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Buy-Side Managers Say: Hooray for High-Touch

High-Touch or High-Tech? That is The Question.. Virtually any industry professional will acknowledge the now two-decade evolution of financial markets whereby the electronification of equity, options, currency and even fixed income markets has been the primary catapult for business models wrapped in high-tech trading services, trading software applications and niche offerings advanced by trade execution providers throughout the global financial markets. As a consequence, “button-pushing” has displaced a myriad of traditional “high-touch” broker-dealers whose value-add had been completely dependent on human capital; professional traders who are experts at navigating markets and skilled at sourcing liquidity via networks of embedded relationships throughout the trading market ecosystem. One need only count the number of sell-side traders who have been “put out to the dinosaur pasture” to appreciate the impact of ‘progress.’ But, any industry trading technology wonk who insists they can hear the fat lady singing  “the last nail is about to be placed in the coffin of high-touch trade execution”, a recent survey conducted by Consultancy Aite Groupe suggests that a significant number of buy-side managers greatly prefer high-touch to high-tech. Aite’s study is based on an online survey of 42 buyside firms throughout the second half of last year, with the majority of firms managing assets of more than $50bn.

Below excerpt from latest MarketsMedia.com story “High-Touch Hangs On in Equities” by Shanny Basar frames the story..

Fund managers still prefer high-touch, rather than electronic execution for more than a third of US cash equities and non-US cash equities according to new research.

Consultancy Aite Group said in a report Buy-Side Front-Office Trends: The ABCs of Trading Behavior that it is “mildly surprising” that high-touch execution styles are still preferred by investors for as much as 38% of US cash equities and 41% of non-US cash despite equities having the longest history of electronic trading and the earliest adoption of algorithms.

High-touch typically involves agency execution with discretion, principal/capital commitment and investors requesting a direct quote over the phone from a sales trader or passing an agency order for them to work.

“This may partially be explained by the increasing complexity associated with market fragmentation in the US equities market and the proliferation of dark pools and exchanges, all competing for order flow,” added Aite. “Average trade sizes have shrunk to less than 200 shares per trade, typically a small fraction of total order size. And at the same time, there continues to be challenges with sourcing liquidity for mid- and small-cap stocks.”

“As a result, sales traders remain relevant in assisting with trade facilitation and intermediating an agency block trade between two buyside customers with opposite sides of an equities trade.”

Sales traders are also sometimes asked to intervene in algorithmic orders, although intervention or suspension are both very rare. For example, human intervention may be required if intraday market conditions, such as extreme volatility, affect an algorithm’s performance.

However, the study also found that electronic trading continues to gain its footing across all asset classes at a steady pace across the globe. Therefore investors investors need to continue in invest in upgrading technology to find new sources of alpha, comply with new regulations, cut costs and increase efficiency. “The days of phone-based or plain vanilla chat-enabled trading are numbered,” added Aite.

Matt Villarreal, Mischler Financial Group


However many broker-dealers have failed to keep up and have since gone the way of the Ford Pinto,  there is a cadre of always-forward-thinking sell-side desks who refrained from making “all-in high tech” bets, and instead, embraced the proposition of combining the best of both high-touch and high-tech applications. According to Matt Villarreal, the head of global equities for agency-execution firm and boutique broker-dealer Mischler Financial Group, “Most thoughtful fund managers understand that risk-reward analysis applies not only to the underlying investment style or strategy, but also when mapping out execution strategies, and whenever “best execution” is a component that has to be weighed.” Added Villarreal, “Because “best execution” has become a ubiquitous phrase, every manager has their own opinion as to the meaning, often boiling down to “the right price at the right time when considering all of the factors.” The institutional managers we work with truly embrace the value of our combining bespoke, high-touch capabilities that extend across US domestic as well as international stocks, with best-in-class trading technologies in order to achieve their view of true best execution.”

To continue reading the entire story from MarketsMedia.com, click here Continue reading


Buy-Side Beefs Up Use of ETF Products; They Finally Get The Joke

ETF product use among the Buy-Side is no longer viewed as “just a portfolio re-balance or transition management tool,”  according to a survey of the investment industry’s largest portfolio managers. More PMs than ever are finally ‘getting the joke’ with regard to the value proposition of Exchange-Traded Funds (ETFs), according to a recent report by State Street Global. The up-trending holdings of ETF products across the institutional manager community is attributed to a variety of reasons that include better product education, the ongoing search for alpha, the need to reduce single-stock exposure, and according to Europe-based fund managers, ETF products are ideal vehicles to express global macro investment views.

