A couple of interesting statements from speakers at the excellent World Exchange Congress 2016, happening 22-23 March at Bishopsgate in London.
Exchanges – back to the information coffee house
Stu Taylor, CEO of Algomi: Fixed-income trading was dominated by banks who use voice trading and support it with their balance sheets. Most banks and their clients prefer this way and are not naturally going to switch to putting limit orders through the exchanges. We try to see how we can help with parts of the transactions, we worked first with the regulated Swiss exchange to put technology components at banks and that can help them sometimes with their trades, the exchange can help them find different counterparts, or with missed trades or, when they are struggling to complete a deal, the exchange can make suggestions. We suggest actions into the existing workflow, rather than trying to change the workflow. Exchanges can connect information sources so the exchange is the place to see what’s going, it can offer “bond dating”, trying to match buyers and sellers into a transaction.
Historically the technology focus for exchanges has been on execution, but now the innovation is that the exchange is about the information itself. Technology is shrinking the world, we used to talk about 6 degrees of separation in the world. Technology such as Facebook has made that number closer to 3 degrees of separation. Exchanges are back to the origins of exchanges as the coffee shops, finding a place to know someone who knows someone. Information and pre-trade are where the next waves of innovation for exchanges are going to come from.
Can technology create liquidity?
Ganesh Iyer, Director of Global Product Marketing at IPC Systems: “Technology has become a facilitator of liquidity. Uber has no taxis but it provides taxi “liquidity”, Airbnb has no rooms but provides accommodation “liquidity”. Technology does not create liquidity on its own but it brings together market participants and that leads to liquidity. In the capital markets it can bring very diverse market participants together, for instance a mutual fund seller with a diverse “buy-side” community including hedge funds, retail, etc.
Move over-the-counter (OTC) trading onto exchanges
April Day, Director, Equities, Association for Financial Markets in Europe: “There is always a need for keep some balance, some trades are not suitable for exchange trading, there is still a time when investors choose to trade off exchange for reasons such as not wanting to share market information, reduce costs, less disclosure, etc.
Sergio Ricardo Liporace Gullo, Chief Representative EMEA BM&FBOVESPA; The Brazil market has reached a big harmony, we have survived many crises and we have a sophisticated system offered by the exchange which offers central clearing and makes all parties’ lives more efficient and offers better use of capital.
Keisuke Arai, Chief Representative in Europe of Japan Exchange Group: The Japaese experience is that it’s important for the exchange to strike the right balance between market efficiency and investor protection.