The Cypriot government is in a pickle about how to rescue their banking sector and that they're trying to get EU bailout money. Where other bailouts made bank creditors and bond holders take huge hits, Cyprus has fewer options. But this draconian measure seems more like something that could tip the EU financial sector into a deeper financial crisis rather than shore up the Cyprus economy.

There has already been a limited run on the banks in Cyprus, as depositors rushed to ATMs over the weekend trying to withdraw their cash. Most of the ATMs were emptied within hours, preventing Cypriots from accessing their money. Today is a bank holiday, so no money can flow out until tomorrow.

It's uncertain whether the measure will actually be passed as three parties in the Cyprus Parliament have already announced that they will not back the plan, and Cypriot ministers are looking for ways to soften the blow. But the only alternative may be a default.

But I wonder how this is going to affect the entire Eurozone banking sector? If Germany can dictate levies like this in Cyprus, what's going to happen with Ireland, Italy, Greece, Portugal and Spain? Eurozone banks are already taking a hit, andMoody's is warning that the move would have negative implications for other EU banks.

If I stood to lose 10% of my savings overnight, I'd be looking out for alternative places to stash it. Heck, even the mattress could start looking safer than EU banks.

GETCO and Knight are two of the largest market makers on the New York Stock Exchange. But apparently, GETCO's decision to purchase Knight is based partly on sharply declining profits in high frequency trading which is driving a decision to diversify away from pure prop trading. Knight is a market maker with substantial retail flow. They get huge equities flow from retail brokerages like Fidelity, E*Trade and TD Ameritrade. According to Traders, Knight makes markets in some 19,000 U.S. equities, handling 3.0 billion shares a day.

According to Traders Magazine, "GETCO, which began as a prop shop, intends to use Knight Capital Group's wholesaling connections along with large retail order flow to become a trading superpower. That, it hopes, will...attract new institutional clients." So if they're looking to attract institutional flow, then we can conclude that the high speed market making business isn't expected to make much of a recovery.

According to GETCO's public statements about the merger, they're looking "leverage Knight's deep customer franchise and GETCO's leading edge technology platform" to become a leader in marketing making and agency execution. If that's the case, then is the regulatory and congressional focus on curbing HFT in equities too late? Will it curb itself naturally as the business model runs out of steam?

You can read the Trader's Magazine story here.

What's your take? Do you think HFT in the equities markets has a healthy outlook?

As I work with various vendors and banks, I repeatedly hear frustration from both the sellside and buyside about how lack of transparency in routing and execution make it difficult to make good trading decisions. The buyside is getting increasingly more sophisticated at transaction cost analysis and are looking for ways to better understand the impacts to trading costs. They're beginning to demand more information and transparency to enable this evaluation.

November 2012 issue of FIX Global Trading has an excellent article on this topic. They interviewed Bill Stephenson, Director of Global Trading Strategy at Franklin Templeton Investments. He says that they are now insisting on more real-time transparency and end-of-day reports from their dark pools, ATSs and even algorithmic providers. As the buyside gets more sophisticated in evaluating and understanding execution quality, the sell side is going to have to be prepared to provide meaningful information.

But the sheer volume of data is also going to create a problem. In the article, Stephenson talks about the challenge of building a platform to manage "concatenate, analyze, and interpret that data."

These issues represent competitive opportunities for vendors and sell sides. It will be interesting to see what new developments arise in the areas of execution quality over the next 12 months.

Fragmented Liquidity

The FX market is extremely fragmented. There are two primary markets, dozens of ECNs and multi-dealer platforms, and 10-15 critical single bank platforms. Aggregating liquidity from all these sources can be quite daunting. Most tier 1 and top tier 2 players connect to as many as 16 different liquidity providers.

Venue Proliferation

Yet even with all that fragmentation, new venues continue to launch. This year alone, more than 10 new FX trading venues were launched. Not all of them have much liquidity yet, but each offers a unique value proposition that will probably allow it to attract certain types of flow.

