Amid the tenure of the Covid-19 pandemic, Bob Santella, the Chief Executive Officer of IPC Systems shares his insights on the impact the virus has had on the globe, noting the challenges being faced by financial institutions, the vital importance of liquidity, what the future may hold, and the movement of digital solutions into the limelight as the world rides out its almost-universal state of quarantine.
Bob Santella, Chief Executive Officer, IPC
The Covid-19 pandemic poses one of the greatest health threats to the global population in a generation. Our thoughts are with the first responders and healthcare workers who are on the front lines, battling the virus every day in their communities. This is a pandemic that has touched every one of us: our families, our businesses, our communities and our very way of life.
Amidst this crisis, the function of the financial markets in sustaining world trade, commerce and supply chains – in other words, the role that it plays in ensuring that workers get paid, that people can buy food, and that they can continue to access healthcare and medicines – is ever more visible and vital. I’m proud to see so many of our fellow market participants and service providers pulling together to support one another, and to support our economies and workers, in these challenging times.
Throughout our history, IPC has built its reputation on providing high-quality services to financial market participants – including the support that they need to ensure effective business continuity during times of crisis or disasters. Now, with the virus simultaneously impacting all major trading locations, we face the unprecedented challenges associated with most financial institutions having a large percentage of their staff working in isolation from home.
Reassuringly, through all of this, we have not seen the same freezes in liquidity that characterised the global financial crisis. This should give us all – whether financial institutions, regulators or policy makers – greater confidence in the resilience of the measures that have been implemented around systemic risk and the robustness of systems, processes and controls. Secure and resilient networks that meet these compliance requirements can provide much-needed support. Those market participants who have prepared for a digitally connected decentralised world are far more likely to experience better performance as a result of their more robust business continuity capabilities.
During stressed market conditions, the ability to have access to the right network and counterparties to find liquidity is absolutely vital. Large networked communities create resilience. A successful community network offers its participants connectivity to a readymade and diverse global financial ecosystem. The constant streams of communication between community members – orders, quotes, confirmations, post-trade data – all rely on common interfaces and protocols, and on the underlying infrastructure that supports these. Speed is of the essence, not only in the timing of individual trade executions, but also in the ability of firms to quickly connect to new market participants. And the role of voice trading is critical – the ability to pick up the phone and speak to a trusted counterparty.
Prior to Covid-19, many of our customers in the Asia-Pacific region had already experienced impacts to their working practices due to the protests in Hong Kong. We have been able to apply this experience when working with our customers as the pandemic spread to the US, Europe and other regions. Our products such asIQ/MAX® Omni, Remote Devices, EVS as a Service and Disaster Recovery as a Serviceoffer secure remote working capabilities for traders while maintaining compliance in the trading workflow. We’ve had to move faster than ever in order to help our clients ready themselves for lockdown; recently, we supported 1000 soft client licenses over a single Sunday night. Market participants have done a remarkable job in moving quickly, and in ensuring the stability and resilience of their systems.
And what of the post-crisis future? Our view is that this experience has accelerated the adoption of cloud in the financial markets. With a renewed emphasis on disaster recovery and business continuity, and as IT infrastructure increasingly becomes commoditised, we will see more CIOs of financial institutions shifting their attention toward finding services that enable them to plan, procure, and orchestrate cloud services from multiple vendors, across a mixture of public and private clouds, from a single pane of glass.
We see voice trading continuing to play an essential role in times of market turbulence. The transition to a cloud-based environment will be more than a tactical response. It represents a long-term shift in how trading floors will evolve towards greater interoperability and flexibility. Voice trading remains the industry’s largest source of unstructured data, and having the capability to digitise voice data will be key for both strategic and compliance purposes. Constant innovation is the key to success. It is clear that this crisis has accelerated digital transformation efforts, where the impact will continue to be felt well into the future.
We are indeed living through unprecedented times, with the COVID-19 virus impacting all major trading locations around the globe simultaneously. Traders at financial institutions may already be working at home in self-isolation, or else unable to work as they are ill. Others, able to travel and classified as essential workers, have opted for your disaster recovery site instead.
The diminished and dispersed trading-from-home workforce is creating increasingly complex scenarios for your Compliance Departments to manage. How do they continue to comply with prescriptive requirements around voice recordings and data capture? What happens when regulated trading activity – that in all ordinary times, must only be undertaken from official premises, and under strictly controlled conditions – is happening out of someone’s living room?
Data Challenges
Even before the ongoing health crisis, remote and mobile workforces were clearly the direction almost every industry was headed. However, the financial sector has to-date understandably been stymied by regulatory and security hurdles.
Virtual working opens a myriad of data security risks, including scams like phishing, ransomware, and skimming. Especially considering this may be the first-time employees have worked from home, or the first time for institutions enacting a remote-work policy, so many are still acclimatizing to new protocols. There are also huge compliance implications that financial institutions need to overcome.
Maintaining Resilience in a New Era
No doubt, these are extraordinary times. In the FICC markets, we are seeing incredible volatility in Treasury yields. There are heavy fluctuations in pricing, spreads are widening and it’s unclear where the liquidity really lies, yet financial institutions must continue servicing clients, discovering prices, accessing liquidity and managing risk.
For firms that are highly dependent on a small group of venues and counterparties for market access, it is troubling times indeed. But for those with access to a large, diverse community, this could be an opportunity to generate alpha and distinguish themselves from the competition.
Large networked communities create resilience. A successful community network offers its participants connectivity to an established, diverse and global financial ecosystem – one that includes a wide variety of counterparties for price discovery, liquidity and execution, such as brokers, dealers, inter-dealer brokers, exchanges, dark pools, hedge funds, asset managers, institutional investors, trade lifecycle services and market data providers. In other words, the information that firms need to find liquidity, and the ability to access it.
Secure and resilient networks that meet every compliance requirement can provide much-needed support. Those of us who have prepared for a digitally connected decentralized world will certainly do well and probably maintain business continuity.
