MEMX: Is there an easier way to resolve the dispute over market data fees?

Written by: Select Vantage | Published on: 01/23/2019 | In: Blog | Comments: 0

Plans to launch a new equities exchange on Wall Street, rivalling the existing institutions of NYSE, Nasdaq and CBOE, have drawn a lot of attention over the past two weeks. Major US market-makers including Merrill Lynch, Morgan Stanley and Virtu Financial have banded together to propose MEMX, a high-tech low-cost alternative to the existing equities platforms. Why are they doing this? The answer is simple – fees.

The creation of MEMX is the latest episode in a long-running saga over what many see as the overinflated sums that exchanges demand from participants – including Select Vantage - for access to their proprietary data feeds. Data fees have steadily risen over the years, without market participants are at a loss to see the value they extract from the service rising in turn. With exchanges showing themselves unwilling to listen, the SEC had to get involved, but a roundtable discussion last October did not engender any progress. MEMX – an exchange run by the participants for the participants – is the latest attempt by certain brokerages to circumvent the excessive fees. But will it work?

At Select Vantage, our perspective on MEMX is a little cautious. Firstly, this is a highly expensive and time-consuming project – it will take a minimum of two years for plans to be approved by the SEC. Once the exchange is up and running, any attempt to undermine the fee structure of existing exchanges will have to be incremental. NYSE, Nasdaq and CBOE will complain furiously at efforts to undercut them. The process will be slow and difficult.

It is also worth noting that new exchanges being born of disputes in the capital markets community is a pattern we have seen before. Less than twenty years ago, a consortium of firms, similar to those supporting MEMX, created the BATS platform to combat the monopoly of the exchanges of the day. Eventually, however, the market was re-consolidated into the three major platforms we see today – and the monopoly is still very much alive. MEMX may succeed in lowering data costs in five years’ time, but another market cycle may leave us in the same situation ten years after that. Effectively, there is no guarantee that MEMX will achieve its aims – and it will be several years before we can gauge its success.

In all disputes, compromise is often the easiest and most pain-free solution. Yet so far, when it comes to data fees, neither exchanges nor participants have shown a willingness to listen to the other side. At the SEC roundtable in October, Chris Concannon, formerly of CBOE, stated that the dispute had left him with “less appetite for compromise”. This attitude dooms the roundtable to failure before it has started – but it doesn’t have to be this way.

With a fundamental shift in perspective, there is still a possibility to find common ground over data costs. A roundtable, with a genuine commitment from all sides towards engagement and flexibility, has the potential to break the deadlock. This time, the SEC would also need to assume the role of moderator and try to prevent unnecessary bickering and deviation. The answer to data fees could prove a lot simpler than creating a costly and impractical new exchange.

Ringing the bell for better children’s healthcare

Written by: Select Vantage | Published on: 11/12/2018 | In: Blog | Comments: 0

Select Vantage opening the Toronto Stock Exchange

On October 31st 2018, Select Vantage was honoured to accept an invitation to ring the opening bell at the Toronto Stock Exchange for the city’s Hospital for Sick Children (known also as Sick Kids).

This opportunity, one offered to few non-listed companies, allowed us to raise over $38,000 for the hospital, directly supporting the research and development of wearable heart monitors for children.

We are proud to have been able to help such a worthy cause.

The Hospital for Sick Children is located only a couple of blocks from the Select Vantage offices and its work is immensely well respected and important. The hospital is affiliated to the University of Toronto and, through its research, has generated discoveries, technologies and techniques which have helped children the world over. The day worked as follows: vendors were asked to contribute money from their budgets or, alternatively, they agreed to discount their commission.

At the end of the day Select Vantage was then able to calculate the percentage of extra profit to donate to Sick Kids. This amounted to over $38,000, which far exceeded out expectations. We had originally hoped to make $25,000 so it was great that we were able to give so much more than that to the Hospital’s research project. It has been extremely rewarding to be involved in this process and to raise money to improve children’s healthcare.

We hope to carry out similar days in the future to provide support to more deserving charities in Canada and beyond!

