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Case study for Torstone Technology




Settlement hots up at Peel Hunt with Inferno

FTSE 100 market maker and full-service broker Peel Hunt reveals how Tortstone Technology’s Inferno solution for high volume securities and derivatives processing supports their competitiveness and agility in the market.Steven-Fine

Back in 2007 full-service broking and advisory house Peel Hunt, known for its coverage of the mid- and small-cap sector added FTSE 100 market making to its range of services and soon realised that the firm could become a credible competitor in the sector. It also became clear that they could take a larger share of the market with the right systems in place in both the front and back office. This kicked off two projects resulting in the selection of a highly scalable, data feed-driven trading platform at the front end and a shift away from external brokerage services by insourcing Inferno from Torstone Technology and taking control of back office settlement, accounting and reconciliations in-house. Today Peel Hunt is regularly ranked as a top market maker – facilitating market liquidity in over 2,000 traded stocks – with activities accounting for over 4% of all trading on the London Stock Exchange.

Peel Hunt makes a long-term commitment to clients with a ‘joined-up’ approach offering expertise in corporate, research, sales, sales trading, fixed income and market making, which distinguishes the firm from the competition.

Steven Fine, managing partner and head of trading & sales believes that a key differentiator is the “size and scale of the trading platform.” The firm derives its revenues from its fee-driven service for corporate clients (Peel Hunt ranked 2nd overall in Corporate Broking in the Thomson Reuters Extel survey June 2011); agency-driven institutional commissions from buying and selling shares – both of which have been challenging for all market participants in recent years – and the growing retail investor market of private clients, wealth managers, IFAs and other gatekeepers.

We provide a full suite of execution services for all UK market participants,” Fine explained. “To retain our competitiveness we need a highly sophisticated, well-developed front-end engine for pricing to win business. Equally we need a highly sophisticated, efficient and scalable back office processing engine to cope with high volume, high frequency reconciliations and settlement processing. Back office operations and settlement tend only to matter to traders if they go wrong. You need both systems to succeed and to support every element of the service we provide to corporate, institutional and retail clients – get any element wrong and you may put your business in jeopardy.”

Peel Hunt had relied on first Pershing and then Penson for securities processing services. The specialism in the stocks of small and mid-cap firms meant settlement costs were relatively low overallas volumes are lower and liquidity less than when trading FTSE 100 shares. The premium rate per transaction charged for the higher volumes and smaller margins was revealed as untenable by the FTSE 100 pilot and added urgency to the review of settlement systems. Peel Hunt was also unhappy with the service. Fine recalled: “The in-house settlement team we needed for resolving failed trades and reconciling business was significantly larger with Penson than it is now with Inferno, and that’s including the subsequent addition of new strategies and around an eightfold increase in volumes.”

By the end of 2007 Peel Hunt decided to extricate itself from Penson and use Inferno instead, which had been developed in-house by KBC, who owned Peel Hunt prior to the broker’s independence in 2010. Inferno had been developed to provide a single platform to support middle office, back office settlement and accounting processes for a wide range of asset classes including complex derivatives, fixed income and high volume equity products. Peel Hunt opted to insource the service to have full access to Inferno’s functionality in house, while paying on a per transaction basis. The system took three months to implement at the end of 2007.

In 2011 the team that develop and support Inferno, which today has clients and offices in London, Hong Kong and New York, also became independent with the management buy-out and employee-ownership of newly formed Torstone Technology.Peel Hunt has announced that it is renewing its commitment to Inferno and has signed a five year contract with the new owners. The firm took the opportunity to review other securities processing software and services available to them before doing so, with Broadridge’s Gloss system coming in second.

The decision to remain with Inferno was also made against some key trends in the market which Aaqib Mirza, Peel Hunt’s head of technology explained: “ As well as becoming more efficient because of the small margins and higher volumes of FTSE trading we also need systems to handle increasing market fragmentation and competitiveness from the growth in internet dealing, on-line brokers and the impact of the Retail Distribution Review (RDR) which will abolish trail commission on retail investments by IFAs, for example. Increased retail activity and regulatory changes are driving the market to greater transparency of fees and a cheaper execution methodology which all leads to Peel Hunt needing to be very competitive and highly responsive to change.”

Stephen Hall, head of operations at Peel Hunt outlined the key reasons behind the decision to stay with Inferno: “First is scalability – we haven’t found a way of breaking Inferno yet, despite trying. One day we peaked at 62,5 00 trades with Inferno quietly coping and no alarm bells ringing. That’s impressive. Usually we are processing around 30,000 trades per day. Another main advantage of using Inferno compared with any other system that we have come across, is the flexibility of the code itself. Changes can happen within minutes. In our business you often have to make changes, but with other vendors you may have to wait months for the next code release as they only make two or three releases in a year. This could mean that you have to stop doing a certain type of business for months on end. Whereas with Torstone we request a change; they just do it, often within minutes.”

