Fixed Income Focus | Gherardo Lenti Capoduri Fig 3: Number of trades
4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 18,000,000 20,000,000
2,000,000 0
2010 2011 2012 Total EU retail platform
Total D2C platform Fig 4: Turnover (€m)
4,000,000 5,000,000 6,000,000 7,000,000 8,000,000
1,000,000 2,000,000 3,000,000
0
2010 2011 2012 Total EU retail platform
Total D2C platform
but the main “ingredients” are there. Looking at the financial services industry in London, what we have observed in Banca IMI in the last two years is a shift from an initial resistance to the regulatory changes proposed, to, more recently, some innovative solutions being thought of and, in some cases, rolled out. What is currently being rolled out is only the beginning – solutions range from brokers setting up their own market places to brokers who clearly state the need to provide clients with aggregated rather than fragmented liquidity. In our view, the second approach is more interesting for clients, especially if combined with the
additional liquidity offered by the broker on its systematic internaliser.
The SI allows the broker to
provide liquidity to its clients, and flow that is not captured is routed to market venues through a SOR. Dealer-to-client (D2C) venues tend to target either retail size orders or institutional size orders. In Europe the venues that Banca IMI monitors are the following: Deutsche Börse, NYSE Euronext, NasdaqOMX/ Nordics, SIX Swiss Exchange, Hi-MTF, Borsa Italiana/MOT, EuroTLX.
Tradeweb, MTS Bondvision, MarketAxess, Reuters TRFIT, NYSEBondMatch.
Regulatory impact We believe that the industry, once the resistance to regulatory change has been overcome, will find innovative ways to adapt. The fact that this change takes place in a business environment in which flow is not expected to increase and margins are
Best Execution | Spring 2013
expected to decrease will add an edge to the creativity required in order to balance these elements.
The shift from a mainly OTC trading environment to a mainly regulated market trading environment can be compared to a “Copernican Revolution”. Overall it will introduce greater transparency and major changes such as CCPs. However, we believe that just as the planets continued to exist, so will the key components of fixed income flow within investments banks which comprise: sales/information and traders/risk. What will change is the flow generation process. Regulation will force standardisation and this lends itself to industrialisation and automation of processes which up until today have been labour intensive.
In this scenario, we believe Banca IMI’s Market Hub Fixed Income solution is innovative and has the opportunity to compete at the European level by offering clients a MiFID II trading environment, today. ■
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