THE DEFINITIVE SOUR CE FOR TR ADING NE WS

VOL XLV ISSUE 28 12 - 18 SEPTEMBER 2013

www.wallstreetletter.com

IN THIS ISSUE
z News People moves 04
z Focus Fee chart 14

MORE NEWS INSIDE

Broadway targets
APAC, bolsters staff
Broadway Technology is looking to
build its client base of local AsiaPacific financial institutions through
its new New Zealand office
TURN TO PAGE 05

Nasdaq to add to antiinternalization feature

The feature limits the ability for
brokers to avoid a situation where
buy and sell orders from the same
firm interact with each other
TURN TO PAGE 07

WEX to create more

options algos
Wolverine Execution Services
aims to roll out new options algos
before the years
end, according
to Kevin
Kernan, director
of product
development
TURN TO
PAGE 10

TOP STORY

KCG Futures targets

tech supported growth
entire group is excited about
the potential.
KCG Futures, the futures
Specifically, he cited
division of KCG (the combined the development of a new
GETCO and Knight Capital),
technology offering within the
is targeting growth supported
division, but he declined to
by new technology following
provide more detail.
the merger, according to Carl
For us, the advantage of
Gilmore, managing director and the merger is getting access
CEO of the division.
to additional technology, he
We hope to see benefits
said. So if you take world class
[of the merger] in the future
technology and take our view that
relatively quickly, Gilmore
we can offer, and ought to offer,
said.
customized services and solutions
Gilmore noted the
for key market segments and
technology synergy of the
couple that with the balance sheet
two formerly individual firms
and financial strengths
TURN
will support a series of new
that we have we have
TO
PAGE
developments taking place in
an opportunity to grow
the futures division and said the that business.
03
BY JEANENE TIMBERLAKE

V I S I T WA L L S T R E E T L E T T E R . C O M F O R U P - TO - T H E - M I N U T E I N V E S T M E N T N E W S

12 18 SEPTEMBER 2013

NEWS

EXCHANGES & ATSs

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BM&FBovespa
to migrate certain
BDRs to exchange
BM&FBovespa has set the migration
of over-the-counter Brazilian
Depositary Receipts to its exchange
market as part of a move to register
the certificates with the Brazilian
Securities Commission (CVM),
according to a trading circular
distributed by the exchange.
In the notice to its market participants, the exchange operator said the
transition would take place on August
30 and would affect unsponsored
Level I BDRs, certificates issued by a
Brazilian depositary that are not affiliated with the foreign issuer. All unsponsored Level I BDRs are currently
traded on its organized OTC, but the
exchange operator noted in June that
it plans to require registration of the
certificates in the future. The latest
notice said all these certificates will
move to the exchange.
BM&FBovespa noted ISINs for all
the certificates that are moving, as
well as Level II and II BDRs that are
already traded on the exchange, will
stay the same but the ticker symbols
will be updated. Trades in any BDRs
that are in the system under the old
tickers will be cancelled at the end of
trading on August 30, the exchange
stated.

01

Separately, the exchange operator

noted it will push back the implementation date for its plan to increase fees
for settlement delivery failures. The
new system was scheduled to take effect on August 19 (WSL Online, 8/7),
but the operator said it would now
go into effect on October 1. A further
deadline, set in October, will now be
set for November, but the December
date, for the third phase of the fee
increase, will stay the same.
EXCHANGES & ATSs

Nasdaq markets
take on more
surveillance work
The Nasdaq Stock Market and
Nasdaq OMX BX are planning to
take on more surveillance work for
their markets, according to regulatory
proposals from both exchanges.
FINRA currently conducts surveillance for both exchanges, though BX
and Nasdaq have operational oversight for real-time surveillance, listed
company qualification (for Nasdaq)
and options market surveillance.
The exchanges are now looking to
add on to these responsibilities to include monitoring the markets to look
for patterns of manipulation specific
to BX and Nasdaq trading activity, as
well as for adherence to rules related
to quoting and quote cancellations.
In filings with the Securities
and Exchange Commission, both

CONTINUED...

Gilmore said the futures commission merchants plans should

support growth of its market share within segments already
serviced by the group, including sophisticated electronic
intermediaries, market professionals trading electronically and
some commercial firms trading futures to hedge risk.
The thread is automation, technology, electronic trading,
Gilmore said. We think we can structure solutions to those
key market segments in ways to help them operate their
businesses better.

CARL GILMORE
managing director
and CEO at KCG
Futures

03

NEWS

PEOPLE MOVES

SEC names commissioner, adds

investment regulation execs

04

The Securities and Exchange Commission

has named Michael Piwowar as its next
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vacant by Troy Paredes. Piwowar returns
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position in May by President Barack Obama.
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SRFEROMRKLSYWMRKERHYVFEREJJEMVW
The regulatory body also named Jane
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the investment adviser/investment company examination program, which is part
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SJEGGSYRXERXWPE[]IVWERHI\EQMRIVW
ERHMWVIWTSRWMFPIJSVMRWTIGXMRK97VIKMWtered investment advisers and investment
companies.
The SEC also hired Eun Ah Choi as the
QEREKMRKI\IGYXMZIMRXLIHMZMWMSRSJMRvestment management. She will be working
on administrative, business and operational
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a career at Hogan Lovells as a partner in
corporate development.

