The Supervisory Board, in accordance with the Bank’s Strategy 2020, has introduced these changes to simplify the Bank’s internal management structure.

The Corporate Banking and Securities division will now be split into two separate business units.

From 1 January 2016 a Corporate and Investment Banking division will be created alongside a newly-created Global Markets division.

Further changes affect the Asset and Wealth Management division of Deutsche with high net worth clients being served by Private Wealth Management- an independent business unit within the Private and Business Clients sector.

Asset Management will become a stand-alone division focusing on institutional clients.

Other staff changes include the current head of Corporate Banking and Securities Jeff Urwin who will take on responsibility for Corporate and Investment Banking. As a result, long-term Management Board member Stefan Krause – currently responsible for Global Transaction Banking and Non-Core Operations Unit – will step down effective 31 October 2015.

Werner Steinmuller will remain head of Global Transaction Banking while Qunitin Price, current Global Executive Committee member, will take a place on the Management Board with responsibility for Deutsche’s new Asset Management division.

Michele Faissola the current head of Deutsche Asset and Wealth Management will also leave the Bank following a transitional period. 

Paul Achleitner, chairman of the Supervisory Board, stressed the long-term benefits of the restructuring.

“I would like to stress that all parties involved have tried to achieve the best possible outcomes for Deutsche Bank having set aside personal interests.

“We would like to thank all those leaving the company for their contributions.”    

By Paul Walsh, Staff Writer

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Hong Kong-domiciled fund managers looking to market into mainland China following the long-awaited introduction of Mutual Recognition (MR) have been advised to enter into distribution agreements with Chinese financial institutions.

MR obviates the need to enter into an equity partnership with a Chinese securities, brokerage or fund management firm, something which has been much welcomed by the Hong Kong asset management industry, who routinely complained it was expensive and added to their due diligence workloads. The rules also allow Chinese asset managers to sell into Hong Kong.

“MR means Hong Kong fund managers do not need to enter into a Joint Venture (JV) with a local market participant if they are looking to solicit mainland Chinese retail capital. But these foreign fund managers need to be cognizant that most Chinese retail investors may not have the same level of expertise and education as institutional investors when it comes to investment. As such, fund managers should work with Chinese banks and platforms to distribute their vehicles as distribution on a standalone basis is likely to be very challenging,” said Cindy Chen, country head for Securities Services at Citi in Hong Kong.

Another growing mechanism to attain distribution is through China’s Internet groups such as Alibaba, Baidu and Tencent.  Some Internet groups in China are venturing into online distribution. “The online distribution space is an emerging channel but it is not responsible for the majority of the flows. The majority of fund managers are looking to partner with local banks to distribute,” commented Chen.

China has a sizeable and growing middle class, with many investors hoping to diversify their investments beyond Chinese shares and fund managers. Like previous initiatives such as the Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) schemes, MR does have quotas with $48.33 billion being set on the amount of funds that can be sold both north and southbound. The majority of funds utilizing MR will be fairly vanilla equity and bond strategies, as well as exchange traded funds (ETFs). However, in time this could be extended to more esoteric products.

Nonetheless, approval for the first batch of fund managers has yet to materialize. In July 2015, the China Securities Regulatory Commission (CSRC) said 100 Hong Kong domiciled funds and 850 Chinese funds qualified. The recent market volatility, however, has led to delays in approvals from the country’s regulator.

MR is just one of a series of regulatory reforms that China has introduced over the last few years as it gradually opens up its capital markets to foreign investors. Hong Kong-Shanghai Stock Connect, a scheme designed to allow investors with Hong Kong brokerage accounts to trade China A Shares and Chinese investors to trade in certain Hong Kong securities, has taken off despite a slow start.

Reforms to rules around the pre-funding of trades and recognition of beneficial ownership have provided reassurance to foreign investors weary of counterparty risks in China. “This had been a particular challenge for UCITS funds domiciled in Luxembourg and Ireland but it has been resolved,” said Chen. It is highly likely Stock Connect will be extended to Shenzhen while a report has been commissioned to assess the viability of a UK-Shanghai Stock Connect.

Other liberalizing measures include relaxed access to China’s $5.7 trillion interbank bond market. The rules mean large institutional, foreign investors – such as Central Banks and Sovereign Wealth Funds do not need a quota to trade bonds, interest rate swaps or enter into repurchase agreements on the mainland. Chen acknowledged this could ease some of the recent market volatility in China, adding fund managers could be allowed access to the interbank bond market in due course.

