In a press release this morning the US Commodity Futures Trading Commission announced that it has:
Today issued an Order against ICAP Europe Limited (ICAP), an interdealer broker, bringing and settling charges of manipulation, attempted manipulation, false reporting, and aiding and abetting derivatives traders’ manipulation and attempted manipulation, relating to the London Interbank Offered Rate (LIBOR) for Yen. LIBOR is a critical benchmark interest rate used throughout the world as the basis for trillions of dollars of transactions. ICAP is a subsidiary of U.K.-based ICAP plc.
The CFTC’s Order finds that for more than four years, from at least October 2006 through at least January 2011, ICAP brokers on its Yen derivatives and cash desks knowingly disseminated false and misleading information concerning Yen borrowing rates to market participants in attempts to manipulate, at times successfully, the official fixing of the daily Yen LIBOR.
The Order requires ICAP, among other things, to pay a $65 million civil monetary penalty, and cease and desist from further violations as charged. Pursuant to the Order, ICAP and ICAP plc also agree to take specified steps to ensure the integrity and reliability of benchmark interest rate-related market information disseminated by ICAP and certain other ICAP plc companies.
In a separate statement about the settlement order, CFTC Chairman Gary Gensler said that:
Today’s Order against ICAP once again shows how LIBOR, a critical benchmark interest rate not anchored in sufficient transactions, has been readily rigged. Unfortunately, this is yet another reminder of why we have to coordinate internationally to transition to an alternative to LIBOR to best restore the integrity to markets.
Today’s Order also highlights the importance of Congress’ reforms through the Dodd-Frank Act to bring oversight to swaps trading platforms. Required registration of swap execution facilities becomes a reality next week, finally closing exemptions that had allowed for unregistered, multilateral swaps trading platforms.
The CFTC press release also points out that:
In a related action, the United Kingdom Financial Conduct Authority (FCA) issued a Final Notice regarding its enforcement action against ICAP Europe Limited and imposed a penalty of £14 million, the equivalent of approximately $22.4 million.
In a press release today Argon Design from Cambridge in the UK have announced what they describe as:
A high performance trading system using a heterogeneous mix of technologies to minimize trading latency.
The mix of technologies is provided by their use of the Arista Networks 7124FX application switch which:
Includes an Altera FPGA with hardware-level access to 8 of its 24 10Gb Ethernet ports and an x86 domain based on Intel’s Xeon processors.
According to project's "case study" on the Argon web site, they have:
Developed a prototype system where market data feed analysis and fast-path trade execution is performed directly on the switch under rules determined in parallel on “traditional” processors.
Direct FPGA access allows data feeds to be parsed and analysed as close as possible to the feed handlers. Similarly the heterogeneous processor mix in the switch enables other related functions to be undertaken and orders executed back onto the wire. Deployed in CoLo at the trading venues as part of the day to day mix of technology found in the racks today – this technology can take the design and performance of trading functionality to a higher level of performance.
Argon have quantified this "higher level of performance" by:
Using the test harness developed for the Finteligent Trading Community program, the latency measured was reduced by a factor of 25 over pure x86 designs tested by the program. For the measured leg in the test harness, latency was reduced from a previous best of 4,600ns to 176ns for algorithmically generated trades executed to the simulated market.
The enhancement in performance was achieved by providing a fast-path where trades are executed directly by the FPGA under the control of trigger rules processed by the x86 based functions . The latency is reduced further by two additional techniques in the FPGA – inline parsing and pre-emption.
As market data enters the switch, the Ethernet frame is parsed serially as bits arrive allowing partial information to be extracted and matched before the whole frame has been received. Then, instead of waiting until the end of a potential triggering input packet, pre-emption is used to start sending the overhead part of a response which contains the Ethernet, IP, TCP and FIX headers. This allows completion of an outgoing order almost immediately after the end of the triggering market feed packet. The overall effect is a dramatic reduction in latency to close to the minimum that is theoretically possible.
