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Case study for Torstone Technology

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Steven-Fine

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.”

 

 

 

Investing

Is It The Right Time To Invest In Gold?

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Is It The Right Time To Invest In Gold? 1

By Zoe Lyons, Hatton Garden Metals

The current climate is one of uncertainty, so it can be difficult to know what to do with your money, particularly investments. When faced with the decision on what to do with your savings, there are a number of options, but one investment which many have opted for over the years is gold buying.

Purchasing gold can be a great investment. Although the price of which can fluctuate just like anything else, the value of gold has generally tended to increase at a good rate and many prefer it over other saving options. With bank interest rates currently at a low and discussions of negative interest rates, many are opting to purchase gold as a way to earn money on their savings.

So is gold buying right for you? We take a look at some commonly asked questions when it comes to purchasing gold.

Why Should I Buy Gold?

Buying gold is often seen as a good investment due to value increases, so you may be able to make a profit from selling it on if the price of gold increases after you have purchased. The price can fluctuate, so profit is not guaranteed and is based on a number of factors. Looking back over previous years since the 1970s, the value of gold has prospered compared to other investment types, albeit with some dips in value at certain points over the past 50 years.

Buying gold also allows you full control as you are the owner. So you can choose if and when you want to sell.

Buying Gold Vs ETFs

When looking at investment opportunities, you may consider ETFs. An ETF is an Exchange Rated Fund, which when purchased is similar to buying stocks and shares. They can be a good investment, but is it more beneficial than purchasing gold?

When purchasing physical gold you will need to consider where to store it. This can incur charges, whereas with an ETF there is no need for storage, but an ETF can come with admin charges and investment management costs. When you choose to sell an ETF, you may also be required to pay a commission, which are often small amounts, but can add up if you are an active trader. There is also less control with an ETF as the price of which can change and is based on the company’s actions.

Gold Bars Vs Gold Coins

If you do choose to purchase gold, you will be faced with the option of whether to buy gold coins or gold bars. Although similar, they have varying benefits.

  • Gold Coins

The purchase of gold coins are often favoured by those who appreciate the historic value of the coin. Many people collect coins, so an investor may be inclined to pay more if they are a keen collector of such. Many may also pay more for gold coins based on their rarity. These factors can affect the price you pay or sell at, meaning the value of gold coins is not solely deemed by the live price of gold, so you may receive a higher price, dependent on the investor. This allows the price of gold coins to be more fluid than gold bars.

  • Gold Bars
Zoe Lyons

Zoe Lyons

Gold bars are not seen as a collectors item and don’t tend to have historical attachments. Because of this, the price is not influenced by these factors and is based on the weight, purity and the live price of gold at the time of selling or purchasing. This allows for a more accurate estimate of the price of your gold bars.

Where Should I Store Gold?

One of the most frequently asked questions when it comes to gold buying is storage. If you do choose to purchase gold, you will need to consider storage. Just like anything else of a high value, it needs to be stored securely. Simply keeping gold stored at home could be risky. When kept in your property, if not stored in the correct conditions, it is more susceptible to damp and corroding. There is also the possibility that your home insurance does not cover your gold, so if you are burgled, you could lose your investment. Because of this, it is wise to protect your gold with proper secure storage. Look for companies that offer storage abilities that are covered by insurance and be sure to do your research on pricing and look for cost effective storage as the fees incurred can soon add up. You may also want to look for a company that allows you quick and easy access to your gold to ensure you can buy and sell with ease.

Should I Invest In Silver Too?

Although gold is often a more popular investment option, many choose to purchase silver alongside it. The price of silver tends to be much more volatile than the price of gold, for this reason, many see gold as a safer choice. The price of silver will still have an intrinsic value but may be more worthwhile for those looking into long term investment options due to its VAT charges.

Negative Interest Rates

Although it is not a current practice, there has been recent talk of banks in the UK potentially introducing negative interest rates. If a savings account has a negative interest rate, this could mean you are charged for keeping money in the bank. If introduced, this could mean savers lose out. Instead of receiving interest on your savings, you may be charged a rate for keeping your money in the bank.

