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ChrisWhite

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IOSCO Research Paper on FinTech (Read Pages 37- 45) 

Comments
  • Wolfman
    WolfmanFebruary 10, 2017"Once again, features selected by the Friday Newsletter make this a must-read site. This is a comprehensive, neutral and easy to understand state of the state research piece. As a market geek, I was particularly impressed with the execution platform chapter and in the Challenges/Risks summary. I think the juxtaposition of fixed income to equities is spot on, but also believe that we are in the midst of a great transformation which will be characterized by fits and star…"
  • Slider
    SliderFebruary 9, 2017"Great piece! Lots of mention to MIFD II. Will be very topical in the upcoming year as banks have to sort themselves out by Jan 2018.…"
Burning house of dollars on a black background

Nasdaq to Overhaul its Fixed Income Trading Business – Financial Times

Comments
  • Sundown
    SundownFebruary 6, 2017"If one remembers why Nasdaq bought eSpeed is because Bob Greifeld was betting (prematurely) on the volumes and volatility to return to the UST market and hence become a strong player in fixed income. He paid an absurdly high price for it (everyone thought so at the time) as we all know. The real problem was lack of business insight- the failure of Nasdaq to understand the changes in market structure. eSpeed's volume (at least 50%) was dominated by PTFs who extracted v…"
  • Goose
    GooseFebruary 3, 2017"I was always impressed with the sale price vs. the market share and instrument breadth of eSpeed. This is cuffing it, so perhaps a poster/reader has a more accurate depiction. At the sale, you had the treasury market, IDB market ~40% of volumes, eSpeed ~40% of that, trading mainly on the run treasuries, so 12 cusips? I see they are focusing on the off the run business, do they already have meaningful traction there, or is this a new push? It’s rare to get the better o…"
  • Wolfman
    WolfmanFebruary 3, 2017"This appears to be a full departure from the on the run treasury business, the largest and most electronic fixed market globally. For NASDAQ to abandon it and focus on the off the run market seems odd. With the expiry of the non-compete, BGC will likely enter the on the run market and try to regain some market share from BrokerTec. That said, John Shay is a capable leader and I'm looking forward to seeing what he does going forward. HL, great trade.…"
Money in dustbin isolated on white

If A Tree Falls in the Forest: Illuminating the True Costs of Corporate Bond Electronic Trading – ViableMkts

Comments
  • Stinger
    StingerFebruary 3, 2017"Great points, Merlin...really sobering.…"
  • Merlin
    MerlinJanuary 28, 2017"I really like Jester and Goose's comments (and I am sure I have taken shots at them before), they are spot on. I encourage the buy side to read their electronic trading vendor user agreements as my guess is 99% of those trading on them never have, and see what fees are disclosed. I think that you will be surprised to find out that with certain vendors there are no fees disclosed and no fee schedule provided. And also educate yourself as to what 'open trading' charges…"
  • Goose
    GooseJanuary 28, 2017"I was at a recent conference where I heard a buy side firm say "they wanted the incumbents to develop the better protocols they are seeing from new entrants". That gets a 100 on the laugh-o-meter. Yes, let me step right up and develop something that could erode my fat core business, acknowledge and compete in price and innovation with an upstart. As Jester noted, stop looking over your shoulder.. and look in the mirror.…"
  • Jester
    JesterJanuary 28, 2017"Let me give you readers the Fisher Price version of this article: There is no price competition for corporate bond electronic trading and this is costing the asset management community a TON in transaction fees. Why this is happening is a combination of laziness, arrogance, and more laziness. Just read this gem from Vanguard’s 2016 piece (Innovation and Evolution in Fixed Income Markets): “Focusing trading on a limited number of electronic venues, or aggregating trade…"
Stressed blindfolded bald man working on computer.