The pandemic has touched every one of us: our families, our businesses, our communities, and our very way of life. In the chaos, the role financial markets play in underpinning world trade, commerce and supply chains – in other words, the role that they then play in ensuring that workers get paid, that people can buy food, that they can continue to access healthcare and medicines — is becoming crystal clear. In fact, several governments around the world have classified many financial services workers as essential. And, I’m proud to say that it appears market participants and their service providers are pulling together to support one another amid the emerging challenges.
Our CEO Robert Santella is featured in a major story in CNBC on how Wall Street will ‘never be the same’ after the Coronavirus, alongside industry leaders from Goldman Sachs, Barclays, and Morgan Stanley. He says: “Some portion of our workforce won’t need to come back to the office on a full time basis. This intermediate period could last 12 months or longer, meaning that people will continue to rely on tech platforms rather than face-to-face contact.”
Our CEO Robert Santella is featured in this major piece in Refinitiv‘s International Financing Review – the leading source of fixed income markets news and commentary – on the future of bank trading room models after the COVID-19 pandemic.
The article highlights the over 10,000 IPC soft turrets deployed globally in the last six weeks, and quotes Santella saying: “Banks are starting to realize that the trading floor will not look the same as when they left…Companies are now thinking about instituting some form of social distancing on the trading floor…that will have an impact on both floor density and capacity.”
Tim Carmody, the chief technology officer at IPC, a global provider of communications and networking solutions for the financial markets, recently shared his views and insights with Crowdfund Insider.
Carmody, who has several decades of experience in designing and leading complex technology solutions for the international trading community, discussed how businesses are coping with the ongoing Coronvirus (COVID-19) outbreak. He also talked about the latest Fintech trends.
Crowdfund Insider: What is the current state of financial trading during the COVID-19 pandemic?
Tim Carmody: “We are living through an unprecedented, largely unimaginable black swan event, in which an outbreak is simultaneously impacting all major trading locations around the world.
With regards to BCP (business continuity procedures), many financial institutions do have a physical, backup location in certain regions, but these were primarily intended for localized events and in some cases, augmented across regions.
But most of these plans are predicated on traders commuting or traveling to a firm’s location. Generally, alternative trading locations are, by design, quite a distance from the usual offices, so there are logistical efforts with just getting the employees there. Even if you can, you have to incorporate social distancing rules at that backup location, reducing capacity and efficiency.
Increasingly — and as quarantines continue to be extended — financial institutions have been implementing remote work / work-from-home solutions using the power of a variety of solutions, such as software, VPNs and cloud technology. These previously existed but rolling them out en masse, quickly, with the workforce already dispersed, is of course an enormous undertaking. IPC teams have been working around the clock due to the surge in requests.”
Crowdfund Insider: Can you offer any stats on the increase in requests?
Tim Carmody: “Since the beginning of March, IPC has opened several thousand remote positions as financial services professionals have been forced to leave their offices. We have seen a 45% increase in customer activity, which is all related to remote working solutions.”
Crowdfund Insider: What are some of the challenges with remote work in finance currently?
Tim Carmody: “Of course, security is always a challenge, as remote working solutions are providing access to the myriad systems a trader needs to trade effectively and compliantly. Technologically, IPC is able to address many of these challenges.
One issue is whether a client wants a physical device or a “soft client” (software) platform for their traders. IPC has helped different customers adopt both approaches, providing optimized configurations, guidelines and tools for remote physical devices as well as IPC or partner software solutions.
Our software-only and cloud offerings can be installed on user equipment, and obviously there’s no shipping. Enterprise-wide, cloud-based solutions enable access to trading capabilities anywhere and anytime by recreating a trader’s turret on their screen. While it can’t quite replicate every bell and whistle of a physical turret, ‘soft clients’ do provide significant functionality.”
Crowdfund Insider: Another challenge is ensuring you have access to your community of counterparties, all of whom are also facing challenges in implementing BCP or remote working.
Tim Carmody: “Honestly, the concerns we’re hearing the most from our clients are with respect to their legal departments’ concerns with various regulatory provisions and how best to address them during this unprecedented crisis. But, we’re able to work with our clients and customize the platforms however they’d like.”
Crowdfund Insider: Who are the clients requesting remote work products?
Tim Carmody: “It really runs the gamut — banks, brokers, dealers, inter-dealer brokers and the buy-side. I can say we have implemented remote work solutions for some of the largest multinational financial firms in the world.”
Crowdfund Insider: What types of remote-work products are customers requesting specifically?
Tim Carmody: “We offer several solutions for remote work, including IQ/MAX Omni, which is a remote soft turret solution that provides access to a client’s IPC Unigy system. IPC’s Connexus Cloud private network enables the largest community of voice trading connections and counterparties with Connexus Voice / Enhanced Voice Services with advanced BCP and resiliency.
Also, right before the coronavirus outbreak we launched jointly with our strategic partner Cloud9 Technologies Disaster Recovery as a Service, which is a voice SaaS (Software as a Service) solution that is integrated with Connexus Voice and allows traders to access a virtual trading desk from any location. As mentioned, we have been working with customers with optimized remote turret support for our industry-leading IQ/MAX Touch to any remote location via their firm’s internal VPN capabilities.”
Crowdfund Insider: What is the future of remote work in finance?
Tim Carmody: “Even before the COVID-19 pandemic, remote and/or mobile workforces were clearly the direction almost every industry was headed given the huge advances we’ve seen in enterprise-cloud technology. The financial sector has been slower to adopt them, understandably, given the extra regulatory and security challenges, but really all the COVID-19 pandemic has done is accelerate the industry’s transformation to the cloud, an already ongoing trend.
Although many financial services professionals will of course return to their offices at some point, I suspect some will continue to work remotely even after this emergency ends.”
Over the past decade, businesses and consumers have undergone a seismic shift in the way that they transact with one another. It’s actually a change so fundamental that it is impacting the very way in which we as individuals think about and relate to the concept of ownership and possessions. It has the potential to completely revolutionize the way that businesses operate, and upends traditional thinking around permanent fixed costs in critical infrastructure. Firms that fully embrace this change can totally transform their approach to innovation and to delivering customer value. It’s the subscription economy – and it’s going to be your company’s future.