According to recent research from State Street Global, 85% of investment professionals are using exchange-traded funds (ETFs) to gain exposure to individual sectors or industries. More than one-quarter of survey respondents (26%) report that over 20% of their assets under management are allocated to sector/industry ETFs.

This research is based on State Street Global Advisors’ Survey of Investment Professionals’ Sector and Industry Investing Attitudes and Usage, completed in the first quarter of 2016. The study comprised web-based interviews with 419 financial advisors and wealth managers.

While it is hard to compare the two conventionally – the average daily amount of stock trading as measured by Bats Global runs around 7.30 billion shares compared to 1.3 billion for ETFs, the latter reported by SSGA. When compared on a notional dollar basis, ETFs hit $13.1 billion versus $48.5 billion for stocks.

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The estimated value of all ETF shares issued exceeded that of shares redeemed by $5.60 billion for the week ended October 26, 2016, the Investment Company Institute recently reported. For ETFs backed by equities, for the week ended November 1 net issuance hit $5.23 billion for the week, compared to estimated net issuance of $2.38 billion in the previous week. Domestic equity ETFs had estimated net issuance of $4.03 billion, and world equity ETFs had estimated net issuance of $1.19 billion.

Nick Good, co-head of the Global SPDR business at State Street Global Advisors, told Markets Media that the research pointed a rosy picture for ETFs going forward. He said the survey found that the use of sector and industry ETFs is highest among private wealth managers, with 92 percent reporting they had some exposure to the sector and/or industry funds; followed by independent/regional broker dealer advisors (87 percent), National Broker Dealer advisors (86 percent) and Registered Investment Advisors (80 percent).

“The most important variables these investment professionals consider when choosing a specific sector or industry ETF are liquidity, expense ratio and the fund’s holdings,” he said.

Looking ahead, 45 percent of financial advisors surveyed report they plan to increase usage of ETFs while another 50 percent said they plan to maintain their current allocation of sector and industry ETFs in the future.

Advisors’ top reasons for incorporating sector and industry ETFs into client portfolios include:

Continue reading


Veteran-Owned Broker-Dealer Pays Tribute to Veterans Day

Veteran-Owned Minority Broker-Dealer Mischler Financial Group Makes 2016 Veterans Day Month Pledge

Courtesy of MarketsMedia Stamford, CT & Newport Beach, CA –Veterans Day is observed by Americans each year on November 11; the day that is dedicated to honoring and extending our gratitude to the millions of men and women who have served within the US military. At Mischler Financial Group (“Mischler”), the financial industry’s oldest institutional brokerage and investment bank owned and operated by service-disabled veterans, Veterans Day is observed every day, and each November Mischler pledges a percentage of the entire month’s profits to carefully-vetted charitable organizations that support veterans and their families in recognition of this national holiday.

To honor Veterans Day Month 2016, Mischler Financial Group has made a financial pledge to three separate organizations that go above and beyond the call of duty to support military veteran families and local communities. Those 501c3 organizations are Bob Woodruff Foundation, The Johnny Mac Soldiers Fund and Buildon.org.

Stated Dean Chamberlain, Chief Executive of Mischler Financial, a 20-year veteran of the securities industry and a U.S. Military Academy at West Point alumni, “There are now more than 22 million Americans who have served with integrity and honor in the US Armed Forces, yet when transitioning back to civilian roles, too many are encountering challenges as they seek higher ground. The Mischler Financial year-round philanthropic mission is dedicated to the military veteran community at large, and Veterans Day Month provides a special opportunity for our trading desk and our clients to work together to give back and pay forward to the veteran community in ways that can truly help change lives for the better.”

Added Chamberlain, “This past May, we made our Memorial Day Month pledge to crowdfund campaign Veterans Education Challenge,  as we believe that advanced education is a core component to both personal and professional success. The organizations that we have pledged our Veterans Day Month support to provide equally unique runways by which veterans can further bolster their knowledge base and self-confidence, and in turn, help them to more easily target and capture opportunities as they advance forward.”



