change. The FOA works with and on behalf of members – which includes all the major brokers and exchanges, as well as associated derivatives industry suppliers – to maintain a constructive dialogue with global governments and regulatory authorities, and is centrally placed to understand both the needs and concerns of market participants.

Belchambers’ first point was to acknowledge the desire for safer markets from those outside the industry, while reminding us that any drive for safer markets comes at a cost – because there is an inherent tension between risk minimisation and growth. “You have to allow innovation and you have to allow diversity” if you are to encourage the much needed growth in the derivatives market, he said, but currently we may be “leaning too far towards ensuring safety”.

For instance, according to Belchambers, the over the counter (OTC) markets didn’t cause the 2008 economic crisis, yet regulators realised that any resultant deep and quick losses in liquidity in under-regulated instruments and venues are interconnected and could have a real impact on the wider economy, so they have focused much attention on this arena.

Belchambers admitted it was not a question of not needing more regulation. “We probably do”, he said. “It’s difficult to argue with the need for it”, he continued, “but it’s the burden and weight of it, and its direction” that is a cause for concern. He sees three main components to the current regulatory drive: changes in regulatory structure itself; the Markets in Financial Instruments Directive (MiFID II) review; and containing market abuse.

Addressing the regulatory structure first, he focused on what instruments were going to be eligible for Central Counterparty (CCP) clearing. The trend, he noted, was that “if you are eligible for CCP clearing, then you will have to be CCP-cleared. But is it systemically important for all eligible contracts to be CCP-cleared? The business case for forcing all eligible contracts through the mostly privately owned CCPs hasn’t been made, he continued. They [the CCPs] don’t necessarily want to take on serious levels of risk in small markets where there is ‘no profit whatsoever’ unless they ramp up the clearing fees and margin calls, which leads to an unattractive business case for the end user of such instruments.”

Belchambers also raised concerns over the regulatory drive for European interoperability, as he foresaw stronger CCPs having to shoulder the resultant risk for the less robust. “That question about risk” for a strong clearing house’s members’ carrying interoperation-related risks “has yet to be debated”, he said.

The Committee of European Securities Regulators (CESR) is looking at rolling out the statutory rights on interoperability existing in the cash equities markets into other products, and will issue a report by September 2012 with its recommendations. But of course this then has to go through the European parliament, so there is bound to be “an intense political process” with a tussle between the command economy exponents and free marketeers over what form the directive should take, which may change the recommendations substantially.

Another potential problem with the regulatory review concerns basis risk when trying to encourage standardisation of practices, which would “inevitably reduce the availability of OTC tailored contracts because they are going to be ramped up in terms of the capital cost that stands behind them”. End users will then have to review whether they’ll use these expensive OTC contracts, or a standardised product that does not match the more complex underlying basis risk. The resulting unhedged basis risk implies a massive “risk transfer from market to end user”.

The FOA is concerned that the costs to the end user will become much greater. Dealers will force the extra costs they incur as a result of regulatory risk directives onto their customers. And with collateral requirements increasingly being either cash or near-cash, which end users don’t always have available, there could be a significant dampening of demand for products.

The FOA stressed further concerns that large corporates in the US using derivatives markets will face a size test and therefore be “full-on regulated” in their local market. This could cause unintended risk arbitrage opportunities because other trading arenas, like Europe, do not appear to be considering the same regulatory size test route.

And the regulators’ drive to reduce risk will almost certainly mean margin costs will go up as safety cushions increase. But “are they going to be fairly calibrated as a measure of risk” questioned Belchambers, “or are they going to be policy-driven, which could be deeply unfair and distort the market?”

“Politicisation of the agenda is probably the worst thing” because it is anti-business and rhetorically prejudiced against OTC markets. And it doesn’t help when the European commissioner “starts talking about the Wild West, which is political language”, claimed Belchambers, adding that the regulators should be focusing on market risk drivers and fair pricing instead of political agendas. For instance, speculators are routinely politically targeted as a bad thing, he said, even when their actions can fulfil the useful function of exposing political mismanagement of economies, and actually help to smooth out pricing anomalies in markets.

What is really required, according to the FOA, is a more position management-orientated strategy on a market-by-market basis, rather than an overarching position limits mechanism mandated by regulators. The latter seems to be the direction the US is heading in, which is increasing pressure on the European regulators to follow suit.

Finally, Belchambers highlighted that the FOA sees the biggest risk on the horizon in the derivatives market structure: CCP risk. There is a danger of a “massive concentration of risk” into CCPs, when they have “been known to go down”.

