power of low latency

Last Thursday was one of those days where you wake up knowing it’s going to be a good one and you go to bed realising that it was … for some that is, but not for everyone.

In my case, I was up with the birds to get into the City and chair a conference all about trading technologies, from smart order routing through low latency equities exchanges and beyond.

On the way into the conference I discovered that for my good friends Peter Randall might not be having his best day as the headlines held the news that he had left Chi-X. This shocked me as Peter was joining our Financial Services Club’s panel on low latency that very evening.

I rang Peter and obviously gave him my best wishes and that I totally understood that he would not be able to join us that evening and wished him well. Then, in the spirit of the City, I immediately grabbed Hirander Misra, COO for Chi-X, and asked if he would take Peter’s place that evening which he did.

Joining Hirander were Todd Golub, COO of NASDAQ OMX and Yann L’Hullier, CIO of Turquoise.**

Terry Quigley of Colt Telecom and Chris Pickles of BT both joined us as well. Terry and Chris are key advocates and deliverers of low latency networking.

The results were also fascinating and, to an extent, staggering so I'm going to provide here a collection of clips and slides from the evening. The video clips are variable in quality due to the various converters used, and Slideshare isn't accessible for everyone, but here's a complete multimedia view of the evening.

what's going on In Ireland, cash or just a cheques

What it shows is that Ireland is still extremely reliant on paper payments, particularly cash and cheques.

Ireland has historically had a policy of such usage, and the government has actively discouraged electronic payment until recently by taxing citizens for using debit and credit cards. This is illustrated by Slide 5, which shows that the volumes of paper payments processed have remained remarkably constant during the last four years.

Equally, I was amazed at Slide 9 that shows the use of cash per capita has been surging between 2006 and 2007. Is this the result of the credit crisis I wonder, or the fact that every newsagent, post office, public house and field in Ireland has recently seen off-premise ATMs deployed? If you don’t know btw, Ireland has more ATMs than any other country in Europe per capita, as illustrated by Slide 11.

Therefore, although card values are rising, cash is still dominant (Slide 12).

Cheques are also rampant and Slide 13, 14 and 18 put this in context. They are also fascinating slides in their own right.

For example, slides 13 and 14 show that whilst Ireland’s use of cheques is not as bad as France, the value of cheque is massive. This implies that cash is traded for general sundries and small trading, whilst cheques are for the big stuff.

Slide 18 particularly speaks volumes, as countries such as Britain and France have actively been targeting the reduction in the usage of cheques.

In the UK for example, we have many firms that decline cheques completely or will only accept them with a high processing fee or value.

France has seen cheques reduce from over half of all payments in 1990 to under a quarter today, and it’s reducing further.

Ireland’s cheque usage remains constant – another sign of a government that has encouraged paper payments by discouraging electron ones, and a culture where paper is more trusted than bytes.

The other charts and stats are also worth reviewing.

roll-out - SQL and XML

Wow. What a stir I caused when I put XML and SQL side by side! Thanks to all of your for your feedback.

Please correct me, but I believe there are two reasons for that interest: the first is simply that this is a novel and unusual idea. The second is that ISO 20022 being work in progress, the people involved in it are (quite rightly) protective about it.

The idea is not to run ISO 20022 down, nor to say that SQL is an alternative to XML. Saying that car A is good and putting it side by side with car B does not necessarily mean that car A is the same as car B, nor that car B is bad. In fact, the purpose is rather to contrast them, by which I mean, their initial similarities might then lead us to learn something interesting from their differences.


The crux is deployment or, to use Swift terminology, roll-out. And a model case I often think of, is precisely Swift, because they have been able to succesfully manage all these evolutions over the years -- my first arms were with USE/BKE, then I witnessed SwiftNet, and so on. The vast majority of these roll-out efforts have been fruitful and the ecosystem is still prospering (which was not granted either). No flattery intended here -- it is fact.

The reason why it has always worked out, despite the unavoidable grumblings here and there, is that Swift staff paid enough attention to what skills people had in the banks, what equipment was required, what training they needed and so on. They were always careful to provide a realistic roadmap to help any bank -- big or small, advanced or without in-house IT staff -- catch up and stay close. Everybody had to make it together, or nobody.

So, roll-out is not merely a technological proposition. It has to do with people, processes, systems and the environment. With constraints such as culture, capacity to accept change, cost, security policies, and how each tool fits into the balance of things.



That being said, let us get down-to-earth: suppose that today I want back office staff in my bank to be more effective in exchanging and processing interbank data. I want them to be able not only to make reports, but I want to empower them with something that will help them better exploit information from data feeds, fund administrators, back offices of other banks. They also must be able to provide data in the same way when requested.