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retirement
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Deutsche Asset & Wealth Management
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wealth management in Latin America. His apTSMRXQIRX[MPPFIIJJIGXMZI3GXSFIV[LIVI
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reporting to Haig Ariyan and Chip Packard,
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SageTrader has hired two executives,
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*1ER'ETMtal Markets in New York. Sean Malloy,
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Brokerage Holdings, the parent company
to SageTrader, said both executives
are longtime colleagues, having worked
with Engmann when all three were at
Newedge.

exchanges noted the equities surveillance patterns monitored by FINRA

are all inclusive but monitoring
incorporates trade data from NSYE
Euronext exchanges, and just a few
patterns monitored by the regulator
look at Nasdaq or BX-only data.
The exchanges said internal
expertise of the exchanges related
to proprietary market structures,
coupled with continued monitoring of these activities in real-time will
enable it to enhance existing patterns
to better detect improper activity on
the markets.
Added surveillance will be conducted through the SMARTS surveillance system, and both exchanges
said the new process will allow them
to flag up more problematic activity
to FINRA than before.
Nasdaq and BX said they will
relieve FINRA of testing for specific
patterns after testing and training
procedures have been conducted internally to ensure a smooth transition
and prevent surveillance gaps.

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SZIVWIIMRKLIHKIJYRHMRZIWXQIRXWEW
QEREKMRKHMVIGXSVKPSFEPLIEHSJLIHKI
JYRHMRZIWXQIRXW

Goal Group appoints biz dev, sales

managers
Goal Group appointed David Gilbert to
XLIVSPISJKPSFEPFYWMRIWWHIZIPSTQIRX
manager and Tania Dupoy as sales and relationship manager. Gilbert was previously
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2SEL;SVXQERHMVIGXSVSJKPSFEPFYWMRIWW
development, and Dupoy reporting to
4EX&MRKLEQ4IXIVWHMVIGXSVSJWEPIWERH
relationship management.

EXCHANGES & ATSs

NOM to amend
spread differentials
for some options
The bid/ask spread differentials for
certain options will soon be variable
under new rules proposed by the
Nasdaq Options Market.
NOM told the Securities and
Exchange Commission in a filing
it wants the option to alter bid/ask
spread differentials to be wider than
its standard differential as appropriate, in response to high differential
prices, market conditions, or other
special factors impacting a particular option, option series, or class of
option.
The exchange currently requires
bid/ask spread differentials to be no
more than $5 for options on equities
and index options, though the differential can be wider in in-the-money

12 18 SEPTEMBER 2013

series if the market for the underlying

security is wider.
Wider differentials could support
increased quoting and trading activity, the exchange noted.
For high premium options, the
current five dollar range can expose
market makers to disproportion
ate risk in dealing with those issues
thereby discouraging them from
quoting in those instruments, NOM
said.
POST-TRADE

FICC unit cuts

grace period for
notifications of
settlement
The mortgage-backed securities
division of the Fixed Income Clearing
Corp. is planning to reduce the grace
period for notifications of settlement
(NOS) and to increase the late fee for
counterparties to a trade where the

NOS deadline is missed, according

to filing from the unit submitted
to the Securities and Exchange
Commission.
While the MBSD facilitates settlement for most To-Be-Announced
trades (TBA), the TBA options and
specified pool trades are settled
outside the facility and counterparties submit settlement notifications to
the unit to certify that settlement has
occurred.
Members submit a NOS to the
utility at clearance and a counterparty
must either confirm or reject the
notice, or the initiating party must
remove a posted notice.
Participants typically have a twoday grace period during which one of
these actions must be taken or they
are subject to a $25 per day fee.
The MBSD told the SEC it wants to
up the fee to $150 per day and cut the
grace period to one day to encourage
more timely reconciliation.
Timely submission and matching
of NOS to FICC is crucial in order to
minimize the risk that MBSD over or

under margins members as a result of

calculating Clearing Fund requirements and mark to market values that
are based on positions which unbeknownst to FICC have actually been
settled between members, it said.
Timely reconciliation is also important if one participant is insolvent
in order for FICC to determine which
positions may need to be liquidated,
the filing stated.
EXCHANGES & ATSs

ISE, CBOE adjust

complex order
handling
The International Securities Exchange
and the Chicago Board Options
Exchange are looking to amend the
way they handle complex orders
offered on their respective exchanges,
according to member circulars
distributed by both exchanges.
The ISE targeted single-sided
complex orders, including those with

TECHNOLOGY

Broadway Technology targets APAC, bolsters staff

Asia-based business units of large global financial institutions,

roadway Technology is looking to build its client base of
according to Moeller.
local Asia-Pacific financial institutions through the recently
The company broadened its client base to about 30 customers
established New Zealand office, according to Tyler Moeller,
this year and expanded staff across the New York, Austin, LonCEO and co-founder of the technology vendor.
don and New Zealand offices, which is currently
The focus follows a deal to provide its TOC
staffed by one person (WSL Online, 4/10). The complatform to Australian bank Westpac and the
pany currently employs 70 people, 12 of which were
opening of a satellite office in New Zealand in June,
added this year, and is planning on further staff
according to Moeller. The company is also moving
expansion, according to Moeller.
forward with enhancements upon its offerings
New hires for the company are selected from
that cater to unique needs of the APAC market, he
existing industry professionals or from schools such
noted.
as Stanford, MIT and Cornell, according to Moeller.
We have many large banks using the TOC globHe noted that the vetting process is stringent, stating
ally, now we are moving towards building out our
that Google and Apple often target the same pool of
clientele with Asia-based entities, said Moeller.
candidates, and training, which usually takes several
We see potential to expand with other large Asia- TYLER MOELLER
months, is vigorous, according to Moeller.
based multi-nationals and regional players, both
CEO and co-founder, Broadway
Technology
We try to instill a Silicon Valley culture on Wall
buyside and sellside.
Street, said Moeller. We marry the crowds of
Broadway Technology is working with the
technology and finance. Q
US arm of a large Asian bank now and also works with the

05

NEWS

06

a stock or exchange-traded fund

component. The exchange told its
members these orders can include
up to eight option legs. Single-sided
complex orders with more legs than
that will be rejected from the system,
it said.
ISE noted legging will be available
for the single-sided complex orders
if there are only three legs, but more
than three legs in an order will require the order to be executed on the
complex order book.
Similarly, the CBOE said it plans
to start accepting complex orders
with up to 12 legs on a ticket, an
increase from four legs. In its circular
to members, CBOE said the change
will require regulatory approval but
it expects to put the rule in effect in
December.
Complex orders with more than 12
legs will still be accepted but they will
need to be entered into the system using multiple order tickets, it said.