“Let’s not kid ourselves”, he said, “three of them have already gone” and “how cute are the regulators going to be in monitoring” and assessing the risks that it could happen again? Clearing members are going to be uncomfortable with the increased CCP risks on their books, and questions are being asked about the need for costly “default funds” to provide insurance against such eventualities.

Regulation and High Frequency Trading

Newedge’s Garrow presented his views on regulatory trends and risk management, with specific reference to High Frequency Trading (HFT). He was concerned that the regulatory thrust was treating HFT as a single strategy, when in fact there are a variety of entities “doing different things with a multitude of different risk profiles.”

In the US, both the CFTC and SEC are looking closely at the risks of sponsored direct market access (DMA). Basically, these regulators want to curtail “naked” access to exchanges, pointing to the logistical and technical difficulties of brokers imposing adequate risk controls on clients using this technique.

The focus is on pre-trade risks, which Garrow agrees needs to be better controlled for certain clients, even if this proves difficult to do and, from a technology perspective, expensive to run. There are complex issues involved: he warned that switching off a sponsored DMA client in the event of limit breaches could pose a greater risk to the markets than would allowing them to trade out of their positions in an orderly way. Certainly HFT pre-trade risk improvements are required, he claimed, but they need to be coupled with “intraday post-trade” controls in real-time.

Garrow also commented on the need for brokers like Newedge to review and rationalise their current client base from a risk perspective, across different segments. For instance, brokers obviously want to service the needs of high-volume proprietary trading desks, but there are other groups of clients, such as the non-clearing members conducting trading using their own ISV [Independent Software Vendor] systems, where the details of the new regulations demand a post-trade review of risks.

Although the main focus of HFT regulatory review is rightly on the brokers – who stand to make the most money out of market activities – there “is a lot of work needed to be done by the exchanges themselves. Today they are lacking a standard framework and methodology for pre-trade risk controls”. Indeed, the multilateral trading facilities, who arrived later on the scene with better technology, currently provide more timely sub-millisecond pre-trade risk controls than some exchanges, claimed Garrow, and the exchanges need to step up in a consistent way to take their share of the burden for risk responsibility along with the brokers.

The traditional answer lies in examining the Total Cost of Ownership and coming up with solutions of consolidation and compromise. Look at the technology infrastructure: share where you can, leverage partners. Look at the communications costs: downgrade, cut the number of desktops.

These methods are all still valid and necessary to grasp the big picture. However, as responsible members of the financial services industry we recognise the need to continue to evolve these methods and improve the cost scrutiny to allow a true and transparent grasp of costs. Cost conscious financial institutions know that the pressure on costs is constant and are always looking for ways to dig into the details.

Improving efficiency around data management

SunGard’s MarketMap was born of a need to deliver a quality market data terminal at a lower cost than its traditional rivals. This philosophy brought a nimble market data terminal with ultrafast access and a light technology footprint to market. With it came a pioneering administrative module called SMART designed to improve the efficiency around data management.

SunGard’s MarketMap product range has evolved to include a suite of data feed solutions called MarketMap Feed. In the world of data feeds controls are probably as important as in the world of terminals but more complicated. The fees paid to an exchange are typically higher although the number of units sold is lower. A special price model is usually applicable and more cumbersome reporting obligations need to be managed. The MarketMap team understands the detail of this and is constantly improving the way our clients can manage this burden with SMART.

The wholesale financial markets industry can no longer ignore the advent of fast moving retail consumer technology. Hand held devices are all the rage and we at

SunGard know that these will fast become the new major consumers of market data and costs. Our client base expects ease of administration as they choose to access market data using these devices. They want the same cost scrutiny that they are used to having with the terminal environment. Simple issues such as a single login will become important. Details such as these and the avoidance of double sets of exchange fees are important and we have processes in situ for clarification and control. We also know that clients are not interested in multiple administrative modules for multiple applications so all MarketMap products, the terminal, the feeds and the mobile devices use the same module: SMART.

Various data users, flexible solutions

Market data users come in all shapes and sizes. Their need for data varies based on their roles within a given institution. A corporate treasurer’s need for real-time data is usually much less than that of an equity trader, for example. A European bond desk does not necessarily need access to North American equity markets. A ‘one size fits all’ market data strategy is a luxury no one can afford.

Knowing the specifics of who needs what exactly and how much data is really used is crucial in today’s cost conscious world. MarketMap allows the customer to monitor, control and then configure data usage. ‘Only pay for what you need and use’ is our mantra.

