White Paper: Increased Adoption of Central Clearing in US Treasury Market Needed

The Depository Trust & Clearing Corporation (DTCC) has released a new white paper that explores the risks created by U.S. Treasury market fragmentation. The paper, More Clearing, Less Risk: Increasing Centrally Cleared Activity in the U.S. Treasury Cash Market, examines growing concerns around the increased adoption of bilateral clearing for Treasury activity and details the benefits of unifying the market under a central clearing model.According to industry watchers, Treasury market activity today is split between two disparate clearing processes: bilaterally cleared transactions, and centrally cleared transactions via DTCC’s Fixed Income Clearing Corporation (FICC). According to the white paper, interdealer brokers (IDBs) are frequently executing transactions between FICC members and non-FICC members, in which one side of the trade is centrally cleared and the other is bilaterally cleared. The paper notes that this fragmentation is creating “contagion risk,” in part because if a non-FICC member defaults, there could be larger systemic impacts.The white paper notes that the issue of fragmentation has taken on greater urgency due to ongoing market volatility, prompting discussion among industry participants and regulators on the need for an ideal market structure. Prior to 2000, all outright purchases and sales of Treasuries through IDBs were centrally cleared. Today,...

Ray Dalio’s Bubble Indicator Is Showing Warning Signs in Emerging Tech Stocks

With U.S. stocks at levels that seem to defy the economic realities that are facing businesses as a result of the global pandemic, market experts have been focused on whether or not it’s all a bubble. Now Bridgewater founder Ray Dalio has given his take on whether the market should worry investors.In an article posted on LinkedIn on Monday, the Bridgewater co-chairman and co-chief investment officer said he had “systemized” his knowledge of market froth into a bubble indicator. 

EU stocks traded on UK venue in GBP not subject to share trading rules...

European banks and buy-side firms will be able to trade certain EU-listed stocks on UK-based platforms post-Brexit, in a move that will ease some concern for market participants.Under revised plans for the share trading obligation (STO), stocks with a European Economic Area (EEA) ISIN will not be subject to the share trading rules and can trade on UK trading venues post-Brexit if traded in pound sterling.

MarketAxess gains Goldman Sachs as US corp bond market maker

Goldman Sachs is set to become a dedicated market maker and actively stream prices for US investment-grade corporate bonds to the MarketAxess Live Markets order book for institutional credit markets.Leveraging the anonymous all-to-all Open Trading marketplace, Live Markets provides a single view of two-way, actionable prices for the most active US investment-grade bonds, including recently issued debt, benchmark issues and news-driven securities. 

Volatility in the Currency Market

Zach Pandl, co-head of Global Foreign Exchange, Interest Rates and Emerging Markets Strategy for Goldman Sachs Research, discusses macroeconomic risks on the minds of investors, including currency volatility and the low interest rate environment. 

PODCAST: Episode 7: The Cboe Theoretical Value

The Cboe Theoretical Value is a sophisticated, next-generation improvement of Cboe’s existing datasets, and forms a foundational element of Cboe Information Solutions’ options analytics product suite. This cohesive dataset helps customers better understand risk, access markets and make more informed trading decisions. Cboe Theo is now available via Cboe Hanweck here and will soon be used across Cboe’s global derivatives marketplace.

Election Comes into Focus

FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura Company.With a month to go until the 2020 U.S. Presidential Election, the statistical model on gives Democratic challenger Joe Biden an 80% chance to unseat Republican incumbent Donald Trump.  

Blackout at Tokyo Stock Exchange as critical malfunction hits cash equities system

Trading has been halted at the Tokyo Stock Exchange has been shut down completely following a major hardware malfunction on its cash equities system arrowhead.The Japan Exchange Group (JPX), the Tokyo exchange’s parent company, said in a statement on Thursday that a switch to a backup hardware due to a glitch had not worked as intended, forcing it to shut down trading in all listed symbols.

Market Volatility and the U.S. Presidential Election

Market volatility has been the order of the day in 2020, as firms across the globe react instantly to the latest developments, whether that be Covid-19, the global economic downturn or geopolitical tensions. This volatility shows no signs of letting up, with the uncertainty around this year’s presidential election stoking yet another wave of uncertainty.

Three New US Exchanges Launch This Month: Why Now?