The way we were…
As recently as ten years ago, if you or the CTO / CIO of your firm needed access to a certain software application in order to run your business, you would buy as many licenses as you needed. These would be valid for a specific version of the software. When the software required upgrading, you’d be notified, and required to pay an upgrade fee or – in the worst case – to purchase a new license. The new software would need to be downloaded and installed, and then retroactively tested against all of your existing core systems and applications. Inevitably, there would be compatibility issues, with key features your systems had long depended upon being dropped from the latest iteration, or else certain new features not being “backward compatible”.
New and expensive hardware and servers would be required to support the “enhanced features” used by the supplier to justify higher fees. Your in-house systems would need to be migrated across to the new servers as well. The entire undertaking could require mobilization and deployment of huge teams of consultants with all their attendant cost overheads. New business initiatives could be put on hold for months, pending completion of the upgrade, and costing you valuable time to market and customer satisfaction. And all this, just to end up pretty much where you had been at the beginning but running on the latest version and with new bugs to patch and fix along the way.
I don’t need to spell out the many ways in which this expensive cycle spelled disaster for agile financial markets participants with forward-thinking approaches to innovation and market access. This is self-evident.
A paradigm shift in service consumption
Fast forward to 2020, and let’s take the case study of an innovative challenger – a market maker, for example – wanting to come to market. The CTO / CIO’s first action will be to identify the set of hosted infrastructure providers that they will use. This could be a combination of cloud providers, such as AWS, Microsoft Azure and Google Cloud. They will start off using the minimum resources possible, secure in the knowledge that, as they grow, they can easily and cost-effectively scale their resource requirements upwards on the cloud. There’s no need to know upfront what their maximum capacity will be; in this way, they can grow without limit.
They will also want to on-board to a networked community through which they can easily connect to and access other market participants – whether they be clients, counterparties, market data providers, trading platforms, exchanges… the list goes on. For their in-house toolset to support operational functions, such as CRM, they’ll choose Software-as-a-Service (SaaS) offerings off the shelf. Again, they can scale up and down as they need to. When the time comes for these SaaS packages to be upgraded, the experience will be seamless. As nothing is locally installed, it’s the SaaS provider’s responsibility to ensure that all data is migrated and that all required functionality is backward compatible.
This even extends to office space and office equipment. Rather than making an initial outlay on an expensive multi-year lease, uncertain of longer-term capacity requirements, our challenger can take flexible office space from one of the many suppliers on the market. These will come with the basic amenities and equipment that they need – nobody needs to waste their time managing the printer and water cooler leases any longer!
What’s changed?
What does this mean for our challenger? It means that their barriers to entry are drastically lowered, along with their set-up costs and time to market. Their focus can be on their core business, and on hiring and retaining the right people to drive that core business forward, without the distractions of managing non-core systems. They can scale up and down flexibly on demand and have shorter innovation cycles, with new features launching more quickly and inexpensively. They have an enormous and extraordinary advantage over their incumbent counterparts. This is the future, and we all need to embrace it.
Ownership is a great model for assets that appreciate in value over time. In the case of technology, whether it be hardware or software, these are assets that depreciate in value over time. Subscribing to these as a service therefore eliminates exposure to the downside of depreciation and gives all the upside of continuous improvement. The subscription economy – of which SaaS, PaaS, IaaS and cloud are all enablers – is transforming the way in which we consume services. The benefits that it brings to subscribers cannot be understated.
What can IPC offer?
At IPC, we understand that, in the brave new subscription economy, the key differentiators for providers are the strength of our relationships with our clients, and the quality and responsiveness of our services. Our customer-focussed culture means that we are continuously seeking opportunities to improve our offerings. We recognise the importance our clients place on market access and speed to market. We combine the power of a subscription-based model with an ever-growing and evolving networked community of global financial markets participants, to create a powerful and market-leading value proposition for our clients.
Our CTO Tim Carmody contributed to a Reuters story today looking at the dramatic shift to institutional voice trading from traders’ homes during the crisis, and the challenges it brings for firms in terms of regulatory compliance. He highlighted our role in an unprecedented exercise to shift traders to home trading, with over 10,000 new soft clients installed over six weeks by IPC across North America, Europe and APAC, saying that “we have seen which customers were prepared for this and which ones scrambled a bit,” and adding that “working patterns will change now that the Rubicon has been crossed.”
It was unthinkable a little over a month ago: Legions of Wall Street traders navigating the most chaotic market in their lifetimes from the comfort of their living rooms.
With the spread of the novel coronavirus and increasing restrictions from governments to enforce social distancing, they’re doing exactly that. Wall Street firms — which only weeks before were reluctant to encourage trading from home for security and compliance reasons — migrated most of their markets operations to remote work in March.
At Citigroup, more than 91% of the firm’s 2,200 North American markets employees are working from home, including even some of the firm’s essential risk takers, according to people familiar with the matter. Goldman Sachs’ four trading floors in New York typically house thousands of employees during normal business times but by March 19 that had fallen to the low hundreds, according to a person briefed on the numbers.
‘It was not part of our playbook’
This was, quite literally, never in playbook.
Financial giants have long had plans in place to keep operations running in the event of a terrorist attack like 9/11 or a natural disaster, like Hurricane Sandy. But those largely focused on moving key personnel to backup sites. The shuttering of a single trading floor or office would have been unfortunate but manageable — every bank has sites scattered in the suburbs of trading hubs in New York and London, not to mention offices around the world to temporarily relocate staff.
But those continuity plans didn’t take into account a situation that would render nearly all trading floors around the globe unusable and force large numbers of trading staff to work from their homes.
Amid the rapidly spreading Covid-19 outbreak, which has hit New York City especially hard, even splitting employees among backup sites quickly proved untenable. One bank trading executive, who was helping plan his firm’s remote-work migration, likened their contingency site to the set of “The Wolf of Wall Street” — a “cavernous,” boiler-room type facility stacked with desks that “ran afoul of all social distancing guidance.”
