The CTP will focus on enhancing transparency, liquidity and participation in UK fixed income markets, set to operate as an industry utility, built with an ‘at reasonable cost’ philosophy.  

Read more: FCA moves to consult with industry on UK consolidated tape model as back and forth continues

“The [fairCT] initiative remains open to engaging with others,” confirmed the group, and will focus on the FCA’s priority to lower the costs of accessing trading data and market participation.

In addition, Ediphy has confirmed its intention to bid for the European tape as well. 

The market has been expecting that the UK would prioritise a fixed income consolidated tape first due to the opaque nature of the asset class compared to others such as equities.

With bond trading in the UK currently fragmented and liquidity spread across numerous trading venues and various lit and dark trading protocols, the CT is set to right some key complexities.

Read more: If you build it, will they come? 

Chris Murphy, chief executive of Ediphy, said: “Our approach is fundamentally different from other contenders. First, we aim to return any economic value generated by the consolidated tape provider over its costs and reasonable returns to the users of the tape. Second, we have built this initiative as a collaboration between multiple participants representing all stakeholder groups. 

“No other potential tape provider brings this diversity of experience nor delivers as fully on the alignment of product and customer needs, as proposed under the FCA Consumer Duty commitment.”

The post Ediphy-led consortium enters the race for UK consolidated tape provider appeared first on The TRADE.

Jason Hoang

The move will allow its clients access to a low-cost mechanism to trade fixed income, as well as access to comprehensive liquidity from fixed income providers and venues across the US, Europe and APAC.

Speaking to The TRADE, Jason Hoang, chief executive of Iress global trading and market data, explained: “We’re seeing increasing demand from our customers for a single entry-point to fixed income markets.

“This collaboration ensures our clients can easily access the liquidity and services they need.”

Hoang also flagged that fixed income demand is firmly on the up, with 20% of customer order flows being aligned to fixed income as an asset class in some cases.

As a specialist in fixed income execution and workflow automation and large-scale analytics solutions, Ediphy has aggregated liquidity in excess of 250,000 international securities identification numbers (ISINs). 

Specifically, Ediphy offers automated execution in: government, sovereign, supranational, and agency bonds, credit bonds and cleared interest rate swaps.

“Investment managers are finding fixed income electronic trading more complex and costly than ever. Ediphy’s partnership enables Iress clients to obtain an advanced global fixed income trading capability, with minimal cost and effort, Christopher Murphy, chief executive of Ediphy tells The TRADE.

The post Iress and Ediphy partner on fixed income offering appeared first on The TRADE.

This award recognises those trailblazers looking to revolutionise the way the industry operates by optimising workflows, creating new routes to market ,and offering up new and innovative technology to replace manual tasks.

After an extensive selection process, The TRADE and Instinet have chosen an eclectic selection of firms for this year’s shortlist, including: Ediphy, Octaura, Saphyre and smartTrade Technologies.

Ediphy

Designed as a single point of entry to the fixed income markets for participants, Ediphy has made waves in the last 12 months. The firm is known for both its data and analytics,and its fixed income execution offerings, combining the two to become a swiss army knife for fixed income traders looking to navigate the markets.

At the end of last year, Ediphy launched its credit and cleared interest rate swaps solution alongside its existing government bond trading capability. Since this expansion of its remit, the firm has announced several other new initiatives aimed at further assisting participants using its platform.

In June, Ediphy launched a new artificial intelligence tool for assessing bonds liquidity, aimed at addressing challenges posed by fragmentation in the fixed income markets.

Named Liquidity Checker, the tool allows users to input their own bond interests in a personalised watchlist and subsequently gives real time notifications of shifting liquidity.

The system scans the market and then notifies users of the optimal time to trade their chosen instruments. If their chosen bonds are lacking liquidity, the tool allows users to broaden their search to alternative options. It also has a “smart search” function that will make its own suggestion to similar bonds for the user’s chosen portfolio based on reference and market data.

This was followed by a new all-in-one platform aimed at addressing workflow and data challenges in the fixed income space, namely data overload and disparate workflow environments, launched in September. In practice, the solution captures internal data for clients, including orders, axes and RFQ history and subsequently combines this with liquidity data from various market gateways.

Octaura

In April, Octaura, an electronic trading, data, and analytics solution for syndicated loans and CLOs, officially launched into the market as the first comprehensive syndicated loan trading venue delivering trading protocols, real-time data and analytics on a single platform. The firm has received backing from Bank of America, Citi, Credit Suisse, Goldman Sachs, JP Morgan, Moody’s Analytics, Morgan Stanley, and Wells Fargo. It was also shortlisted for The TRADE’s Editors’ Choice Outstanding Electronic Trading Initiative in 2022.

