Tools to trade
27 September 2022
GLMX鈥檚 CEO Glenn Havlicek and COO Sal Giglio speak to Carmella Haswell about their perception of integrated technology, adding value throughout the trading lifecycle, and what the industry can expect next from GLMX
Image: stock.adobe.com/Sergey Nivens
The current market has become a dual-edged sword for many GLMX clients, according to Glenn Havlicek, CEO at GLMX. On the one end, opportunities in interest rate markets are surging along with global rates. On the other end, clients are facing challenges that, if left unaddressed, could be disruptive to profitable trading.
Regulation and focus on efficient capital management across financing businesses are ever-present navigational tests. War and inflation, combined with aggressive interest rate increases by global central banks, are causing outsized market movements and rising volumes. In combination, these pressures are straining clearing processes and have led to recent US Securities and Exchange Commission proposals to improve the resiliency of US Treasury and repo markets.
Since market participants have limited influence on these external, macro events, many are focusing on what they can control. According to Havlicek, this includes reducing execution risk around trading and streamlining straight-through processing (STP) to minimise trade settlement bottlenecks. Achieving fast and seamless execution, ensuring precise settlement and then gathering feedback from previous transactions to inform new trade opportunities, is a top priority for GLMX clients.
Reflecting on the major themes presented across the market, GLMX identifies inflation concerns, yield (and yield curve) volatility, and increased trading opportunities as hot topics. GLMX has seen a surge in repo volumes and attendant challenges for market participants in managing those 鈥渕assive鈥 volumes.
鈥淲ith a high level of market volatility, there is a greater need for rigorous controls to mitigate risk from the beginning to the end of a trade,鈥 says Havlicek. He adds: 鈥淚nside GLMX, we refer to repo as having 鈥榩ersistent risks鈥. Unlike the simple purchase or sale of a security, which involves a single settlement, repo transactions have two settlements 鈥 the 鈥榦n leg鈥 and 鈥榦ff leg鈥.鈥 He notes that trades require constant attention in between. A key benefit of GLMX technology, he says, is that those so-called mid-life or lifecycle events, in between the two settlements, are handled seamlessly, efficiently and with minimised risk.
Although other mechanisms are present to help mitigate the risks identified, Havlicek says market participants are now focused on integrated technology, which can solve for the entirety of their increasingly complex workflows. Clients are demanding a clean, intuitive and user-friendly interface, consistent with that which they experience on their smartphones.
Havlicek explains: 鈥淭hey want to capture more of their workflow in one place, through centralised technology for both vertical and horizontal workflows.鈥 Horizontal workflow efficiency is consistent with the ongoing trend among diversified firms of better aligning financing and derivatives businesses to optimise collateral mobility in order to achieve capital savings. Vertical workflow efficiency is achieved by addressing the full trade lifecycle, which requires front-to-back technology through a single touch point.
鈥淎ccessible information across organisations is essential to trading in a compliant and profitable manner,鈥 Havlicek adds. 鈥淗ow this information is managed through the trading cycle is the second essential component of the virtuous loop, in which the previous trade informs the very next trade.鈥
Integrated technology
Linked steps are necessary for a trade to be successful, profit and loss notwithstanding. Pre-trade, trade and post-trade are the traditional steps in a transaction lifecycle. Even before a trade is negotiated, strict controls and flexible trading tools are necessary to set the stage for a desired and error-free outcome.
GLMX COO Sal Giglio says controls are necessary to ensure that trades are compliant and legal. He adds: 鈥淕LMX prevents clients from trading with undocumented counterparties, above credit limits, beyond tenor limits or with unapproved products. Trading tools help generate trade ideas and prevent often-costly mistakes.鈥 Posting trading axes and publishing push lists of available inventory on GLMX are effective ways to create new transactions, he observes. 鈥楩at finger鈥 controls that prevent trading outside a predefined range for rates, haircuts and security size are easily configurable through the administration portal.
