1 dtcc executive forum managing market-wide risk at warp speed low latency in a fragmented world rob...
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DTCC Executive Forum
Managing Market-wide Risk at Warp SpeedLow Latency in a Fragmented World
Rob Hegarty
Managing Director, Market Structure
DTCC
November 23, 2009
2
Market Structure Isn’t Just for Trading Anymore!
Trading business models:• Exchange• Auction• Crossing • Order-book• Open outcry• Over-the-counter• Electronic• Voice
Clearance & Settlement business models:• Centrally• Bi-laterally• Multi-laterally• Uncleared
• Physical Settlement• Book entry
Source: DTCC
33
A comparison of Equity Market Structures in the US and Europe draws a deep contrast between models
United States
Trading
Clearing
Settlement
Single CCP
Clearing cost per side
$ 0.003€ 0.002
$ 0.034€ 0.023
Exchange rate € 0.67 to $ as of November 17, 2009
Europe
WBS
ENX
NOX
DBS
ISE
BSI
OBS
SIX
LSECHX
TQS
NOE BTS
SMP NAE
NEM
CPACLN LCH ERXCCG XCLECPFEF
AT
BE FR NL PT
SE DKFI
DEGB
IT
NO
CH
SXB SXE
IE
60
DTCC (NSCC)
Single CSDDTCC (DTC)
Source: DTCC
4
In US equities, technology-based trading has completely redefined the landscape…
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09
NYX NDAQ TRF ex BATS & DE
BATS Direct Edge EDGX
EDGA ISE-SX Other
NYX
NDAQTRF (ex BATS, DE)
Direct EdgeBATS
EDGX
Source: BATS Exchange, Inc.
Market Share, US Equities
5
…with off-exchange venues (i.e. dark pools) steadily gaining market share in the last 2 years
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09
0
10
20
30
40
50
60
70
Dark Pools as % of Consolidated Volume VIX Average Close
Source: Rosenblatt Securities
Percent of Consolidated Volume VIX Average Close
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…leading to the emergence of some big players in the equity execution business – that aren’t exchanges
CREDIT SUISSE CROSSFINDER
17%
GOLDMAN SACHS SIGMA X
15%
KNIGHT LINK13%
GETCO EXECUTION SERVICES
13%
LEVEL ATS7%
MORGAN STANLEY MS POOL
6%
UBS PIN5%
CITI MATCH4%
BARCLAYS LX4%
LIQUIDNET4%
ITG POSIT3%
INSTINET CBX3%
NYFIX MILLENNIUM2%
BIDS TRADING2%
PIPELINE TRADING1%
BNY CONVERGEX VORTEX
1%
Source: Rosenblatt Securities, August 2009
Breakdown of Dark Pool volume (8.6% of total volume)
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When the geeks make the cover of Forbes, you know their time has come
High Frequency Trading has garnered headlines…and the attention of the SEC and FSA
The debate rages: Are they providers of liquidity or bandits
Not to be confused with “flash trading”, co-location, dark pools, ….
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Post-trade or at-trade risk management for high frequency trading: Why?
More feasible for cross-market monitoring
Low-latency platforms make “at-trade” or “simul-trade” risk management more of a reality…and a necessity
Cancellation rates of 99.99%– Imagine doing pre-trade on
all those orders that never get executed
Protect the HFT business from systemic failure
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