Observations from Tradetech 2010
Posted by Giles Nelson
Day one of Tradetech Europe 2010 has nearly finished. I won't be here tomorrow, so here are some thoughts and take-aways from today's event.
It's fair to say that Tradetech is the premier European equities trading and technology event, and thus very relevant for Progress' business in capital markets, particularly customers using Apama. Progress has a substantial presence as always. It's a good event to meet brokers, hedge funds, exchanges and pretty much every one within the industry. Lots of old friends are here every year. Regarding the event itself, it's pretty well attended considering the recent issues with volcanic ash. It usually takes place in Paris, but I'm sure the organisers were pleased that they chose London this year as the London contingent was able to attend without disruption.
This years big theme really seems to be market structure and regulation. In the third year after MiFID, an event which brought competition into European equity markets, and after the credit crunch, issues about how the market is working, the influence of alternative venues such as dark pool, and how high-frequency trading is affecting the market are issues front of mind.
What's interesting is how some things stay the same. Richard Balarkas, old Tradetech hand and CEO of Instinet Europe, talked about trading liberalisation in the late 19th and early 20th century. Then, vested interests were complaining about the rise of "bucket shops", giving access to trading on the Chicago Board of Trade via telegraph to people that wouldn't previously have traded. In the view of some at the time, this lead to speculation and "gambling". Regulators were wrestling at the time with the fact that only 1% of CBOT trades resulted in actual delivery of goods - the rest were purely financial transactions and therefore arguably speculative. This reminds me of some of the current debate around the "social usefullness" of high frequency trading which is going on now.
European equities trading has changed a lot. Vodafone, a UK listed stock, has now only about 30% of its average European daily volume traded on the London Stock Exchange (LSE). The rest is traded on alternative trading venues across Europe. However, Xavier Rolet, CEO of the LSE, believes that there's a long way to go. He stated that "the European equities market remains anaemic when compared to the US". Volumes, adjusted for relative market capitalisation, are about 15% of that in the US.
Regulation of European markets is a thorny issue. Regulation is fragmented, together with the market itself. CESR - the Committee of European Securities Regulators, the nearest Europe has to a single regulator - is taking evidence on a whole range of issues and will recommend a set of reforms to the European Commission in July this year. These recommendations will relate to post-trade transparency and information quality and enhanced information about systematic internalisers and broker crossing systems. CESR is also looking at other issues such as algorithmic trading and co-location. Legislation will follow towards the end of 2010.
Equity markets are in a sensitive place. There's still more deregulation to do, more competition to be encouraged and yet, with sentiment as it is, regulators may decide to introduce more rules and regulations to prevent this taking place. The CESR proposals will be about "transparency, transparency, transparency" - as part of this we believe that more real-time market monitoring and surveillance by all participants is key to bringing back confidence in the markets and ensuring that draconian rules don't have to be introduced.
Emerging markets were talked about in one session, and Cathryn Lyall from BM&FBovespa in the UK, talked about Brazil in particular. We've seen Brazil become a pretty significant market recently. Not only have demand grown for all Progress products substantially but Apama is now being used by 18 clients for algorithmic trading of both equities and derivatives. Brazil is the gorilla in the Latin American region. It accounts for 90% of cash equities and 95% of derivatives business in Latin America. 90% of Brazilian trading is on exchange. Brazil emerged largely unscathed from the credit crunch and it's taken only 2-3 years to achieve the level of trading infrastructure that took perhaps 10-15 years to evolve in the US and Europe. More still needs to happen. Although the regulatory regime has an enviable reputation, it is moving slowly. Concerns regarding naked and sponsored access are holding up liberalisation that would lead to DMA and co-located access to the equities market, something which is place already for derivatives.
So, that's what I saw as highlights from the day. Tradetech seems, still, to be the place the whole industry gathers.