Backed by the seven syndicated loan market dealers, Octaura developed a platform which allows clients to execute via traditional request for quote (RFQ) on single line items, or a list of facilities, leading to other portfolio trading protocols based on participant demands like optimisations and ramps. Built in collaboration with Genesis Global, Octaura asserts that its platform reduces friction points and potential errors inherent to manual trading with automated trade bookings, utilising straight through processing and working with order management system providers to develop pre- and post-trade integration functionalities.

The loan trading platform is currently live with 81 buy-side clients and 11 dealers, with another 50 buy-side firms in the onboarding process.

In October, Octaura Holdings integrated list and request for quote (RFQ) protocols to its existing syndicated loan trading platform. The new protocols will provide clients with faster trade execution and enhanced price transparency with straight-through processing, alongside streamlining trading workflows for dealers and buy-side investors.

Up next for Octaura is tackling the CLO market. The firm is currently onboarding accounts for the launch of a beta version of the CLO trading platform, which will feature dealer axes and RFQ protocols later this year. Octaura is also developing a solution for the “challenging and time-consuming” BWIC process, which is expected to launch next year.

Saphyre

After an incredibly strong 2022 for Saphyre, the firm has continued to excel and innovate, constantly pushing the boundaries of its client offering. Saphyre’s interoperable artificial intelligence technology helps firms to digitise and structure shared data and documents pre-trade. This allows firms to assess risk faster, as well as speeding up the onboarding process by eliminating inefficiencies in the booking, confirmation, and settlement process.

Last year, saw Saphyre receive backing from JP Morgan and BNP Paribas in a Series A funding round of $18.7 million and gained traction for its flagship artificial intelligence solution from Legal & General Investment Management. Among the other major names added to its roster in 2022 was Societe Generale, which onboarded Saphyre’s platform for buy-side fund onboarding. The work gained the firm a shortlisted nomination for the Fintech of the Year award at Leaders in Trading 2022.

However, Saphyre’s work did not stop there and in 2023, co-founders Gabino and Stephen Roche, have shown no signs of abating when it comes to further innovating their platform. In February, the London Stock Exchange Group’s (LSEG) FXall business entered into a strategic alliance with Saphyre to digitise account onboarding for FXall clients through Saphyre’s AI technology.

Saphyre’s AI technology gives liquidity providers the ability to systematically approve accounts and is validated and live for a subset of FXall clients – with plans for all FXall clients to receive the offering as additional enhancements are made this year. The technology will offer asset owners and buy-side users the ability to share all their FX account data and documents with their respective liquidity providers and FXall. Elsewhere, sell-side users will have the same capabilities alongside being able to provide statuses to the accounts’ KYC, tax, credit risk, legal and ops setup activities.

smartTrade Technologies

Last but not least, smartTrade Technologies has had a stellar year both in terms of bolstering its offering and expanding its client base. The firm provides an end-to-end multi-asset electronic trading and payments technology suite across foreign exchange, crypto, fixed income and derivatives. According to smartTrade, it is connected to more than 130 liquidity providers.

It’s core offerings include LiquidityFX, an ultra-low latency FX trading solution, smartFI, a sell- and buy-side fixed income trading solution, and its expansive suite of analytics. In March, Japanese securities firm SMBC Nikko Securities selected smartTrade Technologies’ fully hosted and managed FX platform LiquidityFX to enhance its FX trading activities in Japan. The platform provides aggregation, smart execution, risk management, order management, analytics, payments and multi-channel distribution, alongside offering support for a range of instruments including FX spot, forwards, swaps, NDFs and options.

The firm prides itself on its newly established artificial intelligence offering. Announced in September, the ‘smart Copilot’ tool aims to enhance front office payments and trading. smart Copilot leverages the integration of several large language models (LLMs) and technologies including OpenAI ChatGPT to provide an enhanced and tailored sales assistance offering that optimises trading.

The post Leaders in Trading 2023: Meet the nominees for… FinTech of the Year appeared first on The TRADE.

AI has become a part of our daily lives, with platforms such as ChatGPT being increasingly used by anyone with access to a computer. Looking through the lens of fixed income, a potential new era of precision, efficiency and insight is set to dawn as traditional workflows become paired with the boundless capabilities of AI. Already, the technology has begun to redefine how the industry approaches trading strategies, risk assessment and portfolio management. 

