Getting the Vote Out

This week, Europe goes to the polls in an election that could have a significant effect on the future direction of banking regulation on the continent. From 22-25 May, 505.7 million people, stretching across 4,385,449 square kilometers are being asked to elect 751 Members of the European Parliament (MEPs), in an exercise of democracy that is already being labelled as a contest of extremes on both the left and right.

What relevance does this have to technology in capital markets? A great deal, frankly. European rulemaking is a process essentially led by politics, which then hands down the direction of guidelines to be implemented by a more collaborative technical effort. By virtue of it being a politically-driven process, however, it's subject to the vagaries of those concerns and the whims of the electorate. Just look at the response to Flash Boys for more.

Indeed, one senior figure for a buy-side body that I spoke with recently mentioned the fact that this particular subset of overseers is always changing with little consistency, and when prompted, spoke about the differences in approach to certain market practices by different parts of the authoritarian apparatus. When it comes to algorithmic trading, for instance, the coal-face regulators are willing to appreciate the fact that it's part of market evolution thanks to technology, and will aim to work with it. The political side simply wants to put the brakes on.

With a number of policy initiatives still in progress within European halls of power, this week could strongly influence the direction of financial-market regulation for a long time to come.

On the subject of polls, though, the 2014 Waters Rankings are now open for your votes. Granted, you won't be choosing the future leaders of one of the world's economic superpowers, but with an unprecedented response to our call-for-entry process this year, and with the program being the only reader-determined awards we run, your voice really does count.

When it comes to algorithmic trading, for instance, the coal-face regulators are willing to appreciate the fact that it's part of market evolution thanks to technology, and will aim to work with it. The political side simply wants to put the brakes on.

Surveillance and Dual-Listing
The other highlights for this week were the go-live of Icap's dual-regulated swap execution facility (SEF), IGDL, and Nasdaq's two pieces of news ─ the release of its Smarts FX [foreign exchange] surveillance module, and the fact that Markit has chosen to list on the exchange. Not to mention my colleague Jake Thomases' excellent story on Codestreet's bank-only dark pool.

Icap's move is particularly interesting, given that it's currently the only SEF to be dual-regulated in this fashion. At first glance, it seems like an onerous burden on the interdealer broker, having to report (in a general sense) as a SEF to the US Commodity Futures Trading Commission, and as a multilateral trading facility to the UK Financial Conduct Authority. But look a little deeper, and it's quite strategically astute, given the access it allows IGDL to both US and European liquidity.

And on Nasdaq's side, the remarkable thing about its FX surveillance release is the collaborative nature of how it was developed, bringing in the big FX trading banks to determine how they want it to function, and what alerts they want. FX, of course, is far more difficult to create a tech-led compliance solution for, given its decentralized nature. But by getting data from the banks involved, you can start to build a proper picture of market norms and identify aberrant behavior, even if the primary focus is on the issues surrounding the 4pm fix, by all accounts. As with most things, it's a case of doing it now before the regulators force you.

Finally, for those of you who cover the buy side as well as the sell side, I'll hopefully see you all tomorrow at the Buy-Side Technology European Summit, held at the Jumeirah Carlton in Knightsbridge, London (near Harrods if, like me, you struggle with these things). I'll be chairing the afternoon session, so please do stop and say hello.

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