What about the need for flexibility? Where is the next great business opportunity?

Each financial institution is always looking for ways to improve margins – a new source of liquidity somewhere, an emerging market somewhere else. Easing the administrative burden of access to diverse geographies and asset classes is a MarketMap speciality. It can be done flexibly so that whether the need is to explore new markets or turn off access to markets no longer being traded the control is easy. Efficient administration of the details is paramount. MarketMap SMART reports are a high quality, user friendly method to monitor usage and control access.

Containing market data costs is never easy. It requires more transparency and improved efficiency across the board, more details on individual cost components, more tools to understand and manage these cost components, as well as more efficiency to turn simple information about these costs into knowledge so that an institution can take decisions that drive down costs. The devil is in the detail.

Trust SunGard. Try MarketMap now. www.sungard.com/marketmap

Moderator:
Anshuman Jaswal, Senior Analyst, Celent

Panelists:
Azura Azman, Head, Equities Broking, RHB Investment Bank
Adikin Basirun, Director of Technology, Indonesia Stock Exchange
Daniel Lee, Business Director, DBS Vickers Securities
J.J Lim, CIO, Bursa Malaysia Berhad

Fragmentation
In Europe, MiFID and cross-border trading has driven the fragmentation of the cash equity market. The market is crowded with electronic execution venues. Numerous business model of trading venues have emerged. The dark pool phenomenon is gaining significant traction.

Said Jaswal: “The competitive environment created by MiFID has also led to a significant decrease of direct transaction costs, but these are currently outweighed by indirect cost increases, driven by side effects such as market fragmentation and lack of transparency.‘’

However, Daniel Lee, Business Director at DBS Vickers Securities, pointed out that Asian markets are not as fragmented as those overseas, especially when one talks about transparency from pre- and post-trade perspectives: pre-trade, referring to whether the price one is getting is the best possible, and post-trade to whether what was actually done at trade level was guaranteed as the best solution. “That is a summary of MiFID’s definition of transparency in trading,’’ he said.

“In those markets, you can have several quotations for the same stock, so you do not know whether the price you are seeing is the best price possible. But in this market, what you are seeing is through exchanges. We don’t have multiple markets, with the exception of some degree of dark liquidity and some degree of off-market crossing.’’ In general, he added, Asian markets are less “sophisticated’’ and therefore, do not have the same problems as those in Europe and the United States.

Nonetheless, Jaswal says Celent expects a gradual but steady evolution in market structure and fragmentation. There will be limited disruption in the first two to three years, gradually increasing over five years. As new entrants gain market share, incumbent exchanges will benefit from an overall rise in trading volumes – by as much as 15% to 20% a year, primarily driven by economic fundamentals and high-velocity traders.
Lee added that what could happen is an evolution in SEA towards multiple listings of the same security on multiple exchanges, as is the case in Europe, leading to different pricings.

“The big difference is that, in Europe, to access that security, you are supported by the same set of regulations. But in this part of the world, I think the technology has got ahead of the regulation. In terms of regulations here, it’s very much like pre-MiFID, back in 1993 in Europe. It wasn’t till 2004 that Europe did away with the concept of whole state vs home state, leading to a harmonization of regulation. That is something I hope to see eventually in ASEAN.’’

Said Adikin Basirun, Director of Technology at the Indonesia Stock Exchange: “What’s important is that, in looking for opportunities and efficiency, there must be transparency and an understanding, should there be a dispute, on how to resolve it.’’

Rising Interest in Asia for e-Trading
Azura Azman, Head of Equities Broking at RHB Investment Bank, said: “e-trading in Malaysia is very new. Our clients ask for it and we, as brokers, meet their requirements by putting in the infrastructure. There is also interest now in multiple markets from our local institutions, so the demand for information for overseas markets has risen. Retailers are also very interested in overseas markets because they see that they can make money in the United States where volatility is more than in Malaysia.

“Because of these demands, we are looking into providing multi-market platforms for our clients, to provide efficiency and market data. While it’s still very new to Malaysia, I think a lot of brokers are now looking into this.’’

Lee agreed: “I think we are going to see a lot more foreign trades going in electronically. Now, with effective dissemination of information, people do not feel they lack information relative to their competitors elsewhere. A guy sitting in Malaysia will not feel he has less information than someone in Singapore.

He noted that cross-border trading was already happening in the 1990s. “I was trading in foreign markets with a phone. But obviously, volumes then were not so high. Today, a retail investor can access all the information he needs, thanks to technology.’’

