22 March 2018
Steve Grob

Fidessa Fragmentation Index

Steve Grob - Fidessa

143Posts 567,126Views 3Comments

Central Risk Books - the new black for capital markets

20 September 2016  |  4910 views  |  1

I first came across the term "central risk book" at an event in Rome a couple of weeks back. It seems like it's the banks’ answer to the dark pool caps that will be upon us in a little over a year. As of January 2018 banks won't be able to operate their own dark pools in their current form and it seems that the preferred option is to become Systematic Internalisers and trade on a principal basis with clients. The purpose of the CRB in all this is to act as a huge repository for all the firm's positions. Then, someone with a brain the size of a small planet sifts through all this and works out what the net exposure of the bank is. Furthermore, the quants will be able to see natural hedges on a holistic basis which enables the bank to provide liquidity at a keener price.

This should give the larger players an edge over smaller brokers that simply don't see the same levels of flow. It should also enable banks to use their capital to trade with clients in the most efficient way possible.

There are a couple of rinky dinks as always, though. First, SIs are obligated to provide a quote feed on any stocks they are trading. It's not clear, though, how accessible this feed needs to be by the market in general and whether these quotes are hittable and, if so, by whom. More important, though, is what happens when we have the next black swan event and there’s a mad rush for the exits again.

I guess we just have to hope that those quants have got it right…


TagsTrade executionRisk & regulation

Comments: (1)

Xavier Barrier
Xavier Barrier - CSC - Paris | 21 September, 2016, 10:14

Systematic Internalisation is part of Mifid I since 2007. Although only few SIs remains yet : most banks did opt for "Dark pools" at the end. Question is why? Could it be cost of Capital to run an internal risk book? Then will Mifid II change this? 

Be the first to give this comment the thumbs up 0 thumb ups! (Log in to thumb up)
Comment on this story (membership required)

Latest posts from Steve

History of the World Part III

06 February 2018  |  3235 views  |  0 comments | recomends Recommends 0 TagsTrade executionBrexit

ESMA’s first Heisenberg moment

10 January 2018  |  3893 views  |  0 comments | recomends Recommends 0 TagsTrade executionRisk & regulation

Storm in a tea cup

03 January 2018  |  5357 views  |  0 comments | recomends Recommends 0 TagsTrade executionRisk & regulation

Bitcoin futures - the best idea ever?

05 December 2017  |  5403 views  |  0 comments | recomends Recommends 0 TagsTrade executionRisk & regulation

Loophole lunacy

14 November 2017  |  3180 views  |  0 comments | recomends Recommends 0 TagsTrade executionRisk & regulation

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
140 posts3 comments
What Steve reads

Who's commenting on Steve's posts