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THE BAML Partners with Thesys on New High-Speed Trading Platform Bank of America Merrill Lynch has rolled out a low-latency market access and risk control platform developed in partnership with a high-frequency trading and technology firm. The platform currently provides access only to U.S. equity exchanges, but the bank is preparing to extend it to U.S. futures in the coming months and then European and Asian markets. A key feature of the platform is that it can process orders and conduct pre-trade risk checks within 10 microseconds, significantly faster than what BAML previously could provide. The SEC recently approved rules that establish new risk management obligations on brokers when providing access to U.S. securities markets. BAML officials emphasized that the new platform fully complies with those requirements while also providing clients with extremely fast access to markets. “While we’ve deployed pre-trade risk checks for some time now, BofAML Express gives our clients an edge by compressing latency to levels unimaginable just a short time ago without compromising any controls,” said Michael Lynch, head of Americas execution services. “Since its production debut, we’ve seen rapid client adoption and increasing volumes demonstrating the continued client demand for high performance trading platforms.” The platform was provided by Thesys Technologies, a subsidiary of a trading firm called Tradeworx that developed an expertise in low-latency automated trading technology for its own trading strategies. “We felt they had the best handle on the high-frequency space,” commented John Goeller, a managing director in global execution services, in an interview with FI. “They understand trading very well and they have built a very sound platform for real traders.” The risk controls include checks that apply to each order as it passes through the system as well as checks that measure aggregate risk in real-time over the course of the trading day. Tim Cox, a director in global execution services, added that the risk system tracks filled orders as well as orders resting in an exchange’s order book, and has the ability to track orders across multiple strategies and trading venues. BAML measures the 10-microsecond latency from “wire to wire”, meaning the time it takes for the Express platform to process an order message after it hits the broker’s switch in a co-location center. This does not include the time it takes for the order message to travel from Express to the exchange, which varies depending on the exchange and the location of BAML’s servers. Cox noted that BAML currently has a presence in all the major co-location facilities 76 Futures Industry | www.futuresindustry.com in New Jersey, giving it extremely fast access to all the major U.S. equity venues. Initially the platform will apply primarily to clients with their own automated trading strategies, but this will expand over time. The bank provides its own suite of algorithmic trading tools to clients, and Goeller said in “phase two” of the roll-out, these will be integrated into the Express platform. State Street and Deutsche Börse Buy Stakes in FX Options Platform State Street Corp. and Deutsche Börse have acquired minority stakes in Digital Vega, a London-based vendor of foreign exchange trading technology. The company operates a multi-bank platform for trading FX options called Medusa that allows buy-side market participants to broadcast requests for quotes to bank liquidity providers active on the platform. Deutsche Börse said it entered into the partnership in recognition of the “changing industry landscape” in OTC markets. Under the requirements of the Dodd-Frank Act, a large percentage of trading in FX options is expected to take place on swap execution facilities. Traiana Partners with Banks on FX Risk Management Traiana, a subsidiary of ICAP, has partnered with four leading prime brokers in the foreign exchange markets—Citi, Deutsche Bank, J.P. Morgan and Morgan Stanley—on an initiative to centrally monitor and manage FX trading activity on multilateral trading venues. Traiana said that by connecting prime brokers and trading venues in real-time, the service will provide prime brokers with the ability to monitor and manage risks from algorithmic and high-frequency trading on a real-time basis. Six FX trading platforms—Bloomberg Tradebook, Currenex, EBS, FXCM, HotspotFX and Thomson Reuters—are participating in the initiative, which is part of Traiana’s Harmony Creditlink service. The key feature of the new system is that it will provide prime brokers with the ability to shut down a client’s trading activity in a second or less. “This collaborative industry initiative addresses a fundamental and immediate industry need—that of providing trading and limit management to prime brokers to enable them to monitor their clients’ credit risk in real-time,” Andrew Coyne, head of FX prime and G-10 eCommerce at Citi, said in a statement. “Initiated independently of any regulatory call for change, this new solution will fundamentally change the way the FX industry operates going forward.” used among Korean brokers, and added that for the brokers, this linkage is a cost-effective alternative rather than establishing a relationship with a separate broker on each overseas exchange. TSE to Migrate Futures to Tdex+ Platform in November ICE Offers Trading Access through iPhone and Android Devices IntercontinentalExchange now supports technology that allows market participants to execute trades on ICE through iPads, iPhones and Android devices. ICE rolled out the upgrade to its mobile application in early July as an extension of WebICE, its proprietary browser-based trading platform. Features include the ability to view, edit or cancel orders, view real-time reports on gains and losses, open orders and completed trades, and view full depth of market display with implied orders and ticker for completed trades. ICE also plans to offer mobile trading through Blackberry devices in the near future. “We’re pleased to offer market participants a secure and convenient way to trade and manage risk across all of our futures and cleared OTC markets,” David Goone, the exchange’s chief strategic officer, said in a statement. “As markets