A paradigm shift

“AI’s integration into fixed income trading is not just a mere addition; it’s a paradigm shift,” says Eric Heleine, head of buy-side trading desk at Groupama Asset Management. “By emphasising data integration, real-time analysis, predictive modelling, and advanced computational techniques, AI is setting the stage for a more informed, efficient, and profitable trading future.”

The use of AI can help traders move away from grid based and structured auto-execution rules. Instead allowing them to become more agile and data dependent when it comes to execution strategies for specific orders. 

While AI is currently being used for the automated routing of simpler trades and smaller orders, this can be taken further still. For example, to determine which broker should be used according to an order’s level of difficulty using real-time data including axes, trades, wire time behaviour and related markets.

“The next step would be broker selection: If we balance information leakage against price discovery and only ask a limited set of counterparts, the key question becomes who to ask,” says Eric Boess, global head of trading at Allianz Global Investors. “Experienced traders do all this naturally, but machines are faster in digesting data and turning it into actionable information.”

Real-time analysis in the fast-paced world of trading becomes vital. As new market data sets continue to emerge, AI is able to analyse that data, ensuring that traders are ahead of the curve and able to adjust their strategies alongside everchanging market dynamics. The use of AI allows trades to be executed autonomously while also adapting to market conditions and developing from past trading scenarios. 

“This not only streamlines the trading process but also minimises human errors, leading to more consistent and profitable outcomes,” adds Heleine. “AI’s ability to analyse past trading patterns and forecast future liquidity conditions is invaluable, especially in a market known for its occasional illiquidity. Such predictive insights ensure traders can time their trades optimally, mitigating risks and maximising returns.”

Execution

The role AI plays in fixed income is proving to be more and more impactful, especially in the execution process. AI has the ability to amplify the ways in which traders operate, allowing them to scale their processes and make complex decisions in a more informed way. The technology, which has somewhat evolved from automation in the pre-trade stage, where data is used to create rules for low-touch trading, and is shifting towards more complex high-touch trades. 

“We now have a sea of data, the question is how you use AI to deal with and manage that sea of data in intelligent ways to bring the most important things up to the top and how do you deal with attention in the sea of data,” notes Chris Bruner, chief product officer at Tradeweb.

“To execution, which is more concrete, where traders need to pay the lowest cost and have the best liqudity across a wide swathe of trading, AI is able to lower costs, scale humans and make the process much more efficient so you can do more with less and you can handle lots of market environments. Broadly, it’s going to affect pretty much every part of fixed income – it’s just a matter of how.”

AI is able to assist in decision making processes when determining the timing of a trade, what dealers to use and all the other parameters that go into making a trading decision. These tools are able to optimise the decision that traders are making, but AI is only as good as the data that goes into it. 

“These models are very good at looking at historical information with a level of statistical significance, giving an estimation of what might happen in the future based on all the different parameters that one looks at right now,” says Lisa Schirf, global head of data and Analytics at Tradeweb.

“They’re very good at doing it in a way where humans simply can’t take that much information into account. Liquidity is certainly an area that can be predicted whether it’s for security or overall market.”

Targeting liquidity is an ever-important part of a trader’s role and AI can help assist in this process. However, liquidity is subjective and can mean different things to different people. Historically, metrics have been created that are fairly linear but inherently, liquidity tends to be feature based and dynamic in markets. 

“The latest AI model approaches are really well suited to help humans understand what liquidity conditions are and how they rapidly change, and then use that information to execute within changing markets,” adds Bruner. “There is this inherent non-linear, picking up the patterns and features in large, complex multidimensional data sets, where AI can be really well suited to helping people understand liquidity.”

In fixed income, a large instrument universe with sparse data exists where one may not see much observable liquidity on a certain ISIN. However, when you start to look at a collection of instruments, axes, real quotes or trades, AI is able to provide more observable prices. 

“With some of these machine learning or AI models, you can start to use AI to help you to impute where certain pricing or where liquidity should be, based off a broader set of data,” notes Chris Murphy, chief executive of Ediphy. 

“The optimal right now is man and machine working together in tandem. We’re going to see an acceleration of people deploying machine learning algorithms to assist in that process. All of these models are only as good as the data they’re trained on. Because traditionally in fixed income, there has been a paucity of real high-quality data that you can rely on, you need to be a little bit more careful about whether the model is sitting on top of weak foundations.”

The importance of data

In fixed income, a growing number of machine learning techniques are required to help aggregate and make sense of the very broad and quite disparate set of data which exists in fixed income markets. 

