Liquidnet at Asset Management Derivatives Forum
February 7 - 9, 2024
Dana Point, CA
Building on decades of expertise and development, our Listed Derivatives service combines Liquidnet’s technological edge with a long history of operational excellence to create a trusted, evolutionary environment consistent with our members’ needs.
With an unconflicted agency model, we’re evolving futures and options trading beyond the expected.
Meet the team
Mike du Plessis
Global Head of
Listed Derivatives
South Norwalk, CT
Marianna Rayetskyy
Global COO of
Listed Derivatives
New York, NY
Darren Smith
Head of Quant Execution + Strategy, Listed Derivatives
London, UK
Brian Cashin
Americas Head of Sales, Listed Derivatives
South Norwalk, CT
Jeni Leveroni
Trade Coverage
San Diego, CA
Prep for your next session
Stay tuned here during the event while we provide impactful insights to help you make the most of select panels during the day.
Wednesday, Feb. 7
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What’s going on
As the financial industry continues to evolve, the integration of AI into markets and operations is emerging as a key theme. The discussion around AI isn't limited to a single aspect of finance. Instead, it spans a variety of applications – from research and the enhancement of decision-making processes to reshaping how transactions are conducted and settled.
If you’ve spent time interacting with a generative AI, you’ll already be aware of many of the pitfalls. We’re curious around the extent to which AI tools like chatbots and natural language processing can revolutionize communication within financial markets. Perhaps they're making conversations between traders more efficient, however, they’re also fundamentally paving the way for more sophisticated analysis and interpretation of data. The potential for AI to streamline complex financial operations, improve compliance, and offer predictive insights into market movements is significant.
Why it matters
Imagine a world where the lifetime output of your favorite researcher or blogger has been used to train an LLM that you can now use to gain insight into new information that you present it with. If you are that researcher or blogger – should you be concerned about protecting your intellectual output such that it cannot be subsumed into an LLM training data set over which you have no control?
The atmosphere around AI is moving rapidly. Whilst the use cases for it are myriad, it will need to be implemented in such a way as to be interrogable and to operate within regulatory, ethical, and compliance frameworks. A large amount of work will undoubtedly occur in developing training-AIs that are “principles-embedded” and designed to supervise the creative or generative AIs. The good news is that the notion is already well established in the research and in practice….but where does that leave humans?
Questions to ask
How might AI change the way we think about execution, algorithmic trading and decision-making in finance?
What are the practical implications of AI for regulatory compliance and risk management?
Can financial institutions leverage AI to enhance efficiency without compromising on customer service or ethical considerations?
What does the integration of AI into financial operations mean for the skill sets and roles of finance professionals?
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What’s going on
So far this year, liquidity has been surprisingly healthy – despite market volatility. Touch liquidity in Bunds and 10-year futures has been impressive and somewhat contrasted to what’s happening in equity markets. Traders are hoping this trend lasts but there are a number of potential issues on the horizon.
The scale of the basis trade looms large over the market. Although it’s difficult to get exact data on the size of the position, the record level of leveraged money shorts in the CFTC Commitment of Traders report indicates it is considerable. You would hope that in a somewhat more stable economic world, policy makers will avoid self-inflicted wounds and it’s impossible to forecast exogenous shocks. That being said, the scale of the position has attracted the attention of the regulators. If they do choose to clamp down on the trade in the interest of financial stability, there are risks of a disorderly unwind which could impact liquidity.
Although, in general, liquidity has held up, the situation in GBP assets isn’t as good. Liquidity is democratic – if people want to trade the product, the invisible hand will create liquidity. There is still residual interest in the UK, however, from all investors. The move to Sterling Overnight Index Average (SONIA) – and the fact options are now physically settled – has hurt liquidity, with a dwindling number of options market makers in the market. Meanwhile, the Gilt future accounts for much less international activity than it did even relatively recently. The drop in the Gilt share is striking with the impact of the mini budget clear and little sign of any bounce.