Could purchasing gold be a better option for your savings? Possibly, but this will depend on how much you have saved and the rates of the negative interest (if they are introduced). They may be minimal, but if you have a large amount in a savings account, this could add up to an expensive charge. If you choose to use your savings to buy gold, you may make a profit upon selling, but you will need to consider costs of storage as well as the chances of the price decreasing in the future.

So, is it the right time to invest in gold? It’s a very popular question. Hopefully the above will give you a bit more insight into gold investing and how it may work for you, but with any investment, there is never a guarantee that it will generate profit, so take careful considerations when diversifying your portfolio.

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Private public investment is more inter-dependant than ever

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Private public investment is more inter-dependant than ever 2

By Konstantin Sidorov, CEO and Founder of London Technology Club

Today, one thing unites the majority of governments around the world: their fiscal position is destitute. COVID 19 has seen an extraordinary, forced expansion in public sector expenditure, which has come just as the world was getting back on its feet following the Global Financial Crisis. The financial strains are already showing and will become more apparent as we move through the pandemic into social and economic recovery.

If you want to understand the impact that the re-focusing of public sector spending is having, then there is no better example than the space economy. In the US and Europe, we are becoming increasingly reliant on the space rockets and space launch companies pioneered by private investors and entrepreneurs.

NASA, that powerhouse and flag bearer for American national pride, is having to partner with the private sector in order to fulfil their missions. Private investors, the likes of Elon Musk, and Jeff Bezos alongside smart use of new technologies have brought the economics of space down and the excitement around what’s possible up. With it comes a whole satellite manufacturing, launch and servicing industry growing to $271bn in revenues in 2019. Of the total revenues in the space economy ($366bn in 2019), government space budgets made up $95bn of that.

Commercial entities, being patiently built and backed by private capital willing to dig deep and progress their own missions has helped fuel the space economy. Many are realising now just how crucial space is for the future of a country’s protection, position in the world and prosperity. In China, India and Russia we still see significant public sector expenditure in space projects as an agent for military and economic expansion. The role of private investors in plugging major gaps in public sector funds and national pride in Western economies is therefore increasingly important.

Private and public investment must be seen as a partnership. We should not forget that Elon Musk’s SpaceX survived from the brink of collapse only because of a ten-figure NASA contract awarded at the last minute. Musk, since then, has looked for public infrastructure contracts to fuel his companies, the likes of The Boring Company winning the contract to build a downtown-to-airport loop, a  government program for high-speed transport in Chicago. Musk proves his products and services work and then secures lucrative government contracts in order to quickly scale which in turn leads to transforming whole industries.

It’s not just space infrastructure where we see this redefinition of the role of public and private finance. The Chinese have invested at least US$160 billion in infrastructure projects as part of the Belt and Road Initiative, creating roads, ports, energy infrastructure and providing aid to foreign governments to create the most ambitious infrastructure project the world has yet seen.

Konstantin Sidorov

Konstantin Sidorov

For Western countries, access to that scale of public finance is not fiscally-possible, a new solution is needed and just as the space race has been redefined by private capital, so will the development of new industries, infrastructure and the reinvigorating of economies facing structural change that has been accelerated by COVID.

Private capital has the huge advantage of being driven by conviction and competence. It can cost-effectively be deployed, fast and targeted with a laser-like focus by entrepreneurs who know exactly what they want to achieve. Private capital, currently, is also in abundance.

In a world which is providing slim returns across multiple traditional asset classes, private capital is being stockpiled and is waiting for the opportunity to be invested for growth. We need private investors to have the confidence to deploy their capital to fuel the system once again.

This new world, post COVID, won’t see public capital replaced. Its role is likely to focus more heavily on health, welfare and critical infrastructure. However private investors will step in where gaps appear. Ten years ago, the scale and ambition of private space companies would have been greeted with snorts of derision and looks of disbelief. Today governments embrace the private capital, and regard the companies that have deployed it as systemically important national assets.

As we look to the future, huge macro trends emerge that demand significant investment: the aging population, the threat of pandemic, the drive to create a sustainable economy and lifestyle, the need to decarbonise, the digital revolution. The list goes on.

