technology: outfitting of the trading desk moderated by: andy luro venture fsg
TRANSCRIPT
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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