The US Commodity Futures Trading Commission (CFTC) expects financial services firms to regulatory reporting using legal entity identifiers (LEIs) in mid-July. Likewise, the European Financial Stability Board (FSB) hopes to receive the necessary blessing from the G20 for its efforts in June. To discuss industry preparedness, The Daly Post Podcast sits down with Graeme Austin, founder and CEO of FS Benchmarks, a consultancy that specializes in research and operations benchmarking. Austin is also the CEO of International Securities Association for Trade Communications Europe (ISI TC Europe).
Maybe it was attending the FIA Expo NY yesterday or hearing a number of buy-side firms complain about having to post initial margin for their cleared OTC trades, which still sounds like an oxymoron to me, but I’ve wondered who really benefits from these cleared trades.
To clear these trades through a central counter party, investors will need to post “quality” collateral (read: dollars and Treasuries) to the various industry clearinghouses, where it will sit unavailable as potential liquidity.
I doubt that most buy-side firms have enough quality liquid assets to meet the new margin requirements. So, they’ll go to the market and drive up their demand and create a liquidity crunch as demand outstrips supply.
What make me think this will happen?
The industry clearinghouses are working with the markets to forestall the liquidity crunch by accepting other types of collateral. Investors can use precious metals and sovereign debt and currencies from smaller economies as collateral.
What is really telling is that they are also accepting certain corporate bonds as collateral, although with steep haircuts.
This is good news for US Treasury since it creates an artificial demand for US debt and have investors sit on those holdings. It’s good timing considering that regular large-scale buyers of US debt seem to have reach their fill.
But what will the impact be for the systemic well-being of the global markets? It’s never a good sign when a supplier needs to force demand for their product through arbitrary requirements and not on the product’s own merits.
Since covering the electronic trading markets for more than a decade, convention wisdom on matching engine design has been keep it simple, scalable and dedicated to matching. Any other ancillary functions should hang off the engine but not incorporated into the engine.
However at today’s FIA Expo NY, Mayur Kapani, vice president, trading technology at the IntercontinentalExchange (ICE) shared with a panel audience that the futures exchange has researched how to perform in-line risk checks within its matching engine to reduce the amount broken trade due to errant trades.
Karpani said that they investigated using FPGAs, but found Intel’s Nehalem processors do a good job of communicating data locally – up to an order of magnitude better than what they saw a few years ago.
I’m not sure if fellow panelist Ugur Arslan, CEO of forex high frequency trading firm Aien Technology was joking when he suggested creating the ultimate co-location within a matching engine by using shared memory channels to support 50 to 100,000 clients with single-digit microsecond latencies.
If he’s serious, that muffled popping sound you hear are the brains of more than a few regulators and politicians exploding.
Tags: Aien Technology, FIA, IntercontinentalExchange, matching engine
According to a recent survey of about 1,000 IT respondents and sponsored by Serena Software, the answer seems to be “Yes.”
However, you must remember that Serena is in the business of selling orchestrated IT and product development tools to enterprise clients.
The vendor-produced chart below shows that most of those surveyed are fine with their development process. It is getting detailed project requirements and rolling out the final version are where the development process falls down.
To access the complete survey results, you’ll need to go through a quick online survey where you’ll benchmark your organization’s performance to that of those surveyed while providing Serena with a qualified sales lead.
Is taking humans out of the process the only, or best, model? Could firms address this with the proper the proper project-management approach?
Please share your thoughts and experiences.
On Monday, Dennis Fitch passed away.
For those who do not recognized his name. He was an off-duty flight instructor who helped 184 fellow-passengers survive the crash of United Air Flight 232 on July 19, 1989.
Unlike US Airway Flight 1549′s picture-perfect emergency landing in the Hudson River 20 years later, the flight crashed outside of Sioux City Iowa killing 111 of the 296 passengers and crew members.
Without Fitch’s help, the flight would not have made it to Sioux City and the fatalities would have been much higher.
I heard Fitch speak at a Foxboro user group meeting about a decade after the incident.
The events person who hired him must have never bothered to listen to his presentation on teamwork prior to booking him. Instead of giving one of those upbeat team-building presentations that we all have sat through before, Fitch gave a blow-by-blow description of how the DC-10′s three-man crew and he handled the mid-flight crisis.
What follows is from memory.
I cannot recall why Fitch was on the flight, but he certainly was the right man, in the right place at the right time. As a flight instructor, not only was he a seasoned pilot but he trained pilots what do to when things go wrong.
He first noticed something amiss when the plane started to make wider and wider circles and making ever-increasing and altitude gains and loses.
Stopping a distracted flight attendant, he identified himself and asked what was wrong. The attendant whispered to him that the crew had lost control of the plane and were trying to re-established it.
Fitch went to the cockpit, introduced himself as a flight instructor and asked if he could be of help.
The first thing the pilot, whose name and the name I’ve forgotten along with the name of the other two crewmen, said yes and then introduced himself and his two colleagues.
“He first thing he did was introduce everyone,” said Fitch. “He didn’t bark orders. He treated everyone equally knowing that we were all in this together.”
Fitch sat in the middle of the cockpit’s floor trying to manage the jet’s non-responsive hydraulic systems, which experienced a triple failure of its primary and both redundant systems.
He stopped right then and discussed aeronautical design principles and cited the chances of a triple catastrophic systems failure. The number against it happening was so astronomically high, I’m not going to guess what it was, most people would consider it an impossibility.
The Federal Aeronautics Administration (FAA) rerouted the Chicago-bound flight to Sioux City so it could attempt an emergency landing.
The jet made it to the airport but crashed on the runway breaking into four parts and sending pieces and passengers into a nearby field.
Fitch went into great detail about the physics of a plane crash, but I remember that first responders found Fitch upside down under a large piece of wreckage and that it took several surgeries to get Fitch up and about.
You could here a pin drop in the ballroom by this point in the story.
Fitch continued advising the audience to enjoy every day and shared the weather details of his walk along the Charles River that morning in preparation. Like a true aviator, he cited the morning’s temperature, wind speed and direction as well as the cloud formation. He guessed that many in the audience overlooked the beautiful morning as they drove to the event.
His last piece of advice was to treat people with respect and dignity just as the flight’s captain treated him.
I’m not sure how many people could keep their heads and would be willing to offer help when they knew how truly bad the situation was. The friends and family of 184 people are lucky that Fitch was one of them.