Costs and other obstacles
Fragmented post-trade infrastructures require more intermediaries to settle cross-border transactions, which increases post-trade costs dramatically. However, the implementation of technology is also a major cost factor.

Said Azura: “Putting in an electronic platform is expensive. Brokers will ask which comes first: revenue or spending on infrastructure? So that’s a difficult decision for some of the brokers in Malaysia, especially since volumes and revenues have come down. But I think some foreign brokers are actually offering cheaper alternatives to local brokers to access multiple markets. That could be an opportunity for our local brokers to make multi-market offerings to their clients.‘’

JJ Lim, CIO at Bursa Malaysia Berhad, also noted the challenge brokers face in volumes not being high enough to justify investment. This leads to a lot of transactions being done manually.
“This then requires a harmonization of rules, especially when it comes to the repository. This harmonization will evolve but the order of importance seems to be first trading and then post-trade. We might want to look at fast-tracking the area of post-trade, as it’s a significant factor.’’

Post-trade infrastructure initiatives
ASEAN countries are building an order routing link to allow trading through a single access point for issues by the stock exchanges of Singapore, Malaysia, Thailand, Indonesia, and the Philippines. The ASEAN Trading Link Initiative also plans to link the clearing houses of the five ASEAN countries, enabling their clearing houses to act as central counterparties that can clear and settle cross-border trades among them.

Said Adikin: “The ASEAN linkage initiative is a part of the commitment from our Finance Minister to have more cooperation between Asian countries by end 2015. We already have cross-border trading initiated by brokers from one to another place. But with this initiative, one aims to bring up the gross order trading to the exchange level.’’

He also expressed the intention to make ASEAN securities an attractive asset class for foreign investors, especially those from the US and Europe. “If these investors look at each ASEAN country individually, they may find it is too small for them. But if we can join together as one asset class, it might be much more interesting for them. There should be a joint effort to promote ASEAN as one region that offers better opportunities to the European and US investor.’’

Anshuman also noted that the Singapore Exchange is putting in place new post-trade systems for equities and derivatives while Japan will be launching off-exchange clearing in July 2010 by JASDEC – a revolutionary step in the region to facilitate more alternative liquidity venues and growth in PTS volumes.

But as these developments take place and the world starts taking more interest in Asia, there is a need for a unified regulatory framework. All agreed that this would be a long time coming.

Said Adikin: “That challenge will take time. The EU took a long time. I think we will take a longer time. We can learn a lot from them.’’

Lim added : “A professor from MIT once noted the difference between the US and EU and Asia and China. He pointed out that America is a union of states, and the European Union is a union of countries. Asia is very far from that. So we are now just only talking about whether we can adopt this model at ASEAN level. The fact that we are trying to come together as a whole to discuss regulation is a good step forward. But I can’t see this happening for at least another five years.’’

« Les coûts externes ont un peu baissé, mais MiFID nous a un peu empêché d’en profiter, » regrette Laurent Laroche, responsable des Opérations Back Office chez Natixis Securities. « Avec la multiplication des plates-formes de négociation, c’est, pour chaque nouvelle connexion, toute la partie post-marché (compensation, règlement/livraison, conservation de titres) qu’il faut adapter. De fait, les brokers sont devenus multi venues, multi asset et multi type de clientèle. »

Des brokers sous pression

« Avec 17 segments de marché en Europe, l’internationalisation a passé un cap, » constate Guillaume Héraud, président de Parel, une filiale de la Société Générale spécialisée dans les activités de clearing pour les intermédiaires financiers. « Mais les spécificités au niveau local demeurent, voire se sont complexifiées. Désormais, on peut traiter une action italienne via la bourse italienne, mais également via un MTF avec une infrastructure post-marché différente. On relève également une accélération des innovations avec le clearing d’opération sur les Etats-Unis, bientôt en Asie. La réglementation évolue aussi avec l’interdiction des ventes short, par exemple. » Les conditions de marchés très difficiles avec une hausse de la volatilité ont entraîné des adaptations sur les capacités de traitement en termes de volume. De nouveaux risques, notamment de contrepartie ont pris beaucoup plus d’importance. « Enfin, les grilles tarifaires de certains acteurs sont devenues très complexes. On a enregistré, pour une même chambre de compensation (CP) plusieurs baisses de prix en 2009, » note Guillaume Héraud.

