Monday, May 21, 2007

The next generation

Further to my post of the 14 May entitled, My Generation, outlining how Ajax is being used to build richer web applications particularly for trading front-ends, Caplin Systems announced the launch of such an application, Caplin Trader, today.

Caplin Trader is described as an "ready-made application that enables banks to build high-function multi-product trading portals in FX and fixed income." A major bank is deploying Caplin Trader, details of which are expected to be announced at SIFMA's Technology Management Conference in June.

"We are seeing a lot more people saying that in fixed income a bank portal is a requirement, which follows what happened in FX," says Paul Caplin, CEO, Caplin Systems. And although a number of banks already have web-based FX trading portals, Caplin says it is seeing a "refresh" of single bank FX portals banks built three or four years ago.

Caplin Trader, which sits on top of Caplin's integrated data and messaging platform, is targeted at the next generation of trading front-ends, which Caplin says will be much richer applications in terms of look, feel and functionality thanks to new technologies such as Ajax.

"There seems to be a lot of customers that want trading functionality integrated with useful information (prices, research, news), which is a way for banks to entice cutomers to trade directly with them," Caplin explains.

Caplin Trader's "drag-and-drop Ajax framework" includes standard components such as product grids, trading panels, trade blotters, trading tickets, product and instrument search, charts and news displays. Banks can more easily aggregate various sources of content on one screen by pulling it together in a browser. This is what is referred to in the biz as "mashups."

Wednesday, May 16, 2007

SEPA slippage

After much stalling and compromising, the Payment Services Directive (PSD), which is the legal framework for the Single Euro Payments Area (SEPA) has finally been passed. But when you think that the PSD was first published in 2005 and it has taken two years to agree on the content of it, there appears to be some 'slippage' around SEPA.

The PSD will now be transposed into national law by 1 November 2009 instead of November 2007, but the transition to SEPA will begin from 1 January 2008. The 'slippage' is even more apparent when one considers that SEPA as a concept has been on the table since 2000, and what has the industry got to show for it?

Apart from STEP2, some ACHs with pan-European ambitions and talk of SEPA-compliant instruments, not a hell of a lot says some banks, who according to a knowledgeable industry source, are starting to draw comparisons between SEPA and that other much-talked about EC regulation, MiFID.

The Markets in Financial Instruments Directive had leading investment banks announcing the development of Project Boat, a pre- and post-trade reporting service for off-exchange equity trades, and Project Turquoise, a multi-lateral trading facility.

No such announcements have been made by the leading payment banks for SEPA. However, according to the same knowledgeable source, there is talk of a Project Turquoise for bilateral clearing between banks. This would effectively mean that some of Europe's major payment processors could club together to provide cross-border clearing for their own pan-European direct debits instead of using the pan-European ACHs; STEP 2, VocaLink and Equens, which are hoping to capture a share of this business.

But given the different competitive dynamics between the worlds of payments and investment banking, and the ability of investment banks to move much more quickly, none of us are holding our breaths when it comes to the payments' equivalent of Project Turquoise emerging any time soon.

My generation

Despite all the hoopla around the internet it is only in the last four to five years that online trading of FX and equities has really taken off. Even then, despite the proliferation of online platforms for trading FX, as I reported from Miami a few weeks back, a surprising number of companies still prefer the sound of a voice on the other end of the phone rather than the click of a mouse.

Having said that, it seems the e-trading 'bug' is catching on and is encompassing other asset classes such as fixed income, at least that is what Paul Caplin, CEO, Caplin Systems is telling us. "We are seeing a wider requirement particularly in fixed income and FX for a high-function web front-end for trading," says Caplin.

But hang on a minute, haven't most banks already built web trading front ends particularly in the FX space where there is a multitude of single bank and multi-bank sites for trading FX online? Well, yes, says Caplin, but he describes some of these single bank web front-ends as 'primitive', mainly because they only support Request For Quote (RFQ) when the market is moving towards 'streaming' prices.

Also he says a number of traditional web trading applications were built using Java, which, according to Caplin, is considered to be no longer viable for trading front-ends.

Caplin says the next generation of e-trading platforms will feature richer web applications but around AJAX and "enterprise mashups" or web aggregation where multiple content is aggregated on one screen or web browser.

What all this amounts to effectively is that the next gen of e-trading applications are likely to be much more richer in functionality, with banks being able to more easily and dynamically display multiple content (prices, research, news) on one screen across multiple products (FX, fixed income).

Press embargoes prevent me from going into any more detail at this stage, but Caplin will be making an announcement on Monday concerning the next generation of e-trading applications it is working on.

Monday, May 14, 2007

MiFID - It's as easy as 123

Last week I managed to muster up the energy to attend yet another event on MiFID (Markets in Financial Instruments Directive). With the November deadline for MiFID's implementation looming, everyone seems eager to jump aboard the MiFID 'gravy train' as last minute preparations grind into gear.