Inconsistent Market Structures

The market structures in these venues vary. Some send continuous price streams, some use an RFQ model (request for quote) and some send banded feeds. In most cases, quotes include three pricing tiers. When you send an order, it must indicate the specific price it's targeting. Time-to-live settings vary by venue, and if the quote is expired by the time the order gets to the liquidity provider, they generally will reject the order.

Dynamic Latency Issues

The trading infrastructure, connectivity and architecture are critical to successful FX trading. Network latency is rarely static, so you can't really base a strategy on a median latency figure, because outlier latency could have a serious impact on trading or risk management results. Co-location and proximity matter a great deal when trading FX, but there is a huge associated cost. It's important to do a cost/benefit analysis that considers not only venue location but also client locations when deciding where to place order management and routing systems.

Non-trivial and non-obvious aspects of aggregation

The non-trivial and non-obvious aspects of aggregating liquidity directly affect efforts to trade algorithmically. There are opposing points of view to what information should be exposed to a strategy. One side says that the normalization layer of the aggregator should send as much information as possible to the strategy; and the strategy should contain the logic to know what to hit on what band and make the routing decisions. Others say the normalization layer should be smarter, sending a simplified feed to the strategy and making routing decisions after the strategy makes its trading decision.

Listen to the panel discussion

We recently had a panel discussion about these areas. Our speakers were:

• Ben Ernest-Jones, Solutions Architect for Capital Markets at Progress Software
• Saul Nadata, Product Manager, Thomson Reuters Dealing Aggregator atThomson Reuters
• Sassan Danesh, Managing Partner at Etrading Software
• James Walker, Vice President, Managed Networks Services at Tata Communications

Click here to listen to the recorded discussion. Once you do, I'd like to get your feedback.

You might also be interested in our upcoming event on Tuesday, December 4th. We'll be discussing hybrid voice and electronic trading. Click here for more information.

Here is a summary of launches announced in the last four weeks.

FastMatchFX is scheduled to launch July 1st backed by technology from Credit Suisse in partnership with FXCM. FastMatch is a new Electronic Communication Network (ECN) for FX that claims to offer large pools of diversified liquidity at unparalleled speed with complete transparency in the optimal location. It is targeting a diverse set of clients including retail brokers, institutions, banks, hedge funds, and proprietary trading firms. It's based on the Credit Suisse Crossfinder matching engine, which has been modified to handle the unique needs of FX trading. FastMatch will create transparency by disseminating platform's quotes and trades with sizes and prices in real time. It executes on a strict Price/Size/Time priority. It's hosted in Equinix NY4. In addition, on June 18, FXCM announced that it is acquiring a 50% controlling stake in Lucid Markets, a UK based electronic market maker in currencies.

JFX.com was launched by Jiffix Markets, a team of former directors from Synthesis Bank in Geneva. The platform is targeted to private and professional investors and is designed by former foreign exchange traders. Jiffix says it provides pricing from nine Tier 1 banks, including BNP Paribas, CITI, Deutsche Bank, Bank of America, JP Morgan, Morgan Stanley, Royal Bank of Scotland, Barclays Bank, and HSBC. JFX claims that its advantage is providing aggregated prices from nine liquidity providers where many of its competitors provide only a single pricing reference. The company is based in Cyprus and has a European license.

MoltenMarkets is an independent company based on First Derivatives' platform using Kx Systems kdb+. MoltenMarkets is an FX ECN focused on attracting the high frequency trading community. They're offering high speed round trip execution and complete transparency. They appear to be targeting the HFTs, hedge funds, and active traders. They also offer a pre-trade system for long-only asset managers and large hedge funds as well as a custody offering to serve asset managers and investment funds. MoltenMarkets claims to offer a "range of innovative FX trading products that utilize the very latest technology, bringing true transparency of pricing while ensuring provable best execution for every trade."

TraFXPure was launched by interdealer broker Tradition, Ltd in partnership with Barclays, BNP Paribas, Deutsche Bank, Royal Bank of Canada and UBS. This ECN appears to be targeted at the interbank market and seems to be designed specifically as an alternative to the existing primary markets. It offers spot currencies cleared by CLS and is available to any participant who can settle via CLS. The company claims that execution logic and uniform and transparent pricing ensures fair execution for all. It offers transparency by fully disclosing counterparties post-trade. Initially, this was seen as a platform where banks could participate without interference from high frequency traders. But Tradition claims that the system will allow algorithmic traders to participate, but will not permit the disruptions seen on other platforms. This system seems to be another attempt to launch PureFX, which was announced two years ago but never went live.