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Simultaneously, due to the market’s increased volatility, the time participants have to analyse deals, indicate interest, price, and allocate has decreased dramatically – to the point where today we see most deals launched and priced in one day. It is clear that with the converging dynamics of a significant increase in demand and speed, alongside a determined need to be compliant and transparent, even the best processes can be strained.

As a solution provider that helps over 100 syndicate desks manage the new-issue process globally – and interacts with both sell-side and buy-side firms on a daily basis – here are some common themes we’ve observed:

The buy-side trader is hit from many different directions with the same information in an often unorganised fashion, and is challenged to summarise and communicate that information to the relevant portfolio managers and analysts at her firm in a way that is targeted and useful.

Given the speed of deals, often done in a single day, the portfolio manager and analysts need as much time as possible to evaluate new issues and run them through their portfolio management, risk, or trading systems;

The buy-side trader often manually maintains portfolio manager interest and must constantly reconcile this with what she has told each of the sales people that cover her; and

The team in trading operations often scrambles to clear and settle trades because information – such as the prospectus or terms and conditions data – isn’t always available in a single place.

All parties stand to gain from well-thought-out improvements to address the challenges identified in today’s process. Achieving this in the fixed income market means taking the best of what the market does now, and making it scalable. To do that well, we need to identify the pain points of each role in this process alongside those high-touch steps that add value and should be preserved – and then determine how we can find mutually agreeable solutions. Ultimately, these solutions will most likely incorporate technology, but first we need to understand the many facets of today’s process.

Over the past decade in the primary markets, we have made great strides in bringing automation and efficiency to certain aspects of the new issuance process. From the Ipreo perspective, we’ve invested considerable time and capital (both intellectual and financial) in addressing key aspects of this increasingly complex landscape: developing bookbuilding solutions to manage demand, implementing syndicate-to-syndicate communication networks, and providing tools for the syndicate to keep issuers informed on deal progress. Now that our clients – and the markets in general – have embraced this technology, they are looking to better understand their options to solve other challenges in the new issue market in a comprehensive way, particularly as relates to the management and sharing of deal-related information between appropriate participants. This is an evolution. The time to start a dialogue about the next wave of improvements is now.

By taking a look at the pain points for both the buy- and sell-side, we can better understand today’s process and discover new ways to improve upon it.

Sell-side:
Keeping up with increased demand

The sell-side faces two significant challenges/opportunities, centred around deal communication and workflow.

The seemingly simple process of communicating deal terms is, in actuality, a lot of work. Today, that entire process requires a lot of coordination. It involves setting up the deal in internal systems, developing deal communication ‘blasts’ with other members of the syndicate, setting up the deal for trading with the appropriate parties (requisitioning CUSIPS/ISINs, etc.), and finally releasing that information to sales and investors at the appropriate time in the deal’s marketing period. Syndicates must communicate deal-related information consistently, accurately and quickly – for every deal in the market that day.

The more steps in the process, the greater the pressure to get things done consistently and correctly. When deal volume is high, even the best people struggle to keep up with all the required workflow. Could that process be simplified and improved from a timeliness and consistency standpoint? When we discuss this with our clients, the general sentiment is that this is very possible and a single management point for the capture and communication of deal-related information would be immensely helpful. I will take that sentiment one step further and say that it’s also very achievable.

Putting together a deal, or multiple deals, is one challenge; marketing it is another. Each institutional sales team needs to determine which of their firm’s clients would be appropriate investors in each of the deals being offered on a given morning, and how they can best approach these individuals. This decision is based on understanding the deal’s registration types and selling restrictions as well as knowledge of what kinds of deals a particular client is interested in. On a slow day, with only one deal occurring, none of those questions would be much of a burden. But as volume increases, and the amount of data increases around the day’s multiplicity of deals, the pressure to get everything right and on time once again becomes a factor.

With all this said, there has been a lot of positive progress towards achieving effective synergy between high-touch and automated processes. The sell-side challenges we’ve just described are prime examples where the thoughtful application of technology to support, not replace, human interaction could create significant potential benefits.

Can the same be said of the buy-side?

Buy-side:
Data overload from all sides

At first glance, it might seem that the buy-side trader faces a few challenges similar to those faced by her counterpart on the sell-side. A new deal needs to be communicated to interested internal parties, and new deals don’t form an orderly queue, waiting their turn to be processed. Additionally, the buy-side trader has multiple responsibilities. In most firms, the trader dealing with primary market deals will also be immersed in secondary market trading. As this suggests, a new deal will be just one of a number of potential opportunities facing the trading desk on any given day. It must be assessed on its merits, but also assessed in relation to whatever other opportunities might arise in the market at the same time. If we envision a busy day in the secondary market that is also a busy day for new issues, we begin to see a more complex version of a familiar problem – traders can quickly become stretched very thin.