Banks were quickly forced to ditch their disaster gameplan and trying something brand new, testing and deploying remote-working capabilities to their vast trading ranks.
“Trading from home has never been done,” a trading at executive at one of the biggest banks told Business Insider, referring to the company’s business continuity plans. “It was not part of our playbook.”
That’s because trading remotely comes with disadvantages and headaches. Some are tangible, while others are harder to grasp for the uninitiated. We spoke with more than a dozen insiders to understand the massive undertaking to enable remote trading, and which qualities of a trading floor are hardest to replicate from home.
“Prior to five or six weeks ago, not only were they not talking about working from home, they were talking about not supporting it for compliance and security reasons,” Tim Carmody, the chief technology officer of IPC, one of the primary suppliers of the trading hardware and software that connects Wall Street, told Business Insider. “And that rapidly changed.”
Overnighting supplies by UPS
The efforts at Citigroup provide a window into how one bank responded. The bank’s North American markets division started to test-drive WFH capabilities for traders the first week of March, when the scope of disruption from the pandemic had yet to fully materialize, according to sources familiar with the preparations.
That Wednesday the bank selected a representative group of 20 traders from across the division and sent them home in Ubers with all the supplies they’d need — such as computers, monitors, VPN phones, network cables, monitors.
After the pilot group proved it could work without incident, several days later, the bank identified its most critical staff in sales and trading — the top 10% of the 2,200-person group — and began assembling kits to have installed in their homes. They overnighted the supplies via UPS, though in many cases it took a couple days for the packages to arrive.
The bank meanwhile required every employee in the division to acquire and set up a token that provides remote access to the company’s systems, the sources said, transforming the reception area of one of its newly renovated trading floors into a makeshift Apple Genius Bar, staffed with technologists to troubleshoot any snafus.
Three weeks later, fewer than 200 the division’s employees are still reporting to company offices.
But that number won’t get down to zero any time soon. At Citi and elsewhere, top execs have decided that scores of top traders will need to continue reporting to work.
“Making decisions on key trading situations, how to manage certain books — you still need some decision makers to be on site and to be able to communicate very swiftly,” a senior Wall Street executive told Business Insider.
Turrets are critical mission-control centers for traders
That communication is often enabled by trading turrets — mini-mission control centers that allow traders’ split-second, rapid-fire voice connection to dozens of colleagues, brokers, and clients — that connect directly to a financial institution’s phone systems.
One of the initial hang-ups of moving to remote work was the lack of turrets, said one senior trader, a sentiment echoed by several others. That made trading slower and more likely to take place over chats.
While stocks largely moved toward electronic trading in recent years, other asset classes, such as bonds and options, are still heavily traded person-to-person, over the phone.
“They need to instantly be able to call people to make trades,” a derivatives trader said, noting that before the exchanges recently closed their in-person venues, direct-line turrets were routinely used to communicate with floor index traders.
“Direct lines to other desks, sales, and clients is faster,” added a former sell-side equities trader who now works at a hedge fund. “Also, some might have recording requirements depending on a product, i.e. CFTC rules, so can’t just use cell phones at home.”
Regulators have relaxed some of these rules in recognition of these unprecedented challenges. The CFTC is offering relief on things like record-keeping and time-stamping for market players including futures commission merchants, introducing brokers, swap dealers, retail foreign exchange dealers, and floor brokers.
And while some traders have been set up with VPN phones connecting their turret lines to their home lines, many people don’t have landlines anymore. Given the crisis at hand, the CFTC has allowed traders to create an email record of a conversation with a client, a reprieve that has expedited the transition, according to Wall Street execs.
Solving the turret headache
In rare instances prior to the coronavirus crisis, traders had turrets installed in their home offices.
“There were very isolated cases, particularly heads of desks with a lot of power, who wanted turrets in their Hamptons home so they could work from home on Fridays,” Carmody said.
Banks in the past month have tried to deploy that once-privileged perk to many more traders. IPC has gotten orders for several thousand turrets in March, an exceptional uptick for a single month, Carmody said. Most of the 1,000-employee global tech company is working remotely, though it has kept open manufacturing facilities in Fairfield, Connecticut.
JPMorgan Chase is among the banks to outfit more of its traders with physical home turrets in recent weeks, according to people familiar with matter. Firms are also testing software turrets.
Software turrets that mimic the same functionality but on a trader’s computer screen have seen an even greater surge of demand, Carmody said.
These soft turrets lack the velocity and facility of traditional turrets — there are fewer speakers, moving between buttons and channels is slower, there’s no push-to-talk or push-to-mute function — but the upfront costs are smaller and the software can be rolled out far more quickly.
“There’s a lot of functionality that the physical turret brings that will always be the gold standard,” Carmody said. “The soft turret gives you a workable environment for this, but probably not a direct replacement.”
Citigroup was testing the functionality of one IPC soft turret last week, sources said, and has secured hundreds of refurbished laptops installed with the software that it plans to send out to personnel.
Soft turrets are also likely to figure prominently in new protocols as banks tear up their old disaster-response plans, according to the bank trading executive who has been helping with his firm’s remote-work migration.
Nothing to replicate real-time interaction
Still, a former trading executive at one of Wall Street’s largest banks said it’s hard to replace in-office intuition.
In normal times, traders, particularly those that transact across asset classes, must be able to see which desks on a large trading floor are busy, call around within the bank at a moment’s notice and in some cases, quickly walk over to a colleague for a simple answer about risk positions or inventory.
“There’s nothing to replicate a salesforce and you talking and interacting in real time,” another trader told Business Insider. “But we’re in strange times.”
Working from a home office or spare bedroom deadens those touch points, the former executive said. While traders might be able to connect by video conference, electronic message, and phone, it can be hard to replace the other intangibles, the small bits of information a trader ingests.
That’s particularly true for some of the markets that have been slower to adapt electronically, he said, citing off-the-run Treasuries, foreign-exchange options, corporate debt, and structured commodities. Imagine the desk is working 10 inquiries simultaneously, and they are coming over voice, and negotiations are ongoing with all of them. In the office, a trader can see and hear and almost feel that activity, he said.