Here's a video Argon have produced showing their prototype system's performance being assessed using the Finteligent test harness:
If you listen carefully you will note that Argon are claiming that:
The switch makes market orders based on market information with end of packet to end of packet response times of about 170 ns.
According to that press release once again, Arista's Regional Director for Financial Services Paul Goodridge commented that:
This is exactly the kind of practical application we are looking to see from the market with our 7124FX product and we are delighted and impressed with Argon Design’s commitment and approach. This joint venture exemplifies Arista’s innovation and further highlights the real value of Arista’s EOS (Extensible Operating System) and its ability to take programmability to the Ethernet switching market.
I've now managed to speak to Paul, and I asked him about that programmability. As suggested by the 7124FX datasheet, EOS is essentially off the shelf x86 Fedora 14 Linux, but a good knowledge of Verilog will come in handy if you find you need to program the FPGA itself. When I asked about development systems Paul suggested a good first step would be to get hold of an Altera Stratix III or IV Development Kit, which are more readily available and also an awful lot cheaper than a 7124FX! In conclusion I asked Paul if there was anything he'd like to add to what he'd said in the Argon press release. He stressed:
Arista's focus on the empowerment of our customers, and the deterministic performance of our switches.
It seems that with a modicum of additional programming Arista's customers will soon be empowered to start deterministic high frequency trading at close to the speed of light! The only drawback is, of course, that the price of this sort of kit is fairly astronomical too.
[Update - Argon Design have kindly provided us with this white paper for you to read at your leisure]
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In a news release yesterday FXCM announced that:
Its U.S. subsidiary Forex Capital Markets LLC has agreed to assume the forex accounts of Alpari US LLC.
On Friday, September 27, 2013, accepted Alpari U.S. accounts will be transferred to FXCM U.S. after the close of trading.
After a detailed market review, Alpari selected FXCM because of their strong U.S. presence, financial stability, platform synergies and execution capability. Alpari U.S. clients will be transitioned from Alpari’s MetaTrader 4 (“MT4”) platform to the FXCM MT4 Platform and should see minimal changes in platform functionality. FXCM’s upgraded MT4 platform integrates seamlessly with its No Dealing Desk forex execution.
The deal affects all U.S. resident MT4 clients of Alpari US LLC.
Financial terms of the transaction were not disclosed.
At this time the Alpari U.S. web site remains strangely silent on the matter.
Somewhat unusually for the Trading Gurus, here we reproduce in full today's statement by CFTC Commissioner Bart Chilton, without further comment:
On September 30th, at the stroke of midnight, our country will face a government shutdown unless a continuing resolution to fund it is adopted. That would be grave news for consumers.
Under a shutdown scenario, government regulators will be handcuffed in our ability to go after crooks who are trying to evade our oversight and protection of markets. You can bet the “do-badders” are licking their chops.
The dark markets that Dodd-Frank brought into the light of day will go dark again. The lights will go out. Given the huge growth in the derivatives industry and our new oversight of swaps, CFTC’s market oversight functions are more important than ever. Taking our cops off the beat for even a few days could have disastrous impacts on these markets that consumers depend upon.
In the longer term, I remain concerned about the stagnant budgetary circumstances and am convinced that a targeted transaction fee on trading, like the one the President has proposed to Congress, is needed to fund the agency and keep the markets safe. But for now, let’s avoid a “Boom, Boom, Out Go the Lights” debacle, and hope a deal can be reached to keep the lights on.
Following our recent report that FXCM had made an unsolicited offer to acquire GAIN Capital it looked likely that the GAIN board weren't very keen on that prospect. That perception was confirmed this morning when I received an email signed:
Gary Tilkin, CEO and President, Global Futures and Forex Limited.
Gary told me that:
I am writing with exciting news. Today, GFT and GAIN Capital Holdings, Inc. (NYSE: GCAP) announced that they have agreed to merge. The combination creates a larger, stronger company bringing innovation in trading technology and award winning customer service to our clients and partners.