With respect to the 鈥渁t trade鈥 part of the trading cycle, Giglio says GLMX technology provides a wide breadth of functionality to access liquidity and determine the best execution for each transaction. Traders need to manage a lot of information at the moment of trade and therefore failure to take into account seemingly innocuous variables can be costly. GLMX aims to provide business intelligence at that crucial point of trade, which provides insight into potential counterparty netting opportunities, DV01 of underlying collateral, and indication of best execution. Securities financing transactions can be designated as bilateral, triparty and cleared and in the form of classic repo, sell-buy-backs, borrow versus cash, and non-cash collateral.
The varied trade structures and workflows required in the dealer-to-client (D2C) marketplace represent a significant departure from legacy dealer-to-dealer (D2D) platforms. Giglio explains how GLMX technology supports the multitude of trade structures that make D2C securities finance trading so complex 鈥 for example, ON, Term and Open, GC Money or Par Fill, and Cross-currency, to name a few.
For Giglio, workflow analysis is a core GLMX competency from which all system functionality flows. This approach allows traders and sales people to have a better 鈥渧ersion鈥 of their existing experience of interacting with clients. The GLMX platform supports a multitude of facets including directed or comp negotiation, dealer or client initiation, mid-life management and price discovery tools. Each of these features were driven directly from exhaustive work with, and analysis of, key client workflows, Giglio explains.
A growing, consequential advantage of trading electronically is that it enables clients to apply an advanced suite of post-trade services, which are the natural extension of GLMX鈥檚 existing services. 鈥淭he most apparent of those advantages is the straight-through processing of trades, which eliminates the need for manual and error-prone data input,鈥 Giglio explains. 鈥淭hat said, when STP is combined with now very popular mid-life trade maintenance functionality, efficiency rises exponentially.鈥
Live trades can be accessed through a blotter in the user-interface and mid-life events 鈥 such as cancel and correct, substitute, early term, rerate, reprice and partials 鈥 can be bilaterally executed with full STP. 鈥淕iven the pace at which central banks have been raising rates, this service saves countless hours and sidesteps numerous errors for our clients,鈥 Giglio informs. 鈥淔inally, since each interaction on the platform is digital, comprehensive data capture is innate. Data capture is essential to support trading decisions 鈥 including low-touch variants which are rapidly growing in popularity 鈥 as well as meeting the growing number of internal and regulatory reporting requirements.鈥
鈥楢ccess, Automate, Analyze鈥
D2C trading is unique in that many hours are spent managing mid-life trade events. This is complicated by the fact that this type of activity typically occurs across many counterparties, securities and often during periods of high volatility. Manually managing these processes invariably leads to errors, creating further demands on time and, potentially, higher fail-to-deliver costs.
Beyond the manual nature and risks associated with mid-life trade maintenance, Giglio identifies a number of pain points facing each stage of the trading (mid-life) lifecycle. For instance, in securities lending and repo transactions, non-specific maturity 鈥 known as 鈥渙pen鈥 trades 鈥 are common. These open trades require that the details of the original trade are frequently updated, sometimes daily, throughout the life of the trade.
Rerates 鈥 which is a change in the interest rate that underlies the funding transaction 鈥 need to be communicated and agreed by each counterparty and then entered by each firm into their respective systems. Substitutions for general collateral trades are another time-consuming process, in which one party notifies the other of their need to pull back a specific piece of collateral and provide a replacement security.
If acceptable, both parties book these trades into their respective systems. Giglio indicates that these events are easily and efficiently managed on GLMX, with both parties affirming the changes, and trade processing occurs automatically without manual intervention.
GLMX adds value in these painful situations, in part, through the firm鈥檚 slogan 鈥淎ccess, Automate, Analyze鈥. Its stated mission is to build technology for institutions to help enhance their access to liquidity, automate manual tasks which are repetitive, time-consuming and risk-creating, and to provide analytics that help improve profitability.