What’s Next? A Blockchain-Powered ATS for Equities

“What’s Next? Well, for those familiar with Patrick Byrne, the controversial and innovative founder of Overstock.com, one of the first online retailers to embrace the use of bitcoins, it should not be a surprise that Overstock’s chief honcho would ‘get the joke’ and realize its all about the underlying technology that powers cryptocurrency applications, known as distributed ledger. While bitcoin currency continues to encounter challenges in terms of mass embracement, the real grease that makes the makes the wheels turn is under the hood. With that, Overstock subsidiary “T0” (T-zero) is taking a page from both the industry consortium formed by R3 and the Senahill-backed Symbiont –both of which target institutional capital markets usage–and aiming it’s own sights on retail investors by setting to launch an equities-centric Alternative Trading System aka ATS powered by their own blockchain formula.

A distributed ledger is a consensus of replicated, shared, and synchronized digital data geographically spread across multiple sites, countries, and/or institutions.
A blockchain is a type of distributed ledger, comprised of unchangable, digitally recorded data in packages called blocks.
Rob Daly of MarketsMedia (not related to MarketsMuse) provides the scoop..

Online retailer Overstock.com expects trading to begin on its blockchain-based alternative trading system before the end of the year, according to company officials.

The ATS will be operated by Overstock.com subsidiary TO as part of the company’s Medici Project, and it will only handle trades in the company stock, at least at first. So while it’s not an immediate competitive threat to the existing field of 13 U.S. stock exchanges plus several dozen ATSs, the initiative will be closely watched as a gauge of the potential of distributed-ledger technology in capital markets.

The ATS will write completed trades to its blockchain instead of routing them to the National Securities Clearing Corp., a subsidiary of Depository Trust & Clearing Corp., for clearing.

Overstock.com plans to prime the liquidity on the ATS through a new issue of corporate shares to existing shareholders the day before trading commences on the new trading venue.

judd bagley blockchain ATS
Judd Bagley

T0 officials plan to formally announce its partnership with a broker-dealer on Sept. 12. “For those who want to trade on the ATS, they will have to create an account with the broker-dealer,” said Overstock’s man-in-charge Judd Bagley, who declined to name the brokerage firm.

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Investors will be able to select from multiple “very vanilla” order types, which are still in development, he added. T0 may use a so-called maker-taker rebate model to encourage liquidity, but officials have not made a final decision.

The new trading venue is a mix of internally developed technology and the technology T0 acquired with its purchase of order-routing firm SpeedRoute in October 2015. T0 built its matching engine internally as well as the necessary interfaces to the rest of the U.S. equity marketplace.

The company, in conjunction with Bay-area consultancy PeerNova, also developed a proprietary blockchain architecture for the ATS instead of using Bitcoin, Ethereum, or Ripple.

To continue reading the story from MarketsMedia, please click here


Buy-Side Says: Don’t Just Set It and Forget It

Cheryl Cargie, head trader at buy-side fund manager Ariel Investments in Chicago, said that while the buy side is looking for more from its sales trader coverage, it depends on whether a buy side trader is representing a passive or active strategy. For a veteran with over 20 years in trading and representing all of Ariel’s trading strategies, Cargie wants a sales trader who will partner with her and be proactive.

“For a traditional trader like me, I want my sales traders to pay attention to my order and not just ‘set it and forget it’,” Cargie said. “I need them to be an extension of me.”

Cheryl Cargie
Cheryl Cargie

High-Touch Sales Traders Go Electronic

(MarketsMedia) By , Senior Editor ·

Today’s high-touch or cash sales traders are looking to electronic trading tools and skill sets to stay relevant in today’s equity market structure.

Born out of a “if you can’t beat them, join them” mentality, sales traders are increasingly learning about electronic trading tools to cater to the buy side’s increasing appetite for technology along with human interaction. If not, more traders could find themselves out of work in a persistently difficult job market.

According to a recent report from Greenwich Associates, the human touch in trading is still as important as ever, even in a largely electronic marketplace. As the buy side looks to their brokers for an increasing array of services, simply acting as an order taker is no longer enough to ensure return business. The sell-side sales desk must provide proactive suggestions, understand market structure and offer clients advice on how to best leverage trading technology. And that is something an algorithm or smart order router simply cannot do.

