We shape market thinking. Our experts monitor the latest industry developments, engage current debates, and offer ongoing analysis so we're prepared to offer up-to-the-minute guidance. Based on our well regarded understanding of worldwide financial markets, we are able to take an active role in the conversations that inform market regulations and are positioned to advocate for our clients' interests.
The current Oscar-nominated movie The Theory of Everything has its lead character Stephen Hawking laying out his vision of a single equation that explains all physical aspects of the universe. The scientist explains in lay terms the two broad areas of theoretical physics that have emerged over the last century – general relativity (as famously developed by Einstein) and quantum field theory (analysing the properties and effects of sub-atomic particles) – and the challenges of integrating both approaches in one over-arching set of theories. One approach looks at very broad aspects of the universe and space and time, while the other focuses on infinitesimally small objects as the basis for broader theories and interpretation.
As we approach 2015, European regulators are driving a secular shift in the buy side’s payment for research framework. Rarely have non-U.S. policies and procedures generated such a high level of influence on domestic institutional commission structures. Commission Sharing Arrangements are at the center of this debate.
This call discusses the following:
- The conflicting perspectives of the various European regulatory bodies on the future of payment for research
- Order handling and potential outcomes in a post MiFID II marketplace
- How these changes are impacting U.S. based investment managers today and into 2015
How informative are spreads for market participants who engage in FX trading? Can proper spread monitoring and analysis further enhance the investment and trading process? If so, how exactly? Can this relatively "old", sometimes overlooked metric, provide insights into important factors like the likelihood of execution and the cost of liquidity in this OTC market? Can spread analysis support real trading decisions (for example, trading now vs. later)?
Our Global Cost Review report for the Third Quarter 2014 studied global commissions and implementation shortfall costs for the period.
As we move into the new year, the regulatory and market structure landscape is unclear. Exchanges are evolving and the various global regulatory bodies are pursuing a wide range of independent initiatives. This targeted call will focus on near term issues and provide insight into the road forward in 2015.
In Asia’s equity markets, liquidity experienced an upward trend during thethird quarter of 2014 according to ITG’s Asia Pacific ‘Liquidity Indicator’.
The indicator had fallen for three consecutive months in the second quarter, declining from 1088 at the end of March to 1038 at the end of June. It perked
up in the third quarter, rising to 1070 in August and September.
Improved liquidity in early autumn is a feature that has taken place in previous years and 2014 emulates that trend. Although the barometer shows a horizontal line for this year, it bodes well for October and November and liquidity is unlikely to see any downward movement for the rest of 2014.
A little over a week ago, the French Autorite des Marches Financiers (“AMF”) published guidance on certain notification requirements relating to the use of algorithmic strategies for trading in certain French securities. The notification requirement comes into force on 1st January, 2015.
Based on conversations we held with the AMF late last week, we understand that they consider this new rule to be a precursor to the algorithmic trading strategy notification requirements included in the overhaul of the European Union’s Markets in Financial Instruments Directive (“MiFID II”). Whilst we do not doubt the AMF’s resolve to impose an algorithmic trading strategy notification requirement on market participants as part of the MiFID II package, we query if other national regulators such as the U.K.’s Financial Conduct Authority will use their powers under MiFID II to follow a similar approach to the AMF’s.
We demonstrate links between order duration, dark pool performance, and orders filled in both lit and dark venues. Five questions are addressed. Does exposure of an order to lit markets affect trading performance in dark aggregation schemes? Do market conditions affect the degree of dark order exposure to lit markets? Do market conditions affect trading performance in the case of mixed dark and lit child orders? Is there a connection between market conditions and the duration of an order? Do trading costs increase with the number of venues visited by an order? In answering these questions, we find that dark pool aggregation is beneficial. The fragmentation of liquidity enabled through dark aggregation algorithms has not reduced transaction costs relative to directly accessing a single block crossing venue, however.
FROM allegedly failing to execute trades at the best price, to clients being misled about the type of trade being executed, trading in dark pools has taken its fair share of criticism recently. But against this flurry of negative headlines, and with the EU seeking to enforce stricter controls on dark pools, it is important to remind ourselves why investors want to trade away from public exchanges, without prices being displayed until after execution.