“I want to know where risk is being accumulated, where it might start accumulating, what types of clients are calling or not calling,” he said. “There’s an element of intuition that’s hard to replace.”
The downside to being out of touch is getting flat-footed, accumulating a large position that suddenly suffers losses or letting risky positions build up in some corner of the firm. In such an environment, activity has to slow so that traders can get comfortable with their exposures.
“You can’t be as tactical with a book without that in-person presence,” he said.
Goldman Sachs is trying to approximate the feeling of being in the same room with colleagues by exploring special videoconferencing setups, according to Atte Lahtiranta, the chief technology officer. The setup would have specially arranged cameras and large dedicated screens, and run all day so that traders could seamlessly stay in visual contact with colleagues. Some are already using Zoom in this way, he said.
“You could just put small monitors next to your desk, five of them, and you would see people eye-to-eye, and just turn your face toward them to talk,” Lahtiranta said, describing a future solution. “Those to me are the kind of next steps that, if this really becomes long lasting, you will need to do because people will need that sort of interaction.”
There are real world implications if Wall Street can’t get back to the office. Some have indicated the remote-work dynamic has exacerbated some challenges, including market liquidity. An ETF trader who also worked through the 2008 crisis said this is “the least liquid period I’ve ever traded in.”
Another trader said markets are more uncertain and harder to price, and he worries more about competing algos.
“I don’t think everyone’s at full speed,” the trader said. “Brokers are having a tough time with liquidity and the wide markets make it even harder to price.”
Globally, market volatility and regulatory pressure are causing new customers to look at the hedging products exchanges have to offer them. At the same time, better connectivity and improved and refined technology tools are continually aligning exchange offerings with those familiar to OTC market participants. These themes characterise recent developments at the exchanges we spoke to from Europe, Asia, Middle East, Africa and Latin America. While each has its own specialist offerings and geographical advantages, all are continually bringing new products and services to market and seeking to encourage wider market participation as on-exchange FX moves to the next level.
Paul Houston
“Over the period December 2019 – March 2020, we have seen our FX complex reach all-time records across open interest single day volume and large open interest holders with asset managers now representing 49% of our open interest in EURUSD FX futures.”
CME
In February, CME’s 24 currency pair listed FX options suite averaged USD8.2 billion per day. “Over the past 12 months, we have made a number of enhancements to our FX options aligning them more closely to the OTC market,” explains Paul Houston, CME Group’s Head of FX Products. “Our options are now all European style, with auto-exercise, and we are using the 10am New York cut for expiries. We have reduced strike increments to 25 pips, included Monday expiries alongside the existing Wednesdays and Fridays, and are working to extend the offering to additional currency pairs.”
On the futures side, CME continues to work on optimising its 40+ currency pairs of FX futures, in terms of cost and trading. “We’ve continued to invest in our FX Link service, as this provides another mechanism for entering the listed FX futures marketplace,” Houston continues. “FX Link is a tradeable spread between the OTC spot FX and listed FX futures markets, allowing users to simultaneously buy/sell FX futures vs sell/buy OTC spot.
“Over the period December 2019 – March 2020, we have seen our FX complex reach all-time records across open interest single day volume and large open interest holders with asset managers now representing 49% of our open interest in EURUSD FX futures. This provides a very strong indication of genuine growth in the adoption of FX futures as a mechanism for managing FX risk.”
Looking ahead to the rest of 2020, CME is working on a number of key initiatives across its FX complex including its core G7 FX futures, FX options, emerging market futures, and use of our products as a proxy for FX swaps.
“The first half of the year is focussed on delivering two further minimum price increment reductions (for CAD & AUD) in order to deliver cost efficiencies ahead of the March calendar roll, adding Monday expiries alongside the existing Wednesday and Fridays in our FX Options complex as well as extending the offering to additional currency pairs. For the second half of the year,” Houston concludes, “we will continue to work with our clients to understand which further enhancements and additions we need to make in order to help deliver further capital, margin and operational efficiencies to the FX marketplace.” He encourages clients to keep engaging with the exchange directly with requests or feedback as to how it can help them optimise their FX activity.
Joshua Hurley
“Clients have to take strategic decisions on how to mitigate the impact of regulations and listed FX is a ready-made solution that is relatively simple to implement.”
EUREX
The Deutsche Borse owned exchange offers FX derivatives on 12 currency pairs: EUR/USD, EUR/GBP, EUR/CHF, USD/CHF, GBP/CHF, GBP/USD, EUR/AUD, EUR/JPY, USD/JPY, AUD/USD, AUD/JPY and NZD/USD.
Demand for these are products is being driven by some big themes according to Joshua Hurley, Eurex head of FX ETD Sales and Business Development. “Regulation is a key driver,” he says, “most notably uncleared margin rules are pushing clients near the uncleared thresholds. Affected clients have to take strategic decisions on how to mitigate the impact of these regulations and listed FX is a ready-made solution that is relatively simple to implement. Even unaffected counterparties are taking this opportunity to review their existing FX trading arrangements and add listed FX to gain greater flexibility in terms of execution and counterparty management.”
Hurley explains that with pressure from counterparties to minimize the impact of their trading footprints on bank balance sheets, and bank prime brokerage a constantly shifting environment, big clients are looking to listed FX to minimize counterparty impact and their counterparty risk. “Asset Managers that trade in the name of segregated funds can ensure that all funds receive the same transparent execution and the physical delivery is managed by an EFP. Hedge funds and algorithmic traders can rely on a deterministic quote history and prefer the futures for that reason.”
Having launched FX futures in 2019, Eurex has seen marked increase in volumes through Q4 2019 and into 2020. “Our offer of deliverable FX products and an innovative rolling spot contract, with good pricing in all time zones, plus our off-book liquidity providers are supplementing this on-screen liquidity, it’s a safe route to take. Rolling spot offers the OTC FX market an alternative to the current available liquidity pools.”