Apparition de nouveaux coûts

« Nous avons dû investir pour remplir nos obligations réglementaires, induites par MiFID, pour l’ensemble des brokers dont nous opérons les back offices, sans vraiment regarder les coûts,» se souvient Olivier Rolland, directeur des systèmes d’information d’Oddo & Cie. « Puis, nous avons observé une période d’attente, la fragmentation n’ayant vraiment fait sentir ses effets qu’à partir de l’été 2009. Depuis, nous regardons où se déplace la liquidité pour orienter nos investissements sur la chaîne post-trade. » Pour tous les acteurs impliqués dans le back office, cela a amené des coûts supplémentaires, au-delà des investissements consentis. « Il y a eu une évolution des managers de back office dans leur façon d’interagir avec le front office, les équipes IT, de maîtrise d’œuvre et de maîtrise d’ouvrage. Cela engendre des coûts difficiles à chiffrer, » confirme Olivier Rolland. « La variabilité de ces coûts supplémentaires des back offices ne sont pas forcément répercutés sur les brokers, qui eux-mêmes ne répercutent pas la variabilité de leurs coûts sur leurs clients. »

Rationalisation de la chaîne post-trade

« Maintenant que le marché a gagné en maturité, il y aura une troisième vague d’investissements pour rationaliser les chaînes traitement et conserver des marges à chaque niveau, » déduit Olivier Rolland. Pour Guillaume Héraud, les brokers vont devoir définir leur stratégie et adapter leur dispositif opérationnel. « En considérant l’ensemble de la chaîne post-trade, il y a tout un ensemble de combinaisons à étudier, il ne suffit pas d’adopter un ou plusieurs silos déjà constitués. Il y a des gisements d’économies dans la gestion du collatéral, par exemple : être en mesure de gérer la base clients des intermédiaires pour mieux qualifier les risques encourus, en améliorant ainsi les appels de collatéral dans le cadre du processus de clearing. » Mais, prévient Olivier Rolland, « dans un processus d’externalisation, il est important de conserver le niveau d’information du back office vers le middle office où doit se situer la relation avec les clients. Par exemple, tout ce qui concerne les suspens, une problématique bien maîtrisée, par le back office doit être embarqué dans les systèmes d’information du front/middle office pour être en mesure de réagir sur ces alertes et prendre contact avec les contreparties. » Target 2 Securities (T2S)* sera la plate-forme du futur pour l’externalisation du règlement/livraison et toutes les fonctions labellisées commodités. Et Pierre Mahieu responsable du développement des services chez Euroclear, de conclure : « les brokers et les dépositaires vont devoir faire le business case de la connexion à T2S et digérer les investissements afférents. L’enjeu des mois à venir est de savoir comment adapter son modèle économique à une zone géographique élargie. »

*Target to Securities : en juillet 2006, le conseil des gouverneurs de la Banque Centrale Européenne a lancé l’étude de la mise en place d’une plate-forme de règlement-livraison unique au sein de la zone Euro : Target 2 Securities.

Les courtiers doivent relever de nombreux défis en matière de middle et back-office tels que le besoin de fournir des services de haute valeur ajoutée à leurs clients, la possibilité de gérer leur développement international avec une plate-forme de middle office commune à leurs différents lieux d’implantation, la nécessité de procéder aux réglements-livraisons en respectant les régulations locales dans les environnements où la liquidité est fragmentée. SunGard propose Steam RIMS, un système de traitement des transactions sur actions et obligations en temps réel pour le middle et le back office. Modulable et largement automatisé, Stream RIMS permet aux sociétés intervenant sur les marchés de capitaux internationaux d’optimiser l’automatisation de bout en bout de leur processus (Straight-through processing – STP). Pour plus d’informations, cliquez ici.

« La crise a beaucoup contribué à mettre les Market Data Managers (MDM) sur le devant de la scène. Les banques se sont aperçues que la gestion des données de marchés était un important gisement d’économies, » souligne Charles Gastellu, président du Cossiom (Commission des Services et Systèmes d’Information – SI – destinés aux Opérateurs de Marchés). « La première étape de réduction des coûts a été assez simple, » résume Jacques Bouyssarie, associé au sein du cabinet de conseil Fitex, spécialisé dans les marchés financiers : « on a demandé de choisir entre un terminal B… et un terminal R… ». Mais cela ne suffit pas.

