P&L Apr13 preview by P&L Services Ltd.

APRIL 2013 VOL. 14 / ISSUE 140 www.profit-loss.com

The Benefit of Flow

Barclays Unveils Gator

Traiana’s Andy Coyne: TAKING THE REINS Traiana’s new CEO is not new to the company, having been the firm’s first customer, instrumental in the development of its first FX matching system, as well as its flagship Harmony network. Andy Coyne talks about his now completely hands on approach to leading the post-trade processing firm.

EBS Rebrands CTAs in Rising Rate Environments

History Made as Dealers Report Trades

ALL CHANGE: OPTIONS SET FOR A DIFFERENT WORLD

FX C CLOUD LOU UDâ&#x201E;˘

The T he O Open pen Platform Platform for for FX FX Unrestricted U nrestricted d direct irect access access to to the the entire entire market market - Banks, Banks, EECNs, CNs, H HFTs FTs Unrestricted U nrestricted ccommerce: ommerce: TTrade rade h how, ow, w where, here, w with ith w whomever homever yyou ou w want ant FFree ree admission: admission: No No up-front up-front ccosts, osts, n no om monthly onthly m minimums inimums

The most powerful FX platform at your service. www.integral.com/FXCloud Liquidity Aggregation t White Label t Margin FX Trading t )PTted Algos

ÂŠ2 2013 013 IIntegral ntegral Development Development C Corp. orp. A Allll rights rights reserved. reser ved. IIntegral ntegral technology technology is is protected protected u under nder U.S. U. S. Patent Patent N Nos. os . 6 6,347,307 ,347,307 B B1 1 aand nd 7 7,882,011 ,882,011 B B2, 2, p patent atent p pending ending aapplications pplications aand nd rrelated elated iintellectual ntellectual p property. roper t y.

Profit & Loss

PROFIT & LOSS APRIL 2013 INSIDE THIS MONTH:

editor’s note

36: History Made as Dealers Start to Report Trades

35: Knight Capital Getco Unveils Management Team

30: CFTC to Weaken RFQ Rules?

34: Basel Committee Updates FX Settlement Guidance

o it’s mid-March and we remain cautiously optimistic that markets have recovered some of their joie de vivre and that 2013 will be better than 2012. This is a good basis on which to discuss the current market at Forex Network London on April 25. I mention the London conference up front because it feels a little strange writing the introduction to the April issue without a mention of the Digital FX Awards, which historically have appeared in this issue. Fear not, the awards are being settled, but the vagaries of the calendar, which saw our London conference much later than normal, means the awards are in the May issue instead this year, although you can pop along to the Brewery on April 25 to hear them announced of course! In this issue, we follow up a theme from the September 2012 issue of Profit & Loss in which we looked at the platform maze in FX. This time, we have taken a look, and discussed with market participants, the FX options multidealer space. Many have launched, how many will survive? That will be decided by the users of course, but to help throw some light upon dark, we are looking at the value proposition and functionality of each. Also this month, we take a look at the BIS paper which says customer flow is directional. There is nothing particularly revelatory in this, but it is empirical support to what we have always known – even if I, and many others, were surprised by one key finding of the research. Ultimately, I believe this is a valuable piece of research but that sadly it will be out-of-date fairly quickly as the dynamics of the industry change yet again. Turn to page 25 to find out why. The regulatory world still seems upside down, rarely a week goes by without one person or another giving me a tip that the SEF rules will be released “this weekend”, and I suppose, much like those magazines that spent (literally) years claiming the Duchess of Cambridge in the UK was pregnant, one day they will be right (and no, I don’t read them but my wife does!). Exactly how many RFQs are required is important for some in the market; however, I am not sure it is that important. Five RFQs is too many – even for the buy side these regulations are supposed to protect – but two or three makes little difference. Some will be able to execute on single dealer platforms, others will prefer the multi-dealer venues – both will find a way to exist. Finally, the first mention this year of our Digital Markets Readers’ Choice Awards and the Profit & Loss Hall of Fame. We have finished our deliberations over the Profit & Loss Digital FX Awards, which are given based upon user feedback and our observations, so it will be soon time for you to express your opinion through your vote. The categories are being finalised and we expect to have voting live on April 4 for our Readers’ Choice Awards. Register your view ahead of the awards ceremony in New York, alongside Forex Network New York on May 30. Have a good month.

www.profit-loss.com facebook.com/profitandloss Profit & Loss Forex Network @Profit_and_Loss

www.profit-loss.com I Profit & Loss I April 2013 I

PROFIT & LOSS

EVENTS

2013

Publisher & Editor-in-Chief Julie Ros jros@profit-loss.com Commercial Director Michelle Hemstedt michelle@profit-loss.com

Editor Colin Lambert colin_lambert@profit-loss.com Advertising Sales Anna Liza anna@profit-loss.com

Deputy Editor Kirsten Hyde kirsten@profit-loss.com

Join Profit & Loss at our series of global Forex Network Conferences and events. Interactive panel discussions and networking opportunities are key features of P&L events, along with the leading edge FX technology trade shows.

