I read the paper on the iPad – but I still get a kick out of being quoted in print (see page B6 of today’s NY Times). But I digress…
It looks like the European’s aren’t as into the proposed NYSE/Deutsche Borse merger as the Americans are. Although details are not yet available, it seems likely they’re concerned with the tie up of Liffe and Eurex creating a near European monopoly on futures trading. But in my opinion, that ignores how global the derivatives markets are. CME has 98% of futures volume in the US. This certainly makes it hard for new futures exchange to get much traction (ELX keeps trying and Liffe US seems to be getting somewhere), but since CME competes on a global rather than a regional stage they’re certainly not resting on their laurels or over charging customers. My comments in the paper:
Kevin McPartland, head of fixed income research at the TABB Group, said the European regulators were looking at the impact on a regional level, while antitrust authorities in the United States — who saw a combined entity competing globally with rivals in New York and Singapore — had taken a more global view in granting their approval.
If the companies were told to sell Liffe as a condition for approval, he said, “it would look a lot less appealing.” But he added: “There are enough potential compromises that they could work through most concerns.”
Read the full story at NYTimes.com (or on page B6!).
Great feature piece originally printed in the Sunday Business section of the times examining both the drivers and requirements for high speed trading. The article cites TABB Group’s estimate for high frequency trading in the US equity market (56%) and includes a few of my comments.
According to Kevin McPartland of the TABB Group, high-frequency traders now account for 56 percent of total stock market trading. A measure of their importance is that rather than charging them commissions, some exchanges now even pay high-frequency traders to bring orders to their machines.
High-frequency traders are “the reason for the massive infrastructure,” Mr. McPartland says. “Everyone realizes you have to attract the high-speed traders.”
Senator Gregg is standing up for Wall Street – a little shocking. He is a Republican and they tend to be pro-bank, but politics have kept most in DC from saying anything nice about financial services firms. My comments here focus on the linkage (or lack thereof) between execution and clearing and how most can’t see past the CME model:
“You certainly don’t need to trade on an exchange to clear,” Kevin McPartland, an analyst at the Tabb Group, a financial consulting firm, told DealBook. “The two things remain tied in people’s minds because of the C.M.E. model — owning both the execution and clearing portions of every trade,” he said, referring to how the Chicago Mercantile Exchange operates.
Health care reform and consumer protection has overshadowed derivatives reform for weeks, and the NY Times has finally shined the spot light back on the developing OTC derivative landscape. In the article, I specifically point out the less than ideal approach of having both the SEC and CFTC oversee the market and the fact that the new proposal would not have seen AIG’s CDS positions in a clearinghouse.
“It immediately concerns me that there would be two regulators,” said Kevin McPartland, an analyst at the Tabb Group. “The government had chance to create a new integrated regulatory structure from scratch and obviously they have chosen not to do that.”
According to Mr. McPartland, none of the swaps that laid A.I.G. low would have been suitable for clearing if the House’s proposals had been in effect in 2008.
The Senate has its own version of the Lynch Amendment passed by the House in December courtesy of Rep. Brown. I understand the general concern of leaving too much power with the dealers, but limiting their investment in crucial market venues will ultimately limit competition and innovation. My quote in the article:
“I can’t imagine the Senate would include the Brown amendment, especially at that 20 percent level that was in the House bill,” Kevin McPartland, an analyst at the Tabb Group, a financial consulting firm, told DealBook. “I think there are just too many downsides to keep dealer investment out of these areas.”