EXCHANGES & ATSs

Phlx amends PIXL

functionality for
simple orders
Nasdaq OMX Phlx has notified
its members that it will adjust the
functionality for simple PIXL orders
entered into its system.
In a notice to members via a
technical update, the exchange said
certain simple PIXL orders entered
in error would be rejected from the
system and not cancelled. The functionality was put in place for complex
orders last month, it noted.
PIXL orders, which are electronic,
are submitted with two sides by a
member into an auction to generate price improvement. The orders
are entered with a Stop Price, which
is the price at which the initiating
member will guarantee execution for
the order.

TECHNOLOGY

Options plots US enhancements

AllianceBernstein, which were

ptions, a financial
added last month.
services infrastructure
Barnes noted the additions,
provider, has plans to enhance
which have been driven priits network infrastructure in
marily by client demand, can
the US, according to combe attributed to an increase in
ments from Ken Barnes,
client interest related to tradsenior vice-president.
ing in European dark pools.
We are gearing up to
The other driver is a growing
expand the network, he
interest in currency trading.
explained in an interview.
KEN BARNES
There is a lot happening
Were adding more capacity senior vice-president, Options
there and a lot of new venues
and reducing some of the lathat have sprung up, he said, referring to
tency on some of the routes, and so forth.
recent requests for connections to specific
Barnes said the enhancements would
venues.
supplement a larger build out underway at
He said the vendor is also anticipatthe company that is expected to manifest
ing the potential for new opportunities in
itself over time.
terms of new clients and the addition of
Part of that expansion is the addition of
more trading venues once Dodd-Frank
new clients and trading venues to the netAct rules come into effect from a trading
work globally, the latest being the addition
perspective. Q
of European dark pools run by HSBC and

Currently, orders with a Stop Price

that are invalid (such as if the price
is not equal or better than the NBBO
on the contra side when the order is
more than 50 contracts or, if under 50
contracts, better than the Phlx BBO
or the limit price of the non-Complex
PIXL order), will be cancelled back to
the initiator. Phlx said it will change
the cancellation message to a reject
message.
Similarly, with PIXL orders that are
received within two seconds of the
end of the trading session, initiators
will now receive a reject message
instead of a cancellation message.
The changes will go into effect on
August 20, Phlx said.
EXCHANGES AND ATSs

Aite anticipates FX
market share battle
A report from the Aite Group on the
FX market predicts a market share
battle among venues over the next
year and a half. The consulting firm
collaborated with LMAX Exchange
on the report.
According to the report, Electronic FX Market 2013: Ready for a Revolution?, the launch of new electronic
trading venues for the asset class in
the last three years including venues
from LMAX Exchange, GAIN GTX,
Fast Match, Molten Markets and
ParFX paves the way for new share
competition.
Firms running these new trading platforms are adding features to
increase transparency, thus attracting participation, in anticipation of
increased regulatory scrutiny in the
near future, the report stated.
While success is not guaranteed
for the new market entrants, their
emergence may signal the next phase
in electronic FX competition, characterized by increased transparency
throughout the trade life-cycle, low
latency trading, and client-specific liquidity pools, according to the report.

12 18 SEPTEMBER 2013

Aite noted in the report that

market share is still concentrated
at incumbents Thomson Reuters,
CME Group, ICAPs EBS, FXall and
Bloomberg.
But authors Javier Paz and Howard
Tai, both senior analysts, and Sang
Lee, founder, noted the evolution of
the space is not following a traditional trajectory where old trading
models are being replaced with new
ones.
[I]n fact, depending on the type
of client and its needs, all trading
models have been adopted and are
thriving, they said, noting that an
exchange-style trading model, such as
the model in operation at LMAX, has
a high level of growth potential.
EXCHANGES & ATSs

BOX to create PIP

for complex orders
BOX Options Exchange is planning
to allow participants to submit
complex orders into its Price
Improvement Period (PIP) auctions,
according to regulatory filing.
The exchange would create a
complex order PIP (COPIP) that
would function in a way that would
be similar to its existing PIP for single
option series contracts, BOX said.
In its regular PIP, agency Customer
orders can be designated for the PIP
and submitted with a matching order
on the contra side set at a price that is
equal or better than the NBBO. Participants are notified of the beginning
of a PIP auction and they can submit
competing orders, the best of which
will be matched against the PIP order
based on price/time priority.
BOX said the COPIP will similarly
allow order flow providers and market makers to submit complex orders
to the COPIP if they are marketable
limit orders, BOX-Top orders or
market orders. As with the PIP, complex orders designated for the COPIP
must be submitted with a matching

contra order equal to the full size of

the submitted complex order, it said.
In terms of pricing, the contra
order must have a single price equal
or better than the complex NBBO,
the complex BBO and the exchanges
complex order book, or it must allow for automating price and size of
competing orders, BOX said.
Participants will still get a notice
that the COPIP has started and the
auction will last 100 milliseconds,
during which time order size cant
be modified or cancelled, though the
price may be improved, the exchange
stated.
Orders will be executed against
the initial order based on price/time
priority, with an exception for BOX
book interest, which will have priority over complex orders at the same
price, it added.
BOX noted the benefits of the PIP,
including increased flexibility, more
opportunities for execution and better pricing, will all be available via the
COPIP once launched.
EXCHANGES & ATSs

