The Exchanges Forum 2009 report - Mutual trust?

Fuente:    Fecha:   15.06.2009

The Exchanges Forum 2009 passed well as always, with a suitably impressive selection of industry figures in attendance, although former Chi-X chief executive Peter Randall's strength of character was sorely missed. A number of the sessions passed without incident, however, there were voices of concern among the buy side participants.

A number of the worries - price formation and internal crossing - have also been covered by the CESR report issued this week.

On smart order routing, they were fairly damning. Kristian West, head of equity trading at JP Morgan Asset Management claimed they were now compulsory services producing varied and uncertain results. "Some have further reach in the market due to alliances, it has been very difficult to prove the value of them partly because the data isn't there, partly because the cost of collecting the data, and partly because the systems that aggregate the data to demonstrate value aren't really there."

He went on to state that "We aren't really there yet and one cost we have seen is information leakage as a result of the routing."

Tony Whalley investment director at Scottish Widows Investment Partnership echoed that "I think a lot of the smart order routing systems out there are almost in danger of breaching the trade descriptions act, you put a big foot into the marketplace and leave a massive footprint. West went on to say that the biggest error was seen in routing trades across both lit and dark pools making the trading firm's position quite open.

The lack of influence that the buy side has on regulation was also warned of by Whalley, saying "The trade bodies on the sell side are far more powerful and more pushy at getting what they want than the trade bodies on the buy side. I would dearly love to see more weight on our side."

The position was fixed because "The sell side make money out of regulation biased in their favour - we don't actually make or lose money. We trade effectively on behalf of our customers, and provided we can do that in the main we are relatively happy. The sell side look for little tunnels in which they can worm to make money, which is why they tend to be more powerful, because they are financially incentivised to do so."

Giovanni Beliossi, managing partner, FGS Capital also echoed comments from a participant at the Forum three years previous that "He wasn't entirely comfortable that his trades, for one reason or another, would be seen by someone in a sell side organisation. If for nothing else because they needed to risk manage the flow and they were made responsible for managing the conflict. So it is an imperfect way to access the exchanges."

However he did acknowledge the value that sell side firms brought to a buy side firm in terms of technology and the expertise that was in offer when moving into a new area of business, although even that was tempered with "It is inescapable to go through them at the beginning."

Whalley suggested that, due to a lack of transparency, the next markets to be regulated would be the FX and debt markets which currently "Have total lockdown, and we see nothing. It is very, very difficult and very different to the equity markets."

The need for transparency in the equity market could resolved he said, if a single consolidator of market data would be allowed to sell the data on, pass proportion of the money back to the exchanges and MTFs that supplied it but "The primary and secondary markets have to agree that is the way forward. We still have the situation where the London Stock Exchange charges the same for its market data as it did two years ago when it was 100% of the market and it added value. Now it 70% of the market and it still adds a certain amount of value, but not the same level as it did when it contained everything."