The new offering combines LSEG’s pricing services with Yield Book analytics to create pricing information for around 2.9 million bonds with a 20 year look back period.

Regulatory reporting and risk management, security valuation and portfolio analysis, research, index strategy and historical simulations – among other analytics offerings – will be available via Snowflake as a delivery channel.

“The combination of Yield Book’s trusted, in-depth analytics and LSEG’s expertise in evaluated pricing delivers a robust and comprehensive suite of tools to empower clients,” said Emily Prince, group head of analytics at LSEG.

“These tools allow customers to back test portfolios, optimise strategies, and manage risk effectively. By offering this through Snowflake, we ensure seamless access to advanced analytics, enabling more efficient, scalable, and integrated solutions for our clients.”

The move builds on an existing partnership between LSEG and Snowflake. In September, LSEG launched a new cloud-based, ready-to-use enterprise data solution.

Named DataScope Warehouse, the new solution offers cloud-based access to LSEG’s fixed income and equity data records. The DataScope Warehouse will initially be delivered via Snowflake cloud infrastructure, with more cloud providers scheduled to be rolled out next year.

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Daniel Shepherd

As collaboration continues to be a driving force in institutional trading, this move is set to provide the market with a new solution for equity block trading.

BTON will now offer financial institutions a ‘seamless’ way to receive cutting-edge quantitative and qualitative analysis tools. 

BTON is AI-powered, developed specifically to assist buy-side trading desks using collaborative data.

The firm claims to help traders execute trading strategies effectively, automating order routing to the most appropriate broker using the most appropriate algorithm. 

OptimX, in which Aquis acquired a minority stake last August, is a liquidity management service provider focused on optimising interactions between institutions and their broker counterparties.

“Partnering with OptimX Markets allows us to offer financial institutions a seamless way to deliver cutting-edge quantitative and qualitative analysis tools for European equity block trading,” said Daniel Shepherd, chief executive of BTON, speaking in an announcement on social media.

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The new offering includes market insights with real time data on equities, trusts, rights, indices, and bonds. Following the expansion, the data is now available to QuantHouse clients through a single API.

Speaking to The TRADE on the drivers behind the expansion, Rob Kirby, EMEA head of sales and business development at QuantHouse said: “At QuantHouse we are always looking for ways to expand and evolve our market data solutions, so that we can help our clients adapt to changing market conditions as quickly as possible. The inclusion of real time data from the Saudi Exchange is a great example of that ethos.”

QuantHouse confirmed that London clients had already begun using the new offering as part of their expanded trading strategies.

“The Middle East region is undergoing large economic transformation and diversification with increased investments into technology, finance and infrastructure, so it’s growing in importance for our client base,” Kirby explained.

“We already have one long-standing client, a systematic hedge fund which is taking this new data set from us, and it’s proving interesting to a range of our clients across the world, notably mid to large sized banks and also many clients in the far east.”

Kirby added that QuantHouse was in talks with other exchanges and venues in the region to expand the firm’s reach further.

Iress announced in 2019 that it would be acquiring QuantHouse for €38.9 million, subject to material earnout for the period ongoing until the end of 2021.

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In the next few weeks, the Financial Conduct Authority (FCA) is expected to begin its tender process and criteria for the UK CTP, while ESMA intends to begin the process for the EU CTP in January next year.

Confirmation and authorisation of the new CTPs is expected to be in Q4 2025, with go live dates expected in 2026.

CTPs are anticipated to deliver improved transparency for all subscribers, with valuable insights provided to fixed income across multiple use cases.

ESMA and the FCA have both emphasised that CTPs should provide a low-cost, resilient and high-quality service, with quick implementation, connecting to all trading venues and APAs across the UK and EU, and distributing data to users.

“TransFICC has been running a CTP pilot for nearly two years and during that time clients have tested it for performance, resilience, and ease of integration,” said Steve Toland, co-founder of TransFICC.