Why it matters
Trading itself can bring a number of opportunities and pitfalls in the coming year. Interest rate and bond volatility have rebounded, giving traders opportunities not seen for a number of years. We’ve seen from clients that the challenge isn’t necessarily in having the right view, but in expressing it in a format which allows them to hold on the position in a volatile environment. For many traders – those who grew up in the low interest rate environment – the current level of volatility is a new experience and new skills must be developed.
Questions to ask
What skills do traders need to develop to adapt to the current levels of volatility?
How can traders express views in a format that can hold in this volatile market?
Thursday, Feb. 8
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What’s been happening
Centralized clearing is a fundamental component of modern financial markets. It has proved to be a robust mechanism through the most difficult financial conditions - epitomized by the performance of the model during and in the immediate aftermath of the 2008 financial crisis.
Whilst the G20 in 2009 held up the success of cleared derivatives markets as a template that might be applied to a broader set of transactions and exposures, the resulting reforms have created significant cost and regulatory capital challenges. Nonetheless, derivatives markets continue to see growth and innovation.
Capacity, however, is increasingly constrained as the optimization that occurred to mitigate these changes begins to fully run its course.
While higher interest income has brought relief for many FCMs, the reality is that returns on RWAs / Leverage remain challenging. As such, there seems to be little driver - short of a wholesale repricing - that could serve to bring new capacity into the market.
The intention of the reform process was to create safer markets, yet alongside capacity constraint , there has emerged additional complexity. We are not necessarily ready for (nor even fully understand) the potential for unintended consequences created by multiple reforms bumping into each other in a pro-cyclical manner at an inopportune moment.
Why it matters
The layering of regulations, one over another, could ironically be a source of difficult-to-model stress. Just last year, we were reminded of the immediate and direct impact that the migration of key benchmarks to risk-free rates (RFRs) could have in short-term funding markets and, in turn, on the broader margin system.
Margined market models are an excellent source of the leverage that is fundamental to liquidity creation but the prescriptive changes in combination with such a wide array of recently implemented reforms covering cash and derivatives need to be carefully and continuously reviewed.
Questions to ask
Are there further efficiencies to be wrung out of the optimization process? Are there risks associated with that and, if so, who bears them?
There are still a limited number of FCMs engaged in clearing crypto futures and fewer still covering options -- will this change? Are we likely to see a trend toward more segregated default funds to support more diverse underlying?
Is the cost of clearing likely to rise and, if so, is that sufficient in itself to bring additional capacity?
Friday, Feb. 9
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What’s been happening
There is an ever-growing need to accelerate automation in post-trade processing to increase efficiency. With record-breaking volumes and a number of market-moving events recently, the interdependence of market participants in processing a trade has been all that more evident. This linkage leaves room for failures and a need for greater consistency, efficiency, and resilience. We continue to see a fragmented process with various individualized standards and manual effort still utilized, even more evident as we look at average pricing.
Now, more than ever, we are seeing requests from buy-side clients to use technology to modernize the processes that we are actively engaging with and implementing, such as FIX/STP setup.
In 2022, DMIST was formed and issued a Final Standard for Improving Timeliness of Trade Give-Ups and Allocations in June 2023. It aims to impose a fixed 30-minute countdown on each involved party. This publication is a welcome step towards bringing about an industry-wide standard and there are further discussions on efficiencies to be had.
Why it matters
Establishing more advanced and efficient processes across industry participants has direct benefits for all parties involved. Improved timeliness of give-ups and allocations, and reduced T+1 reconciliation of breaks lead to reduced operational/regulatory risks and overhead costs. Greater focus is placed on utilizing technology to drive these efforts by leveraging FIX in post-trade processes, auto-accept enablement, and ensuring electronic billing is the standard for brokerage reconciliations.
Questions to ask during the panel
What efforts are being committed towards a more efficient and standardized process for average pricing?
What has been the feedback on the implementation of the 2023 DMIST Final Standard of 30/30/30?
