Forefront Communications

Forefront Week in Review: August 12, 2018

Sam Belden

Sam Belden

Welcome to the Forefront Week in Review, where we take another look at top recent stories from the action-packed world of trading and market structure.

From ICE’s plan to launch Bakkt, a company that will offer a federally regulated market for cryptocurrencies, to the SEC’s choice to postpone a key decision on a proposed bitcoin ETF, bitcoin has been all over the news this past week. It seems inevitable that the crypto space will soon become more regulated and institutionalized, and investors are poring over every development in an effort to stay ahead of the curve.

In other news, ITG has set aside a significant amount of money to settle an SEC probe, and MiFID II has continued to have a profound effect on technology vendors.

This week’s Week in Review features stories by John McCrank of Reuters, Steve Taub of Institutional Investor and Rick Baert of Pensions & Investments, among others. Keep scrolling for more, and don’t forget to subscribe to the Forefront Trading Digest if you’re not on our list already.

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Broker News

Inside the Power Struggle at the Top of Citigroup’s Equities Unit That’s a Window on the Latest Wall Street Fad
Business Insider | Dakin Campbell & Alex Morrell

As Wall Street firms have tussled for supremacy in stock trading, 20 years of shrinking commissions have forced them to get creative. In the early days, firms embraced electronic trading and dark pools, or used more balance sheet, to woo clients and wrest business from rivals. But as technology became commoditized and new rules made it more expensive to hold inventory, firms came up with ever more innovative solutions. One of those, the central risk book (CRB), is now taking hold across the industry, with implications for everything from how clients buy and sell shares to where the next trading loss may emerge. At Citi, the CRB — and who was responsible for its P&L — was ultimately what led to the departure earlier this year of Amardo Diaz, the bank’s global head of cash trading.

[minti_button link=”https://www.businessinsider.com/citigroup-management-battle-shows-central-risk-book-rise-2018-7″ size=”small” target=”_blank” lightbox=”false” color=”orange” icon=””]Read More ($)[/minti_button]

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Exchange, ATS and Clearing News

OCC Clears the Path to Greater Capital Efficiencies for Clearing Firms in U.S. Exchange-Listed Options Markets
Tabb Forum | Craig Donohue (Executive Chairman and CEO, OCC)

At OCC, we constantly are searching for ways to promote stability and market integrity through effective and efficient clearance, settlement and risk management services while providing thought leadership and education to market participants and the public about the prudent use of the products we clear. Our current clearing fund methodology, which has been in place since 2012, needed significant modifications in order to meet new and evolving regulatory requirements and industry best practices. Our new Financial Safeguards Framework will provide a significantly improved methodology and enhanced resources to our clearing firms and liquidity providers. Pending SEC approval, it is set to be implemented beginning on September 4.

[minti_button link=”https://tabbforum.com/opinions/occs-financial-safeguards-framework-aligns-to-cover-2-standard-and-enhances-clearing-fund-allocations” size=”small” target=”_blank” lightbox=”false” color=”orange” icon=””]Read More[/minti_button]

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Vendor News

Order Management Costs Coming Out of the Dark
Pensions & Investments | Rick Baert

The cost of OMS connections for securities trades, often unknown to money managers and others on the buy side, is coming out of the shadows, sources said. That’s due to several factors, including reduced commissions to brokers that were paying for these connections themselves; the potential for brokers to pass on these costs to the buy side; and the disclosure of trading execution costs under MiFID II that could lead to transparency on connectivity. Those factors could alter the landscape of how providers of order management systems, which execute securities trades, are paid for access to their systems.

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Buy Side News

The Hedge Fund 100: Quant Funds Excel — at Asset Gathering
Institutional Investor | Steve Taub

In II’s annual ranking of hedge funds by AuM, Bridgewater Associates retained the No. 1 ranking for the eighth consecutive year, while AQR Capital Management, Renaissance Technologies and Two Sigma all enjoyed big gains en route to the next three spots. Other funds on the list include D.E. Shaw, Paulson & Co. and Caxton Associates.

[minti_button link=”https://www.institutionalinvestor.com/article/b19dxvr2pvgjq2/The-Hedge-Fund-100-Quant-Funds-Excel-at-Asset-Gathering” size=”small” target=”_blank” lightbox=”false” color=”orange” icon=””]Read More[/minti_button]

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M&A/Investment News

IPOs Are Too Expensive and Cumbersome
Financial Times | Barry McCarthy (CFO of Spotify)

The US initial public offering market is broken. IPOs haven’t changed much since 1971, and the process no longer works in many key areas. Among those areas are the quiet period, which limits what companies can tell investors ahead of the float, the lock-up rules that would have prevented our employees from selling their shares, and the size of the underwriting fees. That is why Spotify opted for a direct listing instead. A direct listing involves selling shares straight to the public, without paying an underwriter to line up investors at a set price. Companies have more flexibility than they may realise when it comes to raising capital, and the same is true when it comes to going public.

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Regulatory & Legal News

ITG Sets Aside $12 million for SEC Probe into its U.S. Dark Pool
Reuters News | John McCrank

Investment Technology Group said on Wednesday it had set aside $12 million for a probable settlement related to a regulatory probe into its U.S. “dark pool,” or private stock trading venue. The settlement would be the company’s second in recent years with the SEC involving its U.S. POSIT dark pool, following a $20.3 million charge in August 2015. The current SEC probe into ITG is focused on several alleged regulatory violations related to disclosures on how its dark pool operated, the underlying technology, and how its data was used, the New York-based company said in a statement. The alleged violations occurred over various periods, the longest ranging from June 2009 to November 2017, ITG said.

[minti_button link=”https://www.reuters.com/article/us-invest-tech-grp-regulation/itg-sets-aside-12-million-for-sec-probe-into-its-u-s-dark-pool-idUSKBN1KT2JI?il=0″ size=”small” target=”_blank” lightbox=”false” color=”orange” icon=””]Read More[/minti_button]

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Blockchain & Crypto News

The NYSE’s Owner Wants to Bring Bitcoin to Your 401(k). Are Crypto Credit Cards Next?
Fortune | Shawn Tully

Intercontinental Exchange has deepened its involvement in digital currencies with a new company that aims to make them mainstream for institutional investors and consumers. The Atlanta-based group on Friday announced plans to launch Bakkt, a business that plans to build infrastructure allowing easier use of digital currencies for everyday transactions. Earmarked to lead the venture is Kelly Loeffler, ICE’s head of investor relations and the wife of Jeff Sprecher, chief executive. The company’s first step would be the launch of bitcoin futures deliverable in one day, effectively tracking spot prices under the umbrella of a regulated exchange and clearing house.

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That’s all for this week. Don’t forget to subscribe to the Forefront Trading Digest for more headlines like these.