“The buy-side, sell-side, market data firms and venues have successfully tested data contribution and data output, the results of which have given us significant insight into how to develop and support a CTP in production.”

TransFICC offers trading technology for fixed income, seeking to resolve market fragmentation and to deliver workflow efficiencies to banks and asset managers globally.

The firm provides connectivity to multiple trading venues while supporting a range of workflows across asset classes.

“By using key components from our existing technology, we are able to deliver a low-cost tape in terms of initial build and ongoing running costs. In addition, quality and latency will not be compromised, which includes the tape being able to support the real time publication of trades and potentially price streaming and pre-trade market data in the future,” added Toland.

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Specifically, BMLL now offers its global participants access to six years of historical, nanosecond unconflated OPRA options data.

Paul Humphrey

The expansion contributes to BMLL’s equities coverage which is at 98% of the MSCI All-Country World Index.
 
Paul Humphrey, chief executive at BMLL, said: “Adding OPRA options data is another significant milestone in our data coverage expansion strategy. To date, we have built out our equities coverage to 98% of the MSCI All-Country World Index.

“Including OPRA options in our data and analytics capabilities is a natural evolution for BMLL, driven by customer demand for a best-in-class product and very much in line with our multi-asset strategy.”

OPRA consolidates and distributes options data which stems from every US equity options exchange – in a unified feed.
 
The new data is available via BMLL Data Lab and BMLL Data Feed, via AWS S3.

“Spiralling data costs and OPRA’s expansion of its data dissemination from 48 to 96 lines in February 2024 have placed a significant burden on market participants, both in terms of managing market data budgets and also the necessary data infrastructure [to handle 4TB of data per day]”, added David Robinson, chief technology officer at BMLL.

“As a result, firms are looking for cloud-based OPRA data services that are easy to access, within their existing workflows.”

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Robin Mess

Commenting on the investment round, Robin Mess, chief executive of big xyt, said: “This investment is testament to big xyt’s strong reputation and commitment to innovation, unrivalled data quality, and exceptional service.   

Finch Capital’s support accelerates our product development and team growth and enables us to take our proven expertise to the next level to meet the rising demand for advanced analytics. These include the need for automation and data-driven decisions to navigate regulatory pressures and stay competitive in increasingly complex financial markets.”

The investment is earmarked to facilitate big xyt’s global expansion across Europe, the US, and APAC, as well as enhancing its product development. 

The firm added that the capital will “strengthen our position as an independent leader in AI-based data analytics for financial markets for some of the world’s leading financial institutions”.
 
Earlier this week, big xyt claimed the award for Outstanding Market Data Services Provider – Equities at The TRADE’s coveted Leaders in Trading awards. 

Aman Ghei, UK partner at Finch Capital said: “big xyt’s expertise in automating capital markets data is crucial as financial institutions face mounting competitive pressures and regulatory demands. 

“[…] big xyt’s team is uniquely positioned to dominate the market with their unmatched expertise in financial data analytics, robust tech innovation, and deep industry insights. Their strategic vision, combined with a proven track record in scaling complex, data-driven solutions, empowers them to stay ahead of evolving market demands.”

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Last week Aquis and Cboe announced that they were teaming up to explore a bid to become the EU’s equity consolidated tape.

Named SimpliCT, the new venture will be based in the Netherlands and co-owned by Cboe and Aquis as equal shareholders.

The endeavour would be competing with the SIX-backed initative, EuroCTP, which was first announced in the third quarter of 2023 and is backed by 14 exchanges as its shareholders.

Subsequently, SIX has said today that following completion of the acquisition, “if Aquis continues to explore or is pursuing a bid to perform the equity consolidated tape provider role, SIX intends to withdraw from EuroCTP, the consortium for the consolidated tape provider role that SIX is participating in”.