Nasdaq to add to
anti-internalization
feature
Nasdaq Stock Market will add to
its anti-internalization feature by
offering another option for members
using the capability, according to
a regulatory proposal from the
exchange.
The feature limits the ability for
brokers to avoid a situation where
buy and sell orders from the same
firm interact with each other. The
function will also support brokers
trading for ERISA accounts by
restricting brokers from trading as
principal orders for those accounts.
The anti-internalization feature
monitors orders for these conditions
and if they are met the orders are
cancelled.
Nasdaq told the Securities and

Exchange Commission it wants to

add an option for situations when
orders from the same firm would
interact which would allow brokers
to cancel the newest order. The new
feature would supplement the existing features that already cancel the
oldest order or cancel orders based
on size either the smallest order or
both orders if they are of equal size.
Monitoring will continue to take
place by monitoring orders coming in
by a specific MPID or from a specific
port, Nasdaq said.
TECHNOLOGY

S&P Capital IQ unit

looks to add asset
classes, markets
S&P Capital IQ Real-Time Solutions
plans to allow clients to trade
Asian FX, futures and commodities
using systematic trading within the
next year, according to Stephane
Leroy, the global head of sales and
marketing.
FX trading has risen in popularity,
according to Leroy. While FX has
typically been used as an instrument
to value a portfolio, Leroy says the
currencies are now actively traded,
volumes have increased and clients
are keen for greater access.
Plans to increase staff in Korea and
other markets in the APAC region
are also in the works for the coming
year, Leroy noted.
The unit is also looking to expand
its connections to exchanges in the
region, with a focus on tier two
exchanges targeted for the end of
this year. He noted positive feedback
about the expansion into tier one
exchanges has motivated the move
into tier two venues.
In the past year, the vendors
clients drove a push for the company
to expand coverage into Hong Kong,
Shanghai and Tokyo, according to
Leroy. To do this, he said the unit
had to set up a fiber optic network in

07

NEWS

Asia, which required support from

S&P Capital IQ. The vendor has
received a positive reception due to
the revitalization of the technology in
these markets.
Many clients are still using legacy
technology for quite a while now,
said Leroy. As we begin to operate
in this market, we suspect that more
people will switch from legacy to our
solutions.
Systematic trading played a heavy
role in this expansion and will continue to do so as the number of available exchanges opens up to clients,
according to Leroy.
POST-TRADE

SWIFT targets
GETC practice docs
for repos
08

SWIFT is working on a new set of

market practice documentation that
would focus on use of its Global
Electronic Trade Confirmation
service with repurchase agreements,
according to comments from Paul
Taylor, director of global matching.
We are generating repo-flavored
market practice guidelines that we
have with GETC, and were doing it
with four or five firms, buysiders and
broker-dealers, in the UK, Taylor
said in an interview.
The work comes as the organization, which provides a network and
messaging infrastructure for the
financial services industry, is looking
to extend the use of the service into
new regions globally and across more
asset classes.
Earlier this year the cooperative
was in the process of developing market practice documentation for use
of GETC in Asia and Latin America
(WSL Online, 5/30).
Taylor said SWIFT has been eyeing
the repo space for a year, and clients
have been interested in using the
GETC messages for these transactions as well.

Among the reasons the messages

havent already been adopted in the
space is the fact that some systems in
use by the buyside and sellside dont
have the ability to transact the information that would be needed in order
to populate the necessary message
fields to confirm repo trades, he said.
Some of the buyside systems needed
tweaks to include this extra data, and
that is where we are right now.
Taylor also noted some of the
discussion is centering around different message fields, and whether
certain fields are critical for matching
trades for repurchase agreements or if
additional fields are needed. Its just
a matter of time before that gets live
traffic, he added.
TECHNOLOGY

Advise to extend
Advent integration
to AIFMD
Advise Technologies is looking
to extend a recently announced
partnership with Advent Software
to cover reporting needs under the
UKs Alternative Investment Fund
Managers Directive (AIFMD),
according to comments from Sean
Sullivan, president.
The integration between systems
offered by both vendors was recently
announced and covers filing for Form
PF and for Form CPO-PQR.
Clients using both the Consensus RMS platform from Advise
Technologies, which automates
the process of doing the necessary
calculations and making final reports
to regulators, and Advents Geneva
or Syncova platforms offering global
portfolio management and capabilities for margin and debt financing,
respectively, will now have an option
for transferring the needed data and
creating regulatory reports for US
regulators.
Sullivan said data needed for Form
PF is very similar to the data that will

be required under the EUs AIFMD

and as such extension of the partnership is a logical next step.
AIFMD will probably be a much
bigger challenge than Form PF for a
couple of reasons, and this is where
this synergy makes an appealing
case, he said, referring to the timing
of the first filing deadline for non-EU
filers, which will come as firms are
finalizing year-end reports, and the
fact that rules could be slightly different for each member state.
These wrinkles create an even
more compelling case to automate it
and process it, he added.
Advise has built out an AIFMD
offering on the Consensus RMS platform to include the form, which was
recently made available, but further
guidance is expected that needs to be
incorporated, Sullivan said.
The company is also likely to link
up with other vendors for similar
partnerships if clients demand it, Sullivan said, adding no one vendor provides all the data needed to comply
with existing and pending regulatory
reporting requirements.
EXCHANGES & ATSs

Direct Edge: Brazil

should consolidate
exchange reg function
Direct Edge is backing a multiexchange market model in Brazil that
allows for a single exchange regulator
as the country looks to open the
market up to exchange competition,
according to a comment letter
submitted to the countrys securities
commission.
In the letter, sent to the Comisso de Valores Mobilirios (CVM),
Direct Edge said the regulator should
look to the experience of other global
markets as it attempts to set up the
Brazilian market to allow exchange
competition.
The US-based exchange operator
noted while the US started with two

