FpML, SwapsWire and the new challenges

November 16, 2006

Holky’s posted recently about a couple of new ECN/exchange initiatives: Project Boat and LiquidityHub. I was quite heavily involved with FpML back in the late 90s. I was a more distant observer of SwapsWire later on. And I had some standards involvment in other sectors before I got into this game. So I’d like to offer some thoughts on the standards process…

  • Standards efforts are often beset with the most ugly haggling and horse trading. Many participants are vendors looking for business, or banks looking to minimise impact on their existing platform investments. As participants they pay lip service to advancing the declared agenda, but in reality they pursue their semi hidden agendas.
  •  The internal politics of participant organisations can lead to them to delegate personnel who have issues aound interpersonal skills. As Lyndon Johnson said of a cabinet colleague: “I’d rather have him inside the tent pissing out, than outside the tent pissing in.” I saw this happen at FpML and POSC.

The considerations above mean that delivery of an agreed spec by any standards committee is an excrutiating and protracted process that inevitable results in an ugly and compromised result. What happens when a collaborating group attempts an implementation ?  SwapsWire commissioned AVT Technologies to build their system. They had to throw the result away, and then build their own development organisation to deliver a working system. I know Fred Brooks tells us “plan to throw one away, you will anyhow”. But I don’t think that SwapsWire did plan it that way…

So let’s assume that Project Boat and LiqudityHub have overcome all the pitfalls above. If you build it, will they come ?  I know of only one example of liqudity moving to a new exchange: German govt bind futures going from Liffe to Eurex.

So let’s just say that I’m sceptical.


2 Responses to “FpML, SwapsWire and the new challenges”

  1. Holky Says:

    The regulatory and trading environment for each initiative to actually do what it says it’s for is there, so as long as some of the cost saving/revenue gain is made available on the customer side to ensure customer appetite to use it, then surely the only remaining hurdle of building the tech platform sufficiently “right” is not an insurmountable prospect? This is after all generally about replacing existing functionality.

    But worst case what if there are problems in getting so many dealers around a table to agree? It’s not a bad bet that personal/firm agendas will arise when something needs to be signed, but maybe that leads the initiative on to a more simple overall (hidden?) agenda – “just” to effect a power-shift re costs and charges; from now where the exchanges/platforms set the levels, to something giving those dealers providing liquidity more of a say in who pays for what, when, where, how? With that goal any technology/platform that is actually spec’d/built by the consortium would only be built in order to be thrown away once the threat of taking it to market had worked, so even if the “cabinet” members were a bit suspect, you’d just need to ensure everyone in the tent knows they are actually IN the tent and which direction is OUT.

    Overall then, even if one doesnt believe that these and other similar initiatives will succeed in their currently stated aims, I can’t help thinking they really do have an achievable goal and part to play in changing the etrading landscape – even if they dont acknowledge their specific role or goal just yet.

  2. It seems to me that the right model for the future is to have transactions flowing through the existing counterparty network with trading protocals that facilitate the existing broker-dealer intermediated business model. That is, each party connects to his network of authorized counterparties and can bid, offer, and broker line-items like in real-life. Certain types of transactions will be automated (e.g., brokerage activity like on BondDesk, or connectivity to liquidity pools in general) while other will require manual input. I think an interesting question is whether such a system will simply evolve overtime as connectivity increases and order management systems extend functionality, and/or will major market participants (coupled with the right technology partners) provide a unified platform. An advanced system using this market concept was built during the tech bubble, but didn’t get traction and was moth-balled. See http://www.xbond.com.

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