Read more: SIX agrees to acquire Aquis Exchange 

Speaking at the time SimpliCT was announced, Alasdair Haynes, chief executive of Aquis, asserted: “This proposed joint venture would not only represent a cost-efficient, robust business model that integrates advanced complementary, proprietary technologies, it would also be designed to deliver fair compensation for data contribution, aligning the interests of contributors and consumers.” 

This news from SIX around its withdrawal may come as a shock to the market as EuroCTP remains the only confirmed bidder for the European Union equities tape thus far, though others have made public their interest and potential to enter the tender process. 

Read more: European exchanges launch JV for CTP tender

Chief executive of EuroCTP Eglantine Desautel previously told The TRADE that EuroCTP is now in the process of firming up its plans to make its official bid in 2025 and has finalised the shortlisting process for its prospective technology partners and is working towards a final selection for August or September. 

The JV is made up of participants across 26 of the EU’s member states and includes: BME, Deutsche Boerse Group, Euronext exchanges (Borsa Italiana, Amsterdam, Brussels, Dublin, Lison, Paris, Oslo Børs), Luxembourg Stock Exchange, and Nasdaq exchanges (Stockholm, Copenhagen, Helsinki, Iceland, Riga, Tallinn, and Vilnius), among others.

The post SIX could withdraw from EuroCTP consortium following Aquis deal appeared first on The TRADE.

Laura Misher, Kat Sweeney

As part of the partnership, S&P Global bond reference data will be integrated into MarketAxess’ suite of data products, while MarketAxess CP+ real-time pricing will also be included into S&P Global’s evaluated bond pricing.

MarketAxess CP+ is a real-time bond pricing source for global credit, rates and emerging markets powered by AI and proprietary data. The source is used by clients for price discovery, transaction cost analysis, and automated trading strategies.

The combination of S&P Global’s evaluated bond pricing of over 1.2 million corporate, sovereign and municipal bonds with MarketAxess CP+ is expected to lead to more consistent pricing and greater efficiencies across the trade lifecycle including front-, middle- and back-office functions.

“We are excited about this collaboration as it connects a market-leading institutional trading platform with a leading data provider, bringing transparency and consistency in data used across the different functions of our customers,” said Laura Misher, vice president at SPGMI.

“Additionally, our combined expertise will allow us to develop solutions that will address customer challenges across the trade lifecycle.”

The data integration is expected to start in H1 of 2025, enabling the companies to differentiate their existing product offerings and innovate new solutions.

The development follows Intercontinental Exchange’s ICE Bonds and MarketAxess connecting their respective liquidity networks in a bid to improve efficiency and access to deeper liquidity in fixed income markets, announced in August.

Read more: ICE Bonds and MarketAxess connect liquidity networks to bolster bond market efficiency

“Incorporating CP+ into S&P Global evaluated bond pricing service will enable our firms to close the gaps between best execution, intraday trading decisions and end-of-day valuation,” said Kat Sweeney, global head of data and ETF solutions at MarketAxess.

“We are thrilled to be working with S&P Global Market Intelligence, an innovator across the entire fixed income ecosystem, to further our common goal of bringing more transparency to the fixed income cash and ETF markets.”

The post S&P Global Market Intelligence and MarketAxess partner to improve fixed income transparency and efficiency appeared first on The TRADE.

Specifically, the update will allow for clearer definitions of rotation trade equity, credit, and duration in bonds as iFlow will be able to generate on-demand charts for shorts, holdings, and positioning.

“The new indicators are designed to provide transparency into unexpected market moves and show how markets have acted historically, helping to determine the potential vulnerabilities around shock events,” explained BNY. 

iFlow Shorts aggregates short interest metrics that log borrowing and lending behaviour, while iFlow Holdings demonstrates investor exposure to stock and bond markets. This includes a holistic view into how investors have allocated capital across factors such as country, sector, credit rating and maturity. 

iFlow Positioning measures investment preferences – comparing capital deployment across countries and sectors.