The risks of AI to investors and the financial industry

Written by: Daniel Schlaepfer | Published on: 06/05/2018 | In: Blog | Comments: 0

Technology has reduced the role that client networks and personal insight play in the advice that financial institutions provide to their customers, or so argued Bloomberg’s Matt Levine last week.

His analysis comes amid the revelation that Morgan Stanley will now use artificial intelligence (AI) to send their clients customized e-mails when markets are in turmoil. These e-mails would include personal touches, based on scans of social media as well as other information, to calm jittery nerves and keep clients invested.

This has elicited criticism due to the perceived emotional manipulation of the change. Artificial Intelligence that pretends to be human and, even worse, uses emotion to convince us to part with money resides firmly on the other side of the Uncanny Valley.

Levine characterises the idea of robots weaponizing emotions to convince people to stay invested as a dystopian feature of “late capitalism”. But to our minds the larger problem here is that blindly giving advice to investors during a downturn constitutes irresponsible trading.

As we recently wrote in EurActiv, when AI controls financial services, and humans no longer take an active role in decision making, serious questions arise about who is responsible for mistakes.

Great risks are posed to financial services if human incentives and liabilities are eroded by AI decision making. Additionally, when AI gives advice, it is not limited by the moral or ethical restrictions that financial advisers should be working under.

The financial service industry will face disruption as AI technology evolves. But the inappropriate use of this technology could fundamentally undermine the twin pillars of trust and responsibility on which the financial system relies.

The European Union’s new Markets in Financial Instruments Directive (MiFID II) legislation goes some way to re-elevate traders above computers – and this will be a healthy thing for finance in the long-run.

We humanize artificial intelligence at our peril

Written by: Hugo Kruyne | Published on: 05/04/2018 | In: Blog | Comments: 0

Banks and financial institutions are implementing systems which replace human trading with trading through artificial intelligence. These systems promise to cut down workforce requirements and bolster efficient trading by predicting better trends. It’s therefore evident why firms are investing heavily in AI. And governments are backing it too—the EU has called for an extra $24bn in AI funding and the US has already committed over $15bn to AI.

However, what are the consequences of this expansive growth in AI in the financial space? No legal structure and no moral guidance has been presented that is sufficiently adapted to take care of the mutable and increasingly independent functions being given to artificial intelligence. Late last month, the EU released a document “to provide a first mapping of liability challenges that occur in the context of emerging digital technologies.” The document outlined intentions to further study liability but mainly focused on AI’s use in hardware, devoting only one line its use in trading.

This lack of attention to regulation and legislation should be worrying. While cases of individual damage through rogue autonomous hardware are a problem, they are nothing compared to the potentially ruinous consequences of basing an entire economic system on amoral autonomous high-frequency trading.

Such wildly powerful processors, executing trades on their own, are undeterred by legal challenges and threats from regulatory bodies. While deep learning and self-improvement might appear like qualities which endow AI with independence, legally it cannot be defined as such.

Part of the problem is that AI is considered as independent and intelligent. The jump from supposed intelligence to reasoning is small and so we are wont to believe the language often associated with artificial intelligence in the media. “Artificial Intelligence”, “neural networks”, “self-improving algorithms” and “deep learning” all deepen the fantasy that we are working with human entities, with reasoning and independence. Humanizing AI is dangerous because while AI might be able to adapt and learn autonomously—which is to say according to its own rules—it does not act independently—without stimulus.

The answer to the legal liability question with AI should not be defined by our humanization of its functions. Instead it is essential that we be aware of liabilities throughout AI’s expansion onto the trading floor. What is currently understood as the relationship between the faulty product, the producer and the consumer is being muddied and it’s important that an arm’s length approach to trading bots not be established. If the fear of the regulators cannot deter AI, it needs to at least deter its creators.

SVI in Brussels: There’s no such thing as perfect regulation

Written by: Daniel Schlaepfer | Published on: 03/22/2018 | In: Blog | Comments: 0

On Monday I had the pleasure of taking part in a panel discussion in Brussels on the evolution and disruption of financial regulation in the 21st century, hosted by New Europe, a leading European affairs publication. My fellow panellists and I – coming from across the financial industry spectrum, including participants, advisory, research, and regulation (though all speaking in a personal capacity) – engaged in a wide-ranging conversation on what we had learnt from the first few months of MiFID II, its impact and unintended consequences, and made some forecasts for the future.