Re-enter the human sales trader.

Kevin McPartland, head of market structure and technology research at Greenwich Associates, told Markets Media that new buy-side demands are being handled by a smaller sales force than 10 years ago. So in order to provide a high level of service to the buy side and keep its business, the remaining top-notch sales desks are leveraging technology “not only to help clients trade, but to better understand their customers’ portfolios, trading habits and profitability.” He added that technology does not replace human intuition in this case, but instead enhances the abilities already present on the desk.

To continue reading John D’Antona’s column at MarketsMedia, please click here

european etf

European ETFs Displace Futures Products

(MarketsMedia) European ETFs and ETPs have gathered record net new assets in the first 11 months of this year, in many cases using as a displace to futures products. ETF Issuer BlackRock expects the size of Europe’s exchange-traded product market to double over the next three to four years.

ETFs/ETPs listed in Europe had gathered $72.6bn in net new assets at the end of last month, 18% above the record set at the same time last year, according to consultancy ETFGI’s Global ETF and ETP insights report.  ETFGI said in the report: “This marks the 14th consecutive month of positive net inflows.”

Source, the European ETF issuer, estimated that $100bn of assets have been switched globally into ETFs from futures over the last two years as ETF fees have fallen. Source added that investors who switch out of futures contracts into ETFs during the quarterly ‘roll’ this December could make record savings of 30 to 50 basis points on an annualised basis. December stock market futures expire on the 18th and investors would typically roll in the week leading up to this expiry date.

So far this year equity ETFs gathered the largest net inflows of $42.3bn, followed by fixed income with $24.9bn and then commodities with $1.2bn.

BlackRock’s ETF arm, iShares gathered the largest net inflows of $28.7bn in Europe in the year-to-date followed by Deutsche Bank’s db x/db ETC with $10.3bn. In third place was Societe Generale’s Lyxor AM with $8.6bn.

Robert Kapito, president of BlackRock, said this month that the asset manager remains very optimistic on its organic growth opportunities given secular tailwinds in ETFs and solid performance in active equity according to an analyst note from Goldman Sachs. Kapito presented at the Goldman Sachs US Financial Services Conference in New York on December 8.

The analysts said: “BlackRock expects the ETF industry to double over the next three to four years driven by an increasing number of uses for ETFs, specifically as an alternative to futures, increased adoption by broker-dealers to hedge risk and portfolio precision instruments.”

For the full story from MarketsMedia, please click here

ETF Adoption Continues at Brisk Pace

marketsmedia logo  Excerpt courtesy of MarketsMedia

Providers of ETFs and mutual funds are using targeted marketing approaches to match the right products with the right customers.

With ETFs use climbing among active investors, both retail and institutional, packagers of ETFs view the product as a low-cost vehicle for investors to access alternative strategies such as those employed by hedge funds, many of which act as sub-advisers for the ETFs.

ETF use among registered investment advisors (RIAs) has grown nearly 27% annually over the past 5 years, according to research firm Cerulli Associates anticipates this growth to continue.

“The allocation to ETFs among RIAs grew 48% from 2011 to 2012,” said Kenton Shirk, associate director at Cerulli. “The RIA channel is an extremely attractive opportunity for asset managers.”

ETFs gained popularity as a cost-effective method to achieve diversification, but with increased adoption they have evolved to cover a wide variety of investment strategies.

“ETFs provide an easy way for managers to offer out products to alternative investors,” said David Beth, president and chief operating officer at WallachBeth Capital. “The ETF wrapper is very easy and transparent.”

David Beth, President / COO WallachBeth Capital

Fund manager Direxion offers leveraged and inverse ETFs for active traders looking to execute short-term trading strategies.

“We consider ourselves a provider of alternative investment strategies,” said Andy O’Rourke, Direxion’s chief marketing officer. “We also have a few strategy-based non-leveraged ETFs that they have rules-based indexes, such as KNOW, which is an ETF that tracks the buying activity of corporate insiders on the secondary market.”