Une complexification qui va croissante

« Aujourd’hui, un établissement financier de taille moyenne, compte, environ, une centaine de fournisseurs, pour 200 à 300 services différents, » détaille Jacques Bouyssarie. Et l’optimisation des coûts se heurte à la croissance de données spécifiques répondant à des besoins bien précis, comme ceux des risk managers par exemple. « Les volumes et les consommations ne vont qu’en augmentant. Ainsi, avec la crise, la volatilité des marchés a exacerbé ce phénomène : pour un même produit, trois sources différentes peuvent donner trois prix différents, ce qui implique des traitements supplémentaires pour savoir quelle donnée utiliser, » constate Antoine Meyers, Market Data Category Manager chez BNP Paribas Fortis. « La complexité se trouve également dans le basculement de la consommation des données de marchés des utilisateurs vers les SI. » Leur utilisation et leurs transferts d’un système d’information à un autre complexifie le suivi des usages. « La cartographie des besoins est de plus en plus difficile à établir, » constate Antoine Meyers. En outre, une donnée brute peut nécessiter un enrichissement, impliquant deux, voire trois données supplémentaires, ce qui ne simplifie pas les choses, ni ne réduit la facture.

MDM, un manager multi compétences

Or, « il faut savoir précisément qui fait quoi avec quelles données pour rationaliser les coûts. Sinon cela peut coûter très cher comme les redressements de la part de fournisseurs de données appliqués à certaines banques en Angleterre dernièrement, » rappelle Charles Gastellu. Car les fournisseurs de données ne font rien pour leur simplifier la tâche, et ce n’est pas un euphémisme. « La propriété intellectuelle est devenu le cœur de métier de toutes société vendant de l’information, » déplore Charles Gastellu. « L’essentiel de leurs ressources marketing est d’imaginer comment facturer différemment et plus cher, les mêmes services, plutôt que d’innover. On rencontre de plus en plus de banques se plaignant de certains abus de fournisseurs de données disposant de quasi monopôle de fait.» Et les règles sont fluctuantes, ce qui ne facilite pas la tâche des MDM. « Difficile d’émettre des spécifications pour les équipes informatiques, de façon à être en accord avec les règles de facturation des fournisseurs de données, qui ne sont pas homogènes, et dont on a aucune idée de l’évolution dans le temps » constate Antoine Meyers. « Et difficile pour un MDM d’exercer une autre activité, » reconnaît Charles Gastellu. « Il doit avoir des compétences techniques, mais aussi juridiques et en contrôle de gestion, » énumère Jacques Bouyssarie.

Une nécessaire centralisation des systèmes

« Le principe de la « golden copy » n’est plus remis en cause, » affirme Antoine Meyers. La Golden Copy est un dispositif d’agrégateur interne pour mettre en cohérence les données issues de différents fournisseurs et alimenter tous les systèmes d’information nécessitant ces données. « C’est le moyen de couper le lien unilatéral entre une application et un fournisseur de données, » souligne Antoine Meyers. « C’est aussi un moyen efficace de centraliser tous les processus de contrôle, de mise en cohérence et d’historisation des données pour alimenter tous les SI, » confirme Jacques Bouyssarie. Un processus néanmoins trop complexe pour l’externalisation, source potentielle d’économies, car nécessitant de connaître parfaitement l’organisation interne et les clés de répartition pour l’utilisation des données. « Même si certains acteurs de taille moyenne se posent la question, » nuance Jacques Bouyssarie. Pour rationaliser leurs usages, et leurs coûts, les banques doivent se structurer pôle par pôle, par exemple par zone géographique, et centraliser les équipes de MDM. « Et à l’intérieur même de ces organisations, trouver des synergies. Par exemple, dans la banque d’investissement, les données utilisées dans les salles de marché et dans les divisions gestion d’actifs sont pratiquement les mêmes, » souligne Charles Gastellu.

Afin d’aider les sociétés financières à accéder à des données financières globales tout en contrôlant leurs coûts, SunGard propose MarketMap. Market Map fournit aux Buy Side et Sell Side des données, des analyses et l’actualité des marchés financiers, des systèmes de calcul et d’aide à la décision. Installé en quelques secondes, le terminal MarketMap fonctionne en service hébergé et comprend un système intégré de contrôle d’accès, permettant aux utilisateurs de suivre et de contrôler les coûts des données en temps réel. Pour plus d’informations, cliquez ici.

The European securities market is “on fire” as trading venues and market participants continue to reinvent themselves in the wake of the introduction of the Markets in Financial Instruments Directive (MiFID), says Laurens Vis, UK Managing Director, KAS BANK.

“MiFID had a profound effect on organisations in all markets, enabling participants to trade freely across Europe,” says Vis. “There is no longer a single platform on which ISINs are traded, which means our clients must provide trading capabilities throughout Europe, in order to meet the needs of their own clients as they increasingly trade across borders.”