Massimo Amato, the Managing Director of EFG Bank (Luxembourg), describing himself as the “living example of the unintended effects of hyper-financial regulation”, opened with some interesting insights into his own experience, having been CEO of UBI Banca International S.A. which was subsequently acquired by EFG. It was noticeable how similar Massimo’s experience had been to my own, despite coming from a completely different angle. Both of us have found that hyper-regulation only serves to concentrate the industry into a small number of companies that become too big to fail, as smaller players are squeezed out by the burden of compliance and incoming entrants have a harder time.

These concerns were mirrored in the remarks of Isabelle Jaspart, speaking from her experience in regulation at Luxembourg’s Commission de Surveillance du Secteur Financier (CSSF). She acknowledged that it’s impossible to effectively regulate against every type of risk inherent to the financial system, and said that the complexity of MiFID II in part owes to regulators being handed a blank cheque after the financial crash, essentially with the instruction to solve all of the industry’s problems. When it comes to the kind of expertise this would require, regulators aren’t necessarily better equipped than market participants to achieve this. It’s difficult to know if such a task is even possible.

As the conversation went on, helpfully moderated by Pieter Willem de Groen, a researcher at the Center for European Policy Studies (CEPS), various different aspects of regulation and its unintended effects were raised. Massimo Amato argued that lawmakers were “intruding into the management of a company” by regulating at such a micro-level, while Aleksandra Palinska from EuropeanIssuers – an association representing the interests of publicly quoted companies on European stock exchanges – suggested that mid and small cap stocks were unfairly penalised for non-compliance, rarely because they had broken the rules, but rather because they simply didn’t know how to comply with them.

Dimitri Valatsas, the European Director at Greenmantle, a macroeconomic and geopolitical advisory firm, offered an entirely different insight, speaking about how MiFID II had actually been an immense boost to research shops, given that the unbundling requirements meant there was greater demand for research from specialists.

As with much of the discussion, it was encouraging to see how much agreement there was across the panel during the closing remarks. I made the point that regulators need to be nimble and adjust to circumstances as regulation evolves, building on the consensus that the focus now should be on implementing the regulation in the spirit of its intent. Aleksandra Palinska put this well when she remarked that we mustn’t introduce new rules until the current ones have been in place and properly analysed.

Perhaps most interestingly, when offering forecasts for the future, panellists offered quite different time frames within which to evaluate the success of MiFID II. The only regulator on the panel suggested the next month will be key, while others thought it would still be another three months at least before we really know. Either way, it was clear to all that evaluating and implementing a piece of regulation the size of MiFID II is an ongoing process with no definitive time frame.

I suggested early on during the panel that for regulation to evolve, a conversation needs to happen with all parts of the ecosystem. Yesterday’s event was certainly an example of this, and I look forward to many more such conversations in future.

Global markets in a fractured world: In search of the right chemistry

Written by: Daniel Schlaepfer | Published on: 02/09/2018 | In: Blog | Comments: 0

The annual meeting of the World Economic Forum at Davos in Switzerland never fails to attract the financial world’s leading thinkers, and January 2018’s gathering was no different. We’ve recently been writing about the manner in which global markets make global rules, so one discussion that was of particular interest to us was a talk on “Global Markets in a Fractured World”. The panel was moderated by Maria Bartiromo and featured Adena Friedman of NASDAQ, Stephen A. Schwarzman of Blackstone, Frank Appel of Deutsche Post, Tidjane Thiam of Credit Suisse, and Brian T. Moynihan of Bank of America.

Politics is not a sphere with which traders very often tend to engage, however it is in a sense impossible to be apolitical. National and international decisions are taken every day that have a direct impact on the global economy, so it’s never an inopportune time to ask what factors are most affecting the global market – and to reflect on how this might impact our specialty in the world of intraday market making.

As the topic of the panel rightly suggests, politics on the ground is presently very fractured. How can we expect this to play out in the markets in the year ahead? Areas of curiosity are of course the American economy and European trade policy. In America there had been speculation that the administration’s recent tax breaks might continue to spur what was undoubtedly a bullish stock market until drastically falling earlier this week. Remarkably, the market began to rise again very shortly after, in what the Financial Times described as ‘wild swings…that have marked a return of volatility to equity trading after years of unusual calm.’