The communication challenge for the buy-side is to disseminate that message appropriately (and accurately) to the correct range of interested parties. The buy-side trader’s job (alongside that secondary market ‘day job’) is to make sure that the portfolio managers and the rest of the firm are kept informed on what’s happening in the primary market. Not everyone wants to know everything, and of course not all deals go to the same audience. If we add in the ‘busy-day’ factor, we begin to see the opportunity.

Information and data come in to the buy-side through multiple channels. In the fixed income market, the buy-side trader will receive messages via email, Bloomberg, and other instant message platforms. Any buy-side trader, on a busy day, is getting hit with a lot of information, and some of it (like the announcement of a new deal) is the same information from multiple sources. The buy-side trader then faces the challenge of figuring out what is relevant to which internal constituents – portfolio managers and analysts – and determining the best way to issue the collated information.

While news of a potentially interesting primary market deal is reverberating through a buy-side firm, there is another fundamental challenge. For the buy-side, a new issue is an as-yet-unknown security. The firm’s systems don’t know about it and won’t recognise it. There is a process to be undertaken around setting up the security in the portfolio management system, the trading system and the compliance system. Often, the person that is charged with this task is armed only with a text-based email with a sub-set of the deal terms, and possibly a preliminary prospectus. It’s a manual process and not all systems can accommodate a new security without a minimum set of data. Often, portfolio managers are forced to make a decision about participating in a new issue without all of their tools fully enabled.

Even so, the buy-side trader must gather interest from her PMs, and take that back to the sell-side. But the process of collecting interest on a primary market deal is a bit different from order management in the secondary market, and many order management systems can’t support this. As a result, traders often resort to their own spreadsheets, within which they attempt to track interest (at either a PM or fund level), aggregate that demand, and note what they’ve actually indicated to the sell-side. Hedges are calculated manually and tracked here as well. For many firms, it’s the best option they have, even if it lacks the auditability and process controls that are built into other secondary market systems.

Communicating to the sell-side involves a strong human element. In our conversations with the buy-side, they have been careful to point out the value they see in their sell-side sales coverage – especially as it relates to new issues. Nevertheless, there is a lot of redundancy as the buy-side trader will often manually repeat her order to each of the salespeople that cover her at each syndicate bank – both initially and then once again with every modification.

When each deal is allocated, the process reverses. The sell-side salesperson informs the buy-side trader of their allocation and – because most deals result in a partial allocation of the original order – the buy-side trader must fairly allocate the deal to the portfolio managers or accounts within her firm. Firms have fair allocation policies, and it is up to the trader to follow this policy even with the manual process in place for new issues, respecting minimum lot sizes and other constraints.

Finally, the trades must be matched, cleared and settled. The trading operations team must ensure that the new security accepted by the post-trade systems and processes in order to confirm that the trades make it to the correct accounts and that the security is properly set up in any position-keeping systems at the firm.

What are logical paths forward?

From the sell-side perspective, there is an opportunity to look at the challenges more broadly and figure out how to best preserve the high-value, high-touch nature of the sell-side relationship, while empowering syndicate and sales to work more effectively.

From the buy-side perspective, anything that can be done to improve the process of gathering, analysing and investing in all the new issue deal flow in the market would be welcomed, creating a better way to manage the burden of getting unstructured or semi-structured data set up in their systems.

We believe that there’s an opportunity to solve this data problem in a holistic way – giving the sell-side a powerful tool to more easily manage their deal set-up and communication workflow and, as a result, make the delivery of terms and conditions to the appropriate accounts as simple as adding a click in this process. On the buy-side, we know that the solution has to take into account that some firms will want to consume this data in an integrated deal calendar with filter, sort, search and drill-down capabilities, while others will prefer to consume this information into their internal systems via an API. These are just a sample of the many considerations that need to be tackled.

In Europe, nine investment banks have partnered with us on a project called Investor Access, which provides electronic communication of orders and allocations on primary market deals between the buy-side and sell-side. This is one example of how technology can be applied to help achieve synergy between high-touch and automated processes. We also see further opportunity to partner with clients on innovative buy-side specific initiatives to manage the aggregation, hedging, and fair allocation of primary orders, as well as deal-related document management that provides a searchable repository of deals and their prospectuses. And while this discussion has been focused on investment grade, we are undertaking similar initiatives for high-yield, loans, and equities.

The dialogue matters

My purpose in this article has been to promote a dialogue about the future of the fixed income new issuance market. The market is alive and well and serving its customers and stakeholders effectively; but as deal flow has increased, core processes have come under pressure. We have learned a lot in recent years about how to deploy technology effectively in support of best practices. These are increasingly important topics, and we are committed to bringing participants together to focus on them. Would you like to have a seat at the table? Let’s talk.