What AI enables is the ability to aggregate – in real-time – data sets and to make predictions about where a bond is likely to trade and how much liquidity there is likely to be in the marketplace. AI is able to produce signals which can help inform decision points for traders, with data essentially being a vital part of the decision-making process in the execution workflow.

“What we’re able to do with AI is feed into the model a very, very broad set of data points – including data points that may not be about the specific bond that we’re trying to solve for,” says Gareth Coltman, global head of trading automation at MarketAxess. 

“The machine learning model can then iterate and select which of those data features are the most reliable signals of liquidity when they’re tested against the market. What we’re seeing today is very broad adoption of these machine learning tools, and that’s because their ability to predict reliably and consistently is really benefiting the traders that are using them.”

The role of passive inflows and ETFs

The evolution of the fixed income ETF space has brought more automated market makers into the space, due to the ETF market based around equity market structure. This has seen fixed income markets translate more of their activity in the ETF market into the single lane market, allowing the ability to stream firm pricing on single names and respond to RFQs in a more automated fashion. 

“It’s really raising the bar for all of the dealers out there to say look, if you’re not able to algorithmically price a certain part of the credit market then you’re not going to be fast enough to be able to respond to RFQ inquiries,” adds Murphy. “Someone else is going to respond quicker, with a more accurate price and your market share is going to be eroded. Via an indirect mechanism, the growth in the ETF market and growth in passive is actually changing the rules of the game and raising the table stakes for you to be in the flow credit space.”

Managing high levels of flow

In terms of helping larger firms manage flow, AI can be extremely useful in detecting outliers by monitoring previous history of how traders approach their accounts including when certain inflows come in and how much is traded. If something were to go wrong in the execution process, AI is able to notify traders that something is not right and can help stop that specific trade from executing. 

“AI is essential for this problem domain because it’s difficult to capture all possible outliers using simple rules, but AI can even spot complex outliers in seemingly conforming individual data units that collectively represent an outlier,” notes Miles Kumaresan, founder and chief executive of Wavelabs. 

However, Kumaresan re-emphasises the need for AI to be based on accurate, useful data. 

“A neural network is just a sophisticated statistical engine. Its magic comes from its ability to identify levels of abstract relationships between a set of inputs and the associated target dataset. AI’s performance is not so much defined by the large amount of data it uses, but about learning from the representative dataset. Finding the representative dataset is a challenging task and is essential for the AI’s prediction accuracy, and to avoid unwanted biases and surprises.”

For firms managing large flows, automation solutions are essential to help desks execute low touch flow. AI is able to assist traders when assessing whether resources need to go into a specific trade and whether it is something that a human trader needs to see. However, it is important that appropriate barriers are set to make sure traders are able to catch everything that needs human intervention. 

“You don’t want to have situations where a trade that needed manual attention has gone through for automation because the rules are too simplistic. You also don’t maximise your opportunities for automation using that type of rigid, parameter-based approach,” adds Coltman. 

“AI can be used to make a better, more finely tuned decision about what needs to end up with a human trader, and that really is going to allow you to maximise how much benefit you are getting from automation and able to tweak that efficiency to the maximum possible level.”

The evolving role of the trader

As with any new introduction and evolution to the trading desk, things have to adapt. AI has the potential to elevate the trading process, reduce the amount time spent on trades that could be automated and also help traders make more informed trading decisions. However, the role of the human trader remains vital, as AI has not reached a point where trading flows do not require managing and monitoring. 

Financial markets, as we see repeatedly, are very complex. Traders and market practitioners still hold an edge by being able to provide a real view on context. Although the role of the trader is shifting, AI is far from being a human replacement. 

AI requires a high degree of care when implemented. However, the benefits that AI can provide to fixed income markets should be taken into account when developing new trading strategies. 

“This shift doesn’t diminish the importance of traders but redirects their expertise,” notes Heleine. “For complex execution or bundle multi-asset execution, the trader will be equipped with richer insights and predictions. This empowers traders to make more informed decisions, rapidly respond to market shifts, and identify opportunities or threats that might have previously gone unnoticed. As AI constantly evolves, traders must continuously update their knowledge to effectively harness the latest technological advancements in the market.”

The post Artificial Intelligence in fixed income: A paradigm shift appeared first on The TRADE.

Ediphy Context has been created in response to client demand, according to the business, focused on managing price discovery, market surveillance, and trading workflows.

Ediphy highlighted the sector’s critical challenges: price opacity, poorly integrated internal data, and liquidity fragmentation as key points of focus.