And, since it is time of short budgets, they must be able to do it with whatever tool they already have on their desktops.


So I am going to train them.


Let us first check that they already know the part of FIN that relates to their job, because otherwise I would first send them to get trained by Swift. Since FIN is already deployed, that is a must.


Then what I am going to teach them? XML or SQL?

• First XML: certainly, quite a few actors in the financial world are able to ship data in XML format. But what tool (that we already have) should I to teach my staff in order to exploit it? How to write an XSL stylesheet for their browser ? Programming javascript and the DOM model, in the browser? vbScript from the command line? And when that is done, how do we criss-cross that with other data get it into a usable report ? Let us face it: XML is complex for non programmers and, for now, should better be left to IT departments. I do hope that this will change,with user-friendly tools, but that is not possible yet.
• With SQL, by contrast, I know with certainty that I can give two or three half-days of training and already get a significant increase in productivity. I know that if I teach them some Access, they will be able to import Excel and CSV files from their brokers, custodians or correspondents, mix all that and produce useful reports. Those who already create Excel macros will make good candidates.

Soon, the "rest of us" start to naturally exchange data using mdb files (preferably from a network disk), or through e-mail if necessary. And after a while, querying "serious" databases like SQL Server or Oracle,with Access,and exporting that to Excel becomes a normal thing.


The interesting part, is that SQL is not really the enemy of XML. Because then, back offices can work out ways to import XML data into their home-made relational databases and exploit it. That could even help them accept it.


Perhaps spreading the knowledge of SQL into back offices might even help pave the way for ISO 20022!

Germany's banks .................

Over the past few months, the liquidity crisis storms have hit Germany as hard as any market. The German government had to bail out HypoReal Estate (HRE) and pumped €500 billion into the banks, a figure that is about to double.

The question this raises in my mind is whether there are some more surprises yet to come out of the German bank system - another Black Swan** - and, having investigated a little, it seems there might be one or two.

Germany’s banking system is unlike most, as there are few large commercial banks. The largest banks, such as Deutsche, Dresdner, Commerzbank, are known primarily because they have large overseas operations. Domestically, the banking system is mainly comprised of regional and private banks, and then there are the standalone savings banks, known as Sparkasse banks. Sparkasse banks are the German equivalent of American savings and loans institutions, except that they are owned by local governments rather than private investors. Hence, they are immensely trusted by Germans, and manage almost $1 trillion in deposits.

With 2,500 banks in Germany and 45,000 branches, Germany also has one of the densest banking networks in the world.

There are other differences in the German banking system and markets in that there are relatively few foreign banks. Although the number of foreign banks increased sharply during recent years, due to the growing globalisation of business activities, they cater mainly for firms from their home country.

For example, under the recent European legislation the Markets in Financial Instruments Directive, MiFID, any bank can offer investment services in Germany under a home-host passport. This means that the bank is regulated by their home country, with only their code of conduct of their branch operations regulated in Germany. This code of conduct relates to the advice they give to their client and the suitability of the products they provide to them in a German market context.

Therefore, there are few dealings in Germany where Germans are exposed to foreign bank dealings, and probably why only 1 in 10 Germans invest in the stock markets compared to half of Americans.

All of this paints a conservative risk avoidance society and financial structure.

No.

Not at all.

Unfortunately, for many Germans, their biggest banks have leveraged themselves to the point of collapse in this liquidity crisis, similar to the American, British and other banks.

This is disputed by German's bankers, but the “big banks” such as Deutsche Bank, Dresdner Bank, HypoVereinsbank, Commerzbank and Postbank, are all merging and consolidating as a result.

Bank in the future

the presentation of the future of banking.

Of course there is a future in banking … it’s just that no one knows what it is or what it looks like right now.

So here’s my way to clarify it.

First, use Michael Porter’s forces of change, which we use extensively to model the future in one of the other companies I founded: Shaping Tomorrow. Michael Porter’s forces are based upon the key drivers of impact upon a company, which are Political, Economic, Social and Technological or PEST for short**.

What’s the PEST in banking, apart from regulators and politicians (ed: are these today’s pests)?

Reasonably obvious.

Politically, lawmakers are desperately trying to come up with ways and means to get some stability back into the system to restore confidence, control and credibility.

Economically, the seizure in lending and liquidity is driving down economies worldwide. Apart from major concerns related to protectionism and retrenchment, economists are tryig to figure out whether we are facing normality, stagflation, deflation, or something worse (ed: Reformation, Revolution, Armageddon?).

