Category Archives: Tech Talk

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Follow-On: Major Exchange Slug Fest in Battle for ETFs Reply

ETF News, Tech Talk • Tags: , , , , ,

tradersmag Courtesy of Tom Steinert-Threlkeld

Nasdaq, NYSE and BATS are slugging it out with incentives, new order types and a new exchange to resuscitate trading in ETFs…

Once it worked. Now, not so much.

For years, the Nasdaq Stock Market designated a single market maker for each exchange-traded product. Later, the BATS Exchange treated exchanged-traded products no differently than other equities. No special treatment for trading in ETFs.

Meanwhile, NYSE Arca created lead market makers and gave them premium rebates for trading in exchange-traded funds, and gave other market makers rebates as well.

Both models worked fine, as institutional and retail investors pulled out of mutual funds that invested in stocks and rushed in droves into exchange-traded funds that also held baskets of stocks-and could be traded like them, too.

Only about 82 million shares of ETFs were traded in an average day in 2004, accounting for 2.15 percent of consolidated volume. By 2008-at the height of the credit crisis-that had surged to 1.1 billion shares and 12.5 percent of all trading. By 2011, the 1.2 billion shares traded every day in exchange-traded products of all kinds accounted for 15.4 percent of all trading.

Then, the hammer dropped. Daily volume fell 22.0 percent last year, to 941,000 shares a day. And the share of trading went down to 14.3 percent, by Rosenblatt Securities’ count.

The bloom was off the boom-even as investors keep pouring money into the funds, adding another $16.6 billion into North American ETFs in the first quarter of 2013, with $1.4 trillion invested all told in ETFs, in the United States.

“Investing in ETFs is continuing to increase. It’s just happening in places other than the secondary markets, like NYSE Arca or Nasdaq or BATS,” said Laura Morrison, senior vice president for global indices and exchange-traded products at NYSE Euronext.

For the full article courtesy of TradersMagazine, please click here

PSX to Re-Launch as ETP Market in May Reply

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tradersmagCourtesy of Tom Steiner-Threlkeld

Nasdaq OMX Group said it expects the re-launch of its PSX exchange as an exchange-traded fund marketplace to take place in May.

Final approval of the refashioning the “price size exchange” as a “price time” exchange focused on exchange-traded products must come from the Securities and Exchange Commission.

The exchange operator hopes to encourage trading in a wider variety of ETPs by created two types of market participants — Registered Market Maker and PSX Supplemental Liquidity Providers — which will take ”affirmative quoting” obligations.

PSX also intends to create competition among market makers, by offering the largest rebate to a Lead Market Maker. Other registered market makers can compete for that designation and while making markets in ETPs receive rebates, at a lower level.

Rebates to liquidity providers can be as high as $.0028 per added share, according to a PSX pricing page. Fees to remove liquidity start at $0.0030 per .

”PSX is a key piece of our larger strategy to better service the ETP industry with a platform designed to incent high-quality liquidity, market incentive programs and ETP-specific functionality.” said Eric Noll, Executive Vice President of Transaction Services U.S. and U.K. at Nasdaq OMX, in a statement Monday.

The relaunch of PSX will create a second market that is focused on ETPs. NYSE Euronext’s Arca exchange currently operates as an ETF-focused exchange. NYSE Arca has both the largest market share in exchange-traded trading among national exchanges and 93 percent of ETP listings.

The move comes roughly 2 1/2 years after PSX was created as a Price Size Exchange that would give priority to the size of an order over the speed of arrival.

Nasdaq OMX CEO Robert Greifeld at the time called this the “most fundamental change in market structure” since the launch of the all-electronic Nasdaq Stock Market itself in 1971.

But the idea that “size matters’’ never took hold. In February, PSX accounted for three-fourths of one percent of total equities trading in the United States.  For the entire story from TradersMagazine, please click here

Trading Technology Vendor Touches ETF Space; Game-Change Create/Redeem Widget for APs and Execution Desks Reply

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MarketsMuse team picked up on recent news release from broker-neutral OMEX Trading Systems that included a brief mention of a new feature [built by special request] that analyzes whether its cheaper to effect a “create” vs. executing in the ETF cash market, and implements the create through a basket-trade application.

Other new system enhancements from this boutique trading system and DMA provider include an assortment of new FIX connections to various clearing and custodian destinations, an updated menu of algorithms, a widget for multi-custodian trade allocation, DMA to futures markets, more listed options trading tools (including unlimited-leg option spread orders), updates to charting and Level II displays, and a range of updates to the OMEX back-office, accounting, compliance and risk management modules.