Both GAIN and GFT have long and established histories in the online trading space, and together can leverage the best of breed in technology, service, dealing, and execution to create a new industry leader.
GAIN themselves express things slightly differently. In one press release this morning they said that:
The Board of Directors of GAIN Capital Holdings, Inc.(NYSE: GCAP), a global provider of online trading services, today announced that it has rejected an unsolicited written proposal from FXCM Inc. to acquire GAIN for 0.3996 shares of FXCM Class A common stock for each share of GAIN common stock.
The GAIN Board of Directors, with the assistance of its financial and legal advisers, has completed a thorough evaluation of the proposal, as well as a range of options to build shareholder value. Based on its evaluation, the Board has determined that pursuing the transaction proposed by FXCM would significantly undervalue the Company and its prospects and would not be in the best interests of the Company's shareholders at this time. The Board therefore unanimously rejected the proposal and reaffirmed its commitment to GAIN's strategic plan.
In a second press release they say that:
GAIN Capital Holdings, Inc. today announced that it has signed a definitive agreement to acquire Global Futures & Forex, LTD (GFT), a global provider of retail forex and derivatives trading with offices in London, Singapore, Tokyo, Sydney and Grand Rapids, Michigan. The purchase price is approximately $107.8 million which, including $80 million of GFT cash at closing, results in a net purchase price of $27.8 million. The purchase price will be paid with $40 million in cash, a five-year $40 million seller note and the issuance of approximately 4.9 million shares of GAIN common stock. Both companies will initially retain their separate brand identities, while benefiting from significant synergies and capabilities across their complementary businesses. The transaction is expected to close in the third quarter of 2013, subject to regulatory approvals and customary closing conditions.
Whether it's a "merger" or an "acquisition" it looks as though FXCM has a fight on its hands to deliver what it called at the start of the month:
The expected improvement of financial strength and stability of the combined entity.
GAIN evidently has other ideas! Here's how the GCAP and FXCM share prices looked shortly after the market opened today:
Sid is the Superstitious Robot and Ray is the Random Robot and they are cousins. They finally got to meet in person earlier this week thanks to Sid's appearance in the Designs of the Year 2013 exhibition at The Design Museum in London. Here's the undeniable proof:
Sid the Superstitious Robot is the "brains" behind Shing Tat Chung's Superstitious Fund, which was selected to appear in the digital category of this year's design awards. Sid and the Superstitious Fund didn't win the category unfortunately. That honour went to the new UK Government web site, which won the overall Design of the Year 2013 award too. In all the circumstances Sid wasn't too disappointed to lose out to a much better funded design.
Since Ray blew his entire (thankfully virtual) account recently I was pleasantly surprised to discover that Sid has actually been making some real profits recently spread betting on the FTSE 100 index, and with only 47 days left out of the 12 months the Superstitious Fund was designed to run his account was showing an overall loss of 6.3%, having been down over 10% after less than a month's trading back in June last year.
Just in case you're wondering about the design on the back of Ray's tee shirt here it is, elegantly modelled once again by yours truly:
None of the Design Museum staff passed comment on the tee shirt, but I did ask a couple of passers by to comment on Superstitious Sid's modus operandi after they had examined him closely. One felt it was:
A ridiculous way to try and make money from the markets!
whereas another thought it was:
An extremely interesting psychological experiment!
What's your take? Sid the Superstious Robot will remain on display at The Design Museum until July 7th if you'd like to take a closer look before deciding.
Filed under Trading Systems by
It's all go today. I've only just finished blogging about connecting a new trading platform to one of my own brokers, and now I find said broker is in the news for a very different reason. The U.S. Commodity Futures Trading Commission have just issued a press release announcing that they have:
Today issued an Order requiring Interactive Brokers LLC (IB) of Greenwich, Conn., to pay a $225,000 civil monetary penalty for failing to calculate the amount of customer funds on deposit, the amount of funds required to be on deposit in customer segregated accounts, failing to maintain sufficient U.S. dollars (USD) in customer segregated accounts in the United States to meet all USD-denominated obligations, and supervision failures. The CFTC’s Order also requires IB to cease and desist from violating CFTC Regulations, as charged.
