Transcript Evolution of U.S. Financial Markets

EVOLUTION OF
U.S. FINANCIAL MARKETS
2000 – 2011
April, 2011
How Do You Navigate
Today’s Markets?
• Confused about how the U.S. markets work?
• If you did not have a solid grasp of the U.S. market
structure in 2000 (prior to Reg. NMS), you will probably
have a tough time navigating the various players and
their value proposition today
• The markets have evolved:
– Exchanges’ M&A
– Continued market fragmentation
– Introduction of new players
• Totally lost? See the next page …
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Today’s Market Landscape
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Trends and Background
• Growth of electronic trading / contraction of open outcry:
equities, options and futures; spread compression
• Growth and sophistication of the buy side
• The Internet has matured, so has trading technology
• Demutualization and for-profit business models
• Evolution of exchange revenue models, market makers,
payment for order flow (maker-taker, taker-maker)
• Exchange mergers and acquisitions, continued
globalization.
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Trends and Background (Cont’d) …
• Maturity of prime brokerage business model
• De-leveraging and impact of global financial crisis post
Lehman Bros.
• Introduction of new broker-sponsored exchanges,
clearing houses
• Continued market fragmentation – equities and options
• Regulatory evolution:
– Commodity Futures Modernization Act (2000)
– S.E.C. Reg. NMS, demise of InterMarket Trading
System for equities (2005)
– Dodd-Frank Act regulations
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Trends and Background (Cont’d) …
• Inter-relationship of asset classes, markets; portfolio
margining
• Growth of algorithmic and high-frequency trading
• Madoff.
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U.S. Equities Markets
2000
EXCHANGES
NYSE
Nasdaq
REGIONALS
BSE
PHLX
CHX
2011
ECNs
ATS
Arca
Bloomberg
Tradebook
Brut
ITG Posit
Latice
Trading
Redi
NSX
Instinet
PSX
Island
EXCHANGES
ATS / DARK POOLS
NYSE
Euronext
Instinet Newport
CSFB Crossfinder
Level
Nasdaq
OMX
SIGMA X
UBS - PIN
Pipeline
CHX
GETCO - GES
CitiMatch
Liquidnet
NSX
Knight Link
BlockCross
BIDS
BATS
Convergex
Fidelity CrossStream
Attain
Direct Edge
Nextrade
Strike
Inter-market Trading System [ITS]
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What Happened ?
• Implementation of SEC Reg. NMS, demise of the Intermarket Trading System
• Exchanges demutualized, went for-profit and public
• Exchange consolidation, continued globalization
• Evolution of NYSE, NASDAQ duopoly, internalization of
order flow, rise of new, more nimble ATS
• Growth of algorithmic trading, new order types, high
frequency trading and proximity hosting as
differentiators.
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U.S. Options Markets
2000
2011
EXCHANGES
EXCHANGES
AMEX
NYSE- AMEX
BATS
Options
CBOE
CBOE
BOX
ISE
ISE
C2
PHLX
NASDAQ OMX
- PHLX
PSE
NYSE –
ARCA Options
Options Linkage
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What Happened ?
• Growth of electronic trading / consolidation of open
outcry trading
• Decimalization, penny quoting, spread compression
• Payment for order flow, growth of electronic market
makers
• Continued market fragmentation
• Exchange acquisitions
• Algorithmic and high frequency trading
• New order types
• Evolution of new players - 5 markets are now 8!
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U.S. Futures Markets
2000
2011
EXCHANGES
EXCHANGES
CME
KCBOT
CBOT
BTEX
NYMEX
NASDAQ
LIFFE
NYBOT
OneChicago
CME Group
CME
CBOT
NYMEX
KCBOT
MGEX
NYSE LIFFE
US
ICE
NYBOT
ICE OTC
WCE
MGEX
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OneChicago
CBOE Futures
Exchange
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What Happened ?
• Growth of electronic trading / consolidation of open
outcry trading
• Exchanges demutualized, went for-profit and public
• Exchange consolidation and globalization
• Demise of Enron
• Introduction of new players - some came, some went,
some stayed
• New products that align risk to users needs
• Convergence of OTC and ETD products - rise of OTC
clearing, futures look-alikes.
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U.S. Clearing Houses
2000
EQUITIES
OPTIONS
NSCC
Options
Clearing
Corp
2011
FUTURES
New York
Clearing Corp
FIXED INCOME
DTCC
EQUITIES
DTCC
OPTIONS
OCC
NYMEX
Clearing
FUTURES
FIXED INCOME
CME
Clearing
DTCC /
FICC
ICE Clear
US
CME Clearing
KCBTCC
BOTCC
New York
Portfolio
Clearing
OCC
KCBTCC
International
Derivatives
Clearing Group
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What Happened ?
• Exchange consolidation, clearing member consolidation
(Bear Stearns, Lehman Bros., Refco)
• Exchanges demutualized, went for-profit and public
• Member-controlled versus exchange-owned clearing
houses
• Clearing house “silos” versus non-profit, industry utilities
• New products / convergence of OTC and ETD products
• Futures look-alikes, cleared OTC products as new
revenue streams
• Introduction of new clearing houses.
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Need to Navigate Today’s Landscape?
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Call Us for the Roadmap
Tellefsen and Company, L.LC.
1-212 809 3800
[email protected]
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