Direxion recently unveil a marketing campaign designed to inform experienced active traders about the potential benefits of the firm’s 3X leveraged ETFs. A departure from simply highlighting the flexibility of trading in either direction, the marketing campaign’s 60-second television commercial invites active traders to join “The Fellowship of the Bold.” Continue reading

ETFs Getting Blurry: New “ETMFs” Hard to See Through; Harder to Hedge

marketsmedia logo  Excerpts Courtesy of MarketsMedia

The lines of demarcation between actively-managed investment vehicles are getting fuzzier with the advent of non-transparent, actively-managed ETFs.

Black Rock, State Street, Eaton Vance and T. Rowe Price, among others, have filed applications with the Securities and Exchange Commission (SEC) to develop actively managed non-transparent ETFs that will disclose individual holdings every three months, just like mutual funds. These hybrid ETFs are also known as exchange-traded managed funds (ETMFs).

“What everybody is talking about today is non-transparent active ETFs, where a fund can change their basket all the time, and market makers don’t what their actual underlying stocks are,” said Phil Mackintosh, global head of trading strategy at Credit Suisse. “These active ETFs would look more like actively managed mutual funds.”

Mackintosh noted that these are different from transparent actively-managed ETFS. “There have been ETFs that pick stocks, which I would consider actively managed ETFs, for years. But these are transparent actively-managed ETFs, where the target portfolio is published daily and can be accurately hedged by market makers. Fund houses like PowerShares, WisdomTree as well as yield and volatility weighted ETFs offered by other providers are selecting stocks and stock weights based on specific factors that result in non-index weight portfolios.”

Mohit "Mo" Bajaj, WallachBeth Capital
Mohit “Mo” Bajaj, WallachBeth Capital

Since ETFs track an underlying index, the ETF may trade at a premium or discount to what it’s really worth. Reasons for premiums or discounts include liquidity of the underlying securities, liquidity of the ETF itself, costs associated with executing the underlying names, etc.

“We try to give our customers a menu of options for obtaining best execution, not only by finding the best price in the secondary market, but we also observe how the underlying names trade in the primary. In addition ETFs trade differently depending on the time of day, so we try our best to educate our customers on ways they can receive the best execution possible depending on what name they are looking to enter/exit,” said Mo Bajaj, director of ETF and portfolio trading services at ETF execution specialist WallachBeth. “Timing is an important aspect when trading any product. Certain names trade better earlier in the day and as the day progresses, spreads can widen.”

WallachBeth has been active in helping to execute both liquid and illiquid ETFs, such as emerging market and fixed income names, “which we have been able to provide our customers with very competitive pricing for,” said Bajaj. FOR THE FULL STORY FROM MARKETSMEDIA, PLEASE CLICK HERE.

Position Limits Lifted on $SPY Options

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Exchanges and Finra have adopted rule changes which lift restrictions on position limits on options on the SPDR S&P 500 ETF (SPY). In 2012, NYSE Amex Options was the first exchange to file for and receive approval to eliminate position and exercise limits for SPY options. Subsequently, other exchanges and Finra have amended their rules governing SPY position and exercise limits.

“This is great news for everyone,” said Steve Crutchfield, CEO of NYSE Amex Options. “In August 2012, we, Amex, were the first options exchange to file for, and ultimately be approved, to eliminate position limits in SPY.”

SPY is the most liquid options contract, accounting for about 12% of all options trading volume, making it a logical candidate for elimination of position limits. NYSE Amex Options is lifting the position limit on a pilot basis, until December 15, 2014. “Our thinking is to evaluate the pilot, provide data to the SEC, and assuming all goes well, we would be interested in expanding this to ETFs on other broad-based indexes like IWM, QQQ and similar products,” Crutchfield said.

For the full story from MarketsMedia, please click here.

News Tweets Culled from Twitter for Investor Sentiment-Does It Make Sense?

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Courtesy of MarketsMedia.com

4 Oct 2013Gauging investor sentiment from tweets and other social media is receiving support from the trading and academic communities.

“Twitter is full of alpha-generating potential,” said Emmett Kilduff, CEO and founder of Eagle Alpha, whose product Social Sonar, channels Twitter-based intelligence on stocks and global macro topics. “Currently this potential is masked by excessive white noise, inefficiencies in accessing relevant tweets and compliance concerns. Investors leverage our information and data to help give them more conviction on an investment but also for unique insight they wouldn’t ordinarily find.”

