Featured Articles
By FuturesDesk.com Staff
March 5, 2012
For the business man the customer is always right. The entrepreneur’s frame of reference is from a market economy that determines a value of a service or product from people buying or not buying. However, there are men and women who do not come from a way of life experienced by the capitalist, the entrepreneur or traders and speculators who live and die by the whims of the market place. There are men and women whose task is to preserve the highest standard of their field, even against the judgment of popular opinion. Working outside of the sphere of a market place they reject the viciousness of private enterprise and bestow the mastery of state intervention. It is their belief that it is their deliberate control and conscious organization that is always superior over the spontaneous market process. These bureaucrats and lawmakers look with loathing and scorn on the business man, capitalist and speculators as they apply remedies and restraints on market customers regardless of their desires. It is in the hallow halls behind committee room doors that value is determined for the customers.
Coming from the strong belief that men have the right to private property, with the freedom of contract and exchange, the free disposition of one’s own labor and the insistence of reduced state action there is manifested hostility to regulations seeking to reduce the free actions of the market place. It is the wants of the consumer that are the beginning and end of market place. The purpose and cause of economic action are the same. Left to its own devices the market place will determine the welfare of its participants. It is these principles that embedded into the free market place and a reaction against the welfare state. Free men and women must guard against centralized planning and the propaganda that capitalism is no longer working. There is a bias in the treatment towards big business by those whose living comes from an assured income, usually from taxes or guaranteed endowments and do not understand the way of life of the capitalist and entrepreneur. Unable to reform their own salaries or processes, the regulators and law makers try to reform the business man’s salary and reform society itself.
With recent flurry of action from our lawmakers they are seeking to protect and level the playing field. But individuality among human beings naturally leads to inequality. Failure is contained to the small risk takers. Large risk takers are provided with the insurance and resources to avoid failure. But it is existence of failure that is an inherent feature of the market economy. Its elimination would entirely destroy the market economy. We are seeing an ingrained hostility to business and profit-making in our culture. But we are the customers of businesses and beneficiaries of these profits. And the customer is always right.
Featured Articles
By FuturesDesk.com Staff
July 11, 2010
I recently spoke with a friend at a town event who is a Director of the Futures Desk at an Investment Bank in Midtown Manhattan. He has been a futures broker for a number of years and like all futures brokers has made a very tangible living. After we go the adieus and the “hey how are the kids and the wife” over, the conversation went immediately to how a number of his large hedge fund customers were changing their business model to “self-clearing”. A term obviously not good unless of course they (the futures desk at the investment bank) receive revenue from the “leasing” of the trading front end or require an API for high-frequency or algo trading.
Let’s take a look at this hedge fund “self-clearing” or should we call it the execution separation of the commodities world from THE ever increasing exchange volumes. Yes, investment banks and FCM’s are never short of a spare $5mill or $15mill lending to funds – and how that relationship is carried out in a self-clearing environment I cannot comment, but give me a few weeks or a visit to Chicago and maybe I will have an answer – but let’s focus on the self-clearing from a futures broker perspective.
Since key to this type of business model is the newly forming governance, risk and compliance (GRC) environments which is slowly creeping into the investment banks, particularly banks which fell under TARP (which number more than a handful) , it seems hedge funds may want to stay at an “arm’s length” from investment banks or let’s call it – no need for increased paper trail’s, especially when the call from Washington DC is to move towards a more regulated “clearing” mechanism and away from non-regulated transactions.
Step in the FCM’s, could it be the FCM’s time to increase revenue. Let’s take a look. We do not need to travel far – MFGlobal’s hiring of former New Jersey Governor John Corzine, or to many on Wall Street, “Mr. Governor Elect – Goldman Sachs”. No matter the way you feel about John Corzine, and my apologies to those from “tax-free” New Jersey, but you must agree on the brilliance of that move by the Board at MFGlobal. MFGlobal brought in a mind which led Goldman Sachs for years into a group which now falls below the TARP radar and for the time being, government scrutiny. MFGlobal is now thinking like an investment bank but in an FCM’s sheep’s coat.
The days of hedge funds establishing relationships with multiple investment banks as clearing agents may be dwindling because of the banks “open-book” policy with government regulators. It may be the FCM’s time to shine with hedge funds.