In practice, the solution captures internal data for clients, including orders, axes and RFQ history and subsequently combines this with liquidity data from various market gateways.

In an announcement Ediphy highlighted that additional analytics and workflow plug-ins allow for one-click insights and productivity enhancements, adding that “the result is better information, better decisions and better execution – all via a next-generation user experience in the client’s web-browser”. 

The solution is also versatile and aimed at assisting traders, portfolio managers, quant analysts, compliance and senior management with navigating their organisation’s specific wealth of data and work items. 

The analytics are enabled by Ediphy Virtual Data Manager (VDM) and Ediphy Context protects its clients’ data through IAM-based permissioning, SSO integration and versatile cloud management. 

Read more – Fireside Friday with… Ediphy’s Chris Murphy 

Chris Murphy, chief executive and founder of Ediphy, highlighted the importance of addressing the current challenges facing the fixed income market: “Our mission is to help clients optimise their workflows and leverage valuable internal data in order to make better informed decisions. Fixed income technology is critically affected by disparate workflows and fragile data integrations. 

“With Context, clients get unprecedented insights and simplified workflows for their core activities. Support for plug-ins of further data, analytics and workflows enable Ediphy Context to evolve into a rich ecosystem at the centre of the daily work of any fixed income professional.” 

Earlier this year, Ediphy launched a new artificial intelligence tool for assessing bonds liquidity – Liquidity Checker. Its aim is to address challenges posed by fragmentation in the fixed income markets, allowing users to input their own bond interests in a personalised watchlist, subsequently giving them real time notifications of shifting liquidity.

The post Ediphy unveils fixed income workflow tool appeared first on The TRADE.

Recognising the most innovative pioneers in the industry, the Fintech of the Year Award is one of our most highly regarded categories, with previous winners going on to shape the trading and execution landscape.

This year’s award will be presented during The TRADE’s annual gala awards dinner, returning this year to The Savoy Hotel in London on 8 November. 

Fintech of the Year joins our other prestigious awards categories, including: Editors’ Choice, Algorithmic Trading, Execution Management Systems, Outsourced Trading, Rising Stars of Trading and Execution, and Buy-side Awards.

The TRADE and Instinet would like to extend their congratulations to the following shortlisted nominees for 2023:

• Ediphy
• Octaura
• Saphyre
• smartTrade Technologies

2022 winner: Appital

The post Leaders in Trading 2023: Fintech of the Year Award shortlist announced appeared first on The TRADE.

Named Liquidity Checker, the tool allows users to input their own bond interests in a personalised watchlist and then gives them real time notifications of shifting liquidity.

The system scans the market and then notifies users of the optimal time to trade their chosen instruments. If their chosen bonds are lacking liquidity, the tool then allows users to broaden their search to alternative options.

It also has a “smart search” function that will make its own suggestion to similar bonds for the user’s chosen portfolio based on reference and market data.

“With our Liquidity Checker, Ediphy is enabling the next-generation of fixed income execution by providing traders and PMs with the tools they need to improve execution success,” said Chris Murphy, Ediphy CEO.

“By leveraging our graph technology, robust data analytics and deep market experience, market participants rely on Ediphy to notify them when market conditions are optimal thereby allowing them to streamline their trading process. This not only saves time and effort but also maximises execution success while mitigating the risks of being stuck on an illiquid trade.”

Read more – Ediphy Markets launches new execution offering

It’s the second bonds liquidity-focused initiative from Ediphy in less than a year after it also launched Ediphy Credit in October 2022. The new offering claims to combine data and analytics with venue connectivity and order routing capability to improve traders’ ability to access liquidity in the credit markets and reduce time spent on manual tasks in the price discovery process.

The post Ediphy launches new artificial intelligence tool for assessing liquidity in bonds appeared first on The TRADE.

The early signs are positive: A real-time pre and post-trade consolidated tape for equities has already gained strong support across key EU institutions, and is something we at Cboe have long advocated for to help drive investment and improve the resilience of markets. In the area of equity transparency, the bloc has a choice: Pursue an approach, supported by incumbent EU exchanges, of forcing market participants into low latency central limit order books, in the naïve belief that this will enhance institutional investor outcomes; or realise that the best way to attract investors to Europe is by catering their diverse needs and offering different trading mechanisms for price and size discovery.

The UK is embracing the latter approach, and we are hopeful EU policymakers will follow suit to restore its competitiveness and promote open, competitive and pan-European markets, which ultimately benefit end investors. Elsewhere, we believe brokers will continue to migrate their passive, displayed liquidity to pan-European venues that offer higher execution certainty and lower costs, as well as to alternative mechanisms such as pre-trade transparent Frequent Batch Auctions that help minimise price slippage.