Read more: Fireside Friday with… BNY Mellon’s Geoffrey Yu 

Jason Vitale, head of global markets trading at BNY, said: “Finding ways to distil and understand market data continues to be one of the most important priorities for our clients. The challenge of today is no longer about getting access to vast market data sets but finding ways to unpack and generate those insights.

“Given our unique vantage point, touching around one fifth of the world’s investable assets, and through our expanded iFlow capabilities, we’re able to help clients better understand global markets.”

The post BNY bolsters iFlow’s fixed income and equities data appeared first on The TRADE.

Kicking off this whistle-stop summary as the number one most impactful innovation in the industry is the order and/or execution management system (OEMS) – the beating heart of trading desks around the world. Brought to market in the early 2000s, the sometimes combined and sometimes separated systems were designed to enhance the previously manual processes associated with managing and executing orders. They offer a nifty alternative to the previous plethora of both written records and later, excel spreadsheets that traders were previously forced to grapple with each day to keep things in order.

These systems touch upon all elements of the trading lifecycle throughout the front-to-middle-to-back-office including execution, order, risk and portfolio management. Traders’ order blotters sit within these systems and trading teams use these systems to consolidate data sources and research in one place to increase efficiency and speed when going about day-to-day activities. They also use them to access the market, connecting directly to counterparties to access liquidity. An EMS overlays an OMS by enhancing connectivity, aggregating data and being more flexible as it solely pertains to execution needs.

The systems are constantly evolving to meet the needs of the industry with new third-party vendors integrating their offerings via API in order to gain access to clients using them. While adoption is widespread in equities other asset classes such as fixed income have been slower to adopt these systems given the nuances of the workflows and liquidity landscapes in these markets. For more information on the various providers in the EMS market, check out The TRADE’s annual survey.

2. Bloomberg Terminal

Up next and needing little introduction is the Bloomberg Terminal, Bloomberg’s data and proprietary trading platform. First brought to market in the early 80s the system has over the decades earned its title as the leading market data source and a must have for any financial institution looking to execute in the markets. This is reflected in its annual subscription now nearing $30,000. For this reason, the system is favoured by institutional investors as opposed to individual ones.

Its black background and computerised white text might seem a little out of date to individuals outside of the industry but its role in the financial markets has cemented this interface as a poster child for financial services. Home to Bloomberg’s central data services the interface offers users access to news, data, analytics, and multi-asset trading tools. Given its widespread adoption by institutions it’s also a people move source as users can see up to date contact details of peers. According to Bloomberg, it offers  sell-side and independent research from over 1,500 sources as well as proprietary research on various industries and markets.

3. CLS

Coming in at number three is the multi-currency settlement system, CLS. While perhaps not one of the most exciting aspects of the trade lifecycle, settlement is a central process that acts as a pillar for the capital markets. The settlement period relates to the space of time between the trade date and the settlement date when a trade is considered complete. Within this window both the buyer and seller must undertake any necessary actions to ensure the transaction can be completed.

Established in 2002, the CLS network is designed to minimise risk and offer operational efficiency to institutions within the settlement window by avoiding bilateral settlement that is more likely to fail.

The settlement window has found itself in the industry spotlight as of late thanks to the recent decision from regulators in the US to move North American markets to a T+1 settlement period, down from T+2.

4. Central limit order book (CLOB)

While it is easy to romanticise the sheer graft that went into trading a few decades ago, the introduction of central limit order books (CLOBs) and streamed pricing were much-needed innovations. The idea that in order to understand the changing price of an individual stock or security, one would have to study daily directories and newspapers is something that many of those starting out in the industry today will never understand. With no central directory of orders in the market, understanding pricing must have been a headache to say the least, leaving many individuals subject to arduous process of calling everyone in the phone book.

CLOBs allow for transparency of live orders that are prioritised by price and time. By seeing what is available on the order book, traders have an idea of how much volume can be executed at a specific price. Facilitated by exchanges, a CLOB allows buyers and sellers to submit their trading interests and then utilises a matching engine to match buy and sell orders based on specific requirements such as price time priority. Once a trade has been matched the buy and sell orders are removed from the order book and the bid and ask prices are updated accordingly to reflect the change.