Last week's event, which was hosted by the MiFID think tank, JWG-IT,had the interesting working title of, "MiFID 123 Go," which could be misinterpreted given that the 70 or so people that turned up for the event were probably hoping to hear something along the lines of,'MiFID, it's as easy as 123."

The 123 was in fact a reference to how many days remaining till the November live date, and given that MiFID is what the industry terms a "principles-based" regulation, PJ DiGiammarino, CEO of JWG-IT, informed the gathered 'hordes' that they could not necessarily rely on the regulators to provide them with much guidance (no surprises there then), and that it would take three to four years before the MiFID transition was completed.

"Regulators are not going to comment in any great detail on what firms are going to do," Di Giammarino stated. "Firms may want a benchmark on best execution, but it is not going to happen."

With that in mind, Di Giammarino kicked the evening off on a 'light' note telling firms how they could "stay out of jail," pointing to a recent example of a major US sell-side firm that was fined $8 million for "failure of price transparency".

DiGiammarino joked that at least with Sarbanes-Oxley, another piece of controversial regulation,it was only the CFO that could go to jail if financial and accounting practices were not compliant. However, with MiFID it is not just one person that could be in the firing line.

It all started to sound like a game of monopoly. 'Do not pass go, go straight to jail,' but perhaps that is an indication of how real MiFID has suddenly become for a number of firms and countries that its seems are ill-prepared and equipped to cope with the all-encompassing MiFID regulation.

Seventy-five percent of EU member countries did not make the 31 January deadline for transposing MiFID into national law, and European Commissioner for Internal Market and Services, Charlie McCreevy has threatened stragglers with "infringement" proceedings.

"US firms are pretty far up the curve and are forcing the buy side along with them," said DiGiammarino. Yet, with different EU member states transposing to MiFID at different times (Sweden in August, Netherlands in November and Spain after November), it could be a potential recipe for disaster.

According to PJ, any big market [like the Netherlands] that waits till the end to transpose, risks creating a "hybrid" environment, which in the event of a bear market, could result in a very "fragmented Europe." He cited the example of Sweden, which provides transaction reporting support for the rest of the Nordic countries. If it does not make the August 2007 transposition date, then there will be repercussions for the wider market.

Thursday, May 03, 2007

What will the bank of the future look like?

JPMorgan has always been one for making acquisitions that cause other banks to sit up and take notice, even though they may scratch their heads, thinking, 'How does that fit within banking?'

The first one, that perhaps caused other banks to pay attention, was the JPMorgan's $129 million acquisition of Vastera, a global trade management software and service applications provider (otherwise known as trade logistics). Given Vastera's focus on the physical supply chain, some competing banks questioned the value of a bank moving beyond its traditional financing role into the physical supply chain .

JPMorgan has since stated that the Vastera acquisition is not about being in the logistics business, but about positioning the bank and its trade services business, which the Vastera business is integrated with, much earlier in the supply chain to provide firms with greater transparency and visibility around documentary compliance governing the inward and outward flow of goods into particular countries.

Well, as Aite Group points out, information pertaining to the movement of goods can have a knock-on effect on a company's working capital:

"Tying the physical movement of goods to the financial activity surrounding them provides very valuable information to treasurers regarding expected cash flows;this is referred to as the “order-to-cash” cycle."

Not all banks, however, agree with JPMorgan's approach and some have questioned the value of the Vastera acquisition, particularly in terms of whether the bank will gain enough customers from the deal to recoup its investment.

JPMorgan's buying spree in the "order-to-cash" cycle has not stopped there. Recently it announced its acquisition of the business settlement network, Xign, which links suppliers with buyers. JPMorgan already worked with Xign, which provided the e-invoicing component for the bank's proprietary Order-to-Pay Solution. But by buying the business settlement network it has effectively shut out the other banks (Citi, Wachovia, Wells Fargo, et al) that Xign also worked with.

By fully acquiring Xign, JPMorgan Chase is positioned to take advantage of the wide and deep flows of information that are generated by Xign’s network and technology. Assuming JPMorgan Chase can tap into that data with the permission of the trading parties, they are positioned to leverage Xign’s capabilities in ways that other participating banks cannot," Aite Group writes.

For a 'conservative' Wall Street bank, JPMorgan appears to be 'thinking outside the box'. One senior exec within the bank remarked to me recently about the 'strange' things the bank was doing in terms of pursuing non-traditional business lines, including the Vastera acquisition and the bank's foray into document (invoices and cheques) printing and archiving.

It is no secret why banks want to embed themselves deeper into companies' supply chains; they want to make up for revenues lost through declining letter of credit volumes; and they also want the opportunity to sell financing to their customer's (the buyer) suppliers.

However, one has to ask whether some of the solutions banks are developing around the corporate supply chain are what companies are really looking for? Most corporates I have spoken to say they do not want banks to get more involved in their supply chains and that they understand their supply chains better than the banks.

So is all this 'hoopla' surrounding the corporate supply chain about what the banks want or is about solutions corporates are really looking for?