become more transparent and the regulatory landscape changes, ICE continues to create opportunities for our customers with innovative technology solutions.” MF Global Provides Korean Brokers with Access to Foreign Futures MF Global has signed an agreement with Koscom, the financial technology affiliate of the Korea Exchange, that will provide Korean brokers and their customers with access to foreign futures exchanges. Under the agreement, which was announced in July, Koscom will connect its front-end trading platforms to MF Global’s back-end solutions to provide execution and clearing services for exchanges around the world. MF Global is now working with Korean brokers to implement the linkage, according to Raj Bhambhani, the chief executive officer of MF Global Singapore. Bhambhani, who was involved in the agreement, said he sees particularly strong interest among Korean brokers in accessing Singapore Exchange, CME Group, Eurex and NYSE Liffe. He noted that Koscom’s Powerbase platform is widely Tokyo Stock Exchange plans to migrate its futures trading to the Tdex+ trading platform in November, a move that the exchange expects will reduce latency and improve liquidity. The Tdex+ platform, which is based on the Liffe Connect technology, is currently used for the trading of options. TSE said the migration will dramatically improve the exchange’s capacity to process trades and reduce latency to less than 10 milliseconds. The exchange also said it will leverage the capabilities of the Tdex+ platform to introduce a market-making facility, inter-commodity spreads and closed auction facilities. Tradeweb Adds European Equity Futures to RFQ Platform Tradeweb, a company that operates electronic venues for dealerto-client trading across several asset classes, has added European equity futures to the equity derivatives platform it launched in September 2010. The new functionality allows institutional investors to request quotes from up to five dealers on block-size trades before the trades are submitted to exchanges for final pricing, clearing and settlement. There are 12 dealers currently providing liquidity to the platform across all listed and “flex” futures on all eligible European exchanges, including Eurex and NYSE Liffe. Tradweb said the new functionality provides “faster transaction times, better price discovery, and more efficient access to third-party technologies such as order management systems and derivatives exchanges.” The addition of futures complements the existing equity options offering and covers index and single stock futures. Futures Industry | S eptember 2011 77 THE Dutch Trading Facility to Add Equity Options NGX Expands Physical Clearing for U.S. Natural Gas Natural Gas Exchange, a subsidiary of Canada’s TMX Group, is expanding the number of U.S. locations where it offers physical clearing of natural gas products. The exchange added two hubs in July—the Oneok Gas Transportation hub in Oklahoma and the Tennessee Gas Pipeline’s Zone Zero North hub in north Texas. The latter compliments the TGP-Z0 South location, where NGX began physical clearing in April 2011. In February NGX added physical clearing at two other hubs in Texas--Houston Ship Channel–Houston Pipeline Pool, located east of Houston, and Oasis-Waha Pool, a broad region in west Texas. NGX now offers physical clearing at 37 U.S. locations, up from 30 at year-end, as well as in Canada. TOM, also known as The Order Machine, has received approval from the Netherlands Authority for the Financial Markets to allow its members to trade derivatives on its trading platform. The company, which is owned by Optiver, BinckBank and ABN Amro Clearing, said it expects to begin supporting retail trading in options on European stocks in the fourth quarter. TOM currently operates a multilateral trading facility for retail trading in European equities. Deutsche Börse Adds U.S. Economic Indicator to Market Data Division Patsystems Extends Reach in U.S. with Mixit Purchase Patsystems will add cash equities and equity options to the range of products covered by its trading technology through the acquisition of Mixit, a U.S. based developer and vendor of sell-side order management systems and execution management systems. Mixit was founded in 2004 and currently has approximately 170 customers, most of which are U.S. financial institutions such as investment banks, brokers, hedge funds and asset managers. Deutsche Börse announced on June 27 the acquisition of Kingsbury International, a U.S-based economic consulting firm known for creating the Chicago Purchasing Managers’ Index. The Chicago PMI is issued monthly and is widely followed by traders and economists as an indicator of economic activity. Kingsbury’s partner in developing the Chicago PMI, the Institute for Supply Management, said the deal would provide “platform stability” and the potential for a broader audience. The indicator will be part of the exchange’s market data and analytics division, which collects and disseminates data on pricing, trading statistics, and approximately 3,400 indices. In 2010 the division launched its AlphaFlash data and news feed that provides economic indicators directly to trading firms through the exchange’s highspeed global network. “With this transaction, we are able to offer our customers direct access to an important U.S. data source,” Holger Wohlenberg, the division’s managing director, said in a statement. U.S. Traders Gain Direct Access to Osaka Securities Exchange The Osaka Securities Exchange, Japan’s largest derivatives exchange, can now provide U.S. market participants with direct access to its newly implemented J-Gate trading system without having to register as a U.S. futures exchange, following the issuance of a no-action letter by the Commodity Futures Trading Commission on June 1. The no-action relief covers five broad-based stock index contracts that have already been approved by the CFTC, including the Nikkei 225 futures contract. 78 Futures Industry | www.futuresindustry.com NYSE Liffe Offers Direct Access in Brazil NYSE Liffe announced on July 25 that it has received regulatory approval from Comissão de Valores Mobiliários, Brazil’s markets regulator, to offer direct electronic access to its London market. CVM granted a similar approval to ICE Futures Europe in March.