Society meanwhile has completely lost confidence and trust in bankers and policymakers. Therefore, they are postponing spending, with savings levels rising for the first time in years in many of the ‘borrowing’ economies.

Technology continues to develop at a pace meanwhile, with everything completely transparent. Nothing can be hidden anymore. As a result, new models of access to financial services are arising, such as Zopa, Prosper, Wonga, SmartyPig, the new MTFs and clearing systems for trading, the Barter Network, complementary currencies. All of these are discussed extensively in the discussion series around

Euroclear Entity overview

Turnover

Turnover was effectively stable at Euroclear Bank, Euroclear UK & Ireland and Euroclear France.

Euroclear Bank’s turnover was EUR 282.5 trillion in 2008 compared with EUR 284.5 trillion in 2007. Euroclear UK & Ireland had a sixth consecutive year of turnover growth by recording EUR 177.7 trillion in 2008, slightly higher than the EUR 176.5 trillion recorded in 2007. High UK market volatility during 2008 was a contributing factor to this development. Turnover at Euroclear France was EUR 93.6 trillion in 2008 compared to EUR 94.7 trillion in 2007. An increase in settlement activity for fixedincome transactions largely compensated for the decline in equity settlement activity in France.

Turnover for Euroclear Nederland receded from EUR 5.6 trillion in 2007 to EUR 4.3 trillion in 2008, a decline of over 20%. In 2008, Euroclear Belgium’s turnover dropped by 34%, from EUR 510 billion in 2007 to EUR 335 billion in 2008. The declines in Belgium and the Netherlands mirror the difficult market environments and lower equity investment levels experienced throughout the year. For example, the BEL 20 and AEX both contracted more than 50% by the end of 2008 compared to year-end 2007.

Euroclear Finland’s combined turnover for the months of November and December 2008 was EUR 90 billion. Euroclear Sweden’s turnover for the same period was EUR 1.3 trillion.

Number of netted transactions settled

In 2008, Euroclear Bank settled 42.0 million transactions, an increase of 3% from the 40.8 million transactions processed in 2007, which constitutes a strong achievement in comparison to similar service providers in the market. Euroclear France settled 31.7 million transactions in 2008, almost equal to the 32.3 million processed in 2007. Euroclear UK & Ireland settled 69.1 million versus 75.0 million, or 8% fewer transactions than in 2007. Euroclear Nederland processed 4.4 million transactions in 2008, almost on par with the 4.7 million transactions processed the previous year. Euroclear Belgium processed 2.2 million transactions in 2008, 21% less than the 2.8 million transactions in 2007, partly due to account consolidation by clients.

Euroclear Finland settled 2.6 million transactions in November and December 2008. For the same period, Euroclear Sweden recorded 5.3 million settled transactions.

Securities held in custody

The results reported across the group for assets held in custody reflect the sharp erosion of securities values across asset classes, most predominantly in equities, as well as the market trend towards cash liquidity. At the same time, Euroclear benefited from the inclusion of Euroclear Finland and Euroclear Sweden, and from growth in fixed-income securities holdings.

The value of securities held in custody by Euroclear Bank was relatively flat in 2008 at EUR 9.1 trillion, compared to EUR 9.2 trillion recorded in 2007.

At Euroclear France, the 2008 total value of securities held was EUR 4.5 trillion, a 15% decrease from 2007’s EUR 5.3 trillion.

Securities held for clients through Euroclear UK & Ireland dropped 10% in 2008 to GBP 2.3 trillion from GBP 2.6 trillion in 2007. The large swings in sterling/euro currency exchange rates in 2008 magnifies the decline when expressed in euro, i.e., 26% from EUR 3.5 trillion in 2007 to EUR 2.6 trillion in 2008.

The value of securities held in Euroclear Nederland fell to EUR 819 billion in 2008 compared to the EUR 945 billion recorded in 2007, a decrease of 13%. Last year, securities held by Euroclear Belgium declined by 29% to EUR 161 billion from EUR 228 billion in 2007.

Euroclear Finland recorded EUR 199 billion and Euroclear Sweden posted EUR 643 billion in the value of securities held in custody at year-end 2008.

Daily value of collateral provision outstanding

The combined 2008 yearly average in triparty collateral management deals outstanding at Euroclear Bank and in daily Delivery-by-Value (DBV) and money-market instrument repo instructions at Euroclear UK & Ireland decreased by 29% compared with 2007. The fall in triparty collateral management activity can be attributed to several factors: the failure of Lehman Brothers, an active triparty client; substantially lower levels of leveraged borrowing in the banking system; and less overall collateralised trading as most financing is now provided by central banks, which largely takes place through bilateral agreements.