KAS BANK is a specialist European bank offering a wide range of securities and investor services. Its clients include institutional investors such as pension funds, insurance companies and asset managers, as well as financial institutions including banks and brokers. Established more than 200 years ago, KAS BANK has always focused on securities services and acts as a general clearing member on most of Europe’s main exchanges and MTFs as well as on exchanges further afield including NYSE Euronext and Hong Kong. The bank is also a member of the major European central security depositaries (CSDs), such as Crest, Euroclear and Clearstream.

Post-trade complexity

Vis says the requirement to trade on multiple markets presents challenges not only on the trading side, but also on the post-trading side of the markets. Just as the number of trading venues has proliferated since the introduction of MiFID, so too has the number of clearing venues as many central counterparties (CCPs) have been launched to service the new MTFs.

Before MiFID, a stock would trade on a single stock exchange and be cleared on a single CCP and settled at a single CSD. In the MiFID world, trading firms must establish relationships with many more exchanges and with additional post-trade infrastructures, all at increased cost and complexity. Firms will have to consider how they will collect and process trade information once deals have been transacted in this more complex environment.

And as MiFID is reviewed, with details of a ‘MiFID II’ expected to be released by the European Commision this year, financial institutions could be in for a shock, says Vis. “In MiFID I, best execution was based on the venues on which a broker was prepared to trade. In MiFID II this may not be possible – brokers may be forced to seek the best price across all venues on which a stock is available for trading. This will be a significant challenge because sell-side firms will have to connect to a growing number of exchanges and MTFs and the corresponding CCPs that clear for them.”

In reality, some firms will be unable to afford or maintain the necessary post-trade infrastructure required. This increasingly complex and fragmented environment has led many broking firms to seek providers that can help them with connectivity at the front end, as well as those that can provide post-trade clearing and settlement services.

An integrated solution

“More and more brokers have been coming to us, seeking fully integrated services not only for the clearing and settlement elements, but also for other back-office components, such as static data maintenance, settlement instructions, cash and stock reconciliation, contract notes and trade accounting,” says Peter Rouwen, Director, Sales and Business Development at KAS BANK. “These brokers simply do not have the economies of scale to establish multiple relationships with a range of service and systems providers, and are instead looking for an integrated solution with a variable cost structure.”

In order to provide an all-in service proposition, KAS BANK partnered with SunGard to offer a new service under its Broker Services division. Underpinning the service is SunGard’s Stream RIMS Middle and Back Office, a comprehensive, real-time securities post-execution processing solution. Stream RIMS is highly scalable and its comprehensive use of automation enables global capital markets organisations to achieve maximum STP.

The partnership with SunGard means KAS BANK can provide a multitude of clients with a single, global platform for clearing, settlement and back-office services. The bank’s clients do not have to run their own back offices and can therefore focus on core trading activities and adding value for their clients, says Rouwen.

“We had clients who were already using SunGard’s products and it was natural that SunGard became our partner,” he says.

“SunGard has experience in providing back office services and has a similar ‘pure player’ approach to KAS BANK. We believe that the combination of a securities services provider and an IT provider can achieve strong results.”

The service consolidates previously separate functions on to a single, robust platform that is linked directly to KAS BANK’s cross-border clearing and settlement platform. Clients can deal exclusively with KAS BANK for all elements in the trading chain – from front-office deal capture through to cash and stock position reconciliation. Other features built on the Stream RIMS-based service include full trade accounting, provision of contract notes, posting to the general ledger and comprehensive regulatory reporting from a single source.

“With the introduction of Stream RIMS we now have a full suite of back-office services combined with post-trade DMA services,” says Vis. “Our offering delivers much greater control and transparency for the benefit of our customers.”

The service is aimed at securities houses that do not conduct enough transactions to justify the significant investment required to establish back-office infrastructures for the fragmented MiFID environment.

Benefits

MiFID unleashed significant price competition at the trading level, which exposed the high costs of the post-trade world. But in a more competitive environment, downward pressure on pricing is being felt along the value chain and for that reason, says Vis, KAS BANK’s clients have had to reinvent themselves and play to their core strengths. By offering a completely seamless post-trade service, KAS BANK will help its clients to gain greater control over their costs in order to focus on revenue generating front-office activities.

“The joint venture with SunGard will enable our clients to offload fixed costs in their middle and back offices and move to a more variable cost base,” says Vis.