Brian Collings CEO of Torstone Technology said: “We literally release daily, which is a real break with the past.”

“The level of service from Torstone is also important,” said Hall. “Whoever is on call will fix any problem and make any changes which speaks volumes about the people as well as the software platform. Other vendors in the market face the problem of moving their old systems onto a more modern platform or continuing to build on top of a 20 year old architecture.”

The bulk of Inferno was developed five years ago by people acutely aware of the need to simplify back office operations by standardising on a single platform for multiple instruments and geographic markets; and by accountants who understood the financial, risk and compliance impact of trading decisions.

Hall continued: “Inferno has a lot of modules within the same overall system whereas with many other providers you need different solutions for different asset classes and you know that there is a lot of linking going on in the background which means there is a greater potential for things to go wrong. Reconciliation is the most obvious. With Inferno reconciliation is all part of the same system which enables us to navigate from one asset class or business area seamlessly, saving a lot of time. If you have a good front to back STP system then most of the work of operations should be reconciliations. With Inferno you can click on something and it will automatically jump to the other area within the system where the break in the settlement has occurred. All the reconciliation information you need is in front of you and it is easy to access the whole story on a trade.”

Operational benefits
Peel Hunt has eight people on the settlement desk, two on trade support and another two focused on compliance and static data set up. They attain high levels of straight through processing (STP) as Hall confirmed: “The rate is more than 99 per cent and very near to 100 per cent. If trades don’t go STP there’s something wrong in the static data or the trade itself, and we immediately see a report telling us that the trade will not go through and the reason why.”

As soon as a trade is booked into the front end system – which is Fidessa – it is immediately pulled into Inferno. Operations staff know within seconds if there is an issue and this happens at various stages throughout the life cycle of the transaction. “We can deal with things that go wrong immediately,” said Hall, “rather than finding out about problems days later. They are usually fixed before anyone else knows about it.”

Another feature of Inferno well-liked by the operations team is the way that unfixed trades never get lost. “Anything not fixed will remain on screen whereas some systems will relegate yesterday’s unfixed trades to another screen which is,” as Hall described, “no use to man or beast.It’s very important that we don’t lose sight of yesterday’s problems. Inferno reconciliations show cumulative problems – not just the daily report.”

Inferno is a transaction processing engine and also provides a fully featured and granular trade accounting system with facilities to drill down into the detail. “It is easy to reconcile the accounts and we also have the ability to run what if? style reports retrospectively,” added Hall.

Asset to the front office
He also believes that the system is an asset to the front office: “Many, many clients judge you on the time it takes to send the confirmation. If you don’t support the best execution trading activity with efficient information to customers, they can walk way so easily as they’ll all have other arrangements with other brokers. With Inferno we are able to service client assets well and in an immediate and accurate fashion making sure that we are not in breach of FSA regulations and auditing requirements. Inferno lets us focus on what we need to do and keeps us in control.

“You can trade all you like, but if you mess up in the back office you won’t be trading for long. The only way we get the trade is because we offer the best price. If brokers see any negative – business goes elsewhere. Torstone’s ability to respond the same day to our requests for small changes and tweaks is also beneficial. A recent example is where I needed to change something in response to a broker’s request and Torstone responded same day. That helps us to keep the business. In some cases the broker’s demands may have been testing the waters with us and if we respond well a small amount of business can suddenly explode.

“If asked I‘d say Torstone’s Inferno is by far and away the best system out there – and I’ve been looking for 20 years!”

Business benefits
Steven Fine summarised the benefits from his perspective: “Inferno enables us to trade a wide variety of assets classes, including corporate bonds, PIBs, ETFs as well as shares and because of the flexibility and quality of the Torstone team supports our need to implement changes quickly. It helps to provide our edge in the market by settling and processing high volumes of trades at an acceptably low cost. It also provides the information we need to budget and plan sensibly and examine the impact and cost of new trading strategies, quickly. Finally we like the people and enjoy a good relationship with them.”





European stocks mark best day in nearly four months after bond-driven rout



European stocks mark best day in nearly four months after bond-driven rout 1

By Sruthi Shankar and Ambar Warrick

(Reuters) – European stocks ended higher on Monday after bond markets stabilized from a sharp selloff last week, with travel and leisure stocks leading gains on optimism over COVID-19 vaccination programmes and a large U.S. stimulus package.

The pan-regional STOXX 600 index rose 1.8%, its best day since early November, after losing more than 2% last week. Travel and leisure stocks added more than 3%.