12 18 SEPTEMBER 2013

TECHNOLOGY

ACTIV Financial looks to expand geographically

CTIV Financial aims to broaden its clientele in EMEA and

the Asian markets in the near term, according to Frank
Piasecki, president and co-founder of ACTIV Financial. As part
of its move in that direction, the vendor has hired Ben Collins as
its director of sales for the EMEA region.
The data management vendor is looking to increase its sales
efforts in Germany, France, Austria, Turkey, South Africa, the
Netherlands, India, Thailand, Malaysia and China, according to
Piasecki.
Weve been in these markets, but with more regional or local
data, and enhanced commercial leadership, were attacking them
with vigor, said Piasecki, adding
the focus is based on interest
from local and international
clients.
In spirit of outsourcing,
many firms and vendors in these
regions are turning to specialist
vendors like ACTIV, said Piasecki. Their needs vary by region,
product type and function but
this is the story globally.
ACTIV hired Collins due to his
experience in data sales garnered

main self-regulatory organizations

with oversight of trading and brokerdealer activity, the current US model
with FINRA as the head is more effective in light of the for profit stance
of the exchanges in the market and
also from a fragmentation perspective with the introduction of more
exchanges.
Direct Edge also noted that the
current structure in Brazil relies
on the BM&FBovespa Supervisao
de Mercados, which, though run
independently, is funded and staffed
by BM&F.
Without any clear guidance and
action to highlight total independence, concerns will exist among
brokers and new exchanges like
that the supervisory authority of
the BSM could be abused, it said.
While Direct Edge believes that BSM

from working at Morningstar. He will oversee regional technical

sales and account management in EMEA as well as emerging
Asian markets, Piasecki noted.
Working from ACTIVs London office, Collins and his team
will collaborate with a support team in Cambridge to wrangle
clients who may employ legacy data management integrated
into their business, Piasecki said.
By offering streamlined data management capabilities on a
platform that allows for third-party data feeds, ACTIV hopes to
convince clients to replace legacy data vendors systems requiring
a plethora of hardware and capital to run, according to Collins.
Current data management
legacy platforms are hardware
infrastructure intensive, said
Piasecki. The immediate benefit
of ACTIVs offering is reducing
the technology footprint from 50
servers at an investment bank to
two or three.
The vendor offers real-time,
multi-asset financial market data
and solutions that is used by 450
clients worldwide by the buyside
and sellside. Q

currently operates with the highest

degree of integrity, the mere existence
of this concern (with or without justification) can affect the behavior of
market participants in a manner that
potentially impedes competition.
The exchange also commented on
best execution, which it said should
be determined based on the investor segment, and consolidated trade
data, which it said should be offered
by multiple data consolidators that
should meet certain standards.
On data, Direct Edge noted that
private consolidators could be used
or a single utility can be chosen. But
in the first instance, inconsistencies could crop up and in the latter
instance there could be additional
overhead. Using a utility also carries somewhat elevated risk that a
dominant exchange could have a

conflict of interest in serving as both

the consolidated and a competitor to
other organized exchange markets,
Direct Edge stated.
EXCHANGES & ATSs

Phlx to allow ISO

orders in PIXL
auctions
Traders sending intermarket sweep
orders to the Nasdaq OMX Phlx will
soon be able to submit those orders
into the exchanges price improving
electronic auction (PIXL), according
to a proposal from the exchange
submitted to the Securities and
Exchange Commission.
The order type is intended to allow
additional choice for PIXL orders and

09

NEWS

10

to keep up with competing markets,

Phlx said.
Traditional PIXL orders initiate auctions as long as they offer
certain levels of price improvement
determined by the size of the order,
whether it is bigger or smaller than
50 contracts, and who the trader is
trading for, whether it is a public customer or a non-public customer.
Traders routing ISO orders to the
exchange must also direct ISO orders
to other exchanges to execute against
the displayed size of protected bids
and offers if those protected quotes
are better than the limit price of the
ISO order.
In the case of PIXL ISOs, Phlx said
traders will be required to submit
orders that comply with all of the
traditional guidelines in terms of
simultaneous routing of ISO orders
to exchanges with protected bids or
offers if the quotes are superior to the
starting PIXL price and in terms of
required price improvement levels.
Phlx added that the only difference
will be that it will not protect away
prices. Instead, order flow providers
will bear the responsibility to clear all
better priced interest away simultaneously with submitting the PIXL ISO
order, it said.
EXCHANGES & ATSs

BX, Nasdaq add prop

trader education
requirement
Nasdaq Stock Market and Nasdaq
OMX BX have both adopted
continuing education requirements
for proprietary traders, according to
proposals from the exchanges that
were filed with the Securities and
Exchange Commission.
The proposals come following work
with other exchanges and FINRA to
develop a proprietary trader registration two years ago, they said.
The educational program, to be
administered by FINRA, is based on