CLOBs offer greater transparency and consolidated liquidity meaning participants have a greater chance of trading. They’re typically used in equities given that this asset class trades on exchange unlike fixed income and some foreign exchange assets. Thanks to huge leaps in technology, participants can hide their full amounts in what’s known as “iceberg orders” that replenish the order book once liquidity has been matched and removed from the book.

5. Algorithmic trading

Rounding out the top five of The TRADE’s rankings of the most influential innovations to come to trading are algorithms and the concept of executing algorithmically or automatically. Most common for low touch and ‘easy flow’ algorithms are often used for small orders in highly liquid markets. Algorithms are a computer programmed trading workflow that follows a defined set of parameters. These parameters could be anything from liquidity seeking to volume dependant or venue-specific such as dark seeking.

Algorithms often offer traders a quick and easy route to market. They remove the opportunity for human error by taking away any manual processes and offer a low latency solution that will often achieve best execution and avoid any unwanted price changes.

While this all sounds fantastic and you may be wondering why they aren’t used for all flow, there are some downsides. Unpredictable activity in the markets such as Black Swan events can render algorithms that rely on historical data useless and result in losses for firms. At the other end of the spectrum, a lack of human judgement and intervention can sometimes result in lesser results in nuanced situations that require human intuition.

Buy-side institutions will often use a broker’s algorithmic suite for execution, with many sell-side institutions vying for the interest of clients with the launch of new and innovative products with flashy names. Less common is the development of proprietary algorithms inhouse on the buy-side given the cost, time to implement, and the speed at which priorities evolve. For more information on algorithmic trading providers, check out The TRADE’s annual survey.

6. The FIX Protocol

Think of the FIX Protocol – or the Financial Information Exchange Protocol – as a universal language allowing institutions to communicate clearly when looking to execute in the market. Used by the buy- and sell-side as well as venues and regulators the FIX Protocol is an industry standard used to complete transactions. It was originally cooked up in the early 90s by Robert Lamoureux and Chris Morstatt in order to exchange equity information between their respective firms Fidelity Investments and Salomon Brothers.

The crux of the protocol isa language comprised of a series of messaging specifications to be used in trade communications. Each specification whether it be size or time or client type has a number or letter associated with it making trading intentions clearer and more clean-cut no matter where they have come from. The protocol was designed in an attempt to simplify workflows and reduce error by creating an industry standard to adopted by all.

The standard is non-proprietary and free. It is owned by the FIX Trading Community made up of buy and sell-side firms, vendors, industry associations and trading venues. While originally only focused on equity information, the FIX protocol began supporting straight through processing (STP) in the 90s and also later added indication of interest (IOI) capabilities to its roster.

7. Dark pools

Dark pools are trading venues where institutional investors can access liquidity without giving away any pre-trade information. Dating back to the 80s these private pools emerged in the US as a way of institutional investors executing without showing their hand to the market in a bid to limit market impact, later arriving in Europe. Given the proliferation of high frequency trading (HFT) several investment banks chose to launch these alternative trading systems (ATS) as a means of protecting institutional clients who are typically slower to execute.

They were originally designed to facilitate block trading but have since evolved to support trades of all sizes – something that has led to criticism from some corners of the market in recent years. Some regulators – in particular those in Europe – have begun exploring how to limit dark trading in recent years given its potential role in reducing volumes on the price forming lit order books hosted by exchanges.

Dark trading is a popular practice globally. While there are specific dark pool operators such as Liquidnet and Virtu, many of the incumbent exchanges also have dark pool offerings.

8. All-to-all trading

Next up is all-to-all trading – which does what it says on the tin. The protocol is a type of trading that allows buy-side institutions to provide liquidity and trade amongst each other. Historically trading has always involved a sell-side counterparty that will access the market and source liquidity on behalf of a buy-side client. The introduction of all-to-all trading has subverted this workflow and is an attempt from venues operating these liquidity pools to offer buy-side firms an alternative means of trading.

