With the use of algorithms for listed derivatives increasing, futures commission merchants (FCMs) are being pressed into service by customers who wish to navigate today’s electronic markets.

“We have seen increasing interest in algorithms for listed derivatives in the past few years,” said Brad Giemza, senior IT director at Newedge. “Our clients value the in-depth technical analysis of derivatives markets that we are able to provide and benefit from Newedge’s long-standing expertise in the micro structure of the derivatives markets for their algorithmic trading decisions.”

As see the worlds of OTC and listed products start to converge with the advent of SEFs and central clearing, FCMs and their customers face unique challenges. “As an agency broker covering more than 85 trading venues globally, we are well-positioned to meet our clients’ evolving execution and clearing needs across all asset classes and regions,” said Giemza. “Newedge is the world’s largest clearer of listed derivatives and has built a compelling offering in the OTC clearing space.”

Last week’s Futures Industry Association conference in Boca Raton, Fla., provided a showcase of swap execution facilities, which were a creation of Dodd-Frank for the purpose of OTC trading, according to Jim Falvey, general counsel for Green Key Technologies.

“An additional issue covered in some of the panels is that of market structure in the post-Dodd-Frank world in which SEFs and centralized clearing exist,” said Falvey in a blog posting. One panel debated the merits of voice brokering in light of SEFs as well as central limit order books on futures exchanges. The panel, which included a representative from the CFTC, was “virtually unanimous in recognizing that voice brokering still adds value,” Falvey said.

State Street Global Exchange recently the expansion its FCM platform to include futures execution, including support across the trade lifecycle through execution, clearing, collateral management, valuation and risk and analytics for OTC derivatives and futures.

The futures execution capabilities include a global team of experienced traders, direct market access (DMA) and the use of State Street algorithms and analytics with integration into existing workflows. Execution consulting and cross-asset trade flow and analysis, trade ideas and opportunities, analytics and proprietary research are offered by the execution desk and through State Street Associates, State Street Global Exchange’s leading partnership with academia.

“Powerful tools and capabilities that extract insights and value from a growing volume of investment data will increasingly determine success,” said Jeff Conway, executive vice president and head of State Street Global Exchange. “Our clients need actionable insights and the right tools to make faster and more informed investment decisions. The expansion of our futures capabilities demonstrates our commitment to help our clients access liquidity globally and see ideas through from concept to return.”

FCMs continue to play a vital role in financial markets. “Globally, this is still a US$ 25-30 trillion market, and highly skilled, global brokers are important,” Giemza said. “Clients and regulators rightly demand the highest levels of openness, transparency and efficiency that we believe can only be achieved by operating as an agency broker model. New geographical growth will be a long-term driver, as will new product innovations, and the move to OTC clearing.”

One of the more onerous regulations is the Commodity Futures Trading Commission’s Rule 1.73, which requires FCMs to pre-screen orders to trade swaps prior to execution, ensuring certainty of clearing acceptance by their clearing member at the time of execution. The rule designed to reduce systemic risk and ensures that clearing firms are in compliance with regulations in the United States and Europe.

LimitEdge, a workflow tool, is an addition to Newedge’s platform which manages the set up and approval process for pre-trade controls as well as calibrates the controls to the respective credit limits of our clients.

Featured image via iStock