Big Deals and Rouble Rousing

It's that time of year.

bourgaize-murray
HFT: Da? Nyet?

Transactions are flying, we're trying a new day for the BST weekly alert, and petro-economies are suffering as the price of oil continues to drop, threatening economic and political turmoil in several countries. In Russia, one difference is a years-long effort to modernize the country's local market infrastructure and connectivity. Tim wonders whether it's finally time for this tech investment to shine, or if the Rouble's wheels are simply too rickety to even chance it. But first, a few transactions to recognize.

The year's end always seems to bring with it a flurry of acquisitions—the biggest in recent memory came almost at the stroke of midnight in 2012, when IntercontinentalExchange announced its intention to buy NYSE Euronext.

From the early look of it, 2014 stands to be no different as this week has brought with it word of new ownership for DST Global Solutions (SS&C), IPC Systems (Centerbridge Partners), Credit Suisse's fee management platform (SmartStream), and Markit Collaboration Services (Symphony), respectively.

In a boost for high-frequency trading supporters, Virtu Financial also got a boost this week from Sinapore's fund giant Temasek.

We always appreciate news of these deals, because frankly there's no surer way of expressing an opinion than in dollars. While realistically some of these transactions are made purely for business reasons—private equity exiting one investment for another, for example—many also offer breadcrumbs for us to follow regarding the future of the industry. In any case, they are certainly indicative of firms putting the crisis squarely in the rearview mirror, and in this sense, the more, the better.

Russian (Mis)adventures

Speaking of the past, let's go back to 2011 for a second. About a year before I began at Waters, my colleague Faye Kilburn—now deputy editor at Inside Market Data—wrote a feature for the magazine surveying the trading landscape in Russia, which she concluded thus:

The international high-frequency trading community will continue to be fearful of Russia, of the outmoded technology, of the complexities of the market infrastructure, and of the heavy hand of the state. This is why they have been kept at bay for so long. But these barriers could be on the verge of collapse. As an emerging market, Russia is heaving with liquidity and with all that untapped potential, even the high-frequency traders will not be able to resist much longer. The sleeping giant is stirring.

I remember using her piece as a reference point when, for my first year or so on staff, developments in the Russian financial sector came fast and furious—from the finalization of the Micex-RTS merger and its underlying integration to new low-latency connectivity that could allow arbitrageurs to play prices in London and Moscow off each other. It seemed many of the legal problems Faye spoke to were being worked through, too.

HFT was poised to gain some steam in a fairly unlikely locale, or so it was proposed at the time.

How Quickly Things Change
Fast forward to today: Ballooning US and EU sanctions regimes, protracted adventurism in Ukraine, and other geopolitical tomfoolery might all be sufficient reasons for Western financial services to avoid operating in the country at the moment. Sure enough, many have.

But none of those developments is as impactful as the price of oil.

As was reported earlier this week, oil's price has precipitously dropped—low enough, in fact, that a handful of export-dependent countries are now unlikely to avoid recession, or (especially in Venezuela) even worse. Meanwhile the Rouble's value already hit a post-1998 low last Monday, and remains around 50 percent off its level a year ago.

Given all this, it suffices to say that we've heard less about Russian financial technology developments in 2014, and unsurprisingly so; however for the bold market-makers and investors alike, this might actually be a great time to quietly take advantage of all the work that's come before.

After all, fluctuating currency value, potentially undervalued investments, and a foreign liquidity void all offer opportunities—trading at high speed or not—for those who know how to navigate the Russian market, can do so without violating sanctions laws, and of course are willing to tolerate some serious downside risk. 

How large or small that group might be is an open question, but it's now—not two years ago—that the proof should well be in the technology pudding. Or that is my theory, anyway.

I'll be looking into this a little bit as we head into 2015, and anyone who has an inside view into the situation should certainly get in touch, either by email at [email protected] or on 646 490 3968.

Finally, you'll notice a switch in your email going forward, as we begin sending the weekly BST alert out mid-week. So please keep looking out for it!

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