This article was written by Herb Werth, managing director, global buy-side, Ipreo for The TRADE’s 2015 Fixed Income Handbook. 

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Japanese broker Phillip Securities has teamed up with TORA to launch a new electronic trading service for institutions.

The service will offer electronic execution on Japanese exchanges and PTS-s and will be a pure electronic offering with no program trading or high-touch.

Phillip Securities said the electronic-only model will enable it to offer efficiency, transparency and confidential trading for clients.

TORA has developed the IT infrastructure to support the new service, with exchange connectivity, compliance and reporting functions.

Hiroyuki Nakayama, head of corporate sales at Phillip Securities Japan, said: “Institutional clients are looking for liquidity, good trading performance, less contacts for execution, confidentiality and smooth operation.

“With the advances in electronic trading, existing trends for Electronic, Program and High Touch merging into one execution channel we decided to skip a few steps in the agency trading desk evolution and provide a service that eventually will be the reference way of trading in the future: that is electronic only.”

Phillip Securities recently hired Mihai Bistriteanu, formerly of Credit Suisse and Citi, to run its electronic trading business.

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The London Stock Exchange Group has announced the appointment of a new group chairman. 

Donald Brydon takes up the role following the news that Chris Gibson-Smith is to retire from the board after 12 years as chairman. 

Brydon becomes chairman from 1 July 2015 but has already joined the board. Gibson-Smith will remain available as an advisor to the board until the end of August.

The news comes just a week after it was confirmed that Mary Schapiro, the former US Securities and Exchange Commission regulator, was joining the board to expand the LSE’s US business.

In a statement, the outgoing chairman said: “[Brydon’s] significant board experience, knowledge of our dynamic industry and his personal qualities will be invaluable to the ambitious, competitive, global Group that our business has now become.

“It has been an honour and a pleasure to have been chairman of London Stock Exchange Group at such a pivotal time in its long and esteemed history. 

“The Group has transformed, to become an international market infrastructure organisation. I have thoroughly enjoyed working with so many talented people within the business, and I shall look forward to continue to watch the Group on its journey, under Donald’s stewardship”.

Brydon added that being asked to take up the role was ‘a real privilege’.

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The company said foreign exchange trading revenue stood at $168 million for the quarter, up by 34.4% from the $125 million declared in the same quarter of 2013 and up 4.3% from the previous quarter.

In its statement to investors, State Street acknowledged that the increase in revenue from the foreign exchange unit was largely the result of increased volumes and market volatility.

The trading services unit as a whole also enjoyed a stellar quarter, with income up by almost a quarter year on year.

Brokerage and other fee income stood at $125 million for the fourth quarter of 2014, compared to $111 million for the same quarter a year earlier – a rise of 12.6%.

Some of this was due to the company reclassifying where it declares income from currency management processing fees.

In his statement to market, Joseph Hooley, chairman and chief executive officer at State Street, said: “Our fourth quarter and full year 2014 results reflect strength across asset servicing and asset management businesses.

“Despite the low interest rate environment in 2014, our revenue experienced solid growth compared to 2013 from both asset servicing and asset management.”

State Street also benefitted from an increased number of custody mandates in the fourth quarter.  Click here to read more on this on our sister site Global Custodian. 

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The news comes two months after Algomi chief executive Stu Taylor travelled to Singapore with Mayor of London Boris Johnson as part of a trade delegation to promote fast-growing British businesses.

The newly appointed Asia Pacific head is Jesper Bruun-Olsen who worked as managing director for the North East Asia region for Oanda between 2012 and 2014. Prior to that, he spent 11 years at Tradeweb as managing director for the Asia Pacific region. He has also worked in various positions at Nordea.

Stu Taylor, chief executive officer at Algomi, said in a statement that Bruun-Olsen’s fixed income experience will be useful as the business seeks to expand across the Asia Pacific region.

He added: “Asia Pacific is a strategically important, diverse and exciting marketplace and it is crucial to have an experienced individual on board with practical expertise of operating across multiple jurisdictions.”

Algomi started life in 2012, having been founded by three former UBS employees who identified a potential gap in the market amid concerns about future market liquidity.

Banks have been reducing their bond inventories as a new regulations globally have forced them to hold more cash against the bonds that they hold on their balance sheets.  Algomi’s founders believe this creates a window of opportunity and so far has confirmed several big name clients including HSBC and Nomura.

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The European Securities and Markets Authority (ESMA) has published its consultation on draft regulatory technical standards for the Markets in Financial Instruments Directive (MiFID) II.