Featured Articles
By FuturesDesk.com Staff
July 5, 2010
There has been a slow but increasingly consistent demand over the past decade for trading technology infrastructure hosting or as it is known in the buyside, “farming out” your trading infrastucture. This landscape once dominated by the likes of TTNet has seen a dramatic rise in Independent Hosting Facilities (IHF) companies such as FCM360 to 7Ticks. Let’s take a look why….
While the Trading Technologies front-end product (X-Trader etc…) is likely the best on the marketplace their hosted solution – the TTNet product has not kept pace. And this is where these smaller, niche players have found traction.
TTNet – trouble under the hood…
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For some unknown reason, it has been a very “buggy” setup. Many FCM’s have had tremendous issues with distributing a quality hosted TTNet product to their clients – to the point where a few large clients have terminated the TTNet agreement with Trading Technologies.
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With TTNet, a trader is relegated to only use TT, although the FCM which is offering TT trading screens may offer Patsystems, SungardGL, RTS etc…Thus if a trader/ trading group is required by their COO to have a dual system setup whereby TT is the primary trading application and Patsystems is a backup/redundant trading systems, TTNet cannot host both applications. What this does is two things – first, it requires the client to pay for TTNet (yes, by the way, indirectly a trader does pay for TTNet through the FCM) as well as an external hosting environment for Patsystems (or facilitate a Patsystems hosted offering), thus the client is paying for 2 hosted environments….second, it requires the trader/trading group to actually maintain their current technology infrastructure, not decrease/or eliminate as they thought they were upon obtaining TTNet.
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The trader/trading group effectually is locked into a pre-existing relationship which may exist between Trading Technologies and the TTNet distributing FCM. Thus for example, if the trader/trading group wants to make use of the Trading Technologies front-end but use another hosted environment, they will find it very difficult to “mix and match” their front-end and hosted application. This also holds true going the other way – if a trader/trading group want to use the TTNet infratsucture but not the Trading Technolgies front-end, they would be out of luck. The lock between TT, TTNet, and the FCM in most cases does not break……so what does a trader/trading group do?
Now step in the Independent Hosting Facilities such as FCM360 or 7Ticks. These groups are agnostic to ISV front-ends as well as agnostic to FCM’s (although by the naming convention, FCM360 seems to cater to the FCM not the trader/broker – but in speaking with the Director, it was assured that the name is reflective of the industry the FCM’s serve). Most importantly, hosting is ALL they do, so they have no choice but to get it right! Question – would you go to Rivers at the CME for authentic Thai cuisine…or go there for a good burger and pint of a Seasonal Goose Island?
So what do the “Independent Hosting Facilitors” let’s call them IHF’s do…..? Let’s take a look at FCM360 Model –
Co-Location
FCM360 provides complete co-location solutions. Their clients have access to Tier 3-4 datacenters in all major regions of the United States as well as major cities throughout the world. FCM360 provides shared co-location starting at 1U space and offer 24/7 keyed-entry client access starting at 1 full cabinet size. All of FCM360 Tier 3-4 locations are SAS 70-audited and have power management (N+1 redundant), HVAC, fire suppression as well as physical security including security guards, cameras, biometric systems, portals and man traps that authenticate one person at a time.
Dedicated Servers
FCM360 can build a trader/trading groups dedicated server infrastructure from a wide range of pre-configured servers or a complete custom solution. They offer Dell, HP, Sun and IBM hardware to name a few. If a trader/trading group is looking for a custom configuration such as a server with 4-sockets, 196GB RAM and a 10 Terabyte RAID10 SAN array they can do that as well.
Virtual Servers & Cloud Computing
FCM360 provides virtualized infrastructure featuring VM Ware, Citrix Xen Server, Red Hat Enterprise Server, Suse Linux Enterprise and Appistry. They can build out a solution based on a trader/trading groups preferred platform.
Managed Services
FCM360 offers managed services as well. If your infrastructure requires, FCM360 can provide Managed Intrusion Detection, Managed Networks, Managed Backup, Database Management, Monitoring and Reporting and Server Administration for Anti-Virus, Security and Software.
As you can see, the Independent Hosting Facilities can deliver a one-stop externally hosted environment with secure and redundant connections as well as moving your infrastructure from your current provider or “basement” into a world-class environment.
Mind you the Independents also have differences. I’ve come to find out that 7Ticks is an “Agent” business whereby they lease cage space from companies, mark it up in price, then re-lease to the general public, while FCM360 actually owns the cages they distribute in their service.