Data also showed manufacturing activity picked up pace in major euro zone economies in February, inspiring some confidence about an economic recovery this year, while a separate reading showed German inflation held steady in the month.

European stocks had retreated from one-year highs last week as the possibility of rising inflation and higher bond yields fuelled concerns over monetary policy tightening by central banks.

Accommodative policies and bumper stimulus measures have enabled stocks to recover from pandemic-driven lows last year.

Global stocks rallied on Monday tracking a pullback in yields, while the rollout of a third COVID-19 vaccine in the United States, along with progress towards a $1.9 trillion stimulus package, also boosted sentiment. [MKTS/GLOB]

“Equities should prove resilient, but the recent pick-up in real yields deserves to be watched. It is more toxic for highly valued risk assets, including growth stocks,” analysts at Generali Investments wrote in a note.

Overall, the analysts said they maintained “a moderate pro-risk tilt”, with potential pullback in stocks providing buying opportunities as economies look to re-open.

British stocks rose in anticipation of Finance Minister Rishi Sunak announcing more borrowing on top of his almost 300 billion pounds ($418 billion) of COVID-19 spending and tax cuts in a budget statement on Wednesday.

Homebuilders such as Persimmon, Taylor Wimpey and Barratt Developments were the top gainers on the FTSE 100.

Among other movers, Spanish travel booking group Amadeus topped the STOXX 600 as expectations of a 2021 recovery in travel demand drove a slew of price target hikes by major brokerages.

British Airways-owner IAG also jumped 7% on similar upgrades.

French food group Danone rose 1.4% after it said it was taking a first step toward selling its stake in its Chinese dairy partner Mengniu Dairy, and would use the gains to buy back its own shares.

Swiss-listed shares of computer goods maker Logitech International rose 1.6% after it raised its sales growth forecast to about 63% for fiscal 2021, up from the 57-60% range it previously expected.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Anil D’Silva)


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Crypto investments: how niche opportunities become mainstream



Banks need to start reporting crypto derivatives before it's too late

By Rhian Lewis, author of The Cryptocurrency Revolution

February 2021 marked some key moments in the evolution of Bitcoin. Tesla’s SEC filing on February 8 stating that it had bought $1.5 billion worth of Bitcoin and planned to begin accepting Bitcoin for its products marked the beginning of a busy week for the virtual currency, during which America’s oldest bank, BNY Mellon, announced plans to institute a custodial service. And that’s without mentioning the fact that February also marked the month that Bitcoin’s price rose above $50,000 for the first time ever.

Never mind the fact that only five per cent of finance executives say they would buy Bitcoin: this feels like a seismic shift in the cryptosphere. The mainstream media may be surprised, but for those who have followed the progress of Bitcoin since the beginning, this felt inevitable. Few analysts outside the crypto echo chamber would have predicted in 2010 – or even 2015 – that by 2021 assets such as Bitcoin (or even Dogecoin, Bitcoin’s meme-inspired baby brother) would have become mainstream, or that terms such as ‘mining’, ‘halving’ or ‘hash power’ would be referenced in non-specialist publications.

Perhaps it is worth stepping back and wondering which crypto products or opportunities that seem impossibly niche now will be hitting the mainstream in ten or even five years’ time.

Staking rewards and interest-bearing crypto accounts

One of the criticisms that many analysts have aimed at cryptocurrencies is that they offer no return, other than the speculative possibility that their price will increase. They do not return a dividend or interest.

Rhian Lewis

Rhian Lewis

This has begun to change, and investors with an appetite for some risk are now able to gain returns of around 8% APY. By committing your cryptocurrencies to a lending platform such as BlockFi or its many competitors, generous returns are possible. The down side, of course, is that the holder is making a choice to trade off security (holding their cryptocurrency themselves) against trusting a third party, which may or may not be regulated or insured, depending on the company and the jurisdiction.

Another way of making your cryptocurrency work for you is via a process known as ‘staking’. While various tokens offer rewards via this process, the big story around staking over the last couple of months has been about Ethereum, the best-known cryptocurrency after Bitcoin. While Bitcoin and Ethereum currently rely on the expenditure of computer processing power to record and validate transactions on their networks, a change to Ethereum’s software means that validation will be done in a different way. This update means that Ethereum 2.0 will use a process known as Proof of Stake, which requires the computers that run the software to lock up a certain amount of Ether to prove they have skin in the game.

While the sum required for this is offputting for many retail investors, at more than $60,000, some wallet providers and exchanges now allow investors to pool their deposits and stake smaller amounts. Interest rates can fluctuate but are expected to be around 7%.

Expect the word ‘staking’ to start popping up regularly in the personal finance pages of the mainstream press..