According to their website Interactive Brokers have been:
Rated Best Online Broker for the Second Year in a Row by Barron's 2013
For 36 years the IB Group has been building electronic access trading technology that delivers real advantages to traders, investors and institutions worldwide. Interactive Brokers Group and its affiliates' equity capital exceeds $4.8 billion. We are the largest US electronic broker based on daily average revenue trades executing 407,000 trades per day.
Despite that reputation and all that equity capital, IB have fallen foul of the CFTC who find (with IB's assistance!) that:
From at least January 2008 through at least April 4, 2011, IB failed to compute as of the close of business each day, on a currency-by-currency basis, the amount of customer funds required to be on deposit and the amount of customer funds actually on deposit in segregated accounts on behalf of commodity and options customers.
Additionally, between September 21, 2011 and May 8, 2012, IB improperly covered a portion of its USD commodity futures and options customer obligations with Japanese yen and Swiss francs to maximize its interest earnings and not at the request of any of its commodity customers. As a result, IB did not retain enough USD in segregation to meet its USD-denominated obligations to its commodity customers – with the USD segregation requirement shortfall ranging from approximately $90 million to $300 million during that time, according to the Order. IB discovered and self-reported this violation to the CFTC on May 10, 2012; however, IB had excess segregated funds ranging from $48.4 million to $455.3 million at all relevant times.
The Order itself goes into a bit more detail than the CFTC's press release, and reveals that:
From at least January 2008 until at least April 4, 2011, IB failed to compute as of the close of business each day, on a currency-by-currency basis, the amount of customer funds required by the Act and Regulations to be on deposit and the amount of customer funds on deposit in segregated accounts on behalf of commodity and options customers. Rather, IB only prepared such segregation calculations on an overall, USD-equivalent basis, in violation of Regulation 1.32(a).
From September 21,2011 to May 8, 2012, IB covered a portion of its USD commodity futures and options customer obligations with Japanese yen and Swiss francs. It did not do so at the request of any of its commodity customers but rather to maximize its interest earnings, in violation of Regulation 1.49(b ). As a result, IB did not retain enough USD in segregation to meet its USD denominated obligations to its commodity customers, in violation of Regulation 1.49(e). The shortfall in USD requirement ranged from approximately $90 million to $300 million during that time. IB discovered and self-reported the violations of Regulation 1.49 to the Commission on May 10,2012. During the time period of the violations of Rule 1.49, IB had excess segregated funds on deposit in customer segregated accounts (including USD plus other currencies) of between $ 48.4 MM and $ 455.3 MM.
Prior to May 9, 2012, IB did not have procedures in place to ensure compliance with Regulations 1.49 and 1.32. In fact, IB was not aware of its obligations under Regulation 1.49 until May 2012. Moreover, IB further failed to adequately train and diligently supervise its officers, employees, and agents to ensure compliance with Regulations 1.32 and 1.49, in violation of Regulation 166.3. IB independently implemented corrective measures after discovering the violations; and IB cooperated with the Division in investigating the circumstances.
The Order also reveals that:
In anticipation of the institution of an administrative proceeding, Respondent has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Without admitting or denying any of the findings or conclusions herein, Respondent consents to the entry of this Order Instituting Proceedings Pursuant to Sections 6(c) and 6(d) of the Commodity Exchange Act, as Amended, Making Findings and Imposing Remedial Sanctions ("Order") and acknowledge service of this Order.
In all the circumstances one can't help but wonder how many other brokers there are still out there that don't even know what regulations they are supposed to be complying with, how the CFTC will discover that fact if said brokers don't follow in IB's footsteps and notify the CFTC themselves, and what fine the CFTC would impose if said brokers didn't offer an appropriate sum of money in advance?