If this is what you require and do not want to be “tied” into existing relationships between FCM’ and ISV’s then these Independent Hosting Facilities may be worth your time to investigate.
Oh, and something else, since trading technology hosting is the core business for Hosting Independents – hosting capabilities go beyond front-end technologies but extend to back and middle office systems as well. Industry wise, their offerings span from FCM’s to Introducing Brokers, to ETRM’s (yes Energy Trading and Risk Management Systems – that beast we spoke about last week).
Again be diligent and investigate – TTNet is not bad if the Trading Technologies front-end is your Holy-Grail, but there are choices for better….
Uncategorized
By: FuturesDesk.com Staff
June 27, 2010
What they are – for those of you who are only futures traders and could care less about the “other” side of the marketplace – the post trade side, educate yourself on this one – have you ever thought about the impact/outcome your buying or selling the market does in the broader marketplace? Again…ET What? Have a read.
Why they do – Energy Trading and Risk Management Systems or ETRM are slowly becoming Commodity Trading and Risk Management Systems or CTRM’s. Confused yet, no need to be, the bottom line premise is that whether you are trading oil, corn, metals, or pixie sticks, your financial and physical exposure over the course of the trade – immediately after execution to your last carbon molecule (if you trade natural gas) – is accounted for and priced against a specified curve (or curves) to show your mark-to-market daily and in some cases your intra-day exposure. There are increasingly more players in the ETRM/CTRM field. That sd, the premier systems in the marketplace are Triplepoint, Openlink Financial, SolArc, Murex and Allegro with new kid on the block EKA showing strong promise.
(EKA offers a unique business model in the ETRM/CTRM space – it offers a high quality system with considerably lower costs due to outsourcing everything to India – yes, cheaper labor. Moreover since they have only been around for 5 years, the system incorporates all the best of all legacy technology procured by meeting industry requirements… but does not incorporate the “ills” which can come along with legacy technology which for some systems carry a 15 year handicap. BTW – I do not work for EKA, but a good business model is a good business model. The key for EKA is to displace legacy ETRM/CTRM systems – EKA needs to prove less “pain” in the implementation phase of ETRM/CTRM systems than existing systems which are in the upgrade cycle. In subsequent commentaries, I will discuss these pains.)
Why they are becoming very popular – Let’s face it, it’s mainly about shareholder value. It is about the accounting of corporate assets versus the exposure of running their business efficiently and effectively for this shareholder value. The demand has crescendo’d in popularity over the past 5 years with “corporate governance” front and center particularly in the wake of increased demands (governance, risk, and compliance (or GRC)) by regulating bodies such as Sarbannes – Oxley in the US and Basel II in Europe. Due to GRC pressure – and most would agree rightly so, lest we forget our friends to the North, Amaranth and another company called Enron – coming full throttle into the marketplace with oversight such as FAS 133, FAS 157, and the IAS 39, the front/middle/back offices are becoming ever more cognizant and pressured for accuracy and accountability to the nearest carbon molecule.
The Recipe – take all this GRC framework, mix it with hedging practices of commodities trading companies and add a “dab” of Excel spreadsheets and you have a recipe for numerous RFP’s leaving the door to ETRM’s. By the way, you would be surprised how many physical commodities trading entities still use Excel spreadsheets to account for their financial and physical exposure.
I will keep this ETRM – 101 short and sweet. As you are aware, with technology comes issues such as vaporware, bugs being fixed by patches, and cost overruns to name a few – and the ETRM space is no exception. In later commentaries I will get into a few issues hampering ETRM projects with some possibly making Motherock Funds $400million loss in 2006 slightly commendable.
Uncategorized
By FuturesDesk.com Staff
June 21, 2010
ISV pricing models have been a rather cumbersome event throughout the years if you sat at desks of FCM’s or Investment Banks. The prices charged from the ISV to the FCM or Investment Bank have stayed reasonably the same; the issue revolves around the elaborate pricing dances the brokers have to come up with to satisfy the end-user. Whether Patsystems charges 2cents/ trade or .2cents per trade if volumes are high or $1000/month; or TT charges the likes of Goldman Sachs/JP Morgan $200/month for a full TT X-Trader or Merrill LynchBoA or Nomura Futures $1500/month, the broker needs to make a determination as to what they can absorb versus what they charge their clients while remaining competitive. Well folks, we may see this about to change since we are at the beginning of Cycle III of the “ISV Pricing Challenge”
So what is this 3rd Cycle of the “ISV Pricing Challenge”? To answer this let’s take a step back. Technology with all its glory is a relatively simple pricing model – high then low, does Moore’s Law ring a bell? Remember the fax machine, ok let’s make it easier for the masses, did you pay $299 for a 3G iPhone last week? If you did, you should not be trading let alone managing your retirement account.