U.S. equity market structure is heating up once again as three brand new US equity exchanges are launching within the span of a month.  LTSE launched on September 9th, MEMX on the 21st, and MIAX PEARL Equities will launch on the 25th.  But why?  What makes U.S. equity markets so hot right now?It is simple, really.  It is all about economics and influence.THE ECONOMICS OF U.S. EQUITY TRADINGU.S. equity trading represents a $2.2 billion revenue opportunity for the exchange industry, with revenues from trading, market data and listings all feeding into the businesses. And revenues have been steadily increasing in recent years, rising by 7.2% annually since 2017.  Much of this is driven by this year’s unprecedented Pandemic-driven trading explosion, which is resulting in surging net trading revenues for exchanges.  Net trading revenues (total revenues less liquidity payments) are projected to total more than $906.0 million this year, an annual record and a 33.6% jump from 2019.

High-Frequency Trading and its future in finance

High-frequency trading is a financial innovation that deals with the use of computer software tools to carry out numerous transactions at the drop of a hat. It is a fintech and is also known as HFT. It employs the use of complicated algorithms to investigate different business sectors and carry out orders depending on market conditions. Commonly, the brokers with the quickest execution speeds are more productive than dealers with slower execution speeds. The HFT is also known for high-profit rates and requests to trade proportion, in addition to the high speed of its orders. Citadel LLC, Tower Research, and Virtu Financial are among the top known HFT firms. 

Negative interest rates: Bank of England policymaker defends plan

Silvana Tenreyro told the Sunday Telegraph that evidence from other countries was "encouraging".On Tuesday, the BoE governor played down the prospect of taking rates below zero, insisting it just needed to make sure it could do so if needed.The Bank has so far responded to the pandemic by cutting rates to just 0.1%.If interest rates are negative, the BoE charges for any deposits it holds on behalf of the banks. That encourages banks to lend the money to business rather than deposit it.

The 10 Most Useless Phrases in Financial Markets

It has been more than a year since we last visited the question of annoying financial clichés. I recently asked the Twitterati their least favorite finance phrases, and I was shocked at the overwhelming response. Why does this matter? Useless finance phrases have a pernicious effect on our psyche, leading us to blindly accept ideas that should instead receive critical analysis. It’s not just that catchy phrases are no substitute for actual thinking, they are often wrong.Once again, let’s consider a new batch of the most meaningless phrases in finance:

A worrying geopolitical forecast for financial services

As the Brexit negotiations become more toxic, the UK talks calmly of breaching international law, and the EU gives every indication of opting for Fortress Europe, we can only fear, in the financial sector, that we are heading for the worst of all possible worlds. Forget about Global Britain, we are in a world of America First, Fortress Europe and the Chinese dominated Asian regional model.First, the UK. The proposal to breach international law by re-interpreting the EU Withdrawal Agreement places the UK on par with rogue states whose bond cannot be trusted. Those may have rejected more serious aspects of international law, especially on human rights, but there is, in such cases, a line that is crossed and the UK proposes to cross that line. Second, the EU. 

The U.S. Equities Market Structure Debate Continues

In early July, I was fortunate to host a webinar on “Reg NMS II” for Eventus Systems featuring guest speaker Adam Inzirillo, Head of U.S. Equities at Cboe Global Markets. We had a lively discussion about equity market structure and the potential implications of this proposed regulatory update. We always look at regulations that potentially affect our clients’ trading activities and market risk requirements, and the conversation explored what firms should keep in mind as the proposal evolves.

Restricted Market Trading Comments

As the week commences, Covid-19 related measures for restricted markets remain largely unchanged. Markets such as Philippines and India are still operating in a reduced trading environment. While in Nigeria we continue to experience liquidity issues. Please see below for trading commentary. Effective July 17, Kazakhstan has returned to normal trading hours and as a result this will not feature here going forward.Pakistan: Effective July 13, the Pakistan Stock Exchange (PSX) have implemented revised trading hours until further notice. The exchange will operate from 9:15am to 3.30pm Monday to Thursday and 9:00am to 4:30pm on Fridays. The State Bank of Pakistan (SBP) has yet to make any announcements regarding amended FX hours and as a result there will be no change to the current operating hours.

Coronavirus pandemic will not stop European exchanges’ M&A spree

The coronavirus pandemic is not likely to stop the M&A spree that Europe's top three stock market operators — London Stock Exchange Group PLC, Euronext NV and Deutsche Börse AG — have been on in the past few years.Although the health crisis caused a slump in global M&A activity in the first half of 2020, it has not affected the deal-making appetite in the European financial market infrastructure space. M&A as a means to achieve scale remains attractive to the sector despite the pandemic, law firm White & Case said in its first-half M&A trends report released July 13, highlighting the "aggressive M&A plans" of LSE, Euronext and Deutsche Börse.