LiquidityFX was launched by smartTrade Technologies. This is a packaged FX aggregation and smart routing system targeted at tier 2 banks that want to expand their FX dealing business. LiquidityFX provides connectors to 25+ ECNs and single dealer platforms, aggregates the liquidity and provides sophisticated smart order routing functionality. It is being sold as a packaged system that banks can host in their own environment or as a hosted platform located close to the FX markets in Equinix NY2. It will soon launch in London and Tokyo.

FX SpotStream was launched as a bilateral trading solution supported by Bank of America Merrill Lynch, Citi, Commerzbank, Goldman Sachs, HSBC and JP Morgan; using technology provided by smartTrade Technologies. This service has a very different model. It provides connectivity to multiple liquidity providers and displays their pricing to clients through a single API. It allows clients to choose their liquidity provider and route directed orders through a single connection. Participating clients must have a direct relationship with one or more desired liquidity providers. FX SpotStream is hosted in Equinix NY2 and London, and will soon open in Tokyo. It does not charge a brokerage fee for the service.

In the coming weeks, we'll aggregate a list of all the single bank platform launches and technology refreshes. Big banks are investing very heavily in their FX infrastructure. In addition, we'll report on all the TCA products being launched to help the buyside get a better handle on this very opaque asset class.

Warm regards,

Candyce

Marketing in the Capital Markets

Having my head in emerging markets and cross-asset trading these days, I’ve been finding the term “alpha” unavoidable. TABBGroup’s Adam Sussman recently spoke on investment in emerging markets as a way to achieve alpha. The industry is all aflutter about cross-asset and multi-asset trading as a means to seek alpha. The concept of exceeding benchmark performance permeates our business in the form of whitepapers, webinars, forecasts and executive briefs.

But let’s some of us be honest, that concept is sorely lacking when it comes to marketing strategy. Many companies say they want the most bang for their marketing buck, but when it comes down to it, they hang all their hopes on one monolithic whitepaper or live event. This is similar to what I call “practicing wishcraft” – taking any action to say you did something and wishing for some magical outcome. There’s a difference between spending money for the sake utilizing available budget and spending it to achieve what I like to call “marketing alpha.”

I seem to be on a roll with the specialized terms. Like a marketer (LOL!).

Anyway, as I mentioned in a previous blog post, banks are under increasing pressure to reduce overhead and increase profit margins via technology consolidation. However, since the financial crisis began, companies across the board have been faced with budgetary challenges that have made buyers cautious and salespeople crazy. The new reality is one of longer, more complex sales cycles with today’s web-enabled buyer in the driver’s seat.

Unlike the Aldous Huxley novel, effective marketers have moved away from treating customers like cattle and feeding them marketing soma. Why? Because the buying behavior of capital market buyers has changed dramatically in the past few years, rendering the majority of old-school marketing practices ineffective (and as a result, expensive). Truth be told, old-school marketing was about creating noise to be heard over the competition and get in the door.  It used to be about one-way push. Now it’s about two-way engagement.

In earlier times (some might call them “the good old days”), the company with the most marketing dollars often got the most sales, simply because the customer recognized their name. But as more companies enter the race, more companies start making as much noise as possible. The Internet and email make it easier and cheaper to make noise, resulting in a virtual cacophony of marketing claims barraging customers every day – with everyone claiming to be “the leading, number-one, unique, value-added, trusted provider” of “robust, innovative, cutting-edge, high-performance, ultra low-latency technology….”

Yawn.

How can every vendor be the “leading provider”, anyway?

If you’re in marketing or sales and have not heard the terms “content marketing” or “inbound marketing,” then it’s time to start paying attention to the evolving best practices in marketing. The pressure is on for Marketing to support Sales and help to generate revenue. Your performance depends on it.