The point is when a new technology standard enters a marketplace, as was the case with North American ISV applications truly making their mark in year 2000, you are willing to pay a premium for the competitive advantage – and when this competitive advantage is gone, will you/why are you paying the same for something every else has?
Now back to these Cycle references….as stated, the electronic trading commodities industry is beginning Cycle III, Cycle I represented years 2000-2005 while Cycle II represented years 2005-2010.
Cycle Attributes –
Cycle I (2000-2005) – The 1st Cycle represented a learning curve for the enduser as well as a learning curve for pricing of the application by FCMs/Investment Banks desks – lest we forget Patsystem pricing disasters which almost caused them to go belly up – with the FCM/Investment Bank technology side becoming a profit center due to lack of the business side’s knowledge as to what these ISV systems actually cost (not just the trading GUI but everything behind the scenes such as developers, technology hosting, etc)….Advantage Technology
Cycle II (2005-2010) – The 2nd Cycle represented a domain whereby the business side began to understand the technology side thus not only eliminating the need to have a large technological savy staff which the business aptly paid for in Cycle I – mind you a good number of technology oriented quantitative folks which represented the front-office support layer wound up on trade desks due to their modeling skills. Additionally, during this cycle the price of trading systems became increasingly transparent due to ISV employees such as sales staff leaving to make their fortunes on futures marketing desks at FCM’s and Investment Banks.
Note, in Cycle II there was also a relatively “interesting” migration of FCM’s and Investment Banks staff – traders/ brokers/operations - to ISV’s giving them (ISV’s) a competitive advantage in developing strategy for growth as well as developing the customized, value-added modules within application’s – amazing what the allure of stock options can do, anyhow…Advantage Business
Cycle III (2010-2015) – In Cycle III an ISV’s value, particularly the ones who have been in business for over a decade in North America, no longer resides at the application, but rather at the customer level – this market has evolved into an “at will” marketplace. Cycle III will see the marketplace driving the prices which they will pay ISV’s. Expect a collapse in ISV prices over the next few years. The Sungard model may be the perfect model – buy an ISV (GL Trade) and offer it as a service rather than an application – profit by not only servicing the trading application but placing the application within a full Straight-Thru-Processing offering thus “masking” the true price of the GL Trade application if it flew solo…Advantage None – folks we are at pricing parity – technology took the first 5 years and business took the last 5 years. And we all know as traders particularly in energy, when we reach equilibrium there is a good chance prices will come off.
So… what is a commodities trading system actually worth? In short, as the industry enters into the 3rd Cycle of electronic trading, unless the application fits the requirements as a niche system as with the case of Tickit Trading System, or if the application is a service such as the case with Sungard GL Trade, the client/or buyside will set the price paid to an ISV. Even if ISV’s add functionality – it is an attempt to acquire the “one-size fits all” marketplace which does not work. Expect ISV pricing to show elaborate soft-dollaring to make it through the next five years (such as the TT Goldman Sachs vs Merrill Lynch BA pricing models) thus allowing FCM greater flexibility for FCM’s and Investment Banks. Oh and by the way – did you really pay $299 for your 3G iPhone last week? Mainstream ISV pricing has been “artificially” inflated for years; it’s time for market forces to take over.
Featured Articles
By: FuturesDesk.com Staff
June 6, 2010
With the Korean Peninsula tensions ratcheted up due to the sinking of a South Korean naval vessel by a North Korean midget sub, all eyes are focused on the political fallout and the ambitions of the primary players (the Koreas) and the secondary players (China, Japan, United States etc… Little has been the focus of what might a military conflict bring to the region in terms of crude and product prices.
Well let’s try to take a crack. Just knowing that South Korea with its massive expansion of refining capacity is the largest gasoil exporter in Asia and fourth largest gasoline exporter, and with one of South Korea’s largest refineries a 20-mile rocket attack away from the border, should bring product importers and crude oil merchants globally a little less sleep at night. But looking at prices lately, they seem to be sleeping just fine with a hiccup here or there depending on situational rumors or Chinese seemingly (at least in the media) lack of control of the North.