Eurex has designed its products to be familiar to OTC audiences. Among the ways it has done this is by partnering with 360T. “This is a joint DB1FX offering to enable clients to receive electronic OTC futures liquidity. We believe this helps clients make the transition from OTC trading into futures as an underlying product.”
In summer this year DB1FX plan’s to complement its futures products with listed options.
Igor Marich
“MOEX is planning to acquire an FX trading platform, NTPro, with ADTV of approximately USD 4 billion across multiple currency pairs. This acquisition will allow MOEX to offer its domestic and international clients a full range of traditional on-exchange and modern OTC FX trading solutions.”
Moscow Exchange
Spot FX turnover on MOEX doubled in March from December 2019. Average daily trading volume (ADTV) on MOEX’s FX spot market is now USD 8.3 billion. International clients and Russian individual clients are the most active growth groups on MOEX, accounting for 42% and 9% of turnover, respectively. ADTV in FX futures in March was USD 5.2 billion, an increase of 57.6% year-on-year, notional ADTV in FX options is USD 200 million.
Igor Marich, Member of the Executive Board at MOEX, said: “Delivering a quote feed from major international liquidity providers has helped MOEX to strengthen its appeal. MOEX has successfully launched new products to better match liquidity providers and takers. We have also created new speed-bump order books for spot FX trading in large amounts and new RFS instruments in spot FX and derivatives for trading even larger amounts.”
Innovation has been a big focus for MOEX this year. The Exchange is considering launching the new FIFO FIX Gateway technology on the FX market, which will improve system predictability and ease of use while reducing latency and jitter for MOEX co-location clients. This will improve market efficiency.
MOEX offers a uniquely diversified platform where spot FX and swaps, all types of derivatives, money market, equities and bonds are traded within a single CCP clearing infrastructure. The Exchange continues to promote the benefits of access to its FX Market internationally through the development of its Remote Clearing Memberships coupled with a Unified Collateral Pool option, thus providing cross-margining efficiencies alongside feature-rich net settlement post-trade facilities.
These are especially important for international clients, given that MOEX has the dominant liquidity pools for deliverable spot FX and cash settled FX derivatives trading. MOEX’s local FX market has become global by attracting trading participants from over 125 countries and became the recognised international benchmark for all RUB instruments traded around the world.
“As part of our efforts to enhance MOEX’s matching facilities and promote its FX benchmarks, last year the Exchange launched the Weighted Average USD/RUB 11:30 Matching Service in which the FX rate is the Bank of Russia’s official rate. We have also extended the time for submitting orders in the instrument and MOEX USD/RUB 12:30 FX Fixing. In 2019, the fixing turnover increased by 1.5 times. On 17 December 2019, the MOEX fixing achieved a record high turnover of USD 369 million,” says Marich.
“In line with other exchanges, which have added OTC e-FX platforms to their business, MOEX as part of its longer-term strategy is seeking to enter the OTC FX spot market segment, which is adjacent to its existing CLOB business. MOEX is planning to acquire an FX trading platform, NTPro, with ADTV of approximately USD 4 billion across multiple currency pairs. This acquisition will allow MOEX to offer its domestic and international clients a full range of traditional on-exchange and modern OTC FX trading solutions,” says Marich.
Les Male
“2019 was our most successful year since inception.”
DGCX
“2019 was our most successful year since inception,” says Dubai Gold and Commodities Exchange (DGCX) CEO Les Male. “Trading across the DGCX’s G6 currency pairs has been strong this year. The products recorded overall year-to-date volume growth of 526% compared to the same period last year. The EUR/USD contract was the most prominent, trading 130,881 contracts, up 41% M-O-M in February and 541% Y-T-D. We have also recently revised the product specification of our offshore Chinese Yuan Futures contract in line with member demand. We are now beginning to see the early signs that this was the right decision to make with a number of new members and participants attracted to the DGCX because of the opportunities that have arisen from the contract.”
DGCX has recently implemented a member-led approach to product development. “With this in mind, the rest of 2020 promises to be particularly busy for us in the FX space,” says Male, “as we prepare to launch new products in response to member demand. Subject to regulatory approval, we have plans to launch a number of new and innovative currency products, including FX Rolling contracts, which are expected to be particularly beneficial to our institutional investors.”
Meanwhile its drive to encourage greater participation has received a boost from the recent appointment of a head of outreach and engagement. The aim is to promote and educate people across the wider GCC region. The Exchange’s promotion activities have included conferences, forums and other events, this appointment will enhance those efforts. Les Male concludes that geopolitics and global events are causing high levels of volatility across markets. “This will ultimately lead to higher volumes across numerous asset classes, including currencies, equities, metals and hydrocarbons, all of which are traded on the DGCX.”
Elaine Mabiletsa
“We migrated our currency derivatives market onto the MIT trading platform in April 2019 and now offer real time clearing through the Cinnober clearing system and make available historical tick data via the Data Mine platform.”
JSE
Currency derivatives have been traded on the Johannesburg Stock Exchange (JSE) since 2007. They track the ZAR versus USD, EUR, GBP, AUD, JPY, RMB, CHF, BWP (Botswana pula) NZD and CAD. In recent years new products have been added to track a basket of currencies and contracts that allow for the selection of a preferred expiry dates. In 2019, the total volume traded was over 69million contracts and average daily traded volume is around ZAR4billion.
“We have 6 product suites,” explains Elaine Mabiletsa, JSE’s Manager Currency Derivatives. “These include futures, options and quanto futures, anyday futures and anyday options. We also have the ability to list an exotic option on demand. These include cash settled single barrier knock-in/out options; cash settled strike-resetting options (maximum of five reset events allowed) and out of currency settled options on certain currency pairs.”
JSE continues to upgrade both its technology platforms and its data offerings. “We migrated our currency derivatives market onto the MIT trading platform in April 2019,” says Ms. Mabiletsa. “We now offer real time clearing through the Cinnober clearing system and make available historical tick data via the Data Mine platform.”
Education around currency derivatives is an on-going programme for Mabiletsa and her team. This includes presenting at trade shows and local exhibitions at home and abroad. This year she says that there will be roadshows in Cape Town, Durban and Johannesburg. They will also appear at BOCA, LeaderEX, NAMPO, JSE SheInvests, TradeTech Europe and FIA Chicago Options & Futures Expo.