TRADING FIRMS

WEX to create more options algos

olverine Execution Services aims to

roll out new options algos before
the years end, according to Kevin Kernan,
the director of product development at
WEX, who spoke to WSL.
WEX currently has a few algos targeted
at equities including its latest offerings, the
WEX VWAP and the WEX Basket VWAP,
which Kernan said are the most powerful
to date. He explained they operate based
on a common calculation utilizing the
arrival price function in WEXs Best X algo
to aid in determining the average price for
an order.
He noted the interest among options
traders is spurring development.
Because algos are less common in the
options space, traders are more reluctant to
turn their execution over to an algorithm,
but this is an attitude we see changing,
Kernan said. When creating option
algorithms there are more complexities,
including the larger number of available
strikes, which may provide valuable information since they are all derivatives of the
same underlying security.
Kernan pointed out that clients, and
third parties yearning for agnostic offer-

ings, are asking

for more offerings that can
disseminate the
available data
to accurately
target an average price.
We developed the BasKEVIN KERNAN
ket VWAP for director of product development
clients wishing at WEX
to execute a
large basket of securities, including both
buys and sales, while remaining market
neutral, said Kernan. This is a common
issue for many option market makers, one
client segment that has shown the most
interest in this type of algo.
The latest offering was made available to
all WEX clients after six months of research
and development and an internal testing run
executed by Wolverine Trading, the companys proprietary trading arm, according to
Kernan. The algos were cross-tested against
two similar functions offered by competing
vendors until WEXs VWAP suite outperformed the competition, he said. Q

the Series 56 exam and is designed

to ensure traders are up to date on
regulation and trading practices.
The exchanges said proprietary
traders will be required to complete
the regulatory element of the program two years after initial registration and then every three years and
proprietary traders must complete
the program in order to continue to
conduct business on the exchange.
If a trader is registered in more than
one category, only one regulatory element is required to meet registration
obligations, the exchanges said.
For the S501 program, which will
be applicable to proprietary traders,
the fee will be $60, payable to FINRA,
they stated.

TECHNOLOGY

FlexTrade targets
new client base
FlexTrade Systems is aiming to bring
in prospective clients from new fields
through a full integration with OTC
Link ATS, a subsidiary of the OTC
Markets Group, according to Greg
Ludvik, the CEO of FlexTrade.
The target market is brokerdealers handling customer orders and
making markets in OTC securities,
said Ludvik. Our goal is to improve
the strategic profile of our products
competing in the OMS space, and we
want to make sure that we extend and

12 18 SEPTEMBER 2013

cover as many OMS workflows as we

can, while bringing new functionality
to the marketplace.
The offering integrates OTC Link
ATS capabilities into existing brokerdealer workflows for those utilizing
FlexTrades OMS products. Ludvik
noted that a need for integration
came from working with existing
and potential customers who wanted
more front end options to connect
to OTC Links OTC Dealer. The
lack of options in the way of order
and execution management systems
within OTC Link was the catalyst for
integration, he added.
He added the vendor also aspires to
communicate the integration with its
existing client base through the Flex
OMS and ColorPalette. The integration of this system promotes a vital
information link between the buyside
and broker-dealers to telegraph
natural block interest to people who
wouldnt normally use them in predatory function, according to Ludvik.
For instance, information leakage
is all but sealed off due to how the offerings process natural and theoretical trades, according to Ludvik.
FlexTrade began the partnership
with the ATS a year ago with the intent
to improve broker-dealer workflow
in the OTC Link market, according to
Ludvik. He added that brokers have
the ability to manage network security
while making markets without having
to jump between integrations.

market data on
August 19 and is
aimed at traders
pursuing quantitative strategies or
those using forex
as a hedging tool.
TOM MYERS
The Forex Data
partner and senior
set
is Tick Datas
vice-president of business development at first foray into
Tick Data
archiving OTC
trades, adding
FX data into a product line that also
includes equities, futures, and options
data, according to Myers. Data will
be available in tick-by-tick trades and
quotes, tick-by-tick trades, and oneminute trade-only data, Myers noted.
The integration will give users access to historical FX data. Previously,
there was no archived, centralized
data available for forex data sets, said
Myers. He added there are numerous
requests from customers for a clean
robust archive of FX data.
The offering is comprised of historical tick-by-tick foreign exchange
data and other data for more than
2,000 currency pairings with contributions from over 80 different cities
internationally and 180 institutions.
The data has been collected since
May 2008. It was collected by scratch
through a triple archival process in
three separate data centers to prevent
outages and gaps in the data, Myers
stated.
TECHNOLOGY

DATA

Tick Data targets

new clients with
Forex offering
Tick Data is targeting new clients
through the integration of a historical
currency data archive, according to
Tom Myers, partner and senior vicepresident of business development at
Tick Data.
The new Forex Data Set was added
to Tick Datas offering of intraday

SunGard targets
more Canadian biz
with Valdi
SunGard is looking to build up
its business in Canada following
a latency reduction for the Valdi
platform and the buildout of partner
capabilities in the country, according
to James Corrigan, senior managing
director for SunGard Valdi.
The vendor recently contracted
with Pershing to provide direct access

to Canadian trading venues through

its Valdi Market Access platform to
support a streamlined approach for
Pershing related to execution.
In an interview, Corrigan cited the
Pershing relationship as an example
of what the vendor is looking to do in
the country and said SunGard is putting more of a focus on the market.
We can do that today from an
OMS and EMS perspective, we have
all the market center connectivity
throughout our network and we have
our partner business in our SunGard
brokerage unit that offers algo trading
solutions for Canada as well, he said.
We think there is a opportunity to
be another provider in that market.
The push follows what Corrigan
called a replatforming of Valdi to
provide speedier technology, for firms
that want a hosted option for their
core order management functionality,
he said, adding the vendor is seeing
more instances of that request.
We think that solution will allow
us to compete more effectively in the
tier one space that would traditionally do this internally or opt for an
enterprise solution, he said. The
system has been proven in terms of
its ability to handle [high] volumes
on a microsecond basis.
Corrigan noted the vendor will
continue adding to the functionality it
has just replatformed for Valdi. Phase
two and three rollouts, which he said
enhance existing functionality and add
new capabilities, are underway now.
That rollout will go through the
next year and the migration plan for
current clients goes across that same
timeline, he added.
TECHNOLOGY

Fidessa Canada
nears completion of
algo update
Fidessa Canada is looking to release
an update to the algos within its
existing Canadian Trading Platform