Reflecting market trends in 2008, triparty collateral management deals outstanding managed by Euroclear Bank at year-end 2008 fell 35% to a daily average of EUR 211.9 billion compared with EUR 328.1 billion at the end of 2007.

Euroclear UK & Ireland processed the equivalent of GBP 190.2 billion in daily Deliveryby- Value and money-market instrument repo instructions in 2008, 3% less than the GBP 196.9 billion in 2007. When stated in euro, due to currency exchange rate fluctuations, the figures show a 20% decline to EUR 212.4 billion in 2008 compared to EUR 266.9 billion in 2007.

Funds

Like most other sectors, European investment funds were severely affected by the credit crisis in 2008. The combined assets of European investment funds plunged to EUR 6.1 trillion at the end of 2008 from EUR 7.9 trillion a year earlier, according to figures from the European Fund and Asset Management Association (Efama).

Contrary to market trends, the number of fund transactions processed by the Euroclear group, including EMXCo, reached a record 10 million in 2008. FundSettle now covers more than 39,000 offshore and domestic funds from 22 countries, including clients’ in-house funds, having added more than 6,000 funds in 2008. The number of active FundSettle accounts increased from 451 to 482 in 2008.

EMXCo, a leading UK provider of investment-fund order routing and part of the Euroclear group since 2007, routed over 22.7 million messages in 2008, an increase of 17% on the 19.2 million messages routed in 2007. This increase, during difficult market conditions, is attributable to growth from existing participants as well as the high number of new joiners to the system; 14 fund providers and 160 distributors joined the EMX Message System in 2008, taking the total to 89 fund providers and 342 distributors by the end of the year.

Note to Editors

Euroclear provides domestic and cross-border settlement and related services for bond, equity, derivatives and fund transactions. User owned and user governed, the Euroclear group comprises Euroclear Bank, based in Brussels, as well as Euroclear Belgium, Euroclear Finland, Euroclear France, Euroclear Nederland, Euroclear Sweden and Euroclear UK & Ireland. Euroclear also owns EMXCo, a leading provider of investment-fund order routing in the UK, and is awaiting regulatory approvals to acquire Xtrakter, owner of the TRAX trade matching system. Euroclear Bank is rated AA+ by Standard & Poor’s and Fitch Ratings.

www.euroclear.com

Althought in a turbulent year but euroclear have a solid performance

Brussels, 23 February 2009 – The 2008 business results for the Euroclear group of national and international central securities depositories (CSDs) were resilient. Against equity market capitalisation decreases of more than 45% in Belgium, France, Ireland, the Netherlands and the UK in 2008, the Euroclear group settled 157 million transactions worth approximately EUR 560 trillion in 2008, on par with 2007.

Euroclear also made good progress on delivering its strategic objectives, launching its platform to process all domestic and cross-border transactions involving Belgian, Dutch and French securities in January 2009, finalising in October 2008 the acquisition of NCSD, covering the CSDs of Finland and Sweden, and announcing an agreement to purchase Xtrakter in early 2009.
Pierre Francotte, Chief Executive Officer of Euroclear SA/NV, said: “Euroclear proved very resilient in 2008, helping to bring safety and stability to the capital markets, precisely what is expected of a market infrastructure, particularly during periods of tremendous volatility. We have been leveraging our risk management expertise to offer our clients a safe haven for their securities business, now and in the difficult months ahead. Notwithstanding the impact of the financial crisis on securities values and the levels of client trading and settlement activity generally, Euroclear’s solid 2008 operational performance demonstrates our clients’ search for low risk and low cost posttrade solutions. Our focus in the coming months will be to further reduce their costs and risks."

Operating highlights

The entity-specific and combined results of the Euroclear group (including November and December 2008 figures for turnover and transactions settled, and the year-end 2008 value of securities held for Euroclear Finland and Euroclear Sweden, which became part of the group on 31 October 2008) are:

• Turnover, or the value of securities transactions settled, was largely stable at EUR 559.8 trillion compared to EUR 561.8 trillion in 2007.

• The number of netted transactions settled in the Euroclear group increased slightly to 157.3 million in 2008 compared with 155.6 million in 2007.

• The value of securities held for Euroclear clients at the end of 2008 was EUR 18.1 trillion, a 6% decrease from the EUR 19.2 trillion recorded at year-end 2007, driven mostly by lower equity and fund asset values in some of the CSD markets of the Euroclear group.

• The combined daily value of collateral provision outstanding in Euroclear Bank and Euroclear UK & Ireland experienced a 29% drop in 2008 to EUR 424.3 billion compared with EUR 595.0 billion at the end of 2007, largely due to deleveraging in the industry.
by: https://www.euroclear.com/