According to OMEX Chief Operating Officer John Houlahan, “Its becoming harder for us to stay “below-the-radar”, only because we are increasingly displacing various trading system vendors who merely offer components, as opposed to an all-in-one solution that delivers uniquely robust front-end DMA, OMS and EMS functions, as well comprehensive risk management tools, compliance, reporting and accounting modules for broker-dealers, as well as for select hedge funds and RIAs.”  Keep reading for the link to the release.. More…

Nasdaq OMX Plan: Convert PSX Exchange to ETF Exchange Reply

ETF News, Tech Talk • Tags: , , ,

Csecurities technology monitorourtesy of Tom-Steinert-Threkeld

Nasdaq OMX Group plans to re-launch its PSX exchange as a ”better trading venue” for exchange-traded funds, notes and other related products, as early as next month.

The exchange will execute trades in all National Market System securities, but will give special incentives to retail and institutional investors to participate as well as special benefits to firms that register as market makers, committing to make continuous two-sided quotes on exchange-traded products.

Neither a filing with the Securities and Exchange Commission nor a Nasdaq official with its Transaction Services division describe the incentives that will be given to investors to place orders on PSX nor the benefits that will be provided market makers.

“The unique features that will make PSX compelling we can’t go into today,’’ the Transaction Services executive said Tuesday afternoon. “We are keeping that under our hats for a couple weeks.”

Nasdaq OMX PHLX, the formal name of the exchange, filed a document dated March 8, 2013, describing its plan to changeover PSX to an exchange that “in all material respects” has rules for handling buy and sell orders that mirror those at Nasdaq OMX’s other two exchanges.

These are the Nasdaq Stock Market, which handles about 16.5 percent of all equities trading in the United States, and Nasdaq BX, which has as its differentiating factor the payment of rebates to market participants who remove liquidity from its market.

The move to match rules among all three Nasdaq exchanges means that orders at PSX will be handled in what is known as price-time priority. This favors the speed at which orders arrive. More…

NYSE Adds #Social-Sentiment to Data Feed–Wacky or Wily? Reply

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securities technology monitorCourtesy of Laton McCartney at Securities Technology Monitor

Editor note: this story is from the Believe It or Nuts aka If you’re a twit you should tweet Dept.

NYSE Technologies said it will begin distributing sentiment statistics based on social media postings, through its SuperFeed market data service.

The statistics, developed in conjunction with Social Media Analytics, will be distributed through NYSE Euronext’s Secure Financial Transaction Infrastructure, which reaches market participants in the United States, Europe and Asia.

The Sentiment Signature Feed can be fed into trading analyses and automated decision-making processes, the companies said. The feed will draw on a feed from Twitter, known as the ”fire hose,” which generates 500 million Tweets a day.

As part of the agreement, NYSE Technologies’ subscribing customers can access data from SMA’s social media monitoring engine. SMA’s engine extracts, evaluates and calculates data in real-time to attempt to generate directional and volatility indications on individual stocks, exchange-traded funds, sectors of the economy, and indices by measuring the level and quality of social media interactions on social media sources compared to historical levels.

SMA’s engine seeks to create a social media “signature,” consisting of seven statistical indicators generated by the comparisons: a score, an average, a change, the volatility, the buzz and the “dispersion” of the social media commentary.

Social Market Analytics is a Naperville, Ill.,firm founded last year by financial Professionals who create databases and ways to analyze their contents for hedge funds, money managers, and investment banks. The company has a patent pending on its social media monitoring engine.

Start- up SMA is headed by former Thomson Reuters executives, Fady Harfoush and Joseph Gits. Last year it began beta tests of a set of products designed to convert social media data, Twitter posts into quantifiable and actionable indicators for traders and trading algorithms to use as part of their strategies. More…

CBOE Looks to Broaden Appeal of VIX Products Reply

Strike Price, Tech Talk • Tags: , ,

tradersmagazine logo Courtesy of Peter Chapman, Traders Magazine

CBOE Holdings, buoyed by the phenomenal success of options and futures contracts based on its Volatility Index, is ratcheting up its efforts to broaden their appeal.

“The volatility business is only eight years old, but we see terrific growth,” Ed Tilly, CBOE’s president and chief operating officer, told a gathering of reporters in New York recently. “We see hedge funds, prop trading firms, (commodity trading advisors), insurance companies and other institutional users migrating to the product. It’s very important for us.”

As part of its marketing, CBOE is emphasizing to money managers and traders the growth of liquidity in the instruments and the attractiveness of adding a volatility component to their portfolios.