Social Sonar is available to market participants seeking an investment edge, including the buy-side, sell-side, corporates and retail investors.

With 500 million tweets, 200 million tweeters and 135,000 new users each day, it is becoming increasingly difficult to unearth relevant data. Eagle Alpha rectifies this by enabling users to access validated pre-built and bespoke lists.

“From game-changing CEO opinions to instant reaction around key financial news and company reporting, Social Sonar is an essential addition to the run of the mill industry newswire services and gagged sell-side analysts,” said James MacLachlan, senior trader at CF Global Trading, a provider of institutional trading services in the global equity and credit markets.  KEEP READING AT MARKETSMEDIA

ETFs Test Market-Making Skills

marketsmedia logoCourtesy of Steve Marlin/MarketsMedia

With exchange-traded funds playing an increasingly important role in portfolio management, the ability to accurately price the instruments has placed a premium on market-making skills.

“ETFs are a unique breed of financial instruments,” said Chris Hempstead, director of ETF execution services at WallachBeth. “Order execution requires the ability to navigate these markets and compel liquidity providers to offer customers the most aggressive bids and offers.”

With upwards of 1,500 listed products in the U.S. alone, the secondary market for ETFs remains evolutionary, and liquidity in many ETFs is often elusive, despite the sophistication of screen-based electronic markets.

Chris Hempstead, WallachBeth Capital
Chris Hempstead, WallachBeth Capital

“ETF wrappers provide an efficient way to gain access to an index,” Hempstead said. “But not all ETFs have sufficient depth of quotes, so you need to partner with someone who knows how to value an ETF. Even SPY, the most liquid ETF, doesn’t trade exactly at NAV [net asset value]. For less liquid ETFs, the spreads could be considerably higher.”

Sourcing liquidity at the right price for ETFs, ETNs and CEFs requires an advocate with a wide net, unhindered visibility and unencumbered market access, one whose pool of liquidity extends beyond traditional screen-based markets and the boundaries that conventional brokers are constricted to. “Because we’re product experts we are able to use both traditional and tech-savvy means to quickly and efficiently canvass a broad and diverse universe of reliable liquidity providers,” Hempstead said. Continue reading

Boutique ETF Broker Eyes Growth of ETF Market in Europe; WallachBeth International Brings US Approach to London

marketsmedia logoCourtesy of MarketsMedia.com

The burgeoning exchange-traded funds sector in Europe is expected to grow still further in the coming years, after the industry recently celebrated its 20th birthday.

ETFs, which are funds that track baskets of shares, bonds or commodities and are traded like stocks, were invented in 1993 in the U.S. and have been on an upward growth trajectory ever since due to their low costs and simplicity since they generally track established indexes.

“ETFs started in the U.S. and they’ve certainly been embraced there by everyone from institutions to retail,” said James Ryan, vice-president, institutional sales and trading at WallachBeth International in London, a U.S. brokerage firm which brought its best execution ETF trading model to Europe last year.

jrETF team
James Ryan, WallachBeth International

“We set up in Europe for a couple of reasons. Firstly, we expect growth of the ETF market in Europe and second, we don’t think anyone is doing exactly what we do. You have other brokers, but our desk is ETF-centric.”

A recent study by ETF provider State Street Global Advisors (SSgA), the asset management unit of State Street, which surveyed 260 European corporate pension plans and 41 U.K. active fund managers, found that 39% had no holdings of ETFs at all while a further 32% held less than 10% of their portfolios in ETFs.

“Despite strong growth in the ETF business globally over the past 20 years, the European ETF business remains relatively small compared with the wider mutual funds and U.S. ETF businesses,” said Scott Ebner, global head of ETF product development at SSgA.

However, almost half of the European corporate pension plans surveyed by SSgA said that they planned to increase their allocations to ETFs over the next five years while 42% of the U.K. active fund managers indicated that they would also increase their ETF usage in future.

“The whole of Europe is starting to see more products and is embracing ETFs slowly,” said Alan Roldan, institutional sales and trading at WallachBeth International.