As the continent’s largest FX derivatives exchange with more stable and advanced infrastructure than its African peers, JSE looks well set to gain from the increased interest in African FX.
Mario Palhares
“Privatisation plans have been announced that can attract international investors and may bring positive effects directly to the local FX market.”
B3
In December 2016 the Bank for International Settlements had this to say in its BIS Quarterly Review: “Owing to its depth and high level of development, the Brazilian derivatives market has been innovative and resilient to financial distress, during many episodes of financial turbulence… The Brazilian derivatives market arguably helped prevent more serious financial distress or a credit crunch. It did so by providing low-cost, transparent and liquid trading vehicles for a wide range of customers.”
Mario Palhares, Brasil Bolsa Balcão S.A.’s (B3) Listed Products Director says
that B3 has a complete FX portfolio which includes FX Futures Contracts, Options, Forward USD Rate Contracts (FRC) and DI Rate x U.S. Dollar Spread Contract (DDI). The U.S. Dollar Futures Contract is one of the most traded financial derivatives listed on B3. Standard and Mini U.S. Dollar Future Contracts are in Top10 FIA Global Ranking, 2019 in FX Instruments.
Aiming to develop the market and delivering more efficient ways to the FX strategies, B3 has recently added new products: 16 FX Futures Contracts (Currencies against USD) to generate efficiency once all players are used to build their portfolios against USD.
Additionally, B3 launched Mini U.S. Dollar Options (weekly and monthly expiration) the instrument allows negotiation with shorter maturities, bringing flexibility and precision to the market. Moreover, the mini options were designed to allow the participation of individuals in this market.
“Since last year,” says Mr. Palhares, “Brazil has been undergoing structural reforms, the interest rate is at the lowest historical level. More recently, a reform package has been approved, also there are privatisation plans that can attract international investors and may bring positive effects directly to the local FX market. B3 continues to upgrade its technology platform. It has consolidated its data center and implemented a new pre-trade risk tool called Line 5, to improve risk controls and increase speed of response. B3 has also recently launched new data products named UP2DATA, UP2DATA ON DEMAND and DATAWISE which offer the following services: reference data for all listed and OTC derivatives, on-line store of historical data and analytics tools that enables market participants to better understand their trading behaviours. Mr. Palhares points out how important education is for B3 in reaching new and existing customers. “Education, for B3, is a path for the continuous development of the capital markets. This work is done by B3 Education and its activities are guided by three main drivers:
Boost knowledge about our products and services and support our customers in their strategies.
Disseminate knowledge among market professionals and other interested parts through training programs.
Establish partnerships that contribute to improving the training of financial market professionals and promote knowledge for the society in general
This content is now available on B3’s website, but we are working on an educational platform in which we will offer courses from B3, our clients and other partners. We intend to launch this platform in April.”
INDIA INTERNATIONAL EXCHANGE
Indian regulator SEBI has recently sanctioned the launch of Currency Futures and Options Contracts on IFSC Exchanges. Commenting on this approval, India INX MD & CEO – V Balasubramaniam said, “We welcome the SEBI move to allow IFSC Exchanges to launch the Currency Futures and Options Contracts involving Indian Rupee. India INX is delighted and very excited about this development and is fully geared up to launch the same. We will be submitting our detailed product specifications to SEBI for approval on the INR-USD Futures and Options contracts on India INX which will be cash settled in US Dollars and cleared by India ICC our Clearing Corporation which shall act as Central Counterparty to these trades and offer settlement guarantee.”
K.C. Lam
“Because of the scale of our liquidity, SGX remains the primary venue that most people look at for trading CNH and RMB.”
SGX
Growth in trading FX products on the Singapore Exchange (SGX) continued its ever-upward march in 2019. “Because of the scale of our liquidity, SGX remains the primary venue that most people look at for trading RMB,” says K.C.Lam, Head of FX and Rates, SGX. SGX reported the following big numbers for the year:
Aggregate FX volume at US$1.3 trillion in 2019, up 44% from US$914 billion in 2018
Trading volume at 23.5 million contracts in 2019, up 28% from 18.4 million in 2018
Year-end aggregate open interest at US$7.89 billion, up 90% y-o-y
For December, volume exceeded US$114 billion, with over 2 million contracts traded
The New Year has started strongly. The average daily volume in January of its headline USD/CNH futures contracts increased to USD4.21 billion. Its INR/USD futures trading volume for the month totalled USD 41 billion, 29% up year-on-year.
SGX is set to introduce a new TWD futures contract. These will be full sized contracts compared to the existing mini USD/TWD offering, resulting from customer demand, according to K.C. Lam.
“Our market feedback suggests that we have participants, especially those who are not currently trading futures but wanting to trade them, asking for a bigger size contract. On the back of Uncleared Margin Rules, real money customers have come to us and said, “We really need your help. If you can design something bigger, we can trade in bigger clips, and combine that with FlexC FX features, it would help us if we have a bigger contract similar to what we get in the OTC world.”
At the same time SGX’s investment in BidFX, a specialised trading platform for global FX markets, is enabling customers who are used to trading OTC FX to access multiple pools of FX liquidity. Customers now have the option to have bilateral counterparty and/or centrally cleared FX exposures, all in one platform. Added to SGX’s continued education and engagement efforts, K.C. Lam concludes, “All this is part of the things that we’re doing to encourage people to look at trading FX futures on SGX, understanding the impending cost implications and their options. All very relevant as the UMR looms.”
Jeffrey Britell
“Market participants and exchanges are in an arms race to adopt the next generation speed of data dissemination and execution”
CONNECTIVITY AND PATHWAYS
The essential key to the growth of electronic FX markets and platforms in general and to on-exchange trading in particular, is connectivity.“We’re seeing new regions and new players catching up with the more developed markets”, says Jeffrey Britell, Senior Vice President, Global Network Services at IPC, a technology provider that offers cloud-based connections to exchanges and other liquidity venues. Emerging markets are leapfrogging some of the more well-entrenched players in developed markets and using technology to do that while improving their institutional capacity and accumulating enhanced physical and human capital.