The exchange operator also plans to provide European institutions with direct access to CBOE matching engines, 24 hours a day, 5 days a week.

The Volatility Index, or VIX, is a measure of the market’s expectation of stock market swings over the next 30 days, as determined by the performance of options on the Standard & Poor’s 500 Index. Trading in both contracts has soared in the past three years, with growth in the futures product especially dramatic.

Last year, average daily volume in VIX futures—traded at the CBOE Futures Exchange—reached 95,000 contracts, up from 5,000 in 2009. Average daily volume in VIX options—traded at the Chicago Board Options Exchange— reached 443,000 contracts, up from 132,000 in 2009. All this while overall options volume fell in 2012 and volatility itself was relatively muted. More…

New Kid on the Trading Block Promises Sell Side Revolution Reply

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marketsmedia logoCourtesy of  MarketsMedia

A new trading venue, which is set to launch across Europe at the end of the first quarter, claims it will revolutionize how sell-side firms can execute block trades.

Called Squawker, the new London-based negotiation venue aims to allow sell-side firms to execute block trades anonymously using social-networking technology by helping firms find liquidity.

“Squawker is all about introducing buyers and sellers together and putting them into a private negotiation to agree trades,” said Christopher Gregory, co-founder and chief executive of Squawker.

And in its latest move, Squawker has just signed a partnership with financial data vendor SIX Financial Information to provide real-time pan-European market data via SIX’s Market Data Feed, allowing Squawker participants to execute pan-European block trades always at the consolidated mid-price and consolidated volume-weighted average price (VWAP).

Squawker, which will be classed as a ‘discretionary system’ and regulated as an investment firm under MiFID rules—and not as a multilateral trading facility—claims it will be unique in its ability to provide best execution for the sell side at the consolidated mid-price and consolidated VWAP.

On Squawker, sell-side firms will be able to negotiate and trade large blocks of shares without causing ‘information leakage’ and exposing the trades to predatory high-frequency trading firms who would thus move the market against such orders.

“Squawker has the potential to redefine the way the market trades block sizes,” said Martin Cole, managing director of SIX Financial Information.

“No longer will firms need to slice up their large trade sizes and drip them slowly into the market over a period of time, risking impact cost or the unwanted attention from detrimental algorithmic flow.”

For the full story, please visit MarketsMedia

Reply

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marketsmedia logoCourtesy of MarketsMedia.com

Just 18 months after it shut down its nascent Twitter-based hedge fund, Derwent Capital Markets is back with its new offering—with the launch of what it says is the first social media-influenced trading platform.

The new spread-betting platform, called DCM Dealer, which went live from this week, includes a feature that calculates a real-time sentiment rating for individual stocks based on the millions of tweets that are generated on Twitter every day.

This scraping of social media sites to help traders predict the direction of markets is beginning to take off in the finance world, although London-based DCM says that theirs is the first such trading platform to be launched.

“Investors have already accepted for some time that financial markets are driven by greed and fear,” Paul Hawtin, founder and chief executive of DCM Capital, told Markets Media.

“What it will effectively do is allow a trader and investor for the first time to see underlying sentiment in that instrument in real time.”

Of the 8,000 equities, FX and commodities instruments that it follows, DCM Dealer gives each a rating of between zero and a maximum of 100.

“If someone is interested in Vodafone shares, we search for every single tweet with anything to do with Vodafone in it,” said Hawtin. “So the keyword is Vodafone, or any of the senior management team, and then what we do is we have a waiting system.

“So tweets that have more relevant keywords have a higher rating than tweets that would be less relevant—such as someone tweeting about their poor Vodafone reception, for instance, which would have a low rating. More…

ICE-NYSE Deal: Derivatives Exchange CEO Gets Icey Response From Some Sell-Side Stock Jocks Reply

Strike Price, Tech Talk • Tags: , , ,

Within the first several days since the  December 20 proposed merger announcement between NYSE Euronext and IntercontinentalExchange  (ICE), there has been no shortage of public responses, comments and of course, a lawsuit opposing the deal (filed last Friday by the New Jersey Carpenters Pension Fund).

wsjlogoFor those following this deal, today’s WSJ column by Jason Bunge profiles the mindset of ICE CEO Jeffrey Sprecher, and it speaks volumes. It also raises concerns on the part of Wall Street’s biggest firms, who, along with exchanges, reap tens of millions of dollars in fees that more than a few consider to be wrought with conflict, and are necessarily loathe to put the genie back in the bottle.
Here are some poignant extracts from today’s WSJ piece:

The chief executive and chairman of IntercontinentalExchange Inc., which last week unveiled plans to buy NYSE Euronext NYX +0.32% for $8.2 billion, isn’t steeped in the business of equities trading. But he has plenty to say about it, including some views that challenge the prevailing wisdom and business models of many securities-trading firms.

