Seismologists are still searching for ways to successfully predict earthquakes. So far, they have only been able to introduce warning systems that provide alerts while an earthquake is already in progress. Shifts in financial markets adhere to different rules. Changes in volatility are often preceded by ‘rumblings’ or are caused by predictable events. Being able to ‘read’ the signs and predict market movements, also the smaller day-to-day movements can create opportunity for both the buy- and sell-side.
Volatility is key to both alpha generation and trading performance measurement and is a crucial input for trading algorithms and risk methodologies. The capacity to forecast size and direction of volatility is therefore enormously valuable for traders of any strategy.
The newest Deutsche Börse analytic, the ‘Intraday Volatility Forecast’, is designed to provide that capacity. It aims to forecast the volatility for the DAX, EURO STOXX 50 and Euro-Bund futures; Eurex’ most important products. The Volatility Forecast creates a forward-looking insight into the peaks and troughs of market movements and provides the user with a major informational advantage over other traders.
On Wednesday 23 September 2015, Mondo Visione held its annual Market Surveillance Seminar at Ironmongers’ Hall, with an audience of market practitioners, regulators, technologists and consultants. Banks have paid some US$10 billion in fines over recent months to settle claims brought against them for manipulating benchmark indices such as the London Interbank Offered Rate and the daily foreign exchange fix. These scandals have caused regulators to review their approach to overseeing the wholesale markets on which such benchmarks are based. As they focus on how to raise standards of behaviour among traders at banks, it is likely that tougher sanctions will be imposed and markets will be given more detailed guidance on what are acceptable trading practices. Fines alone are clearly not enough. Perhaps holding individuals accountable for their actions, and making firms take greater responsibility for improving standards of trading practices will make a difference. These and other issues were addressed by the two panels at the Mondo Visione Annual Market Surveillance Seminar.
If an exchange’s order book were a cash register in a shop, it would show transactions at the counter, but not customers who came into the store wanting to buy something but then left without doing so. At least this is the case when it comes to ‘immediate or cancel’ orders (IOCs). Those lost opportunities for transactions – not filled immediate or cancel orders – are not recorded in the order book, yet represent real potential liquidity. Deutsche Börse Market Data + Services has launched a new product within its real-time analytics product family that allows traders to gauge those potential transactions in the options market and trade accordingly, resulting in fewer ‘empty shopping baskets’. Deutsche Börse’s new analytics product, the ‘Eurex IOC Liquidity Indicator for Options’ supports options traders at all levels, providing real-time analytics for the options market that go beyond the normally visible spectrum of information in the order book.
To operate efficiently in the fast moving interconnected marketplace of today, market participants are asking for technological solutions which are flexible, innovative and cost effective allowing them to evolve within the global markets eco-system as regulations and technology develop.
TARGET2-Securities (T2S) is a new post-trade, delivery-versus-payment settlement system for Europe developed by the European Central Bank (ECB). Settlement using T2S will be less expensive and more flexible than national settlement systems. The ECB’s T2S program includes new settlement logic, new communications protocols, new regulatory requirements and the centralised system service in which European-wide settlements will occur. Allied Testing is a quality assurance (QA) and testing company with special focus on financial systems and capital markets. We have testing staff with the required knowledge and understanding of T2S who will use our T2S-specific libraries and in-house tools to test readiness and compliance for T2S settlement. Working with Allied Testing will reduce the time spent on testing, the cost of the testing, and ensure that systems work as required.
Exchanges are venues where investors wishing to buy a financial instrument find investors wishing to sell. The exchange brings together a buyer or seller to effect a trade. Central, to an exchange is the trading system on which trades are executed.
The Market Quality Dashboard is designed to allow market participants to quantify the economic impact of market design changes on market quality. Market quality is defined by reference to the near universal mandate of regulators, which seeks to ensure that markets are fair and efficient. It therefore follows that, if one intends to change the design of a market place, and get this signed-off by regulators, those changes are evaluated in terms of how they impact fairness and efficiency.
To have information, but to be unable to use it, is a frustration that many businesses experience. Freeing that information, and making it usable alongside other measures, can present real opportunities. Exchange operators and post-trade service providers face rapidly evolving business dynamics and competition. Seizing opportunities is therefore immensely important.
This paper describes the opportunity for market operators to see a fuller picture using the data they already hold.
Market participants are demanding consistency in symbology (naming convention) to minimise investor confusion, promote stability and mitigate operational risks. Internally they need to reduce the costs that stem from duplication of support for multiple vendor symbologies. Currently each exchange has its own data format and symbology, which means that each data feed must be normalised, renamed and consolidated before the data can actually be used. Through the use of symbology users navigate the data available on a specific instrument. Market data vendors provide their own conventions which allow users to cut across individual exchange symbologies but nevertheless are not compatible. Nirvana for trading firms has been a common symbology to ease navigation between market centres and data vendors, providing a better experience for investors whilst reducing back-office complexities. The market has for some time been crying out for a solution which allows them to integrate data from a myriad of sources seamlessly with trading applications, allowing new content to be added quickly whilst eliminating the difficulty in managing symbology changes and feed updates. As this paper will show, the best contender for a common symbology at present is the RIC.
Exchanges are in a bind. Established business lines are squeezed on margins and new revenues are hard to find. Regulators see on-exchange trading as the future and want over-the-counter (OTC) trading to be limited. They also support infrastructure being made as resilient as possible, and to that extent they are supporting market operators, propping up exchange operators who are being squashed between ever decreasing numbers of alternative revenue streams and ever tighter margins as customers push them on price.