11

NEWS

12

by the end of the year, according to

Ritesh Patel, the director of client
services at Fidessa Canada.
The update, which is due in November, will optimize existing trading
strategies and add novel ones, Patel
noted.
Clients are looking for greater
control on certain parameters and
more choice in terms of dark pool
execution as part of smart routing,
said Patel.
These client demands caused
Fidessa to do housekeeping in terms
of updating their
platform, he added.
The upgrade
aims to satisfy the
needs of institutional investors
and market
makers, but the
RITESH PATEL
functionality is
director of client
also aimed at retail
services at Fidessa
Canada
brokerages, which
have become a new
focus for Fidessa, according to Patel.
Whilst volumes are down, retail
investors are becoming more demanding in terms of asset classes and
global access, said Patel. Fidessa
is able to provide these capabilities
as well as allowing for more flexible
routing rules and risk management
controls.
EXCHANGES & ATSs

NFX to alter Market

Order functionality
The Nasdaq OMX Futures Exchange
plans to amend the way its Market
Orders function, according to a
rule the exchange submitted to
the Commodity Futures Trading
Commission.
Specifically, members can opt to
have their orders cancelled after a
certain period of time in a move to
provide more certainty, Nasdaq said.
The current definition simply states
that Market Orders are orders to buy

or sell a specific number of contracts

at the best price.
But NFX said it would add a provision that will allow the orders to be
cancelled if they are not executed
after 30 seconds or less.
The exchange noted it will make a
determination as to the length of time
the orders can rest before they would
be cancelled. A draft trader alert,
included with the filing, indicated the
time period will be set initially at five
seconds.
NFX also noted it will start to post
system settings on its site to provide
guidance to members as to variable
functionality. The Trading System
Settings document would include the
Market Order cancel timer, the Wait
Order suspend timer, the Acceptable
Trade Range Posting Period, and the
Order Spread Protection BBO width
threshold.
POST-TRADE

Sec industry move

to ISO 20022 may
need reg mandate
A wholesale move by the US-based
securities industry to the ISO 20022
messaging standard may require
a regulatory mandate, according
to comments from SWIFTs Chris
Church, CEO of the Americas and
global head of securities.
In a media briefing, Church noted
that the securities industry in the US
is making progress on adopting the
XML-based standard, introduced
to replace the previous ISO 15022
messaging standard, in the area of
corporate actions as part of a broad
reengineering initiative.
But he noted there is not an effort
to adopt more broadly across other
activities, due mainly to the expense
of switching entire systems to another
messaging standard.
I think that ISO 20022 wholesale
for securities will require a regulatory change, he said, emphasizing

the perspective is his opinion and

not based on any industry discussion related to adoption. I think you
need regulators to endorse it and I
think the catalyst for doing that will
be if the US market says, Maybe we
should go to T+2 [for settlement].
He added the question firms typically ask themselves when making
these types of changes is whether they
are ready to make that level of investment and what the resulting benefits
will be.
Often its triggered by some kind
of change that is happening in your
market and that goes alongside of it,
he said. A transition to a T+2 settlement date, or a move to go further to
T+1, from the current T+3 schedule
would be the type of sizable change
that could spur the market to make
additional changes at the same time,
he added.
Regardless of what firms decide,
Church said SWIFT will not push
companies to make a decision either
way. Our official stance is we will
support any market that wants to
go to 20022 but we are happy for
both of those standards to coexist
and operate on one network. We will
support both of them but we are not
going to force entities, organizations
or particular markets to go there
because we dont think its our place
to do that.
POST-TRADE

OCC to adjust margin

considerations to
reduce risk
The OCC has told the Securities
and Exchange Commission it wants
to change the way it looks at some
securities considered ineligible
for margin in order to limit the
potential for concentration risk to the
settlement utility.
In a regulatory filing, the OCC said
it recently determined that it could
be impacted by concentration risk if

12 18 SEPTEMBER 2013

members submit large positions in

equity securities as margin.
Specifically it noted that if a large
number of shares needs liquidating on
a low volume day, it is possible that
the listed equities markets may not be
able to quickly absorb the equity securities OCC seeks to sell, or without an
appreciable negative price impact.
The utilitys rules already allow
OCC to refuse to credit its members
with margin posted but only if the
securities posted are ineligible.
Now OCC said it wants to have the
discretion to limit credit for concentrated positions and accept ineligible
securities if they offer a hedge against
a short position. In such a situation,
OCC will limit the margin credit
granted to the lesser of a multiple of
the daily trading volume or the delta
equivalent position for the particular
equity security, taking into account
the hedging position, it said.
OCC noted it doesnt expect clearing members to find the proposed
changes difficult to accommodate,
but it noted it would work with them
manually until limits are incorporated systematically.
EXCHANGES & ATSs

Over half of US
options exchanges
see volume increase
More than half of the now 12 US
options exchanges saw volumes
increase over August, according to
the latest market share data from
the Options Industry Council. The
increase is in line with the change in

contracts year over year, where August

2013 contracts traded (321,976,044)
represent a 3.55% increase over those
traded in August 2012.
The Chicago Board Options
Exchange saw a slight increase in its
share to 28.56% from 27.56% in July.
The International Securities Exchange and Nasdaq OMX Phlx have
once again switched places with Phlx
coming in second after executing
15.27% of total contracts, an increase
over July share of 14.57%, and ISE
coming in close behind after seeing
its share drop from 14.99% in July to
13.92% in last month.
Market share at NYSE MKT
dropped slightly in August down
to 12.31% from 13.21% in the prior
month, and its sister market, NYSE
Arca, also saw a decrease from
11.08% in July to 10.72% in August.
Nasdaq Options Market executed
8.22% of total contracts, a marginal
increase over its 8.20% share from the
month before. BATS Options saw a
slight decrease to 4.10% in August,
compared to 4.31% in July, while
BOX Options added share, moving up to 2.27% of total contracts
executed from 2.14% in July.
C2 Options Exchange and MIAX
Exchange topped the list of the four
newest venues, with both seeing increases in share C2 executed 1.94%
of total contracts and MIAX executed
1.35%. Nadsaq OMX BX Options
saw it share drop slightly to 0.85%
and ISE Gemini, the newest options
exchange, gained 0.49% in its first
nearly full month of trading.
TECHNOLOGY