Improved transparency is elusive – why? Trade reporting remains fragmented, not standardised and APA data is difficult to access. But hope exists! Amendments to MiFID II in 2021 lifted the technical and commercial impediments to a CTP emerging. The glass is starting to look half full.

Dissenting voices remain from those seeking to protect entrenched positions. Those in support of the CT need to up their efforts to present the benefits. Peering into 2024, I predict the CT will encourage growth in market participation, reduced market data costs and improvements in data products: liquidity analytics, TCA, pricing engines and portfolio valuations.

In 2023 [I predict] we will see political agreement on the legislative framework affecting market transparency. Q3 will mark the start of The CT tender process and by year end a CTP will be appointed. The CT will be one run as a market utility not as a data monopoly.  Surely, this is the fairest way? 

“The best way to predict your future is to create it,” Abraham Lincoln.

Adam Conn, head of trading at Baillie Gifford: T+1 settlement – coming to a market near you? Assuming the US and Canada go live in 2024, I imagine the full impact of mismatched settlement dates; funding costs and the ability to trade settlement FX become more apparent to market participants. Will the UK and EU follow suit? I don’t want to spoil the surprise. 

Matt Short, equity trading desk manager, BNY Mellon Pershing: Regulatory reform of global capital markets will continue to influence the trading landscape in 2023 and beyond. Cost transparency and payments for order flow (PFOF) is a growing focus for regulators around the world but differing opinions on dark pools and alternative trading systems is creating divergence that will ultimately lead to increased market fragmentation in the year ahead.

Market data pricing is another priority for regulators, but standardising data across jurisdictions requires consensus from regulators, exchanges, SROs, broker-dealers and third parties – a highly complex undertaking and a process that will result in a lack of harmonisation between markets (e.g., UK and EU) as they build out their own agendas for capital markets growth. This increasingly complex, and in some cases fragmented, regulatory agenda will have a disproportionate impact on smaller firms, with the time, tech and expertise it takes to be compliant increasing fixed costs and subsequently impacting the bottom line.

Therefore, heading into 2023, we expect to see more mid-sized firms turning to outsourced solutions to build efficiencies and avoid the rising cost of high-quality execution, focusing instead on fiduciary obligations to clients.

Linda Gibson, director and head of regulatory change, BNY Mellon Pershing: Resilience and adaptability will be essential strengths for firms through 2023. Trading professionals need to be cognisant of the shift away from the predictable regulatory agenda they are used to as UK and EU regulatory bodies step up their often politicised post-Brexit battle to lure financial services to their respective shores. To date, we have seen UK and EU regulators take different approaches to operational resilience, CSDR and MiFID II, and divergence on rulemaking should be seen as a given moving forward. Politics will continue to shape the UK-EU relationship for financial services, with the UK taking a principles-based approach to regulatory reform while the EU adopts a more prescriptive plan of action. For example, the UK is looking to remove the share trading obligation (STO) and double volume cap (DVC) as part of the Wholesale Markets Review whilst EU proposals will recalibrate or make technical changes.   

In UK policy, we can expect tax reductions and deregulatory initiatives from the government in 2023 and beyond in an attempt to boost international competitiveness and stimulate financially-led GDP growth at a time of economic decline. As outlined in Jeremy Hunt’s autumn statement, this will include a plan to repeal EU red tape and replace it with rules tailor-made for the UK. However, it is important for firms to remember that even deregulation will require internal changes and adaptations. It won’t simply be a matter of switching off on certain compliance matters.

James Baugh, head of European market structure, Cowen Execution Services: We should hopefully get clarity in the early part of the year on where the European Council, Parliament and Commission stand on key issues regarding proposed dark and Systematic Internaliser thresholds and the Consolidated Tape. However, it’s unlikely we’ll see any agreement reached until mid-year or later.

This will depend on whether a compromise can be reached between those looking to compete with the UK versus those considering more inward-looking policies. Regardless, changes are not likely to kick in until 2024. Separately, the FCA will hopefully provide some clarity on several of its proposals, including the UK’s version of the CT. In the interim, the EU and UK will have to contend with a number of operation hurdles in 2023, including the end of the SEC’s No-action letter on “hard dollar payments” for research, which kicks in mid-year and readying for the introduction of T+1 settlement in the US which is currently scheduled for Q1 2024.