Clients will be able to capitalise on the expertise of both KAS BANK and SunGard, something they may not have been able to do alone. “Firms who typically would have had to invest in separate back-office systems and links to securities services providers, can now use one party – KAS BANK – to take care of their core back-office functionality,” says Rouwen. “Our partnership with SunGard has changed the way we deal with our clients. We have bridged the gap between the back offices of our clients and our clearing and settlement services, offering a best of breed service. It has been a big step forward.”

As the European trading, clearing and settlement world continues to fragment and increase in complexity, says Vis, the combination of KAS BANK and SunGard will deliver superior control to trading firms, which is a “good thing for the market”.

When comparing the first quarter of 2010 to that of 2009, one can see that capital markets show signs of recovery. This evolution was driven by a growing trend in domestic market capitalization, volume and turnover of trades in equity and derivative markets, and, up to the end of Q1 2010, lower volatility. In the EMEA and Asia-Pacific regions market activity rose above 2009 levels although a flat trend was apparent in the US. Volumes increased steadily on the European MTF Markets and on emerging markets like Brazil and Istanbul.

1 – Volatility

• 6 months VIX* S&P 500

*VIX is the ticker symbol for the Chicago Board Options Exchange Volatility Index, a popular measure of the implied volatility of S&P 500 index options. A high value corresponds to a more volatile market and therefore more costly options, which can be sold to defray risk from this volatility. Often referred to as “the fear index”, it represents a measure of the market’s expectation of volatility over the next 30 days.

• 3 years

source: MarketMap

Market volatility has declined precipitously since peaking in November 2008. At the end of first quarter 2010, the VIX was around the 18% level and hovering near the 52-week low, reflecting optimism among market participants. Those levels have not been seen since early 2008 and are not far from the lows near 10 seen in early 2007 before the collapse of the subprime market.

2 – Value of Shares Traded

In Q1 2010, overall cash equities turnover increased by 10 % compared to Q1 2009. The Asia-Pacific and the EMEA zones improved markedly by 32% and 31% respectively compared to the same period in 2009, whilst the Americas have dropped slightly by1%.

Compared to Q4 2009, Asiatic turnover of shares traded decreased by 11% whilst an improvement of 4% and 6% occurred in the Americas and EMEA.

Below is a comparison showing between Q1 2010 and Q1 2009 at the top 5 growing markets by zone:

3 – European MTF Markets

2009 was a good year for the European MTF Markets, and most of them are continuing in steady growth in 2010. Comparing Q1 2010 to Q1 2009 the growth has been huge: 467% for Bats, 148% for Chi-X, and 982% for Neuro but Turquoise’s turnover has fallen by 16%.

4 – Volume of equity trades

Between Q1 2009 and Q1 2010 the overall volume of equity trades declined by 16%, affected by continuous deterioration in the Americas (-38%), whilst the Asia-Pacific and EMEA zones are recovering, respectively up 8% and 11% compared to a year ago.

5 – Total value of bonds trading by region

In Q1 2010, EMEA represented 92% of overall bond turnover, the Americas 6% and Asia-Pacific 2%. Compared to Q1 2009, bond turnover increased by 24% in the Americas and declined by 22% in Asia and by 16% in EMEA.

6 – EMEA Bonds vs. Shares Turnover

In Q1 2009 EMEA Fixed income turnover from bonds was 32% higher than the value of shares traded but, by Q1 2010, the difference between the two had been reduced to only 9%.

7 – Domestic Market Capitalization

In Q1 2010, domestic market capitalization (DMC) increased markedly, by 55%, compared with Q1 2009. Asia-Pacific grew the most (63%), followed by EMEA (55%) and then the Americas (50%). The top-five growing exchanges by zone in DMC between Q1 2009 and Q1 2010 were as follows:

8 – Derivatives Volume of contracts

source: FOI

The most growth was in Currency contracts, up 163% in Q1 2010 compared with Q1 2009; volume in interest rate and agriculture contracts also increased markedly, by 41% and 48% respectively.

source: FOI

During the first quarter 2010, contract volumes on the four major derivatives exchanges increased by 18% compared to Q1 2009. Liffe saw the most growth (29%), then CME (27%) and ICE (25%), however, volume on Eurex was flat (-0.26%).

source: FOI

Volume of contracts traded in Q1 2010 was higher than in Q1 2009 for all regions except Africa. Overall volume of derivatives contracts increased by 19%; most growth was in the Asia-Pacific zone (38%), followed by South America (25%), the US (10%) and Europe (6%).