It is too soon to tell what will happen next, and the attainment of stable growth is certainly not a science. Regardless of one’s political persuasion however, it is a truth that the financial industry is principally animated by financial incentives. So it was especially notable that the panel seemed to agree that this year will be most interesting for observing how well the financial world can be driven by financial cooperation – the need for which is well illustrated by our current conditions of turbulence.

Here there are of course more questions than answers. Will the TPP beat RCEP to the post? Will MiFID II mature into the catalyst of accountability and transparency it was intended to? It might be suggested that some of the most difficult questions often have simple solutions. In this respect, Frank Appel, the CEO of Deutsche Post, made an interesting observation. As a chemist by educational background, Appel said that he’s instinctively inclined to focus on the fundamentals of complex questions: those elements without which the others won’t fall into place, or will fail to gel. In this regard, economies have to focus on their fundamental strengths. For Europe, he identified higher education levels than the rest of the world. In this domain Europe has a competitive advantage, and he made the crucial point that because of this the continent should seek to open itself to international competition rather than succumb to its protectionist instincts. For him, the rest will fall into place after this.

This made us think about the fundamental strengths of our own sector. As a firm focused on human insight (combined with technology), it’s our view that only by polling the collective intelligence of a variety of individuals can we effectively engage with complex markets. Markets are such complex compounds however that no level of experience can fully prepare any firm for unexpected or unprecedented shifts. This is why we’ve previously emphasised the importance of trial and error, both in developing strategies to trade in the market and in its regulation. Our international structures are presently under more pressure than ever while simultaneously undertaking the most intricate reforms and collaborations in history. In a time of great policy trials, this will be a year that human experience is put to the test.

On an optimistic note, Appel also made the point that his company employs people across different countries that are actually in conflict with one another at a political level. As members of the same firm however they all felt a part of the same project – so perhaps this is the function of business. Few could fail to get on board with such a message, and the broader picture it paints of every corporate’s responsibility when operating across global markets in a fractured world. Whether market participants, clients, regulators or customers, a priority of the financial industry is to communicate in the interests of establishing a chemistry suitable to the whole ecosystem – the alternative is spontaneous combustion.

Implementation vs. Intent III: MiFID II

Written by: Hugo Kruyne | Published on: 01/03/2018 | In: Blog | Comments: 0

Today marks the date of implementation of MiFID II, the most sweeping legislative package ever undertaken by the European Union, or indeed ever applied to the global financial services industry. The real effects of its implementation will take some time to become visible, and we’ll be keeping an eye out for them along with the rest of our industry in months to come. What effects might we begin to see in the shorter-term however? And to what extent will these reflect the underlying intent behind MiFID II?

As was expected, implementation is far from complete – there have already been announced several official delays. Towards the end of December it emerged that European markets authorities had decided to allow banks and their clients an additional six months to comply with the component rules of MiFID that required them to have individual Legal Entity Identifiers (LEIs) in order to continue trading.

Today, with the deadline that has been looming for over seven years having finally arrived, it has been announced that the UK and Germany have approved last-minute reprieves for Europe’s biggest futures exchanges to implement the rules. On the day that MiFID II’s rules related to clearing come into force, the London Metal Exchange and Ice Futures Europe have been granted no less than 30 more months to comply with them.

It is not the complacency of financial institutions that makes this unsurprising, but rather the sheer scope of the regulation. Consisting of over 70,000 pages and containing 1.5m paragraphs, it is an unwieldy piece of legislation. Few people expected its implementation to be flawless from the start. These delays and setbacks needn’t worry us however. As we’ve previously written, today marks the beginning of a process rather than the occasion of an event. The long-term benefits of MiFID II’s implementation – including increased transparency between parties to a trade, strengthened trust between partners and increased incentives for longer-term trading relationships – shouldn’t be damaged by short-term setbacks.