The protocol is heavily focused on the fixed income markets and has seen recent growth in the foreign exchange sphere. It has seen a boom in recent years as institutions have looked to diversify the way that they executed. Chief among the catalysts for its growth was the Covid-19 pandemic which began in 2020 and subsequently saw many traditional sell-side institutions reduce their balance sheet and withdraw from the market.

Tradeweb launched its all-to-all corporate bond trading functionality in 2017. Rival fixed income trading venue Bloomberg launched its global all-to-all bond trading service in 2022. However, first off the bat was MarketAxess which launched its Open Trading all-to-all trading environment in 2012.

9. Transaction cost analysis (TCA)

Transaction cost analysis (TCA) is perhaps one of the most heavily discussed industry topics as of late thanks to the plethora of data now needed to execute and to prove best execution to clients. The process is used by institutional investors to analyse data to evaluate their trade performance post-trade, ensuring they have achieved the most competitive pricing. The data is used to make decisions on which sell-side counterparties to keep on an algo wheel or ‘panel’.

While the process has historically been a post-trade one, in today’s trading environment many desks are now assessing how to feed this information into their processes pre-trade in order to ensure further efficiencies.

Today, buy-side trading desks are increasingly using new technology to evolve their TCA use towards something more proactive, utilising predictive analytics that enable participants to anticipate and mitigate execution risks, optimise trading strategies, and help to generate alpha. The data is increasingly being used as more than a simple measurement, but instead is being applied to make better informed trading decisions.

TCA can be done in-house but is also offered by third party providers.

10. Systematic internalisers (SIs)

Next up in The TRADE’s innovation rundown are systematic internalisers (SIs). Usually hosted by bulge bracket banks, SIs are an internalising mechanism that allow banks to execute flow over the counter or off exchange. They’re an alternative venue to the lit order books hosted by exchanges. Within SIs, banks can cross flow from their various business divisions using their central risk books without going out to the market to find the other side. Within these ecosystems they can cross client flow with each other or cross it with their own proprietary workflows.

As an alternative trading venue to the lit order books these venues have found themselves under scrutiny as of late from some that argue that SI volumes are harmful to wider market structure as they do not contribute to price formation and fragment liquidity. Flip the coin and many participants argue that if a trade achieves best execution, it doesn’t really matter where it was executed so long as it achieved the optimal outcome.

In Europe, the SI regulatory regime was introduced in 2007 as part of the Mifid I regulation. The quasi-dark venues properly took off in 2018 with the introduction of Mifid II and greater restrictions on dark trading.

11. Direct market access (DMA)

Many of the innovations in this lengthy list offer a new way for buyers and sellers to access the markets and direct market access (DMA) is no different. In years gone by, buy-side firms have placed orders via a sell-side broker to be traded on exchange. However, DMA is the process of directly connecting electronically to an exchange in order to trade on exchange securities without using a broker or intermediary.

These pipes require advanced technological capabilities and are usually developed by sell-side firms. Buy-side firms will often pay to integrate said pipes in order to gain direct access to the exchange without having to go through the sell-side counterparty. The process offers a disintermediation of the typical broker trading workflow and creates greater optionality for investors looking to access the markets.

12. Hight Frequency Trading (HFT)

High frequency trading (HFT) firms have extraordinary computing capabilities. Sometimes known as proprietary trading desks, these firms are famous for their high-speed connections to the markets that leverage co-locations at exchanges and enhanced proprietary data feeds to gather information. They capitalise on the information gathered in one location to trade ahead of slower institutional investors on other venues.

The process was first brought to the world’s attention in Michael Lewis’ 2014 novel ‘Flash Boys’ which unpacks the role of latency in trading in light of the shift to electronification. The crux of the story: electronification and the laying of fibre optic cables to access venues had opened the door for these faster and more predatory firms, able to nip in ahead of institutional investors.

