19 October 2017
Steve Grob

Fidessa Fragmentation Index

Steve Grob - Fidessa

137Posts 529,364Views 3Comments

GMEX - going to eleven?

19 February 2015  |  4756 views  |  0

The announcement that new derivatives exchange GMEX has received investment from SocGen reopened the debate here as to the future of rates trading and who the likely winners are going to be. Reliable data is hard to come by on exactly what is happening to OTC volumes and where they are going. Such evidence as does exist seems to show a steady increase in SEF volumes, although this is masked by several anomalies, including volume which is still transacted manually but reported to look like electronic volume.

Venues like ERIS, which offer swap futures also report steadily rising volumes too.

Some things are becoming clearer, however. When a buy-side is looking to hedge a particular period on a rate curve, it will be able to select from a range of different but economically similar instruments. At one end of the spectrum are regular futures, which are cheapest and easy to understand, but lack precision in terms of start and end dates. At the other end will be custom OTC contracts which, conversely, are the most expensive but can be matched precisely to a client’s exact requirement.

The question that remains, then, is what happens in the middle? With its launch of swap futures, the LSE is showing how it thinks it can offer the optimum blend by allowing users to offset margin within its existing pool of OTC open interest held at SwapClear. But, to paraphrase Spinal Tap’s Nigel Tufnel, GMEX aims to “go to eleven” by offering the convenience of a future and yet the precision of a swap. The challenge, of course, will be whether compliance folks in the buy-side understand - let alone approve - the concept. It may just be less hassle for them to go to the regular futures market instead.

Education of the buy-side, therefore, will be a critical success factor for new venues. This was the case in Europe, with the rise of the MTFs in the cash equities world. Without natural liquidity, HFT folks like Virtu will be left twiddling their thumbs. The crucial lesson, then, is that to be successful, any new venue needs a mixture of participants in the same way that ecosystems in nature support and require a mix of participants, too.

TagsTrade execution

Comments: (0)

Comment on this story (membership required)

Latest posts from Steve

Why you’ll never be ready for MiFID II

12 September 2017  |  4646 views  |  0 comments | recomends Recommends 0 TagsTrade executionRisk & regulation

So that's nice and clear...

31 August 2017  |  5308 views  |  0 comments | recomends Recommends 0 TagsTrade executionRisk & regulation

Relocation, Relocation, Relocation

14 June 2017  |  5672 views  |  0 comments | recomends Recommends 0 TagsTrade executionRisk & regulation

MiFID II - the best thing that ever happened?

08 June 2017  |  8698 views  |  0 comments | recomends Recommends 0 TagsTrade executionRisk & regulation

Be careful what you wish for

26 April 2017  |  5395 views  |  0 comments | recomends Recommends 0 TagsTrade executionRisk & regulationGroupMiFID

Steve's profile

job title Director of Group Strategy
location London
member since 2009
Summary profile See full profile »
I am responsible for strategic development at Fidessa. This includes the development of new geographic markets and strategic partnerships and driving new industry initiatives. As part of this I head u...

Steve's expertise

Member since 2004
130 posts3 comments
What Steve reads

Who's commenting on Steve's posts