So we mustn’t expect instant results. In the spirit of a New Year however, and to mark the occasion of an extremely significant date in the financial world, it can be of interest to add to the panoply of questions that have been put forward by various experts and market participants to date, especially given the opportunity to look back at our thoughts later in the year. Two of the questions we’re most interested in are how the new legislation will differently affect European and North American regulatory culture and how the increased role of technology in finance will evolve, including its regulation.

Beyond any short term changes, for the benefits of an evidently more transparent market place we will have to be patient. Today marks the start of a process and we remain hopeful that with full engagement from market participants and regulators, it is a process which will lead to more efficient and transparent markets in the future.

Implementation vs. Intent II: The Volcker Rule

What constitutes legitimate market-making?

Written by: Hugo Kruyne | Published on: 11/29/2017 | In: Blog | Comments: 0

When it comes to judging implementation vs. intent in the world of financial regulation, there is perhaps no post-crisis legislation so significant to financial services – and relevant to trading in particular – as the Volcker Rule.

Part of the Dodd–Frank Wall Street Reform and Consumer Protection Act passed by the Obama administration in 2010 (in reaction to the Financial Crisis of 2008), the rule was originally proposed by American economist and former United States Federal Reserve Chairman Paul Volcker, though final constitutive elements of the Volcker Rule component were only agreed upon in 2013.

In short, the rule is designed to restrict United States banks from engaging in proprietary trading. Its intent is to curb reckless bank behaviour by barring them from engaging in trading exclusively for their own gain, with no direct incentive stemming from their clients’, lenders’ or counterparties’ needs and demands.

The basic idea is that taxpayers, whose money ultimately bailed out the banks following the financial crisis of 2008, should never again be penalised for financial speculation undertaken for the express purpose of producing bonuses for traders and executives. Crucially, however, some exemptions were made, the most significant of which for the purposes of our discussion was the exemption for market-making.

Market-making is generally defined as the provision of two-sided liquidity on a given security, designed to facilitate the trading of that security. Many markets have formalized market-making arrangements, whereby a market participant (often a broker-dealer firm) is provided with privileged market access in return for meeting certain obligations. These obligations are intended to improve market stability – for instance by requiring a market-maker to be present at the best price for a threshold percentage of the trading session. In spite of the privileges enjoyed by certain types of market-maker, the activity is not without risk.

The exemption for market-making activity under the Volcker rule was more limited in scope, in that a trade desk seeking to qualify had to ensure that its activities were so constituted as not to exceed the reasonably expected near-term demands (RENTD) of clients, customers and counterparties.

So one could say that the Volcker Rule is not primarily concerned with addressing the inherent risks of trading per se, but instead seeks to limit bank exposure to those activities required to provide sufficient liquidity to meet market demands.

As such, it is something of a landmark piece of legislation (certainly in light of the events of the Financial Crisis), so the degree to which its implementation can be said to match its intent is of unparalleled significance.

The New York Times’ editorial board understood this when they wrote in 2013 that “the success of the Volcker Rule, unveiled this week, depends on federal regulators doing what they failed to do in the run-up to the financial crisis and have done only haltingly since then: Enforce the spirit as well as the letter of the law against the wishes of powerful banks.”

What is of further significance with this historic piece of legislation is that its core precepts are presently under reconsideration. The Trump administration has not been shy about its intentions to water down – or revamp, depending on one’s interpretation – many of the Volcker Rule’s key requirements. Jerome Powell, a member of the Federal Reserve Board of Governors who is in charge of financial regulation, said “in our view, there is room for eliminating or relaxing aspects of the implementing regulation that do not directly bear on the Volcker rule’s main policy goals.”

In other words, the Volcker Rule’s implementation can be revised without harming the intent, or spirit, of the law. Indeed, the implication is that the implementation should be revised in order to improve the chances of its intent being fulfilled. Some banks complain that the regulation inhibits their ability to engage in legitimate market making.

The key question here is this: what exactly constitutes legitimate market-making under the Volcker Rule?

There is certainly no easy answer to this question. If there were, the Volcker Rule need never have been implemented in the first place. The most essential is that healthy discussion take place both between firms and regulators about this very question. As we highlighted in last week’s blogpost, the first in our series on ‘Implementation vs. Intent’, regulation works best when it is subjected to ongoing analysis of its impact on the markets it regulates.