Giglio explains: 鈥淎s securities financing trading transitions from a manual to a digital process, risks associated with bilateral trading can be mitigated in a reliable and automated manner. GLMX鈥檚 success is driven by the company鈥檚 superior technology 鈥 which seamlessly handles the comprehensive range of securities finance trade structures and trade mid-life events, and is connected to a wide array of pre- and post-trade technologies and to multiple clearing venues.鈥 As such, GLMX technology has been instrumental in powering its clients鈥 drive for efficiency and maximal access to liquidity.鈥
Future endeavours
GLMX鈥檚 long standing ambition in supporting global, short term funding markets is that its technology will provide a comprehensive, intuitive and highly capable portal into and across multiple instruments 鈥 and in doing so, support its client鈥檚 horizontal workflow. Clients鈥 increasing reliance on technology is driving greater efficiencies in areas of the market that would otherwise not be achievable. As costs continue to weigh on financial institutions, it is essential to optimise not only collateral and cash usage across businesses and entities, but also how that cash and collateral enters the market and is processed.
鈥淢any firms have effectively aligned their securities financing business, repo and securities lending, with derivatives trading to better coordinate movement of collateral to comply with regulations, such as Uncleared Margin Rules (UMR) and Central Securities Depositories Regulation (CSDR), as well as to increase profits,鈥 Havlicek explains. 鈥淪uccessful collateral management can only be achieved through the use of technology, whether digitising collateral schedules, building interconnectivity between internal systems, or rationalising collateral usage.鈥
Success in this endeavour will require high-touch collaboration between internal technologists and outside vendors. With enhanced collateral mobility approaching, GLMX clients are looking for efficient and automated ways to access pools of liquidity across multiple products, securities and jurisdictions. This reality syncs with GLMX鈥檚 view of the future, and with the technology it has been building for more than a decade.
In October 2021, GLMX was approved to operate in the Canadian provinces of Alberta, British Columbia, Ontario, Quebec, and Nova Scotia. This approval reflects the company鈥檚 geographic expansion to accommodate the global demands of its clients in North America, the UK and Europe 鈥 and in Asia, where regulatory approval is pending with the Monetary Authority of Singapore.
GLMX indicates that it has also embarked on a long-planned expansion of its money market products to provide 鈥渢ruly intuitive and comprehensive access鈥 to money markets around the globe. With technology development for instruments such as time deposits, certificates of deposit and commercial paper 鈥 combined with ongoing pilot programmes with major market participants from both the buy- and sell-sides 鈥 GLMX says it is well along its path to enhancing liquidity and efficiency in the world鈥檚 largest markets.
Regulation and focus on efficient capital management across financing businesses are ever-present navigational tests. War and inflation, combined with aggressive interest rate increases by global central banks, are causing outsized market movements and rising volumes. In combination, these pressures are straining clearing processes and have led to recent US Securities and Exchange Commission proposals to improve the resiliency of US Treasury and repo markets.
Since market participants have limited influence on these external, macro events, many are focusing on what they can control. According to Havlicek, this includes reducing execution risk around trading and streamlining straight-through processing (STP) to minimise trade settlement bottlenecks. Achieving fast and seamless execution, ensuring precise settlement and then gathering feedback from previous transactions to inform new trade opportunities, is a top priority for GLMX clients.
Reflecting on the major themes presented across the market, GLMX identifies inflation concerns, yield (and yield curve) volatility, and increased trading opportunities as hot topics. GLMX has seen a surge in repo volumes and attendant challenges for market participants in managing those 鈥渕assive鈥 volumes.
鈥淲ith a high level of market volatility, there is a greater need for rigorous controls to mitigate risk from the beginning to the end of a trade,鈥 says Havlicek. He adds: 鈥淚nside GLMX, we refer to repo as having 鈥榩ersistent risks鈥. Unlike the simple purchase or sale of a security, which involves a single settlement, repo transactions have two settlements 鈥 the 鈥榦n leg鈥 and 鈥榦ff leg鈥.鈥 He notes that trades require constant attention in between. A key benefit of GLMX technology, he says, is that those so-called mid-life or lifecycle events, in between the two settlements, are handled seamlessly, efficiently and with minimised risk.
Although other mechanisms are present to help mitigate the risks identified, Havlicek says market participants are now focused on integrated technology, which can solve for the entirety of their increasingly complex workflows. Clients are demanding a clean, intuitive and user-friendly interface, consistent with that which they experience on their smartphones.
