It is becoming progressively more difficult for smaller regional and specialist brokers to compete with their larger rivals in the fragmented European securities marketplace. The legal, operational and technology costs involved in exploiting the new market structure can be prohibitive for all but the largest firms. SunGard unveils a new brand, Valdi Liquidity Solutions, based on a new operating model that tackles these cost barriers head-on and makes it possible for smaller brokers with a strong client service proposition to compete for execution business. Scale is no longer a necessary entry ticket.
The European financial community is witnessing steadily increasing fragmentation of liquidity in the equity markets: for example, over 40% of public-book trading in FTSE 100 stocks now takes place on the major MTFs. As a consequence, pressure is now growing from the buy-side and from regulators for brokers to include these new venues in their Best Execution policies.
Today, this is a European issue, but with Chi-X planning to launch three venues in Asia-Pacific this year it may soon be a more global one.
How to respond?
At SunGard we see the market pressure, and also the complexity and cost involved in multi-venue trading – which have caused many firms to hesitate. This combination is the driver behind Valdi Liquidity Solutions , a service suite that enables extremely cost-effective access to fragmented liquidity. The suite includes hosted market gateways, algorithmic trading and smart order routing services, all managed by SunGard in ASP, and provides a single access point to almost 100 percent of displayed liquidity.
This new approach strips out the operational and technology complexity that is normally involved, and provides unique flexibility in market membership options and commercial terms. Brokerage firms using the Valdi services are therefore able to reduce significantly the costs of managing fragmented liquidity, meaning that scale is no longer necessary for trading success.
More about Valdi Liquidity Solutions
Valdi Liquidity Solutions enable brokers to leverage fully their current client relationships, market memberships and connectivity, and at the same time take advantage of the full range of new possibilities in the fragmented markets. Just as important in current market circumstances, the way in which Valdi Liquidity Solutions are delivered enables firms to avoid much or all of the fixed cost increment that is normally involved in trading new markets.
The Valdi suite centers around the provision of Smart Order Routing capability, hosted and managed as a service, with no restriction or price implications on the number of exchanges and/or MTFs that the broker connects to. Market membership in each case can be the user firm’s own or that of a partner broker. Market memberships can be added wherever this makes business sense, and other firms’ memberships can be leveraged where it doesn’t.
Algorithmic trading capability is also provided via managed services, working closely in conjunction with the Smart Router and triggered by workstation users or in-house trading tools.
How it works
Orders can arrive from the brokerage firm’s clients, via FIX or SunGard trading workstations, or from in-house order management and trading systems. From this point onward in the order flow, the Valdi managed services come into play, accessed via SunGard’s global network. At Valdi’s entry point, trading strategies can be applied using the full range of capabilities of the GL Tactics and Open Tactics algorithmic trading suites.
All orders can then be sent either direct to markets or to the Valdi Smart Order Router for decisions on routing of child orders. The Router’s algorithms are continually optimized by SunGard’s market specialists, and then set for all clients, meaning that full mutualization of infrastructure is possible and cost-effectiveness is maximized. The Smart Router and associated Market Data Aggregator (which delivers the consolidated view of market depth to trading screens and applications) are core service elements.
Orders can then be passed either to SunGard’s ASP trading servers for execution under the user firm’s own name, with pre-trade risk management checks carried out by the high-performance GL Selector module, or – and this is where the Valdi suite’s unique flexibility kicks in – to a partner broker for the markets where the user firm does not hold membership (or where a partner’s higher aggregated volumes can achieve better transaction pricing). Order flow is routed to the partner with low latency via SunGard’s network.
For the cases where the user firm’s own memberships are used, SunGard offers managed and secured connectivity to all equities exchanges in Western Europe, all the significant pan-European MTFs and also several dark pools.
Valdi Liquidity Solutions are designed to make the move to full participation in the new European liquidity landscape straightforward and cost-effective. Brokers can leverage the services to improve client satisfaction, gain a new competitive edge and retain full flexibility to cope with further market evolution, while avoiding the large fixed investments that these normally require.
To find out more about SunGard’s suite of global electronic trading solutions, please visit www.sungard.com/globalelectronictrading