Alan RoldanWallachBeth International
Alan Roldan
WallachBeth International

“People like Vanguard [one of the largest ETF providers] have also set up over in Europe from the U.S.. That’s a good indication we are not the only ones who feel that way.”

The ETF sector is seen as more opaque in Europe, with as much as 70% of trades enacted over-the-counter. Trade reporting for ETFs in the U.S., in the form of a consolidated tape, is mandatory, although there are provisions for this to happen in Europe in the latest MiFID II proposals, but this is not likely to be enforced until 2015 at the earliest. And compared to the U.S., knowledge of ETF products generally is also seen as slightly lacking in Europe.

“Once education—getting acclimated to the product—and more transparency with the regulations happen, then that is going to be a massive catalyst,” said Roldan.

There also appears to have been a recent push by issuers of ETFs in Europe to target the retail sector, which has been relatively untapped so far.

“Once retail flow comes up that will also spur growth in the institutional market,” said Roldan.

marketsmedia logoCourtesy of MarketsMedia.com

Just 18 months after it shut down its nascent Twitter-based hedge fund, Derwent Capital Markets is back with its new offering—with the launch of what it says is the first social media-influenced trading platform.

The new spread-betting platform, called DCM Dealer, which went live from this week, includes a feature that calculates a real-time sentiment rating for individual stocks based on the millions of tweets that are generated on Twitter every day.

This scraping of social media sites to help traders predict the direction of markets is beginning to take off in the finance world, although London-based DCM says that theirs is the first such trading platform to be launched.

“Investors have already accepted for some time that financial markets are driven by greed and fear,” Paul Hawtin, founder and chief executive of DCM Capital, told Markets Media.

“What it will effectively do is allow a trader and investor for the first time to see underlying sentiment in that instrument in real time.”

Of the 8,000 equities, FX and commodities instruments that it follows, DCM Dealer gives each a rating of between zero and a maximum of 100.

“If someone is interested in Vodafone shares, we search for every single tweet with anything to do with Vodafone in it,” said Hawtin. “So the keyword is Vodafone, or any of the senior management team, and then what we do is we have a waiting system.

“So tweets that have more relevant keywords have a higher rating than tweets that would be less relevant—such as someone tweeting about their poor Vodafone reception, for instance, which would have a low rating. Continue reading

Trading Market Pros Do a 360; Looking Back and Forward 5 Yrs

                  Extracts courtesy of a special year-end story from Terry Flanagan at MarketsMedia

marketsmedia mag

The Standard & Poor’s 500 Index stood at 1,380 in mid-November, down about 5% from 1,450 five years earlier. To a visitor from Mars, the similarity of the numbers could suggest that it was a quiet period for financial-market participants.

But in reality, it has been the opposite, as the past five years has been perhaps the most tumultuous half-decade period in the history of global markets.

The fragile, end-of-rally market of late 2007 gave way to a full-blown financial crisis by September 2008, the nadir of which which lasted into 2009. Massive interventions on the part of governments worldwide staved off a doomsday scenario, setting the stage for some stabilization and a market rebound in 2009-2010. But the recovery has yet to sustain itself, and 2011 and 2012 have proved largely disappointing.

“The past five years will likely be viewed as a landmark period of timeless case studies within the history of financial markets,” said Karim Taleb, principal of investment manager Robust Methods.

“For institutional trading this was one of the most challenging market environments that I have witnessed in my career,” said Steve Hedger, head of equity trading at Fifth Third Asset Management. “Lack of liquidity, extreme volatility, and a disappearance of several venerable brokerage firms made seasoned traders earn their keep.”

The challenges for institutional traders such as Hedger revolve around liquidity sourcing-that is, finding sellers for buy orders and buyers for sell orders. Aside from the demise of Lehman Brothers and Bear Stearns, other liquidity sappers include tightening regulation of Wall Street, which has prompted surviving big banks such as Goldman Sachs and Morgan Stanley to pull in their trading horns, and a more general malaise and mistrust among buy-side investors, both retail and institutional.

Michael Wallach, CEO WallachBeth Capital
Michael Wallach, CEO WallachBeth Capital

Aside from regulation, the most noteworthy topics from a broker-dealer perspective are the evolution and impact of trading technology and the exponential growth of institutions using both exchange-traded-products and option-centric hedging tools, according to Michael Wallach, chief executive of agency-only broker-dealer WallachBeth Capital.