The 57-year-old, who started IntercontinentalExchange 12 years ago after a career in the electric-power industry, opposes paying incentives to lure big traders onto stock exchanges, a widespread practice that exchange officials say is necessary to keep their markets in motion. Mr. Sprecher also objects to the dispersion of stock trading across scores of exchanges and private markets, a trend embraced by banks and trading firms that earn profits by trading shares away from exchanges.

Mr. Sprecher also has criticized the common practice by the NYSE and other U.S. stock exchanges of paying incentives to traders that are active buyers and sellers of securities. The exchanges say they pay such rebates to help ensure that there are traders to take the other side of orders placed by mutual funds or individual investors.

Paying these incentives has fostered a system that encourages some traders to heavily buy and sell without much concern for holding a given stock—making such traders more likely to abandon markets when conditions turn volatile, Mr. Sprecher said in Chicago last year.

Some industry executives are skeptical that Mr. Sprecher could change the practice, known as “maker-taker” pricing, even with the clout of the Big Board at his disposal. Doing away with it could require changes to many firms’ trading strategies, and an exchange could lose business as some customers shift to rival markets that still pay incentives.

Some of Mr. Sprecher’s views are consistent with those of the Big Board. Like NYSE executives, Mr. Sprecher has criticized the diffusion of stock-trading activity across scores of exchanges, brokerages and private “dark pool” markets, warning that the trend has damaged investor confidence in stock investing and played into catastrophes such as the “flash crash” of May 2010.

Traders say that the stock market is more convoluted and interconnected than the futures trading world Mr. Sprecher is used to, thanks largely to rule changes designed to boost competition among stock exchanges and brokers.

“The NYSE is a much different world, and it’s much more difficult to get any market-structure change done,” said Neil Catania, chief executive of MND Partners Inc., a brokerage firm on the floor of the NYSE. “But we need new thinking.”

The full article is available to WSJ online subscribers by clicking here

What’s Next for ETF trading?: NASDAQ’s “iNAV pegged order types” Reply

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The Nasdaq stock market submitted paperwork to regulators proposing fuller use of intraday net asset values (iNAV) in the pricing of equity ETFs, arguing that the integration of such a real-time pricing mechanism will limit the poor trade executions that dog the world of exchange-traded funds.

While ETF traders and market makers would still be able to use plain-vanilla market orders to transact, the second-biggest U.S. stock exchange said the ETF iNAV pegged orders it is proposing constitute a viable way to capture changes in ETF prices that will truly reflect the fact that iNAV is updated every 15 seconds.

Nasdaq noted that under the prevailing system iNAVs are typically calculated using the last sale prices of the fund’s components. But it stressed that iNAVs can vary from the fund’s market price and/or can be valued outside of the fund’s prevailing bid/ask spread as a result of the supply and demand characteristics of the fund and/or liquidity present in the marketplace.

“The INAV Pegged Order type will be available for all U.S. Component Stock ETFs where there is dynamic INAV data and will offer market participants a greater level of transparency as to fair value, by bringing what has historically been a post-trade analytics tool into the pre-trade environment,” Nasdaq said in the filing that was dated Oct. 12.

“More importantly, the INAV Pegged Order should minimize the disparity between the market execution price and the underlying fund’s value,” Nasdaq said. “As the INAV changes, so move the INAV Pegged Orders.”

The exchange said that under its proposal, which is an amendment to Rule 4751, should the iNAV data feed for a particular ETF be compromised or temporarily stopped being disseminated, it would suspend the use of the iNAV pegged order type for that ETF until it was confident the system’s integrity had been restored.

“ETF Sponsors routinely deal with investors that have been subject to inferior executions,” the filing said. “These complaints are almost unanimously as a result of people using market orders where the prevailing bid/ask in the market does not necessarily correlate to the fund’s value, and the quoted size does not meet the demand of the order. The INAV Peg will also help to protect investors against any unintended overpayment for the security.”

Nasdaq said that if the SEC approves its rule change proposal, it could become effective in no sooner than 45 days, though the commission could request extra time to deliberate as to whether the rule should be approved.

The exchange also solicited public comments, data and arguments regarding the proposal.