Today, HFT firms will often use microwaves using satellite dishes at exchanges to gain greater speed still. Some venues, such as Aquis, banned HFT on their venues as part of their USP. Aquis, however, moved to lift this ban last year in order to expand its liquidity pool in a decision that had both supporters and critics.

13. Exchange traded funds (ETFs)

Exchange traded funds (ETFs) have seen a journey to dominance in the last ten years in the advent of more passive trading strategies as opposed to more active ones. ETFs offer investors a chance to buy and sell a basket of securities as if it were a single stock and transaction.

ETFs track and mirror how a pool of exchange traded securities is trading on exchange and price themselves accordingly. They can simply track an index or they can be made up of a custom basket of stocks. The first ETF to launch in the US was the SPDR S&P 500 ETF (SPY) in 1993. ETFs, among other index tracking investment vehicles, have become popular in the increasingly passive trading era where low risk index-based strategies offer greater returns for investors in exchange for half the fees charged by active investors. Given their low risk and low fee model they’re extremely popular with retail investors.

While these trading products are usually passive, active ETFs with an active manager picking and choosing what goes into them, have also seen a surge in popularity in recent years.

14. Periodic auctions

Coming in at number 14 are periodic auctions, an innovation which offer an alternative location for investors to trade instead of the lit order book. Like SIs, periodic auctions saw a boost in interest following the implementation of Mifid II regulation in 2018 and the restrictions it imposed on dark trading venues.

The core difference between a periodic auction and a CLOB is that periodic auctions are not continuous. Various models exist but at their core, periodic auctions collect buy and sell offers to determine a price and then triggers a call period whereby participants can see the indicative price and how many shares can be expected to be executed. Participants then have the option to submit firm orders into the auction. These built in inherent speed bumps favour slower investors and prevent them from being picked off as they might be in the lit books.

The venues have become increasingly popular in recent years because they help investors seek price improvement by prioritising order size over speed at the order allocation phase. They are price-forming rather than price-referencing and they introduce randomness in trade timing. Several alternative trading systems (ATS) being brought to market recently have built their offerings around the skeletal structure of a periodic auction.

15. The Cboe Volatility Index (VIX)

The Cboe Volatility Index (VIX), has become an increasingly essential tool for traders as of late and, given the current market dynamics it’s likely it’ll remain front and centre in traders’ minds for a while yet. Created by Cboe Global Markets in 1993, the original index was used to measure the market’s expectation of 30-day volatility suggested by at-the-money S&P 100 Index (OEX Index) option prices.

In 2003, the index was updated as part of a partnership with Goldman Sachs. Designed to reflect a new method of measuring volatility the index is now based on the S&P 500 Index (SPX) for US equities. It estimates volatility by consolidating the weighted prices of puts and calls on the SPX. It has become a priceless tool for participants looking to track market volatility and for those trying to understand investor sentiment in times of market stress.

The need for such tools has been exacerbated in the last few years thanks to several major unprecedented market events, not least the global pandemic and the new ‘black Monday’ seen on 9 March 2020.

16. Portfolio trading

Next up is portfolio trading. The concept is heavily linked to ETFs and is not dissimilar from program trading in that it allows for the trading of a basket of stocks. Portfolio trades allow traders to execute a basket of stocks in one single transaction, minimising costs and allowing traders to bundle less liquid or more difficult to trade instruments in with more liquid transactions. The concept has exploded in the last few years, egged on by market conditions and volatility brought on by the pandemic and other macroeconomic factors.

Electronically, it is a relatively new phenomenon to the last four to five years, and the protocol has gained momentum alongside other forms of electronic trading that differ from request for quote (RFQ) protocols on multi-dealer platforms, as participants look to minimise their market impact and avoid information leakage. Manually, however, the practice has existed for many decades using a laborious process involving excel spreadsheets and phone calls. Portfolio trades have historically helped many institutions to move big blocks of risk.