Havlicek explains: 鈥淭hey want to capture more of their workflow in one place, through centralised technology for both vertical and horizontal workflows.鈥 Horizontal workflow efficiency is consistent with the ongoing trend among diversified firms of better aligning financing and derivatives businesses to optimise collateral mobility in order to achieve capital savings. Vertical workflow efficiency is achieved by addressing the full trade lifecycle, which requires front-to-back technology through a single touch point.
鈥淎ccessible information across organisations is essential to trading in a compliant and profitable manner,鈥 Havlicek adds. 鈥淗ow this information is managed through the trading cycle is the second essential component of the virtuous loop, in which the previous trade informs the very next trade.鈥
Integrated technology
Linked steps are necessary for a trade to be successful, profit and loss notwithstanding. Pre-trade, trade and post-trade are the traditional steps in a transaction lifecycle. Even before a trade is negotiated, strict controls and flexible trading tools are necessary to set the stage for a desired and error-free outcome.
GLMX COO Sal Giglio says controls are necessary to ensure that trades are compliant and legal. He adds: 鈥淕LMX prevents clients from trading with undocumented counterparties, above credit limits, beyond tenor limits or with unapproved products. Trading tools help generate trade ideas and prevent often-costly mistakes.鈥 Posting trading axes and publishing push lists of available inventory on GLMX are effective ways to create new transactions, he observes. 鈥楩at finger鈥 controls that prevent trading outside a predefined range for rates, haircuts and security size are easily configurable through the administration portal.
With respect to the 鈥渁t trade鈥 part of the trading cycle, Giglio says GLMX technology provides a wide breadth of functionality to access liquidity and determine the best execution for each transaction. Traders need to manage a lot of information at the moment of trade and therefore failure to take into account seemingly innocuous variables can be costly. GLMX aims to provide business intelligence at that crucial point of trade, which provides insight into potential counterparty netting opportunities, DV01 of underlying collateral, and indication of best execution. Securities financing transactions can be designated as bilateral, triparty and cleared and in the form of classic repo, sell-buy-backs, borrow versus cash, and non-cash collateral.
The varied trade structures and workflows required in the dealer-to-client (D2C) marketplace represent a significant departure from legacy dealer-to-dealer (D2D) platforms. Giglio explains how GLMX technology supports the multitude of trade structures that make D2C securities finance trading so complex 鈥 for example, ON, Term and Open, GC Money or Par Fill, and Cross-currency, to name a few.
For Giglio, workflow analysis is a core GLMX competency from which all system functionality flows. This approach allows traders and sales people to have a better 鈥渧ersion鈥 of their existing experience of interacting with clients. The GLMX platform supports a multitude of facets including directed or comp negotiation, dealer or client initiation, mid-life management and price discovery tools. Each of these features were driven directly from exhaustive work with, and analysis of, key client workflows, Giglio explains.
A growing, consequential advantage of trading electronically is that it enables clients to apply an advanced suite of post-trade services, which are the natural extension of GLMX鈥檚 existing services. 鈥淭he most apparent of those advantages is the straight-through processing of trades, which eliminates the need for manual and error-prone data input,鈥 Giglio explains. 鈥淭hat said, when STP is combined with now very popular mid-life trade maintenance functionality, efficiency rises exponentially.鈥
Live trades can be accessed through a blotter in the user-interface and mid-life events 鈥 such as cancel and correct, substitute, early term, rerate, reprice and partials 鈥 can be bilaterally executed with full STP. 鈥淕iven the pace at which central banks have been raising rates, this service saves countless hours and sidesteps numerous errors for our clients,鈥 Giglio informs. 鈥淔inally, since each interaction on the platform is digital, comprehensive data capture is innate. Data capture is essential to support trading decisions 鈥 including low-touch variants which are rapidly growing in popularity 鈥 as well as meeting the growing number of internal and regulatory reporting requirements.鈥
鈥楢ccess, Automate, Analyze鈥
D2C trading is unique in that many hours are spent managing mid-life trade events. This is complicated by the fact that this type of activity typically occurs across many counterparties, securities and often during periods of high volatility. Manually managing these processes invariably leads to errors, creating further demands on time and, potentially, higher fail-to-deliver costs.
