Technology: Outfitting of the Trading Desk Moderated by: Andy Luro Venture FSG.

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Technology: Outfitting of the Trading Desk Moderated by: Andy Luro Venture FSG

Transcript of Technology: Outfitting of the Trading Desk Moderated by: Andy Luro Venture FSG.

Page 1: Technology: Outfitting of the Trading Desk Moderated by: Andy Luro Venture FSG.

Technology: Outfitting of the Trading Desk

Moderated by: Andy Luro Venture FSG

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Agenda Agenda TopicsTopics

Panelist Introductions

What Venture FSG is Hearing

Panelist Presentations

Questions and Answers

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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

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What Venture is HearingWhat Venture is Hearing

Connectivity

Intelligent Trade Automation

Algorithmic Trading

Trade Regulations

Integration

Market Data Access

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The Trading Function Changes and Challenges

Presented by: Andrew Sommers Putnam Investments

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AgendaAgenda TopicTopic

Equity Trading – The Mature Environment

Fixed Income Trading – The Opportunities

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Equity Equity TradingTrading

Maturity in Order Generation and Management

Robust Electronic Communications

Measuring the Effectiveness of Implementations

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Fixed Income Fixed Income TradingTrading

Improving Electronic Communications

Increasing Use of Derivative Instruments

Increasing Demand on Compliance, Reporting, and Risk Analysis

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Compliance & Regulations: Technology Impact on the Trading Process

Presented by: Rick Enfield Charles River Systems Inc.

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Agenda Agenda TopicTopic

Equity

Fixed Income

Derivatives

Foreign Exchange

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Equity Equity TradingTrading

Automated Routing and Algorithms

Ultra High Volume Executions

Impact of Wealth Management

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Fixed Fixed IncomeIncome

ATS Processing and Origination of the Order

Generic Security Processing

Post Execution Allocations

Data Management and Consistency

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DerivativesDerivatives

Measuring Exposure / Look-through

Growth of Credit Default Swaps

Intraday Valuation

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Foreign ExchangeForeign Exchange

Local Cash Overdrafts

Currency Swaps vs. Overlay Management

Intraday Exposure Management

Counterparty Exposure Management

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Changes in Trading Technology: A Sell-Side Perspective

Presented by: Mark Clark SunGard / BRASS

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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

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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%

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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

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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”

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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

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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

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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

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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

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What Venture is HearingWhat Venture is Hearing

Questions & Answers