PROFIT & LOSS EVENTS 2015
PROFIT & LOSS SHANGHAI November 12, 2015
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The Macro Effects of China’s Currency Devaluation
David Clark, Chairman, The Wholesale Markets Brokers' Association • Shawn Baldwin, Chairman, AIA Group • Zhang Shengju, General Manager, Research Dept. China Foreign Exchange Trade System • Fu Qing, Head of FX Trading, Financial Markets, Standard Chartered Bank (China) Limited
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Chairman’s address: "Update on Global Regulation" David Clark, Chairman, The Wholesale Markets Brokers' Association www.profit-loss.com
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RMB Market Reflects Wider FX Concerns
As global renminbi trading volumes continue to grow, the RMB market increasingly faces similar challenges to the G10 currency markets, according to panelists at Profit & Loss’ Forex Network Shanghai conference.
“I
f you look at the major issues in the FX market today - banks versus non-banks as liquidity providers, the use of algorithims versus manual trading, the impact of regulations – all of these are sitting around RMB as well. I certainly think it’s a mirror of what is happening in the wider market,” said Jon Vollemaere, CEO and founder of R5FX. Also speaking on the panel, Simon Winn, head of sales for Asia Pacific at EBS BrokerTec, questioned what onshore RMB trading will look like in the future, given the growing prevalence of automated trading. “Looking back over the past 20 years we’ve seen different trading centres develop distinct personalities and characteristics,” he said. “For example, Hong Kong was a more aggressive arbitrage centre where the level of trading skill was very high, whereas Singapore was a more relaxed, client driven, environment. “My interest is how the onshore characteristic will actually develop in mainland China because we’re now in an age where there’s less personality and more robotics in trading. Five years from now, what will be the personal input to a position that’s being generated?” Winn stated that on EBS BrokerTec’s platform, approximately 80% of the CNH trading is transacted manually, with the remaining 20% being executed
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with algorithms. He added that this figure is almost exactly reversed in G3 currencies, with about 70% being algorithmically or API executed and 30% being done manually. Ultimately, Winn suggested that he sees the percentage of CNH transacted via algorithms shifting over time to look more like the G3 markets, adding that an increase in algo trading is not necessarily a bad thing. “It can give you better execution capabilities; on our platform, firms can generate liquidity in two forms with different execution models, VWAP or TWAP, and we also offer Iceberg orders now. “All of this helps to reduce market impact, which in the bigger picture is good for liquidity. People feel safer entering into a position if they are confident in their ability to exit the market, and algos help with that. I think that five years from now algo trading will be smarter and more prevalent,” he said. Yun Zou, head of fixed income and currency trading at Deutsche Bank China, agreed that algo trading will prove beneficial to the overall RMB market. “As a dealer, my number one priority is to look after my client flows and square all the risk. Algos can help with that, especially when it comes to handling numerous smaller-sized transactions.” One of the questions that was raised on the panel was how Chinese authorities will react to an
SHANGHAI 2015 • PROFIT & LOSS
David Clark, Chairman, The Wholesale Markets Brokers' Association • Yun Zou, Deutsche Bank • Jon Vollemaere, R5FX • Simon Winn, EBS BrokerTec
onshore market where machines rather than humans are controlling trading flows, given that it is an issue that has engendered so much debate in currency markets elsewhere. But Zou made the case that algo trading represents a complement to manual traders rather than a replacement of them. “When we use algo trading, we spent a lot of time focusing on the programme that we’re using and when the market is stable we set perameters on that programme in a specific way to help effective price discovery. But in August when the market conditions became more stressed, we shut down the algo trading and our traders intervened. “So from my perspective, algo trading is a complement and a support to traders, it does not mean completely giving up control to machines, especially when it comes to USD/CNH. I’m positive that algo trading is going to be very good for the market,” he said. As the discussion around the growth of algo trading, and subsequently high frequency trading, continued, Vollemaere pointed out that the real focus for trading firms using these technologies is on access rather than simply speed. “I see an algo is something that is simply executing on the model that I have given it so that I can go home and sleep at night and the machine will transact for me, and do it more efficiently than me.
I think that’s a good thing. “But I think if you look at the definition of HFT, then it’s really about access. One guy’s computer has access to a market a little bit faster than another guy’s, or one guy might specialise in having access to a market that many others don’t. “In China we have two markets: a CNY market and a CNH market, because there is an international and a domestic use for the currency. The point here is that there’s a difference between these two different markets and that makes trading these markets very much an access story at this point in time,” he said. Although the panelists highlighted that the RMB market is facing similar questions as G3 currency markets regarding the impact of greater automation and HFT strategies, Winn pointed out that there is still a significant gap between the two at this point in time. “Ultimately we will all follow what happens with the RMB, but I do think that there’s some catch up that needs to happen in this market from a purely mechanical or technical perspective,” he said. “One of the constraints, and this could potentially become a bigger and bigger issue, is CLS and the settlement around the CNY and CNH. Because, without CLS membership or third party membership, it’s very difficult for the market to grow as much as it should do or could do.” www.profit-loss.com
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Building a Robust Risk Chain David Clark, Chairman, The Wholesale Markets Brokers' Association • Chris Coletti, Director of Sales, MarketFactory Inc. • Galen Stops, Deputy Editor, Profit & Loss
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What Next for the FX Market in Asia? Fu Qing, Head of FX Trading, Financial Markets, Standard Chartered Bank (China) Limited • Jim Cochrane, Director, Analytics, ITG • Kurt vom Scheidt, Executive Director, Global Head of Foreign Exchange, Saxo Markets, Singapore
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Cocktail Reception
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