Much of the recent coverage of global financial markets has been disturbing. The endless sovereign debt crisis in Europe, the Facebook IPO fiasco and the billions that JPMorgan Chase & Co. lost are causing agita for many. I will attempt to provide a much-needed, if short, distraction by pointing out some very interesting financial technology developments.
Here are three things to keep an eye on:
- The Depository Trust & Clearing Corp. (DTCC) and SIFMA want to jolt the trade settlement cycle and have hired The Boston Consulting Group (BCG) to find out how US financial markets can move from T+3 to T+2 or T+1 for equities, corporate and municipal bonds and unit investment trust (UIT) trades. The BCG will investigate the costs and benefits of cutting the trade settlement cycle and will even consider settling trades on the trade date itself (T+0). BCG will survey specialists, including technology and operations staff, at 200 firms over 18 weeks to identify the processes that need to be fixed so that settlement happens faster. The research firm hopes to finish its investigations by September of this year.
- A possible harbinger of similar solutions to come, the CME Group this week launched CME Direct, a transaction platform that enables “side-by-side trading of exchange-listed and over-the-counter (OTC) markets,” officials say. Firms can initially use CME Direct to trade CME Group’s energy futures markets and OTC energy swaps via interdealer brokers (IDBs). The exchange-listed products on CME Globex available through the CME Direct platform are NYMEX WTI crude oil, NYMEX Brent, DME Oman crude oil, RBOB Gasoline, New York Heating Oil and the Henry Hub Natural Gas futures contract. CME Group will license the CME Direct technology to IDBs such as Marex Spectron, Tradition and Tullett Prebon, which offer trading in global OTC oil markets. Traders can execute electronically or use a hybrid, broker-assisted model. Clearing will be through CME ClearPort and CME ConfirmHub for automated front-to-back-office support. Officials say the effort complies with Dodd-Frank and MIFID regulations requiring greater transparency, automation, data reporting and OTC clearing.
- A new company, IEX Group Inc. is hoping to develop a transaction platform that will shield fund managers at mutual fund and hedge fund companies from high frequency trading (HFT), according to a story today in the Wall Street Journal. The founders of IEX Group say they are trying to shield fund managers from HFT firms that trade ahead of their buy and sell orders. IEX’s founders, many of whom are from Royal Bank of Canada (RBC), are recruiting from exchanges and HFT firms and have been reaching out to Janus Capital Group, T. Rowe Price Group, and Vanguard Group Inc., according to the story.
We will keep you posted on the progress of these efforts. In the meantime, you may return to your agita.
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