Liquidity trends will likely continue on their current trajectory as alternatives challenge the incumbent exchanges for market share and the primary close remains under competitive pressures. Retail will also likely continue to be a topic of discussion into 2023, including whether the EU will impose an outright ban for Payment For Order Flow. And finally, I hope ESG continues to be part of the discussion regarding the improvement of trading workflows and the wider execution business throughout next year.

Hayley McDowell, EU equity electronic sales trader / EU market structure consultant, RBC Capital Markets: Next year will be a critical one for regulation in European equity markets. Approaching two years after the UK formally left the EU, the bloc is still contemplating the future of regulatory alignment with the UK. Despite recent market earthquakes, the UK remains a vital market in Europe and any divergence presents a major challenge to participants from across the spectrum. Next year, the MiFID review will come into sharp focus – as the EU looks to shore up aspects of the regulation while maintaining its competitiveness not just with the UK, but globally.

We can also expect a debate around what an effective consolidated tape looks like – there is a huge opportunity to grow secondary markets – but the success of the tape will depend on the proposals put forward by the EU. Market participants will be keeping a close eyes on the regulatory debate in Europe and whether it will bolster market structure or fall short.

The post The TRADE predictions series 2023: Market structure and regulation, part one appeared first on The TRADE.

Chris Murphy

It’s been a pretty flat out year for Ediphy. Whilst many people know us best for the data analytics work we have showcased regarding our advocacy on the consolidated tape, our main business is our fixed income execution offering.  

This year has seen us significantly expand the scope of that service, having recently launched our credit and cleared IRS offering alongside the existing government bond trading capability. It has been amazing to see the warm reception the execution service has received from our initial clients who are getting better trading outcomes from the outset. I’m also incredibly proud of our product and engineering teams who have delivered so effectively on our vision for a data-driven execution experience for the buy side.

How close do you think we are to a consolidated tape, and what are the remaining obstacles?

It feels really close right now. I appreciate how, for many, the subject feels a bit like Groundhog Day, but I think the Europeans have a sensible proposal for the bond tape with deferrals which balance the needs of all market participants. The whole process continues to be held up by the issues associated with the equity tape, however I think a compromise will be made to get that over the line in the coming months.  

Unfortunately, in order to get agreement on the equity tape it looks likely that there will be a number of opt outs for smaller venues and some optionality on payment for order flow (PFOF) for member states which will detract from a certain level of harmonisation, and a fully-fledged pre-trade tape is looking less likely now. Alongside these European developments, the UK Chancellor reaffirmed the UK’s commitment to a CT in his recent Edinburgh announcement, with the FCA already beginning its policy work on the topic, so we are hopefully looking at the prospect of having broad-based transparency on this side of the Atlantic in the not too distant future!

What can we expect from the upcoming Mifid II amendments and when do you think they will be finalised?

It is clear that the post-trade bond CT will have all of the necessary elements in the amendments for a tape to emerge, namely mandatory contributions, the removal of the free after 15 minutes requirement and a more sensible approach to deferrals. Whilst the framework for corporate bonds is broadly agreed, this being the primary focus of legislators from a Capital Markets Union (CMU) perspective, I would like to see a similar updated structure for sovereign bonds, which to date have been a bit of an afterthought. Given the essential role government bonds have in setting the benchmark level of rates, it would be a perverse outcome if we ended up with less transparency there than in credit. I anticipate the outcome on the equity tape will leave nobody happy, which I guess is the expected result when there is no broad consensus.

What role would Ediphy like to play in the consolidated tape and what do you expect for 2023?

Given our strong conviction that a CT is essential for the development of fair and efficient markets, we are working with a number of other industry participants to be involved in the tender process for the bond tape next year. We would hope that the legislation will get done in Q1 or Q2 next year with a tender running before year end. The work we have done already, having been consolidating the data for the last four years, puts us in great shape to be able to deliver an initial offering soon after the mandate is awarded. 

What other areas are you working on, other than the CT?

Our core focus is working with buy side firms to help them streamline and automate their fixed income trading. As anyone in the fixed income markets knows, liquidity is fragmented with different sub-sectors of the market requiring different solutions. This leads to the trading desk having to cope with either fragmented workflows or reduced access to venues which may offer better liquidity. We solve that problem by integrating to multiple venues and liquidity sources and providing a single point of access to everything. Furthermore, as we know from the upcoming developments on the CT and other initiatives, the use of data to optimize execution outcomes is becoming paramount. Our technology is designed to bring all context specific data together to benefit pre-trade, point-of-trade and post-trade processes.  