Portware to expand
trading tech to
foreign markets
Portware is looking to broaden the
reach of its Alpha Vision algorithmic
optimization offering to operate
across Europe and other markets,
according to Scott DePetris, president

and chief operating officer. The

vendor also plans to open the offering
up to trade in the asset classes beyond
equities, he said.
The geographic expansion is expected to take the platform to European markets in the fourth quarter of
this year. Beyond that, Alpha Vision
will be rolled out to Canadian markets in early-to-mid 2014, while Hong
Kong and Tokyo are being targeted
for late 2014, according to DePetris.
As of now, the platform only operates
within the US equities market.
A major drive for this comes from
a global wind of
people investing in
trade automation
across multiple
assets, said DePetris.
The push in
Europe follows
SCOTT DEPETRIS
Portwares sucpresident and chief
cessful US launch,
STIVEXMRKSJGIV
Portware
where it has
already on-boarded 19 new Alpha Vision clients,
including top pension funds, asset
managers and hedge funds managing
over $3.5trn AuM, and brought 17
participating brokers into the service
bureau, including six of the largest
global investment banks, according to
DePetris.
The vendor is also looking to
broaden the offering to operate in the
futures and FX markets over the next
few years, Depetris noted.
As the offering is configured towards European, Canadian and Asian
markets, as well as FX and futures
markets, client feedback will be instrumental, according to DePetris.
The Alpha Pro and Algorithm
Switching Engine technologies,
acquired from the Aritas Group in
June 2012, are the key components
to integrating artificial intelligence
to the platform. The artificial intelligence technology allows traders
deeper insight because the platform is
optimized to act on a real-time loop,
said DePetris. Q

13

12 18 SEPTEMBER 2013

SUMMARY OF FEE
CH ANGES AT E XCH ANGES

SOURCE: EXCHANGE RULE FILINGS

WEEK COMMENCING 9 SEPTEMBER 2013

14

NAME OF
EXCHANGE

SUMMARY OF
CHANGE

BYX
Exchange

NEW FEE

CHANGED FROM

EFFECTIVE
DATE

Establishes
continuing
education and
UYEPMGEXMSR
exam fees

$195 examination fee for each

individual completing the Series
56 exam; $60 session fee for
each individual required to
complete the S501 Series 56
Proprietary Trader Continuing
Education Program

N/A

Immediately

6IIGXWXLIMRXVSHYGXMSRSJ
Proprietary Trader registration
continuing education by FINRA.
Exam and continuing education
fees will be collected by the
administrator, which is currently
FINRA.

BZX
Exchange

Amends physical port fees

$1,000 per month for each 1G

physical port at the primary or
secondary BZX data center;
$2,000 per month for each 1G
physical port at any other data
center where BZX has a pointof-presence; $2,500 per month
for each 10G physical port at
the primary or secondary BZX
data center; $5,000 per month
for each 10G physical port at
any other data center where
BZX has a PoP

$1,000 per month for each 1G

physical port at the primary or
secondary BZX data center;
$2,500 per month for each 10G
physical port at the primary or
secondary BZX data center

Aug. 28

6IIGXWXLIEHHMXMSRSJ4S4EGcess to the BZX exchange.

BOX
Options
Exchange

Establishes
continuing
education fee

$60 session fee

N/A

Aug. 19

6IIGXWXLIEHHMXMSRSJXLI
Proprietary Trader continuing
education by FINRA.

Chicago
Board
Options
Exchange

Amends
Options Regulatory Fee

$0.0074 per contract

$0.0085 per contract

Sept. 1

Intended to ensure fees

collected under ORF do not
exceed regulatory costs.

C2 Options
Exchange

Amends
Options Regulatory Fee

$0

$0.002 per contract

Sept. 1

Intended to ensure fees

collected under ORF do not
exceed regulatory costs.

EDGA
Exchange

Amends fee for

non-displayed
orders adding
liquidity using
Route Peg
order for securities priced at
$1 or more

$0.0004 per share fee

$0.0005 per share fee

Sept. 3

Lowers fee due to lower chance

of execution and following
reduction of standard rate fee to
$0.0005 per share.

Adds Step-Up
volume tier

$0.0003 per share fee if (1)

MPID adds more than 0.10%
for the TCV on EDGA daily,
measured monthly, more than
the MPIDs December 2012
added TCV or (2) if MPID adds
more than 0.05% of the TCV on
EDGA daily, measured monthly,
more than December 2012
added TCV and have added
liquidity to added plus removed
liquidity ratio of at least 85%

$0.0003 per share fee for

MPIDs adding more than 0.10%
for the TCV on EDGA daily,
measured monthly, more than
the MPIDs December 2012
added TCV

Sept. 3

If MPID's December 2012

TCV is zero, the exchange applies a default TCV baseline of
10,000,000 shares.

DISCLAIMER: Most fee changes are effective upon filing. WSL notes fee highlights here, but additional
changes may be made post publication. Please visit exchange websites for the latest fee changes.

EXPLANATION

FOR FURTHER CHANGES AT EXCHANGES,

visit www.wallstreetletter.com

COMPLEX

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Securities products are offered through BNP Paribas Securities Corp., a subsidiary of BNP Paribas and a broker-dealer registered with the Securities and Exchange
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