Given that much of Select Vantage’s trade activity falls under the general definition of market-making, we are eager to see how this discussion develops, not just for the definition of market-making under the Volcker Rule, but also more broadly.

As the Volcker Rule’s implementation may soon be revised, what is also certain is it is too soon to judge its success. There are two further reasons for this. Firstly, while many aspects of the Dodd-Frank act require cost-benefit analysis, the Volcker rule does not (though some cost-benefit estimates have been provided by the OCC). Secondly, the rule only formally took effect on July 21st this year, though it had an impact on banks’ planning ahead of that date (having been declared in 2010, this made The Economist remark that its implementation period is equal to the length of a modern British Parliament, or one of Stalin’s economic plans.)

Like the impending implementation date of MiFID II, the Volcker Rule should be viewed as the beginning of a process, not the occasion of an event.

Implementation v Intent I: Regulation National Market System (Reg NMS)

Written by: Hugo Kruyne | Published on: 11/20/2017 | In: Blog | Comments: 0

Only through continual comparison of implementation & impact against intent will regulatory change achieve its original goals.

Just as financial firms must be constantly adapting to changing conditions, so too must regulators. Rules must be reformed when markets are deemed to be falling short of their purpose; when the forces of demand and supply can no longer interact efficiently and run counter to the functions that financial markets are designed to play in society.

In the past two decades, and most acutely since the financial crash of 2008, regulators have sought to prevent the financial system from breaking out of its boundaries and reaching its worst excesses. Most famously, in 2010 President Barack Obama signed the Dodd-Frank act into law, which affected every corner of the United States’ financial services industry.

How successful has it been? Or to unpack the same question – to what extent has its implementation matched its intent? Much remains to be seen, for many of the measures mandated by Dodd-Frank are yet to be fully implemented. Likewise, MiFID II – which was first intended to go into effect on January 3, 2017 – was delayed for 12 months and is even now the subject of last minute clarifications and potential adjustments. As such, these big questions have no simple or immediate answer, though we will seek to explore competing perspectives on them in a series of blog posts concerning ‘implementation vs. intent’ in the world of financial regulation.

As our exploration of this idea will show, in the lead up to the official implementation of MiFID II on 3rd January 2018, it is worth keeping in mind that the impending date marks another phase of an ongoing process rather than discrete event. For an example of how this is the case for financial regulation globally, we can look to a piece of legislation that took effect just before the crash.

In 2005, the Regulation National Market System (Reg NMS) was promulgated by the US Securities and Exchange Commission. Described as “a series of initiatives designed to modernize and strengthen the National Market System for equity securities”, it had the dual aim of fostering both “competition among individual markets and competition among individual orders”. Prior to this legislation, there existed a significant degree of fragmentation between regional and national markets, such that the same stock sometimes traded at different prices at different trading venues. Reg NMS, as the name suggests, was designed to bring about a National Market System.

Over a decade after its implementation, however, and the US trade group for the securities industry is calling for a review of these rules. It has been stated that while Reg NMS has been successful at increasing competition, it is also responsible for having fragmented the market in a different manner than previously existed. Some believe this has encouraged the predominance of speed as the market’s key determinant to success or failure.

Earlier this year, Randy Snook – executive vice-president, business policies and practices at the Securities Industry and Financial Markets Association (SIFMA) – told the Financial Times that it is time “to review the intent of Regulation NMS, its real-world impacts to investors, and possible rule changes to increase its effectiveness.” Specifically, it is possible that what is known as the ‘order protection rule’ will be re-evaluated. Its original intention was to make sure that trades took place at the best-quoted price by encouraging venues to quote equivalent prices for a security. However, SIFMA has now suggested that a volume threshold could be instituted for ‘protected status’ and that large orders of a specified volume could be exempt.

In effect, these would represent attempts to update (or revise the implementation of) Reg NMS to ensure it continues to achieve its original intent. And this is nothing if not a good thing.

As we’ve written recently in New Europe, some regulation is more reactive in nature and some more evolutionary. What is important is for regulators to remain always adaptable to changing conditions. When the effects of implementation don’t match their intent, or when conditions change, regulators must not hesitate to rethink things.