The consultation consists of two papers, outlining responses to its previous discussion paper and further questions from ESMA. The second paper covers draft regulatory technical standards.

In total, over 1,000 pages of MiFID II regulations will need to be digested by market participants in the coming months.

The papers are open for public comment until 2 March 2015 and ESMA will host an open hearing on 19 February 2015.

Steven Maijoor, chair of ESMA, said, “Today’s implementing rules on both secondary markets and investor protection issues reflect ESMA’s desire to achieve the best outcome for market users and investors, taking into account the extensive submissions received from our stakeholders. The advice now goes to the European Commission to use in preparation of its delegated legislation, while our technical standards are open for a second round of consultation.”

“Once fully implemented, MiFID II will have a significant impact on the EU’s securities markets, its users and infrastructure providers. It will bring greater transparency and improve the overall functioning of markets thus strengthening investors’ trust in the financial sector.”

Consultation papers can be downloaded from ESMA's website HERE.

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The TRADE has appointed Joe McGrath as its new editor, who will join the magazine in January 2015 from Financial News.

“For the past 10 years The TRADE has been the record of note for global securities trading and we set out to recruit the highest calibre individual to steer and shape the title over the next decade. Joe fits the bill,” commented John Lee, founder of The TRADE and managing director, Europe for its parent company Asset International.

McGrath has most recently been asset management editor at Financial News and has over 10 years of investment writing experience.

His past roles include deputy editor of Money Management and editor of What Investment.

"I am excited to be joining The TRADE at a time of such considerable regulatory, technical and corporate change. The market continues to grapple with an onslaught of new regulatory headwinds while the buy side faces significantly increased client demands,” said McGrath.

"The TRADE has a unrivalled reputation for its technical understanding and thought-provoking reporting and 2015 is guaranteed to bring about further challenges for the industry. It is, therefore, an honour to be joining the team known for its journalistic quality and its close ties with the people that matter in the sector."

McGrath takes over from Chris Hall, who is stepping down as editor of The TRADE after seven years in the role.

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The increasing complexity of electronic trading systems pose fundamental risks to the stable functioning of financial markets and their participants, claims a new report, which proposes a set of pre-trade risk control best practices for tier I and II sell-side institutions.

The report – published by UK-based consultancy GreySpark Partners – says a combination of machine and human errors have contributed to an increasing number of ‘flash crashes’ and market glitches in recent years. Caused by improperly implemented and designed automated trading systems, these systemic failures have contributed to considerable lapses in liquidity across global markets, which in turn can lead to a breakdown in trade execution flow.

The most significant flash crash took place on 6 May, 2010 when the Dow Jones Industrial Average lost 5.5% of its overall value in just five minutes. But there have been other several other headline-grabbing incidents, especially in the US, such as the freezing up of Nasdaq’s systems on the first day of trading Facebook shares, and the market-making software error that bankrupted Knight Capital.

The Greyspark report explains that automation and complexity are an inevitable consequence or regulation, noting that the establishment of the US Regulation National Market System in 2007 encouraging exchanges to open their platforms to a wider variety of market makers such as HFT firms.

In this context, the firm argues that it is now essential for banks to prioritise the development of internal best practices in pre-trade risk controls “as a first line of defence for the global community of investors as well as for the bank and its shareholders”.

The report also outlines a pre-trade risk control service offering that is available to Greyspark clients and other market participants. The firm has developed a set of pre-trade risk controls that can be tailored to the needs of sell-side market-making institutions to create a best practice framework with the aim of mitigating trade execution risks. 

One of the report’s authors, GreySpark managing consultant Stephane Lannoy, commented, “Several structural market events over the last five years have increased the potential for significant impacts on the stability of global markets for different asset classes as a result of breakdowns in electronic trade execution flows. Regulators in the EU, US and elsewhere have issued new rules to prevent and circumvent any possible market crashes or company failures related to these types of breakdowns, but GreySpark believes that individual banks can do more – this philosophy is at the heart of our firm’s new set of ‘best practices’ in pre-trade risk controls for the sell-side.”

“In 2014, the function of the US National Market System regulations linking together numerous domestic stock exchanges into a more consolidated system are being replicated across the stock exchanges of many other countries. But subsequent ‘speed bump’ regulations being currently announced in the US, which are designed to protect market participants from the dangers of badly designed automated trading systems are not necessarily being put in place elsewhere in the world, leaving significant gaps in the global regulatory framework. GreySpark believes it is important for banks to take appropriate measures to protect themselves and their clients from the risks these regulatory oversights pose to the orderly functioning of capital markets.”

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