Technology: Outfitting of the Trading Desk Moderated by: Andy Luro Venture FSG.
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Transcript of Technology: Outfitting of the Trading Desk Moderated by: Andy Luro Venture FSG.
Technology: Outfitting of the Trading Desk
Moderated by: Andy Luro Venture FSG
Agenda Agenda TopicsTopics
Panelist Introductions
What Venture FSG is Hearing
Panelist Presentations
Questions and Answers
PanelistsPanelists
Andy Sommers, Senior Vice President, Investment Trading
Systems Putnam Investments
Rick Enfield CPA Director of Product Management Charles River Development
Mark Clark Executive Vice President Direct Market Access SunGard/BRASS
What Venture is HearingWhat Venture is Hearing
Connectivity
Intelligent Trade Automation
Algorithmic Trading
Trade Regulations
Integration
Market Data Access
The Trading Function Changes and Challenges
Presented by: Andrew Sommers Putnam Investments
AgendaAgenda TopicTopic
Equity Trading – The Mature Environment
Fixed Income Trading – The Opportunities
Equity Equity TradingTrading
Maturity in Order Generation and Management
Robust Electronic Communications
Measuring the Effectiveness of Implementations
Fixed Income Fixed Income TradingTrading
Improving Electronic Communications
Increasing Use of Derivative Instruments
Increasing Demand on Compliance, Reporting, and Risk Analysis
Compliance & Regulations: Technology Impact on the Trading Process
Presented by: Rick Enfield Charles River Systems Inc.
Agenda Agenda TopicTopic
Equity
Fixed Income
Derivatives
Foreign Exchange
Equity Equity TradingTrading
Automated Routing and Algorithms
Ultra High Volume Executions
Impact of Wealth Management
Fixed Fixed IncomeIncome
ATS Processing and Origination of the Order
Generic Security Processing
Post Execution Allocations
Data Management and Consistency
DerivativesDerivatives
Measuring Exposure / Look-through
Growth of Credit Default Swaps
Intraday Valuation
Foreign ExchangeForeign Exchange
Local Cash Overdrafts
Currency Swaps vs. Overlay Management
Intraday Exposure Management
Counterparty Exposure Management
Changes in Trading Technology: A Sell-Side Perspective
Presented by: Mark Clark SunGard / BRASS
Changes in Trading Technology: A Sell-Side Changes in Trading Technology: A Sell-Side PerspectivePerspective
Structural Shifts in the Business of Trading
Corresponding Movements in Trading Technology
Closer LooksDirect Market AccessAlgorithmic TradingTCA/Trading Analytics
Open Questions/Areas to Watch
Structural shifts in trading: client-driven Structural shifts in trading: client-driven changeschanges
‘96 ‘98 ‘00 ‘02
1. INFO/ACCESS: Broker-Dealers lose information/market access advantages
4
8
12
16 TradeReports
Quote Updates
Insides(Level1)
NASDAQ: Average Messages Sent per Day [Millions]
3. CLIENT MIX: Hedge Funds/
Quants become important clients
0
200
400
600
800
Passive
Quant
Active
'00
Hedge Passive
Quant
Active
Hedge
'03
US Buy-Side Trading Vol.[Billions of Shares]
2. FEES: Clients demand and get
reduction in commissions
chart
-15%
-10%
-5%
0%
’95-’00 '00-’04
Annual Change in Per Share Brokerage Commissions [%]
-6%
-14%
Source: Mercer Oliver Wyman Analysis, Morgan Stanley Research, NASDAQ; NYSE; SIA; SunGard Analysis
4. TRADING MIX: Clients drive algorithms,
program trading
chart
0%
20%
40%
NYSE Program Trading Volume Percentage
'00 '04
10%
30%
22%
48%
Structural Shifts in TradingStructural Shifts in Trading
Areas of Pressure and Change
• Regulation NMS
• Combinations and Evolving Market Micro-Structure
(e.g., NYSE / ARCA)
• SEC and SRO Enforcement
• Sarbanes Oxley
Auditing8%
Legal10%
IT15%
Staffing12%
Training55%
Estimated Total Compliance Costs: US $5 billion p.a.
… and increasing
Source: Deloitte – 2003 Global Securities Industry Outlook)
Pressures from evolving market structure and regulation
The Results: Movements in Trading The Results: Movements in Trading TechnologyTechnology
Automated and Rules-
Based Trading
Electronic Client
Relationships
New Equities Trading Models
Global Markets/
Other Asset Classes
Alternative Execution
Points
TCA/ Trading Analytics
Algorithms and
Conditional Trading
Compliance Handling –
At- and Post-Trade
Unified OTC/Listed
Trading
Smart Order Placement
Sponsored Direct Market Access
Client Connectivity “Hubs”
A Closer Look: Direct Market AccessA Closer Look: Direct Market Access
What Is It? • Broker-sponsored direct-to-market, broker, and algorithmic routing
• Tailored, “smart” execution tools; Staging or direct integration (FIX)
• Administrative, reporting and risk tools for the Sponsor
Why Is It Important? • Increased trading control / reduced information leakage
• Lower commission and administrative costs
What Comes Next? • Smart order placement and trade-through compliance
• Increased execution points, e.g., block systems, new markets/ECNs/ATSs
• OTC/Listed, cross-asset, and cross-market access
A Closer Look: Algorithmic TradingA Closer Look: Algorithmic Trading
What Is It? • Automated block/strategy trading; managed historically by traders
• Increasingly focused on analysis and identification of opportunities
Why Is It Important? • Lower commissions
• Efficiency from electronic order entry and low(?) maintenance
• Better execution quality - if strategies are used and monitored correctly
What Comes Next? • Commodity “white labeled” algorithms
• Implementation outside of equities
• Strategy selection support and benchmarks/analytics
A Closer Look: TCA/Trading AnalyticsA Closer Look: TCA/Trading Analytics
What Is It?:• Post-trade transaction cost analysis tools
• Standard and customized reports and benchmarks
Why Is It Important? • Demonstrates compliance and value
• Facilitates trading improvement
What Comes Next?• Pre-packaged reports, benchmarks, and standards
• Better accounting for new trading types, e.g., algorithms and programs
• Integrated pre-trade and at-trade tools; OMS and DMA links
Open Questions/Areas to WatchOpen Questions/Areas to Watch
Exchange Market Structure
Market Data – More of It
Regulation NMS Interpretations:Exemptions, e.g., Block TradingOrder Placement
Compliance
New Entrants
What Venture is HearingWhat Venture is Hearing
Questions & Answers