evolution of us markets - 2000-2011 0405

7/29/2019 Evolution of US Markets - 2000-2011 0405

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20002011

April, 2011

EVOLUTION OF

U.S. FINANCIAL MARKETS


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Evolution of U.S. Financial Markets2

How Do You Navigate

Todays Markets?

Confused about how the U.S. markets work?

If you did not have a solid grasp of the U.S. market

structure in 2000 (prior to Reg. NMS), you will probably

have a tough time navigating the various players and

their value proposition today

The markets have evolved:

Exchanges M&A

Continued market fragmentation

Introduction of new players

Totally lost? See the next page


3/16

Todays Market Landscape

http://www.itg.com/http://www.bidstrading.com/http://www.liquidnet.com/index.htmhttp://www.convergex.com/http://www.knight.com/investorRelations/AR/2009AR/index.asphttp://www.directedge.com/Home.aspxhttp://www.idcg.com/index.htmlhttp://www.nypclear.com/http://progressive.powerstream.net/008/00102/edu/interactive/cme-clearport/intro/index.htmlhttp://www.theocc.com/default.jsphttp://www.dtcc.com/http://cfe.cboe.com/http://www.cbsx.com/http://www.kcbt.com/index.asphttp://www.c2exchange.com/http://www.nasdaqtrader.com/http://www.ise.com/webform/homeDefault.aspx?categoryID=287http://www.cboe.com/http://www.cmegroup.com/http://www.nyse.com/


4/16

Growth of electronic trading / contraction of open outcry:

equities, options and futures; spread compression

Growth and sophistication of the buy side

The Internet has matured, so has trading technology Demutualization and for-profit business models

Evolution of exchange revenue models, market makers,

payment for order flow (maker-taker, taker-maker)

Exchange mergers and acquisitions, continuedglobalization.


Trends and Background


5/16

Maturity of prime brokerage business model

De-leveraging and impact of global financial crisis post

Lehman Bros.

Introduction of new broker-sponsored exchanges,

clearing houses

Continued market fragmentation equities and options

Regulatory evolution:

Commodity Futures Modernization Act (2000)

S.E.C. Reg. NMS, demise of InterMarket Trading

System for equities (2005)

Dodd-Frank Act regulations


Trends and Background (Contd)


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Inter-relationship of asset classes, markets; portfolio

margining

Growth of algorithmic and high-frequency trading

Madoff.


Trends and Background (Contd)


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U.S. EquitiesMarkets

2000 2011


NYSE

Nasdaq

BSE

PHLX

CHX

NSX

PSX

Arca

Brut

Redi

Instinet

Island

Attain

Nextrade

Strike

Bloomberg

Tradebook

ITG Posit

Latice

Trading

Inter-market Trading System [ITS]

EXCHANGES REGIONALS ECNs ATS

NYSE

Euronext

Nasdaq

OMX

CHX

NSX

SIGMA X

Instinet -

Newport

GETCO - GES

CSFB -

Crossfinder

EXCHANGES ATS / DARK POOLS

Direct Edge

Convergex

Knight Link

UBS - PIN

CitiMatch

BlockCross

Fidelity -CrossStream

BIDS

Level

Pipeline

Liquidnet

BATS


8/16

Implementation of SEC Reg. NMS, demise of the Inter-

market Trading System

Exchanges demutualized, went for-profit and public

Exchange consolidation, continued globalization Evolution of NYSE, NASDAQ duopoly, internalization of

order flow, rise of new, more nimble ATS

Growth of algorithmic trading, new order types, high

frequency trading and proximity hosting asdifferentiators.


What Happened ?


9/16

U.S. OptionsMarkets

2000 2011


AMEX

EXCHANGES

CBOE

ISE

PHLX

PSE

Options Linkage

NYSE- AMEX

EXCHANGES

CBOE

ISE

NASDAQ OMX

- PHLX

NYSE

ARCA Options

BATS

Options

BOX

C2


10/16

Growth of electronic trading / consolidation of open

outcry trading

Decimalization, penny quoting, spread compression

Payment for order flow, growth of electronic marketmakers

Continued market fragmentation

Exchange acquisitions

Algorithmic and high frequency trading New order types

Evolution of new players - 5 markets are now 8!


What Happened ?


11/16

U.S. FuturesMarkets

2000 2011


CME

EXCHANGES

CBOT

NYMEX

NYBOT

MGEX

KCBOT

BTEX

NASDAQ

LIFFE

OneChicago

CME GroupCMECBOTNYMEX

EXCHANGES

ICENYBOTICE OTC

WCE

KCBOT

MGEX

NYSE LIFFEUS

OneChicago

CBOE FuturesExchange


12/16

Growth of electronic trading / consolidation of open

outcry trading


Exchange consolidation and globalization Demise of Enron

Introduction of new players - some came, some went,

some stayed

New products that align risk to users needs Convergence of OTC and ETD products - rise of OTC

clearing, futures look-alikes.


What Happened ?


13/16

U.S. Clearing Houses

2000 2011


EQUITIES OPTIONS FUTURES FIXED INCOME

NSCC

Options

Clearing

Corp

New York

Clearing Corp DTCC

NYMEXClearing

CME Clearing

BOTCC

KCBTCC

EQUITIES OPTIONS FUTURES FIXED INCOME

DTCC OCCDTCC /

FICC

OCC

CME

Clearing

ICE Clear

US

KCBTCC

New York

PortfolioClearing

International

DerivativesClearing Group


14/16

Exchange consolidation, clearing member consolidation

(Bear Stearns, Lehman Bros., Refco)


Member-controlled versus exchange-owned clearinghouses

Clearing house silos versus non-profit, industry utilities

New products / convergence of OTC and ETD products

Futures look-alikes, cleared OTC products as newrevenue streams

Introduction of new clearing houses.


What Happened ?


15/16

Need to Navigate Todays Landscape?

http://www.itg.com/http://www.bidstrading.com/http://www.liquidnet.com/index.htmhttp://www.convergex.com/http://www.knight.com/investorRelations/AR/2009AR/index.asphttp://www.directedge.com/Home.aspxhttp://www.idcg.com/index.htmlhttp://www.nypclear.com/http://progressive.powerstream.net/008/00102/edu/interactive/cme-clearport/intro/index.htmlhttp://www.theocc.com/default.jsphttp://www.dtcc.com/http://cfe.cboe.com/http://www.cbsx.com/http://www.kcbt.com/index.asphttp://www.c2exchange.com/http://www.nasdaqtrader.com/http://www.ise.com/webform/homeDefault.aspx?categoryID=287http://www.cboe.com/http://www.cmegroup.com/http://www.nyse.com/


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Tellefsen and Company, L.LC.1-212 809 3800

[email protected]


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