Public finance cannot hope to provide the finance and pioneer the bold thinking and accept the risks required to find new solutions that drive us forward in a world of change. That role goes to the private investor and private capital.

For the investors themselves the opportunities are immense, and for society as a whole they are just as big. As we look forward public and private sector needs to embrace private capital. Rather than fearing private investors as locusts who strip organisations and opportunities of profit then fly away, a narrative that gained traction after the last great economic crash. This time we need to see private capital as agents for positive transformation. Private-public partnerships fuelling each other.

Private money is already building rockets that send people and payloads into space, but that isn’t the final frontier for entrepreneurial investors or the societies and economies that benefit from their boldness.

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What should I invest and How do I invest

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What should I invest and How do I invest 3

By Imogen Clarke, The Fry Group

With all the uncertainty that has arisen from 2020, with lockdown threatening businesses and the warning of a second wave, the topic of investments has taken on new meaning. Nowadays, more people are concerned with what makes for a good investment, or, if you’re a novice, how to best invest.

For instance, you might be unsure about the reliability of the company you’re looking to invest in, as well as the long-term prospects of your investment.

If you are unsure of your investments, then it is best to seek advice from financial experts like The Fry Group, who deal with tax, wealth and estate planning. They will see that you have a strong financial plan in place to help meet your objectives. They will develop a strategy that is built around your needs and asses any risks that could hinder your plans.

There are some things you’ll need to consider for your strategy; for instance, are you looking to make investments that are more of a risk and will take longer to come to fruition? Or, alternatively, are you wanting a faster approach that will result in a steady income? Whether or not you decide to play it safe all depends on your current financial situation and whether you have the means to take more of a risk. Do you have any other debts that take precedence over your future plans? Is your investment strategy realistic?

With the aid of a specialist – or investment manager – you can design an investment concept that works for you and your goals, and start to build a regular income from your investments. There are four main areas when it comes to assets (groups of investments) that you can consider:

  • Equities
  • Bonds
  • Alternatives
  • Cash

Your investment manager will test the risks associated with your investment, and if it proves to be a positive investment choice, then you will be able to invest more over time.

So, how do you decide where to invest?

According to The Fry Group, ESG investing (Environmental, Social and Governance) is a good option for investors looking to support businesses that meet their similar ethics.

The main areas of ESG investing include:

  • Environmental challenges (climate change, pollution, etc)
  • Social issues (human rights, labour standards, child labour, etc)
  • Governance considerations relating to company management

According to The Fry Group, “Many investors choose to consider ESG investing in order to ensure any investment decisions reflect personal beliefs and values. As a result, they choose to support companies who are making informed, responsible decisions which take into account their wider societal and global impact. In this way investors can achieve peace of mind that their investments are creating a positive effect.”

ESG investing is also more relevant now than ever, as more businesses are looking to present themselves as an environmentally conscious corporation that recognises the values of their consumers.

As The Fry Group puts it, “In the past, ESG investing has been seen as a niche investment approach, for a relatively small number of people with specific requirements. This has changed significantly in recent years, with a growing awareness of environmental issues such as climate change and an increasing understanding of social issues and human rights. As a result, many people are increasingly interested in reflecting their opinions and lifestyle choices through the way they invest.”

So, if you want your investments to pave the way for your personal values and reflect your own morals, then this is the route to go down. But how does it all work?

There are four areas of ESG investing:

  • Responsible ownership and engagement: when companies are encouraged to make necessary improvements.
  • Avoidance or negative screening: whereby businesses are ‘graded’ based on how ethical their business practices are and are avoided altogether if their methods are not approved.
  • Positive screening strategies:when companies meet the ESG goals and are approved for investments.
  • Impact investment strategies: the purpose of this is to use investment capital for positive social results such as renewable energy.

You will need to take into account your own personal objectives as well as the objectives that meet the ESG investment criteria. And, in terms of financial performance, ESG investing can be hugely beneficial. Those who opt for ESG investing perform a more in-depth analysis into long-term and future trends that affect industries, meaning that they are better prepared for changes in consumer values when they arise. And, with all the unpredictability that this year has offered us so far, isn’t it better to do the research and have all angles covered?

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