How can regulators be kept on track? Paradoxically, and perhaps ironically, it is the financial markets and all market participants which must assist in this regard. The sooner we realise that regulators, financial markets and market participants have a symbiotic relationship, the more effective will be continued discussions on these issues, discussions which should always be driven by the goal of improving market efficiency and fairness.

Regulators have in many cases opened the door for such dialogue, a case in point being the recent move by ESMA to open a consultation into proposed changes to MiFID II before it has even been fully implemented. It is now up to us, as market participants, to engage in those discussions, to continue the evolution of financial regulation.

Select Perspective

Written by: Daniel Schlaepfer | Published on: 10/11/2017 | In: Blog | Comments: 0

We seek to profit from our understanding of markets. In return, it is important that what we do is intelligible to anyone wishing to understand us.

The way SVI operates shouldn’t be opaque or impenetrable. It is easy for financial institutions to come across as black box operations. One of the frustrations I faced early in my career was the lack of information available to better understand financial markets and firms.

In the past two decades however finance has come a long way, and increased transparency has had lot to do with this. The origins of our firm can be traced back to the early 2000s, and as a result we have the benefit of having lived through the continued push for greater transparency driven by Sarbanes-Oxley, MiFID, Dodd-Frank and similar regulations world-wide.

As our firm grows, we create many new jobs. We want our traders to understand that financial markets can be learned, and that years of training, rather than minutes of luck, can allow us to take advantage of their inefficiencies while providing much needed liquidity to markets in return.

Financial institutions should build trust through transparency. This is reflected in the efforts of regulators globally to require greater transparency, but I am not satisfied with doing just the minimum required. To that end, this blog will serve as an outlet for SVI’s thoughts and reflections on a dynamic industry.

In writing about the issues that matter to us, we hope to encourage others to do the same, because it’s crucial that financial institutions partake in the debates that are all too often domineered by commentators living outside the walls of our trade.

With this in mind, let me shed some light on our firm, with a word about the people working inside our own walls. Select Vantage executes trades on 46 markets employing over 2,500 staff in 39 countries. On any given day we trade upwards of US$3 billion. Given the global reach and breadth of our market participation, I focus on hiring traders who share my belief in fair, efficient and transparent markets.

We are aware of the role we play in the delicate financial ecosystem. Like nature, trading is competitive; it involves winners and losers. Our goal is to remain transparent about the framework through which we compete. We are privileged to work in a fast-paced environment where hard work and smart thinking can pay off quickly. The hard work and resources which go into achieving these results is not always clear, and as a result, we understand that our industry should be subjected to more scrutiny than others.

At Select Vantage we are students of trading as much as we are practitioners. At the end of each day, it is not just our balance sheet that we review, but also the ever changing market environment in which we operate. We always keep in mind the responsibility we share with the broader financial community to contribute to fair, efficient and transparent markets.

As a result, one discussion we will engage in on this blog concerns the subject of appropriate industry regulation. This will be particularly relevant in the coming months, as Europe prepares for the coming into force of sweeping new regulatory reform known as MiFID II (Markets in Financial Instruments Directive) on January 3rd 2018 that will have global repercussions.

Moreover, a unique feature of SVI is our utilization of human capital over sets of algorithms or automated strategies. This focus on the contributions of the human element to the trading landscapes positions us well for a future in which we do not see algorithms or automated strategies serving as fit replacements for people. For this reason we take a keen interest in a variety of open debates regarding the future of an industry on which we all depend, but about which too many know too little.

We’re looking forward to the discussion.


Daniel Schaepfer was educated in Canada and received an MBA from the John Molson School of Business, Goodman Institute of Investment management at Concordia University, and a Bachelor in Commerce from the Rotman School of Management at the University of Toronto. He is a CFA charter holder and passed the FINRA series 7 and 24 exams as well as CSI courses, CSC and PDO.

Prior to his role as principal of Select Vantage he was employed by and consulted for a privately owned trading technology firm, where he was responsible for the product development of the firm’s trading system and negotiated market access agreements in NCSA EMEA and ASIA. He has operated two successful trading floors and early on in his career he worked as a day trader.

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