The protocol appeals to the sell-side for several reasons, namely the fact that they can take a basket of securities and use them in other trades, special purpose vehicles (SPV) or, importantly, the exchange traded fund (ETF) create and redeem process.

17. Axe trading

The next innovation on The TRADE’s list is axe trading, which is based on… you guessed it, axes. Coined from the phrase ‘an axe to grind’ an axe shows a trader’s interest in buying or selling a specific security. Shown as a grid these tools are used by participants to indicate to their counterparties what they want and need to get done in a certain security so that they might go off and set about getting it done for them in the markets.

Outside of a chosen list of counterparties, traders will usually keep axes private as they indicate potential future moves and this information could be used by someone looking to front-run them in the markets. The process was one typically associated with just bonds but it has since expanded into different securities. Several vendors and platform providers have sought to launch new and innovative solutions that integrate dealer axe data into workflows in a bid to streamline the trading process. The concept has given birth to new platforms and vendors in the market with axe-led quoting and execution management systems (QEMS) at their core.

18. Conditional orders

Conditional orders do what they say on the tin. Many different order types exist under the umbrella of the word conditional but the general premise is, they are orders that will only be actioned or executed if certain conditions are met. Unlike a typical market order where it is placed into the market and the price is not guaranteed, conditional orders set out the parameters on how they should be filled from the get-go. This sometimes means they never get executed as the conditions are not met. They are particularly popular with the buy-side as they allow firms to access liquidity without committing to a trade. Traders can represent orders on multiple venues without running the risk of being executed in multiple different places.

Some of the most common include the ‘limit’ order which will only be filled at a specified price or better, a ‘contingent’ order which simultaneously executes two or more transactions on the back of each other, or a ‘stop’ order which orders the buying or selling of a stock one it reaches a certain price.

19. Actionable indication of interests (IOI)

An indication of interest (IOI) is a conditional and non-binding indication of a buyer’s interest in a security that is still in the underwriting stage. It’s a way of participants gauging available liquidity in the market without committing to placing an order. Sell-side firms will often pitch IOI liquidity to clients as a way of offering a natural other side. An actionable IOI takes this one step further, firming up an indication and offering the liquidity up in a click to trade format.

IOIs can be executed via a variety of workflows. Firms can submit an IOI to a venue seeking liquidity as a non-actionable IOI. When a match is found they can then firm up said IOI to make it actionable. Some EMS providers have integrated this workflow into their technology to streamline it further. Participants can access actionable IOI liquidity straight from their trading blotter within their EMS.  

20. Request for quote (RFQ) and request for market (RFM)

Our final innovation on the list is request for quote (RFQ) and the request for market (RFM) protocols. Both have revolutionised the way fixed income, currencies and commodities (FICC) traders operate in recent years. Both sit under a similar umbrella but other slightly different iterations of each other’s offerings. At the core of both is the idea of allowing fixed income traders to access multiple liquidity providers at once.

Given how bilateral fixed income trading has historically been and how sparse liquidity can be in different markets, the protocols allow participants to maximise their chances of finding the other side by sending out requests to trade to multiple people.

RFQ allows buy-side firms to send out a request for a price to multiple firms at once for the purchase or sale of a security. RFM is a slightly different concept and offers firms the chance to request a price for both the buy and sell so as not to give away the direction they intend to trade in. The idea being that firms can protect themselves from market impact by concealing this information from the rest of the market.

These are the 20 innovations we at The TRADE believe have shaped our community’s landscape most heavily in the last few decades.

Our industry is continuously shifting and innovating. Every year new trends and phenomena come to market intended to disrupt and improve the way that traders go about executing in the market. With continuously growing data sets and the prospect of artificial intelligence and greater automation being used on the trading desk in the near future, it’s likely this list could look very different in a few years’ time.

For more TRADE 20 lists visit thetradenews.com

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