They’re able to establish themselves and get to market quickly. “For example, look at any of the crypto exchanges. They went from zero to dozens in a short space of time, say a year, two years. We see similar trends in equities. Look at MEMX, the Members Exchange in the United States, which just came up. They were able to launch in a period of six to nine months. It was probably slower from the regulatory perspective than it was from the technological one. Long Term Stock Exchange and MIAX PEARL Equities Exchange are other examples.”
Britell points to the Shanghai Futures Exchange and around China in general. He outlines the increased demand for connectivity across Asia such as in Malaysia, the Philippines, and the Ho Chi Minh City Stock Exchange and Hanoi Stock Exchange in Vietnam. Singapore is a leading player in FX due to expansion of matching engines now located in Singapore and Monetary Authority of Singapore promoting economic growth. Where exchanges go live, on-exchange FX trading is likely to follow. He also sees growth in Eastern Europe and in Latin America. New exchanges come with regulation as a pre-requisite, encouraging greater transparency, market stability and trust. A significant consideration is the location of data centres for markets and their participants. Britell notes that generally the trend is for datacentres to situate themselves as close to the city centre as possible. “However, the NY2, NY4, and NY5 datacentres are out in Secaucus, New Jersey. A similar situation exists in London, where Slough isn’t in the city centre, but if you look at Tokyo it is. Meanwhile traders, especially those at hedge funds and high frequency shops are seeking lower and lower latency.
Market participants and exchanges are in an arms race to adopt the next generation speed of data dissemination and execution,” Britell adds. He concludes by saying the trick is teaming up with the most suitable technology partner. “Be smart about how you pick your partners and who you’re looking to connect with, to make sure that you’ve got the most appropriate route to market depending upon where you’re based and the product that you trade.”
Conclusion
This roundup of developments in on-exchange FX points clearly to greater convergence between exchange and OTC trading. Spot OTC remains dominant by some margin and any suggestion that all FX trading will one-day be conducted on-exchange still seems fanciful. However, what we are witnessing is the steady emergence of a range to FX trading and hedging choices open to real money and speculative market participants alike.
This growing diversity can only be beneficial in the long time in providing the products and services that meet the needs of an ever-growing and more diverse global FX market.
NEW YORK – March 18, 2020 – IPC, a leading global provider of secure, compliant communications and networking solutions for the global financial markets community, announced today that its award-winning Connexus Cloud platform is integrating Best Execution Solutions, LLC (BXS), a premier provider of Best Execution analytics and trade surveillance software. Now, BXS’s unparalleled toolkit can be accessed via the secure, high-performance Connexus Cloud platform.
“Many firms find execution analytics quite daunting, particularly for compliance – and understandably so,” said Mike Smith, Director of Global Exchange Relations Management, IPC. “It can be an opaque task with myriad challenges, which is why we sought to incorporate BXS’s offerings into our flagship Connexus Cloud ecosystem.”
BXS has developed a reliable set of products that provide market centers, broker-dealers, and institutions the most cost effective solutions that fulfill their compliance reporting obligations, such as SEC Rule 605, Rule 606, and Best Execution reviews, along with a comprehensive set of trading surveillance modules and transaction costs analysis tools.
“We’re thrilled to be partnering with IPC and its global Connexus Cloud financial ecosystem,” said Mike Post, Vice President, Business Development and Strategy, BXS. “We will be able to provide our rapid and seamless solutions to an even wider set of market participants, and further exemplify why BXS is the go-to firm to help clients not only to comply, but compete.”
Connexus Cloud is an unparalleled multi-cloud platform for the global financial markets, an ecosystem that interconnects more than 6,600 diverse capital market participants across 750 cities in over 60 countries. Market participants interested in speaking to IPC subject matter experts about Connexus Cloud can schedule a meeting with us. We also encourage you to learn more at www.ipc.com.
About IPC
IPC is a technology and service leader powering the global financial markets. We help clients anticipate change and solve problems, setting the standard with industry expertise, exceptional service and comprehensive technology. With a customer-first mentality, IPC brings together one of the largest and most diverse global financial ecosystems spanning all asset classes and market participants. As the enabler of this ecosystem, IPC empowers the community to interact, transact and react to market changes and challenges, and we collaborate with our customers to help make them secure, productive, compliant and connected. Visit ipc.com and follow us on LinkedIn and Twitter (@IPC_Systems_Inc).
About BXS
Best Execution Solutions, LLC (“BXS”) is a privately owned company which focuses on providing Best Execution solutions, regulatory reporting, trading analytics, and surveillance software across multiple asset classes. BXS was founded in 2015 by industry veterans and is operated by a management team with extensive experience in the financial industry. BXS has developed a reliable set of cost effective products and services that provide Broker Dealers, Institutions, Market Centers with solutions that fulfill their Compliance reporting obligations such as SEC Rule 605, Rule 606, and Best Execution reviews, along with a comprehensive set of peer-to-peer comparison and transaction cost analysis tools that provide a competitive edge and enhance profitability.
Certain statements contained in this press release may be forward-looking statements. These statements may be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “should” or “will” or similar terminology. Any forward-looking statements are based on current expectations, assumptions, estimates and projections. Such forward looking statements involve known and unknown risks and uncertainties, many of which are beyond our control. Actual results may differ materially from any future results expressed or implied by these forward-looking statements.
In a move that marks a milestone in the evolution of its market strategy, IPC Systems, Inc., today announced its launch of Connexus Cloud.This innovation progresses one of the industry’s largest secure encrypted communications platforms connecting IPC’s community of 200,000 users across 6,000 market participant locations in 700 cities.
A New Chapter for IPC: The Future of Voice Trading Starts Now.
Our CEO Kurt Adams joins ICE’s Chris Edmonds on Inside the ICE House to discuss how IPC is leading the next chapter of innovation—through customer-first approach,cutting-edge technology, and a bold new vision for voice trading.
