We’re expecting a very busy fourth quarter, with new firms joining, new products to be announced and a string of exciting industry partnerships.
More good news – the results of your onboarding, trading and market making efforts are starting to show. In recent days we traded 4.59% of all 3-Month Euribor® futures contracts across all venues and 24% of all Sep17 Euribor contracts. We’re currently around 1.6% of total market open interest, and OI is up to 130k.
But while OI is growing – and we expect it to accelerate in the weeks ahead – we continue to focus on helping you drive your business. We know it’s been painful in the run-up to the January MiFID II deadline. That’s why we’re making conformance testing easier, allowing you to trade in full compliance across all LSEDM futures products on one SOLA platform (see below).
Looking ahead, we’ve got two new firms joining in September, and we’re about to release the results of an insightful Greenwich Associates survey, so stay tuned as there’s much more to come.
In the meantime, please let us know if there is anything else we can do to ensure an efficient start to 2018 for your business.
By Ralph Bird, CurveGlobal
We spend a lot of time creating an environment for more efficient execution. As a result, not only are CurveGlobal products often better priced in the order book, have cheaper fees and the ability to potentially offset margin (futures versus futures and futures versus swaps) at LCH, but users also have a greater chance of getting filled.
But like the Swan, elegantly gliding on the surface while paddling like the clappers under the water, efficient markets aren’t always easy, so we’re learning from the past. After all, as Churchill almost said, “those who fail to learn from history [of exchanges] are doomed to repeat it.” Here’s a case in point.
Ten years ago the product development team at LIFFE realised that the pure pro-rata allocation algorithm in their Short-Term Interest Rate Futures markets was leading many participants to over-inflate the order books. The same thing still happens today in other markets, such as corporate bonds where asset managers are forced to over-subscribe to new issues, knowing they will be cut back by the underwriter. But the futures market did something about it.
LIFFE knew that some traders were taking that risk of over-trading to improve their probability of a fill, so in September 2007 it moved the Short Sterling and 3-Month Euribor® futures contracts to a time pro-rata algorithm.
This algorithm was designed to allocate volume to resting orders by using their position in the order book as a weighting to apply to the order volume. As a result, orders towards the front of the queue would get a better fill – and fill ratio – than those submitted later.
Later that year, University of Prague mathematicians, Janecek and Kabrhel, deduced that it was “inevitable” that a pure pro-rata allocation would result in “cumulative quoted volume at the best price being over-inflated”. They also postulated that including a time element in the allocation algorithm would result in order-splitting. The LIFFE analysts may have seen evidence of that behaviour because a few years later they modified their algorithm so that they could graduate the allocation bias more towards the front of the queue.
Today all the Short Sterling and 3-Month Euribor® futures markets use similar algorithms to the LIFFE Gradual Time-based Pro-Rata allocation.
Analysts can look at the order traffic for these products today in competing venues. Interestingly, the heritage markets, now trading on ICE, still show signs of over-inflated orders and order-splitting, but the new CurveGlobal markets display quite different characteristics. As a nascent market, CurveGlobal does not yet have the cumbersome number of market participants that ICE enjoys, meaning that the conclusions of Janecek and Kabrhel do not yet apply. And subsequently, as a market that is still developing, right now CurveGlobal has an advantage.
In fact, the best bid and offer prices in the most liquid products are, for most of the trading day, in line with each other and the volumes available to trade in the CurveGlobal products exceed the minimum volumes required for a block trade. But the key point is that the number of orders at the top of each book are fractions of the numbers at the top of the ICE books. This means that the CurveGlobal average trade clip sizes are significantly larger as trades are enacted between appreciably fewer counterparties. Given we’re fast approaching MiFID II with its new best execution rules, this is another significant reason for using CurveGlobal products.
A TRADE IDEA: Cross-currency margin reduction
For this month's Trade Idea we highlight the cross-currency margin reduction opportunities for CurveGlobal Bond Futures that will become available with the Spider 2.0 release from LCH*.
*Long position 1000 CurveGlobal Long Gilts futures at 126.17
Long position 850 CurveGlobal Bund futures at 162.08
CAD Payer Swap
1-month forward start
Rate 2.24% fixed
AUD Payer Swap
1-month forward start
Rate 2.88% fixed
LiquidMetrix, the financial market data research firm, is conducting an analysis of the quality of order execution for futures. We’re keenly awaiting the results, as we think it should show that for a sizable percentage of the time, there’s no better price available in the market than at CurveGlobal. And that doesn’t factor in potential benefits of portfolio margining and other advantages we offer. We’ll have details next month.
We’re delighted to let you know that you will soon be able to trade all of your futures at LSEG on one version of the SOLA platform (SOLA 11) – and be compliant with all MiFID II requirements. SOLA 11 enables members to access all futures products with no additional development work. The new SOLA platform will be live in November 2017, and is available now for member and vendor development and testing. For more information please contact the LSEDM Product team at LSEDerivativesProduct@lseg.com.
PRESS ARTICLES OF NOTE
CYBER RISK, LIBOR REPLACEMENT AND DANGERS OF LOW RATES
PIMCO WARNS AGAINST RUSHING LIBOR REPLACEMENT
CURRENCY VOLUMES ON TR PLATFORMS JUMP AS DERIVATIVES SHINE
LDI PORTFOLIOS COULD FACE RISKS IN MOVE AWAY FROM LIBOR
Pensions & Investments
FED DEMANDS WALL STREET PROTECTION AGAINST LEHMAN-LIKE RUNS
Richard Walker, Head of Business Development
Richard is responsible for Business Development and Marketing at CurveGlobal. In addition to growing the footprint within the Dealer, Market Maker, Bank, Hedge Fund, CTA, Insurance and Asset Management Community, he is tasked with identifying the evolving market requirements of these firms. Richard has spent 25 years in financial markets, most recently leading the client clearing sales at LCH. In his five-year tenure, he saw SwapClear grow its client clearing business fifteen-hundredfold, from $240Bn at the end 2011 to $360Trn in the summer of 2016. Richard joined LCH from Nomura where, among other responsibilities, he launched and ran its managed account platform. He previously spent nine years in San Francisco working for several FinTech firms; including Infinity Financial Technology (acquired by SunGard in 1998), Calypso and most recently Traiana.
Richard holds a PhD in Artificial Intelligence and a B.Sc (Eng) in Aerospace Systems Engineering. He considers himself an “enthusiastic” golfer, skier and guitarist. Richard is married to Fiona and has two grown up children, Joshua and Ellie.
To find out more about CurveGlobal or to offer suggestions on improving this newsletter, contact us at +44 20 7797 1055 or firstname.lastname@example.org.