Horizon Software has released a new version of its Horizon Trading Platform for electronic trading and market making of all types of delta one products including cash, futures, exchange-traded funds (ETFs) and other listed products such as certificates and warrants.
The software solutions provider has already a number of issuers of structured products using its platform to trade structured products in Switzerland and Germany, and also in Hong Kong where 37% of issuers of structured products use Horizon Software, said Sylvain Thieullent (pictured), chief executive of electronic trading at Horizon Software. “Our platform is used to launch thousands of products every year,” said Thieullent. “This new development makes part to our plans to provide competitive tools to product issuers and it’s a reflection of how the market is evolving.”
According to Thieullent, investment bankers have joined asset managers and are demanding a more systematic approach to trading to be able to expand their client base and target institutional investors. “However, to achieve that you need new tools to optimise the management process,” he said. “You can have an ETF issuer using futures to hedge an investment. But over time, you will most certainly find some opportunities to rebalance the ‘hedged’ futures positions towards the cash equity market making. On the other hand, you can also use these tools to address other specificities of the local market, such as stamp duty in Asia. Sometimes issuers prefer to be more aggressive in order to unwind a position to avoid having to hedge directly. The flexibility of these tools offer you an optimised path depending on market conditions.”
Along with built-in pre-trade risk checks, the revamped Horizon Trading Platform will enhance market making and pair-trading strategies, such as mean reversion and correlation / index arbitrage on baskets and delta one derivatives. The Algo Scripting layer added to the existing capabilities can use all the trading modules within the trading platform, allowing all types of trading and arbitrage strategies to be tailor-made to clients’ needs.
The structured products market is also evolving with traditional issuers of structured products moving into the ETF segment, said Thieullent. “We are also seeing traditional asset managers tapping into that segment of the market as well,” he said. “These providers are demanding a higher level of sophistication on the trading tools they use. This, we believe, is to do with a migration of investment bankers into the buy-side who want to access sophisticated tools to be more efficient with their trading activities.”
As a result of this rapid expansion, said Thieullent, competition is becoming more intense and ETF providers need to launch fewer ETFs but with better hit-rate and liquidity which is why market participants “need to have the right trading tools to be able to compete”. “This latest addition to its product family will help industry entrants and existing issuers to enter new markets, manage new assets and build brand awareness to make their businesses successful,” said Thieullent. “For us, the challenge is to find the balance between complexity and sophistication. We want to create tools that make sense and are efficient. We have a number of functionalities in the pipelines which will be integrated into our software to add value to our clients such as source codes for traders, as well as customisation tools.”
The architecture of Horizon for delta one embeds the existing platform concept of Compact Unit, where all high-throughput trading components are consolidated into a single process.
Horizon pointed at a new report by Ernest & Young, which found that, in 2014, the global ETF market reached a milestone by crossing the US$2.6tr mark, which suggests that ETFs are still out-growing the wider asset management industry.
Trends indicate that this growth will continue in 2015 and will hit $5trn in the next three to five years, according to the report. While the US market is near maturity, industry experts expect a rapid expansion in the use of ETFs in the developing markets, mainly in Asia and Latin America.
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