Beyond the manual nature and risks associated with mid-life trade maintenance, Giglio identifies a number of pain points facing each stage of the trading (mid-life) lifecycle. For instance, in securities lending and repo transactions, non-specific maturity 鈥 known as 鈥渙pen鈥 trades 鈥 are common. These open trades require that the details of the original trade are frequently updated, sometimes daily, throughout the life of the trade.
Rerates 鈥 which is a change in the interest rate that underlies the funding transaction 鈥 need to be communicated and agreed by each counterparty and then entered by each firm into their respective systems. Substitutions for general collateral trades are another time-consuming process, in which one party notifies the other of their need to pull back a specific piece of collateral and provide a replacement security.
If acceptable, both parties book these trades into their respective systems. Giglio indicates that these events are easily and efficiently managed on GLMX, with both parties affirming the changes, and trade processing occurs automatically without manual intervention.
GLMX adds value in these painful situations, in part, through the firm鈥檚 slogan 鈥淎ccess, Automate, Analyze鈥. Its stated mission is to build technology for institutions to help enhance their access to liquidity, automate manual tasks which are repetitive, time-consuming and risk-creating, and to provide analytics that help improve profitability.
Giglio explains: 鈥淎s securities financing trading transitions from a manual to a digital process, risks associated with bilateral trading can be mitigated in a reliable and automated manner. GLMX鈥檚 success is driven by the company鈥檚 superior technology 鈥 which seamlessly handles the comprehensive range of securities finance trade structures and trade mid-life events, and is connected to a wide array of pre- and post-trade technologies and to multiple clearing venues.鈥 As such, GLMX technology has been instrumental in powering its clients鈥 drive for efficiency and maximal access to liquidity.鈥
Future endeavours
GLMX鈥檚 long standing ambition in supporting global, short term funding markets is that its technology will provide a comprehensive, intuitive and highly capable portal into and across multiple instruments 鈥 and in doing so, support its client鈥檚 horizontal workflow. Clients鈥 increasing reliance on technology is driving greater efficiencies in areas of the market that would otherwise not be achievable. As costs continue to weigh on financial institutions, it is essential to optimise not only collateral and cash usage across businesses and entities, but also how that cash and collateral enters the market and is processed.
鈥淢any firms have effectively aligned their securities financing business, repo and securities lending, with derivatives trading to better coordinate movement of collateral to comply with regulations, such as Uncleared Margin Rules (UMR) and Central Securities Depositories Regulation (CSDR), as well as to increase profits,鈥 Havlicek explains. 鈥淪uccessful collateral management can only be achieved through the use of technology, whether digitising collateral schedules, building interconnectivity between internal systems, or rationalising collateral usage.鈥
Success in this endeavour will require high-touch collaboration between internal technologists and outside vendors. With enhanced collateral mobility approaching, GLMX clients are looking for efficient and automated ways to access pools of liquidity across multiple products, securities and jurisdictions. This reality syncs with GLMX鈥檚 view of the future, and with the technology it has been building for more than a decade.
In October 2021, GLMX was approved to operate in the Canadian provinces of Alberta, British Columbia, Ontario, Quebec, and Nova Scotia. This approval reflects the company鈥檚 geographic expansion to accommodate the global demands of its clients in North America, the UK and Europe 鈥 and in Asia, where regulatory approval is pending with the Monetary Authority of Singapore.
GLMX indicates that it has also embarked on a long-planned expansion of its money market products to provide 鈥渢ruly intuitive and comprehensive access鈥 to money markets around the globe. With technology development for instruments such as time deposits, certificates of deposit and commercial paper 鈥 combined with ongoing pilot programmes with major market participants from both the buy- and sell-sides 鈥 GLMX says it is well along its path to enhancing liquidity and efficiency in the world鈥檚 largest markets.
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