16 – 22 MAY 2013
regulatory pressures and internal costs while demand and corporate issuances continue to skyrocket, according to Weiss. This is leading the sellside to increasingly move from the traditional voice-trading-as-aprinciple model to electronic trading venues, Weiss said in an interview. “They’re looking for ways to do this…it’s different in that so many happened, so many attempts,” Weiss said. The report, titled “U.S. Corporate Bonds: Great Rates, Less Filling, or Bubble, Bubble Toil and Trouble,” was the result of phone and face to face interviews with almost all of the roughly 20 trading venues, a dozen sell-side firms and half a dozen buysiders between October 2012 and February of this year, Weiss said. It was an effort to try to flesh out a consensus for where the bond markets are headed, Weiss added. Comparing current market conditions to a tidal shift, Weiss explained that right now the markets are in disarray. Low inventories, fills coming from new issues, and in the case of Apple, issuances to pay dividends, “which is crazy,” Weiss said. There’s either a bubble that will be corrected, or a need for electronic trading, he added. Over the past year alone, five new electronic bond trading venues have sprung up, not counting platforms that never materialized, such as Blackrock’s shelved Aladdin Trading Network, Weiss said. Despite proliferation, Weiss said he believes the player best positioned to capitalize on increasingly electronic markets is MarketAxess. EXCHANGES & ATSs
TECHNOLOGY
CFTC TAC members dismiss Twitter hack, warn on malice
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articipants at a Commodity Futures Trading Commission meeting last month told Commissioners the agency should be concerned about state-sponsored or malicious computer hacking that could be detrimental to markets, but dismissed a recent Twitter account hack that dropped the Dow Jones Industrial Average by 150 points over a five-minute period. Members of the regulator’s Technology Advisory Committee, led by Commissioner Scott O’Malia, said concerns that the market could be severely impacted by hacks of a single Twitter account are somewhat unfounded. That belief is due to the limited number of trading algorithms that incorporate news from the micro blogging site, in addition to the fact that most traders wouldn’t trade on a single source of news without some verification, they said. But participants at the meeting, which was also accessible by phone, said malicious attacks – those perpetrated by groups or individuals with an intent to manipulate markets – are incidents to be concerned about. Evelyn Fuhrer, managing director at Promontory Financial Group, posited someone executing a malicious attack could make a lot of money from the incident. “Here [in the case of the hacking of the Associated Press’ Twitter account], there are people
who may have lost or made money but it’s probably not the same person who hacked the system,” she added. Irene Aldridge, managing partner at Able Alpha Trading, suggested the CFTC could look to firm trades immediately following future attacks to try to suss out those links. In the case of a Twitter hack, for example, she said: “If someone trades and persistently benefits, that can show that they may be involved somehow with the malicious activity.” Another participant said that financial companies operating any kind of platform get cyber attacks regularly and are prepared for that level of intrusion, but the Commission should be worried more about intrusions that could be stronger, such as attacks that could be sponsored by governments.
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CBOE adds market data requirement to routing subsidy
The Chicago Board Options Exchange has added on to the description of its expanded order routing subsidy to require the order routing
functionality to also offer consolidated market data for complex orders, according to the exchange’s latest regulatory filing on the issue. CBOE has offered a subsidy to its own trading permit holders using their own routing technology since 2007 and allowed non-permit holders in the program in 2011. It asked the Securities and Exchange Commission to expand the program again in March to allow the subsidy to include routing for complex orders.
The filing was met with objection by the International Securities Exchange, which argued the proposal seemed to encourage routing to the CBOE and excluding other markets. It also complained that the proposal differed from previous descriptions of the program, which included requirements that firms use consolidated market data to make routing decisions (WSL Online, 4/8/13). The SEC approved the expanded program in March.