What can we expect from fixed income in 2023?

With central banks continuing to try to find a path between tamping down inflation and avoiding a severe recession, we can expect to see continued volatility. Various commentators note the ongoing challenges to accessing market liquidity so we think trading protocols will evolve and traders will look for alternative ways of executing their business. In addition, if asset values continue to remain under pressure this will feed through to cost pressures at many asset management firms, potentially accelerating the demand to streamline and automate more of their investment process. With yields having finally returned to more interesting levels for investors, what is certain is that fixed income will remain compelling in 2023 and beyond. 

The post Fireside Friday with… Ediphy’s Chris Murphy appeared first on The TRADE.

Experts from Norges Bank Investment Management (NBIM), the Dutch Authority for the Financial Markets (AFM), MarketAxess, Ediphy and ICMA dived deep into a debate around the endless issue of a European consolidated tape this week, warning that although the end could now be in sight, numerous issues remained to be resolved – including concerns around data quality.

“From a development perspective it’s perfectly possible,” said Matthijs Geneste, project lead for consolidated tape at AFM. “The more important element to consider is data quality and consistency.” He also raised concerns around the quality and consistency of data reporting.  

“If you look at the standards we’ve achieved with Mifir data, especially with RTS 1 and 2, we’ve seen that those pieces of legislation leave a lot of room for different interpretations and that has had an impact on the data quality we see as a supervisor.” 

Chris Murphy, CEO and co-founder of Ediphy, which is currently working with a number of institutions including NBIM in order to create a European non-equity tape, added his thoughts on data issues from a provider perspective. 

“With the best will in the world, there will be data quality issues.”

“Creating market standards is a necessary step and providing further guidance on that is critical. But we’ve been consolidating this data on a delayed basis for the last few years now and, with the best will in the world, there will be data quality issues. Looking at the data now, because it hasn’t been consolidated, it simply isn’t easily consumable. Once users start looking at the data, even more issues are going to come out.” 

Murphy suggested a triaging system to try and address the data issues as they arise. “The provider is going to be the first port of call to start dealing with these issues more proactively. Then we can take this feedback back to the market and start trying to create a system to fix them. We need to work towards a higher quality CT – ultimately, what we want is a tape everyone can rely on, where a misprint on the tape isn’t going to cause a huge issue in the marketplace. An extension to that is that we need a way of tidying up the reference data. For example, we need to make sure the entire market has an understanding of what an ISIN actually is!” 

“The last thing anyone needs is a flaky tape, so scaleability and resilience are key,” agreed Raj Paranandi, chief operating officer, EMEA & APAC at MarketAxess, which earlier this year joined forces with Bloomberg and Tradeweb to become the European consolidated tape provider. “But there is a lot of wood left to chop.”  

“The last thing anyone needs is a flaky tape, so scaleability and resilience are key.”

One thing the panellists agreed upon was that a consolidated tape was not an exercise in profitability, but a project to benefit broader market efficiency. “Is the CT a moneyspinner? No,” emphasised Paranandi. “Nobody I’ve spoken to who is interested in being a tape provider is looking to make money out of this. It will be a costly exercise but ultimately, people are interested because it drives transparency for the market. I don’t think this will make money for us, that’s not why we’re doing this.” 

The question now is how long it takes the legislators to reach a conclusion, and how long it will take all the different authorities across the EU to agree. The recent recommendations on Mifid II amendments from MEP Danuta Hübner were welcomed by the industry, but it depends now what the other political factions think of what she proposed.  

“We might have an agreement by the end of the year, in my most optimistic outlook,” said Geneste. “Then it will take most of next year to negotiate what the final product will look like, and then realistically a couple of months for a tender process to run. So early 2024 would be my best guesstimate.”  

That, of course, is for a European consolidated tape. Post-Brexit, there are still fears that a separate UK and EU tape could significantly fragment liquidity.  

“We’re all interested in fair and transparent markets,” said Pauli Mortensen, head of rates trading at NBIM. “Of course it’s a bit naïve to think that the UK and EU tapes would be carbon copies of each other, but they’d have to be very close, otherwise they’d start to divide market liquidity.” 

“If there is a perceived delta in terms of the favourability of the regime, then we would have a problem,” agreed Paranandi, while Murphy warned that although the UK was unlikely to diverge for divergence’ sake, and did not want to bifurcate the market, players should expect some differences in the treatment of the deferrals approach.  

“What we need, actually, is a new transparency regime in the EU. Then a consolidated tape would be of some use,” he concluded. 

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