Let’s face it folks, our customers are not idiots. They’re sick of the noise, and they no longer trust the marketing puffery. They’re also getting really good at tuning out the noise. They use spam filters, caller ID, gate keepers, DVRs and any number of other methods to tune out advertising and marketing messages.

That doesn’t mean they’re not still buying, but they’re getting more savvy. THEY are in control of their buying process. Research shows that most business buyers of technology do all their early research about business problems and possible solutions BEFORE they talk to a sales person. In fact, their buying processes are generally 75% complete before they’re willing to engage with Sales. So how do you go about influencing the buying decision of a buyer who is wary and weary of traditional marketing hype? How do you now differentiate yourself from your competition?

Content marketing is about creating educational content that helps your prospective customers understand their business problems, gain a vision of how to solve the problem, and build a business case to get internal buy-in. This content can take the form of whitepapers, blog posts, live events or video. As you provide the prospect with high quality content – information that they can rely on to steer their decisions, you’ll gain their trust and have a significant influence over the buying decision. To quote Ardath Albee, author of eMarketing Strategies for the Complex Sale, “Publishing compelling content builds credibility.” This credibility is what gives you competitive advantage.

At this point, you’re probably thinking, “That’s interesting, but how do I get this great content to the customer?

That’s where inbound marketing comes in. This technique uses high-quality content, strategically placed, that is found by prospects who are looking for it and as a result, are ready to engage with you. (talk about warm leads!). According to inbound marketing specialist HubSpot, “72% of companies who blog weekly have acquired customers through their blog.” As a new form of lead generation, inbound marketing is bringing in revenue for companies who have really dug in and focused on sharpening their marketing strategy.

The question arises, “O.K., now how do I incorporate inbound marketing and content marketing to my process?”

On January 24, I will be discussing this with a panel of the foremost experts on modern marketing in a live web event. These speakers are at the top of their game as authors, bloggers and recognized thought leaders in content and inbound marketing. They will discuss the differences between and the convergence of these techniques as well as practical approaches for getting it done as part of a holistic marketing strategy. The goal of this live web event is to give you clear insight into current marketing techniques, going beyond the hype to what works now.  We want you to be better equipped to build a compelling case to gain the funding to implement these techniques.

I highly recommend that you tune in for this hour long session. You can ask questions in advance of the event and online during the Q&A process. I’ll be moderating, and will be joined by:

• Mike Volpe, CMO of HubSpot and a master at inbound marketing (HubSpot generates 40,000 leads a MONTH!)
• Ardath Albee, author of eMarketing Strategies for the Complex Sale. Ardath consults for some of the largest technology companies in the world and is well-known speaker on best practices in content marketing.
• Robert Rose is Strategist In Residence at Content Marketing Institute. He co-authored the book Managing Content Marketing – The Real-World Guide for Creating Passionate Subscribers for Your Brand and is also a speaker and consultant in high demand.
• Marcus Sheridan ("The Sales Lion") is a master blogger who teaches companies how to blog effectively to bring in business. He’s also the author of three books and numerous e-books. Marcus actually inspired this event when he drew attention to a debate between proponents of content marketing vs. inbound marketing on his blog. That post attracted more than 80 comments. You can read that post here: http://www.thesaleslion.com/inbound-vs-content-marketing-compare-hubspot/

The days of “spray ‘n pray” are over. Buyers want to know what’s in it for them, what of value you have to offer them that meets their need. They’re unaffected by perceived market share. They’re seeking a Trusted Advisor to help inform their entire buying process. Achieving that coveted role requires an understanding of what works in this context and directly affects your ability to generate revenue.

Are you struggling with creating an effective marketing strategy? Do you find yourself mistaking tactics for strategy? Are you just a little bit shaky in your understanding of current marketing language? Are you struggling to achieve “marketing alpha”? Join us for:

The Great Marketing Debate Conversation
Tuesday - January 24, 2012
1:00 - 2:00 PM EST (10:00 - 11:00 AM PST)

Click here to register now.

The old marketing model is broken. Time to start the new year with a new foundation for a solid marketing strategy. Here’s your opportunity to learn from four of today’s top marketing thought leaders. They’re passionate about what they do, so the discussion will be quite lively.

Join us, won’t you?