In reality China will have the most to lose if it cannot keep the peace on the peninsula – AND THE WORLD KNOWS THIS WHICH IS TRANSLATED INTO THE PRICES OF CRUDE OIL AND PRODUCTS – remember if war does break out the North populous will head North into China “refugees” which China does not need yet the South is China’s fourth largest trading partner – China cannot win no matter what the outcome of conflict.
Look for crude oil and products prices in the region to remain rather sluggish in the near term or can it be called consolidation or a sideway market curve, nothing flashy. As long as there is a country called China sitting across the river from North Korea, do not expect Pyongyang to be the northern most capital of a unified Seoul influenced peninsula anytime soon – Beijing will not sleep at night if South Korea gains control of the North’s nukes, in the same token – and we are really going out on a limb to think Pyuanyang has a chance of victory – do not anticipate the peninsula to become Communist, with over a billion in population and growing China cannot afford to have a Communist takeover of Capitalist South Korea.
Bottomline – China is dictating the crude and products prices in Asia, as long as China has nothing to gain in a war between the Korea’s, prices will keep pace with global markets, and at the time being – we are stuck in neutral.
Featured Articles
By: FuturesDesk.com Staff
May 30, 2010
With an estimated 95,000 b/d and failure after failure to cap the Macando exploration well which has turned into an underwater gusher spewing crude oil, natural gas, and whatever else is found in the deep pockets of carbon into waters over a mile in depth in the Gulf of Mexico, what will the final tally be on the markets and the price of crude oil? With the Obama Administration starring (sometimes at one-thousand yards) this disaster in the face, the year-long battles of health care have obviously taken their toll on the current Administration. Remember the carbon debate on Capitol Hill and “save the environment” through sound energy policy, then wham a unified health care bill takes center stage and the “save the environment” with carbon credit’s and cap/trade is a thing of the past.
OK,enough with the politics of the oil markets – but honestly does Obama have an energy and environmental policy? Who is the Secretary of Energy anyway? For that matter who is the Head of the Obama Administration Disaster Recovery Office? Is the SecEnergy and Disaster Recovery Head the same person – don’t ask the Governors of the Gulf states, likely you will not get names but explicative’s? Yes, I agree, enough with the politics – now let’s talk energy markets! Are we in a consolidating oil market with prices stuck between $65 and $85?
Some industry analysts fermented in technical analysis say yes, retracement, 120 day moving average’s and candlesticks show consolidation. The fundamentalists / supply-demand sider’s may agree or disagree in consolidation but likely agree that we are in an equilibrium with all market forces built into the price – from security threats to global oil/products shipping lanes, to hedge funds managers churning out thousands of trades a day, to North Korea threatening humanity yet again.
So what is the point? Here is the point – not only has the Obama Administration given a back seat to energy/environmental issues, OK the “wheels have fallen off the bus” – relatively close to those back seats, but the actions of the Obama Administration setting a global precedence to bail out financial institutions, the auto industry and whomever else needed a few dollars in 2008/2009 – for disasters of their own making – to survive the economic crisis sent signals to the global oil industry that those inside governments will come to their rescue when disaster strikes – a disaster of our making or not. Well, unfortunately for BP the “wheels did fall off” about a mile down – and where is the Obama Administration’s ill-fated “safety net” for industry that was issued for the masses?
Obama directed billions of dollars to help beleaguered industry’s – why would oil be treated any differently? Or so the thinking may have been. The messages sent by Washington DC – “no worries we’ve got your back” has led to complacency in all of American and global industry not just the ones who received bailout funds. Whether a BP cover-up is proven or not is irrelevant, this oil disaster in the Gulf and the confused, anemic response by the Feds may just be the beginning of what may be called “Obama’s Socialist Disasters” with origins firmly entrenched in the Obama Administrations economic bailout of 2008/2009.
By definition, disasters occur when a laundry list of smaller problems are often overlooked in the larger picture. Someone needs to remind the Obama Administration that a disaster off the shores of Louisiana, Texas etc., in the Gulf of Mexico is not a problem for Britain, France or Norway but that of Washington DC. Were there signs in the Gulf disaster – lest we forget the safety commendation by the Obama Administration for Deepwater Horizon for starters? If history tells the true story - Brown out/ Conservatives in, remember Maggie Thatcher, Ronald Reagan and the free market experience – American energy policy has 3 more years until the free markets can wrestle it (American oil policy) back for oil’s true price transparency/discovery –
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