NFT Collectibles and Art

Collectibles such as trading cards have long attracted high prices at auction. A digital reproduction of an image – the 21st-century version of a trading card – in the past had zero intrinsic value, as it could easily be copied.

However, the technology behind Bitcoin that stops the same payment being made twice (the so-called ‘double spend problem’) can also be leveraged to register the ownership of a digital asset, and thus ensure that there is only one original, whose provenance can be verified.

These non-fungible tokens are most often registered on the Ethereum blockchain, and come in many different forms. CryptoKitties, a game in which collectors bred and sold virtual cats, was the first to take off in any meaningful sense, but has now been superseded by various others, including CryptoPunks. The most expensive CryptoPunks – tiny pixelated graphics – have sold for hundreds of thousands of dollars, surprising even seasoned crypto investors.

While some of these niche NFT products might be assumed to be in bubble territory, the idea of tokenized digital art has been quietly moving into the mainstream, and this month Christie’s will become the first major auction house to offer a digital work in this format (an artwork by Beeple).

Virtual real estate

Non-fungible cryptoassets come in all shapes and sizes, and while a traditional investment portfolio might contain land or commercial property, certain forward-thinking investors are snapping up land parcels that exist only in virtual spaces. This is not as strange as it sounds. The Covid pandemic has hastened the adoption of virtual-reality technology for workspaces, training, gaming and social networking, and in shared gaming and social experiences, virtual real estate in prime locations is becoming as attractive as property in the physical world, as businesses vie to set up shop in places where our digital presences will congregate.

Decentralized worlds such as Decentraland, Somnium Space and The Sandbox are attracting as much interest from investors and gamers, and prime land parcels such as those in Decentraland’s Genesis Plaza have sold for tens of thousands of dollars. It is worth noting that because these ‘land’ assets are registered on public blockchains as non-fungible tokens, they can be traded freely without the permission of a gaming company, which was not the case for the earlier generation of world-building games, such as Second Life.

Nothing is impossible

There are many other examples of areas where cryptoassets and blockchain technology are pushing the boundaries of financial products and investment. The whole area of decentralized finance ‘DeFi’, where users can create and participate in disintermediated financial services such as collateralized debt positions and swaps, would take many more thousands of words to explain.

As recent developments in the Bitcoin ecosystem have shown, investments that seem impossibly niche and fanciful now have a habit of gaining mainstream acceptance. Perhaps you would not pay thousands of dollars for a jpeg right now (neither would I), but it would not be wholly surprising if this becomes entirely normalized behaviour in the medium term.

Gartner source:

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Homebuilders, miners spur bounce-back in British stocks



Homebuilders, miners spur bounce-back in British stocks 2

By Shivani Kumaresan and Amal S

(Reuters) – British shares rose on Monday, led by homebuilders and miners on reports of more domestic fiscal support, while relative stability in bond yields also helped stocks recover from last week’s losses.

The blue-chip FTSE 100 index ended up 1.6%, its best session in two weeks, with homebuilders Persimmon Plc, and Taylor Wimpey plc among the top gainers after a media report that British finance minister Rishi Sunak was expected to announce a mortgage guarantee program as part of the budget.[nL3N2KZ2GR]

“A mortgage guarantee scheme for first-time buyers would be a better, more targeted policy than the blanket stamp duty holiday, to give a helping hand to those who otherwise might not be able to get on the housing ladder,” said Laith Khalaf, financial analyst at AJ Bell.

British Airways-owner IAG led gains in the FTSE 100 as optimism over a 2021 recovery in the travel sector spurred a slew of price target hikes.

The FTSE 100 fell 2.1% last week, snapping three consecutive weeks of gains as expectations of a spike in inflation and rising bond yields rattled sentiment.

But hopes of an economic recovery this year were pushed to the forefront as Sunak geared up to announce more borrowing on top of almost 300 billion pounds ($418 billion) of COVID-19 spending and tax cuts as part of his annual budget statement on Wednesday. [nL5N2KY08C]

British Prime Minister Boris Johnson also said the country’s economy could recover more strongly after the coronavirus pandemic than some “pessimists” had predicted.

The domestically focused mid-cap FTSE 250 index rose 1.5%, even as British manufacturers reported their slowest output growth since May last month due to supply-chain disruptions and rising costs linked to Brexit and COVID-19.

Ladbrokes owner Entain rose 2.3% as it raised its offer for rival sports betting firm Enlabs AB, valuing the Sweden-based company at about 3.7 billion crowns ($440.16 million).

Reach, publisher of Britain’s Daily Mirror and Daily Express, fell 8.6%, after reporting a 12.8% drop in annual profit.

(Reporting by Shivani Kumaresan and Amal S in Bengaluru; Editing by Subhranshu Sahu and Paul Simao)

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