Pricing (Corporate Bonds) in the Dark – Risk Magazine (free download)

Comments
  • Slider
    SliderJanuary 20, 2017"I think the buy-side is also scarred by what happened in 2008. They understand now that given the evolving regulatory environment, they don't ever want to be beholden to dealers for liquidity. And why should they be at this point given they hold more of the bonds and have better price discovery? Dealers were always banking on the opaqueness of the OTC market to make money and that model is no longer viable given the push to transparency. Depending on the nature of the…"
  • Goose
    GooseJanuary 20, 2017"Risk takes up the mantle on a critical liquidity topic that hasn’t gotten much coverage. Dealer price discovery continues to diminish to the detriment of the dealers, and just as importantly, to the buy side. While the buy side can opportunistically provide liquidity, I believe it is a pipe dream to think they will become truly significant players in immediate risk transfer. The more markets evolve electronically, the more important the market makers become. Ask the e…"
  • Wolfman
    WolfmanJanuary 20, 2017"Information was not at the core of the dealer-as-market-maker model - capital was. In the vacuum left by persistently low rates and regulatory restrictions on capital at risk, the buy-side is engaging as price makers. Rates aren't skyrocketing and risk tolerance may increase somewhat, but the reality is that if dealers can't make money making markets, they have no incentive to do so. I think the most interesting part of the report was that the buy-side starts with a p…"
  • Cougar
    CougarJanuary 20, 2017"I agree with Viper's points. We know the sellside is starving secondary trading of balance sheet for years because the business was not economically viable from capital costs, and more recently increased information asymmetry biased to the buyside etc. Banks now recognize this and better need to control their information. The buyside needs the sellside as its insurance policy not for the 95% of time but the 5% when the buyside price makers and sellside market makers a…"
Stock illustration of two men shaking hand

Wall Street Startup Backed by Soros and Thiel is in Talks to do a Big Deal – Business Insider 

Comments
  • Jester
    JesterJanuary 15, 2017"I hope for the best for these two initiatives, but the numbers don’t look good. Mainly, the institutional corporate bond market simply doesn’t have enough activity to create a meaningful electronic trading business around. One thing is clear. This new combined entity will have to reduce overhead considerably to get anywhere near cash-flow positive in the next few years.…"
  • Wolfman
    WolfmanJanuary 13, 2017""The combination would combine the two platforms' user bases". Electonifie has "unique users" and will be added to "TruMid's actively engaged users". I'm not clear as to what this really means for the merger. There's no clarity as to how much, if any, volume Electronifie has attracted or which platform will be used. The market is looking for an alternative to MarketAxess, that's clear from the number of platforms run by smart people who wouldn't invest without some du…"
Swearing an oath with fingers crossed behind back concept for dishonesty or business fraud

‘Trust But Verify’ in Bond Market – Bloomberg

Comments
  • Merlin
    MerlinJanuary 6, 2017"What do you think market makers do if the don't "make up a price"? Who/where do they get the price from? If someone else, how did the first person in the chain come up with the price? All prices are "made up " in that it represents what someone is willing to pay at a moment in time.…"
  • Goose
    GooseJanuary 6, 2017"I agree with Merlin. This, or shades of it, happen in every pool of commerce out there. You, Mr. Institutional Investor, pulled up your trusty Bloomberg, ran the bond with your own assumptions, and decided there was value in the security at the offer price. Your bad.…"
  • Slider
    SliderJanuary 6, 2017"If he gets off, it would set an extremely bad precedence. Its time for the corporate bond market to head toward transparent pricing - yes you can't make the kind of money you used to anymore if prices are transparent but it is what it is. There is no reason for this type of inefficiency in such an established market. The protocol can't be you can just make up prices whenever you feel like it because 'everyone does it'. Its ridiculous. Have we learned nothing from 2008…"
  • Mustang
    MustangJanuary 6, 2017"This is a complete and utter joke. This defense seems ludicrously stupid. I am pretty sure they got this defense from Animal House: "...You can't hold a whole fraternity responsible for the behavior of a few, sick perverted individuals. For if you do, then shouldn't we blame the whole fraternity system? And if the whole fraternity system is guilty, then isn't this an indictment of our educational institutions in general? I put it to you, Greg: isn't this an indictment…"
Currency tug-of-war concept for business rivalry, relationship difficulties or divorce settlement between a man and woman