Even with the proliferation of electronic trading, it has its limitations, and voice and floor will continue to offer liquidity, at least for some trades. “What hasn’t changed is the fact that trading screens remain notoriously one-dimensional despite the three-dimensional nature of financial markets,” Wallach said.

Additionally, market disruptions, geopolitically driven volatility spikes, and diminished investor confidence have sharpened focus on broker-dealers’ fiduciary obligations, Wallach said.

“What has struck me over the past five years is the level of innovation that we have seen in the market,” said John Kelly, chief operating officer at Liquidnet. “This has provided the means for investors to seek out growth, yield, diversity, or safety to a degree that was never before achievable.”

One market veteran’s perspective trumped the CNBC survey by a factor of five. “We enter the next five years with a significantly higher degree of uncertainty than any time I can recall in more than 30 years,” said Kelly of Liquidnet.

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London’s Oct 11 “Euro Trading Summit” Said To Be Oversubscribed By Leading Euro-land PMs and Dealing Desk Heads; ETF Live Trading Session a Major Attraction

    Considering the issuance calendar is chock full of interesting, high yield  deals, we’re hearing that tix for the Oct 11 European Trading & Investing Summit at the May Fair Hotel in London are oversubscribed.

Then again, when taking a look at the “who’s who” of European PM’s and senior dealing desk traders that will be in attendance,  coupled with a trading session that will include “live rounds” fired into the ETF marketplace, and followed by a private cocktail/networking  reception, its no surprise this single-day event could prove to be the single-best place for top Euro fund managers to be on that upcoming Thursday.

Aside from the live fire ETF session being hosted by New York-based WallachBeth Capital’s Andy McOrmond, the program agenda includes interactive, forum discussions covering FX, Fixed Income Derivatives and Alternative Assets: Searching for Alpha.

Noted Andy McOrmond, “We know that the folks at MarketsMedia organize good programs, and because this particular conference is drawing in the top ETF-focused PMs and traders, we already know there won’t be enough seats to accommodate everyone.”

Fragmentation Harming Market Quality, Warn Traders

Courtesy of MarketsMedia

With new trading venues catering to institutional investors ready to enter the fray, market participants say that more fragmentation is not necessarily the solution to cure market imbalances.

‘Fragmentation of the markets is not a good thing for long-term investors,” Manoj Narang, chief executive and founder of Tradeworx, a hedge fund and technology firm, told Markets Media. “Regulators need to look at ways to defragment the market. The more different venues there are, the more traders who are technologically sophisticated are at an advantage.”

Narang asserts that market fragmentation hurts, rather than helps, longer term investors because the technology utilized by institutions is not as sophisticated and advanced as those used by high-frequency trading firms. They are less able to effectively wade through the plethora of lit and dark venues in the markets.

“Having more trading venues just complicates matters,” Dennis Dick, a proprietary trader with Bright Trading, a prop trading firm, told Markets Media. “We keep adding more and more layers, adding exchanges and adding dark pools, to try to find a solution, but really the solution is to break it down and start simplifying it all.”

Noted John Houlahan, Chief Operating Officer of OMEX  Systems, a broker-neutral order routing and risk management platform that provides direct market access to major equities and options exchanges as well as so-called “dark pools” for broker dealers and buyside firms, “We seem to spend as much time adding routes to new exchanges and ECNs as we do building order and risk management applications. I’ve been in this business for 20 years, and I find myself scratching my head when discovering yet another new “liquidity center”, but with a different ‘spin’ compared to already-existing exchanges.

There are currently 13 equities exchanges in the U.S., along with nine options exchanges. Many of the exchanges are operated under the same corporate umbrella, with NYSE Euronext and Nasdaq OMX each operating three equities markets and two options markets apiece. This is an addition to the 40-50 dark pools operated by independent firms and broker-dealers.

“Do we really need 13 exchanges and 50 dark pools and 200 internalizing broker-dealers,” said Dick. “I know the Securities and Exchange Commission had good intentions with Reg NMS but now we’ve gone too far the other way. We need to start simplifying. The solution is not to add more dark pools.” Continue reading