EC reveals UK plans for MiFID framework post Brexit

The European Commission (EC) has revealed that at the end of the Brexit transition period on 31 December 2020, the EU rules of the Markets in Financial Instruments Directive (MiFID) framework for investment services and activities will no longer apply to the UK.During the transition period, the EC explained that the EU and the UK will negotiate an agreement on a new partnership. However, there is no certainty whether such an agreement will be concluded and will enter into force at the end of the transition period.

Repo markets: COVID-19, the validation of the electronification model and SFTR

The Covid-19 crisis has not only had repercussions for repo market participants by delaying the regulatory deadlines of 2020, like the EU’s Securities Financing Transactions Regulation (SFTR), but has significantly altered the trading environment. During the exceptionally stressed conditions experienced in February and March, repo markets stood up well according to a recent survey published by the International Capital Market Association (ICMA). Interestingly, the crisis has validated the electronic model and added greater weight to the debate that embedding electronic workflows is not only necessary for regulatory alignment, but can help market participants navigate the unique set of conditions they have been forced to operate in.

Record Percentage of Fund Managers Call U.S. Tech Stocks the ‘Most Crowded’ Trade

The highest portion of fund managers ever believe U.S. technology stocks are the most crowded trade, as investor sentiment remains cautious amid the pandemic, according to Bank of America Corp.’s latest monthly survey.A majority of fund managers believe the stock market is overvalued, with a record 74 percent citing tech as the most crowded position, Bank of America investment strategists said in a report Tuesday. The strategists suggested shorting tech stocks “given positioning and stretched performance.”

Addressing Uncertainties around OTC Market Data

A diverse and competitive market structure has ensured European equity markets remain robust, according to a recently published study by the Association for Financial Markets in Europe (AFME). The study analyzed the liquidity landscape of European markets using data provided by independent analytics firm Big XYT and revealed that for the first six months of 2020, 81% of addressable liquidity was executed on-venue, 13% on systematic internalizers and 6% over the counter (OTC).  Other key findings include:81% of total addressable liquidity is found on-venue, with 13% being traded on systematic internalizers and 6% pure OTC. The share between lit and dark markets remained stable after the application of MiFID II, with the quality of price formation remaining strong.The current range of execution venues serve different functions and market needs. Continuous lit order book trading is not interchangeable with the service provided by systematic internalizers, which play a critical role for pension and investment funds. Pensioners and savers would be worse-off if diversity of trading was curtailed.Better data-reporting is needed to benefit investors, including increased identification and flagging of the different trade categories.According to AFME’s CEO Adam Farkas, a diverse set of competitive execution venues for equities trading better supports...

Bill Gross Has Some Thoughts About the Market

Retired bond king Bill Gross is back to share his opinions about those other publicly traded securities: stocks.Gross on Tuesday published a new investment outlook — his second since retiring from Janus Henderson Investors in early 2019. This time, the former fund manager had some thoughts on growth stocks and why they have done, in his words “so fabulously well.”

S&P Global Cut Its Emerging Market Growth Forecasts

The coronavirus pandemic is affecting emerging markets (EM) to the point where rating agency S&P Global cut its growth forecasts for the EM space. The agency is predicting that a 4.7% fall in the gross domestic product (GDP) would result due to the effects of the pandemic.Per a MSN report, S&P Global’s “downward GDP revisions mostly reflected the overall worsening pandemic for many emerging markets and a larger hit to foreign trade compared to its last set of expectations in April that predicted a 1.8% contraction.”

EFAMA analyses European fund industry trends

Net assets of cross-border funds have grown significantly over the last decade, from €2.8 trillion in 2009 to €7.8 trillion at the end of 2019, according to a new report from the European Fund and Asset Management Association (EFAMA).The new report, 2020 industry Fact Book, provides an analysis of trends in the European fund industry as well as international level, focusing on the US, and other advanced economies and emerging markets. 

VIDEO: TRADE Calls: Swiss Stock Exchange – Equity markets, volatility and shorter trading hours

Tony Shaw, head of sales for UK & Ireland at the Swiss Stock Exchange, joins the TRADE to share his views on the recent market volatility and thoughts on the proposal to shorten trading hours in European equity markets.
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