Tensions Build Over Bond Allocations and Pricing Feedback – Overbond.com

Comments
  • Goose
    GooseDecember 16, 2016"Breaking down the wall of the new issue construct will be no easy task. It’s been a new issue dream market for awhile now, deals crowded with firms reaching for yield, syndicate desks are shooting fish in a barrel. Auction style IPO/debt raising have worked (Google IPO, US Treasuries,) and Zions Bank has a solid track record of auctioning new and secondary debt, albeit on a smaller scale. Will electronic methods like this catch on as automation continues? What happens…"
  • Merlin
    MerlinDecember 16, 2016"The new issue process in corporate bonds is criminal activity that the regulators have ignored for years. Playing favorites is the rule not the exception. And there is plenty of reason to play favorites; see more secondary flow, take someone out of a position when needed, you know, you scratch my back and I'll make sure you get great new issue allocations! The article seems to suggest that some dealers are going to 'equalisation' (must be European given the use of the…"
  • Wolfman
    WolfmanDecember 15, 2016"Well, well, well, we really seem to have hit a nerve with the 10,000 hours team. It's hard to ignore the sarcastic cynicism with which the experts evaluate the syndicate relationships. It's clearly based on fundamentals that over the past six or seven years have shifted and may no monger represent how this process should actually work. The increase in issuance and its related demand from investors has certainly made the syndicate managers job easier, but in the end, i…"
  • Mustang
    MustangDecember 15, 2016"I always wonder why regulators turn a blind eye to so many clearly obvious "inequities" in FI. In particular, I like this line: "Issuers are paying us for our distribution capabilities and certainty of execution.” If the secondary market is any indication, the increase in electronic trading and the "all to all" sentiment don't say much about your "distribution capabilities" and "certainty of execution". In fact, quite the opposite. Primary issues largely sell themselv…"
Religion, death and dolor  - coffin bearer carrying casket at funeral to cemetery

Rise of Bond ETFs Mean Little Mourning for the Middlemen – FT

Comments
  • Iceman
    IcemanDecember 10, 2016"ETF's are certainly the product of the day at the moment driven in no small part by Blackrock referring to them at every turn which again is no surprise given they generate a significant amount of revenue from the product. There is significant discussion about the consolidation of the corporate bond market and the role the banks played in ensuring they were the biggest winners, I wonder when someone is going to start looking at the ETF market and the 'Asset Managers'…"
  • Merlin
    MerlinDecember 9, 2016"Here is something to think about. How do you value a corporate bond ETF if there are no underlying markets/prices in the bonds making up the ETF???? By definition do the ETF market makers also become the de facto market makers for the underlyings as opposed to today where many of the AP's activity is dominated by taking liquidity?…"
  • Goose
    GooseDecember 9, 2016"Exchange traded ETF’s bring together retail and institutional interest in a myriad of investment strategies across several adjacent FI products. I believe that has to drive flow downstream for larger outright and complex cash trades. Long term plus for the “middlemen”, whomever they may be. Their business model may evolve, but you will need them more than ever.…"
  • Wolfman
    WolfmanDecember 9, 2016"There's no doubt that ETFs are having an impact on trading activity in fixed income, but it seems to me that the underlying processes of creation and redemption will generate activity in the underlyings as well as "upstairs" block ETF trades put together by brokers.…"
Businessman beckoning you with finger to come here isolated on white background

Sellside to join Liquidnet as they warm to fixed income fintech (Reuters)

Comments
  • Slider
    SliderDecember 5, 2016"Agree with everyone else here. Doubtful there will be much liquidity without the big dealers as is always the case. I am also curious as to the fee structure as well.…"
  • Merlin
    MerlinDecember 1, 2016"If there is one thing everyone has learned by now, it is that the major dealers have zero interest in supporting an all to all platform. In the article itself they even state, "Most of the sellside interest is coming from regional banks that perhaps don't have the global client networks" . No kidding that most (read ALL) of the interest is coming from 'regional banks' and let's be clear that when they say regional, they mean the non-major european banks, probably name…"
  • Jester
    JesterDecember 1, 2016"I absolutely love the headline for this article. Reuters, have you no shame? From what I can tell, this is simply a change in policy by Liquidnet to allow the sell-side access to their fixed income platform. What this article fails to mention is whether or not ANY DEALERS have actually joined. I am sure some will, but come on Reuters…..do better. Now what is so interesting about this development is it was a predictable as the winter solstice. Want to know why? Because…"
  • Wolfman
    WolfmanDecember 1, 2016"It seems that deep pockets will come in handy for this launch and I'm curious as to what the fee structures are. The industry in general bemoans the high fees associated with MA and if Liquidnet can survive months of on-boarding liquidity and can build up a business that lowers the cost of execution, they'll have a good chance of surviving. I don't think there's any doubt that there is room for new trading paradigms, but both dealers and buy-side firms are challenged…"