Platinum Sponsors

Events Manager Cindy Loveday cloveday@profit-loss.com

Reporter Alice Attwood alice@profit-loss.com Events Assistant Sarah Barton sbarton@profit-loss.com

Design/Production Manager Andrew Meikle andrew@profit-loss.com

Gold Sponsors

Silver Sponsors

Supporting Sponsors

For further information about Forex Network Events, please contact: Michelle Hemstedt, Commercial Director Cindy Loveday, Event Manager michelle@profit-loss.com cloveday@profit-loss.com

www.profit-loss.com

UK Switchboard: +44 (0) 20 7628 7676 US Switchboard: +1 646 290 5255 Editorial: +44 (0) 20 7382 0331 Advertising: +44 (0) 20 7382 0332 Events: +44 (0) 20 7382 0335 Subscriptions: +44 (0) 20 7382 0332 Fax: +44 (0) 20 7628 7627 Email: sales@profit-loss.com editor@profit-loss.com

Subscription and advertising sales enquiries: UK: P&L Services Ltd. Suites 46-48, 65 London Wall, London , EC2M 5TU USA: Profit & Loss 845 Third Avenue 6th Floor NY, NY 10022 Asia Pacific: P&L Services Ltd, Level 4, Suite 404, 83 York Street, Sydney NSW 2000, Australia

ISSN: 1467-2650. ÂŠ 2013 P&L Services Ltd. All Rights Reserved. No part of this publication may be reproduced in any way without the express written consent of P&L Services Ltd. Any views or opinions expressed by contributing writers do not necessarily represent the views of the publisher. Articles are published in good faith, without responsibility on the part of the publishers and editors who cannot be held responsible for any loss, claim or litigious action that results from any of the views expressed herein. The publisher and its editors accept no liability for misrepresentations, errors or omissions incurred during production.

Enter th Enter the world of Hot Hotspot FX to e to experience xper a new level of ins tit institutional liquidity

ǩ Innovative Inn Inno novativ t e technology technol hno ogy ǩ Deep and diverse diverse liquidity

Award Awar d Winning

ǩ Competitive ǩ Competitiv Compe ve pricing prricing Full depth-of-book depth-of-b book ǩ Full

ǩ Over Over 60 ccurrency cu curr urrrency e pairs pair airs ǩ Spot Gold Golld & Silver Silver ǩ Spot

Best B est FX T rading Trading Platf orm Platform

Best Best B P Pr ofessional Professional e e-T rading gV enue e-Trading Venue

Best Platf Best B Platform orm ffor o Hedge or F unds Funds

2012 & 2013 Wall W all Street Letter Institutional Trading T rading Awards Awards

2011& 2012 2 Week F W FX eek eFX Awards Aw wards

20 2011 011 Profit & Loss Digital Di igital Markets Awards A w wards

Americas Ame ericas +1.212.209.1420 Eur o +44 (0) 20.7997.7800 ope Europe Asia +65.6538.1489 +65 6538 1489 hots potfxsales@knight.com hotspotfxsales@knight.com www w.knight.com www.knight.com

© March March 2013 3 Knight Capital Group, Group, Inc. All rightss reserved. reserved. Knight Hotspot FX LLC is an a n indirect indirect wholly owned subsidiary off Knight Capital Gr Group, oup, Inc. Inc. (NYSE Euronext: For additional information about Knight Capital Group, Group, o Euronext: KCG) please pleas e visit www.knight.com. www.knight.com.

Contents

On the Cover... Traiana’s Andy Coyne: Taking the Reins Traiana’s new CEO is not new to the company, having been the firm’s first customer, instrumental in the development of its first FX matching system, as well as its flagship Harmony network. Andy Coyne talks about his now completely hands on approach to leading the post-trade processing firm..............................................12

25 33

12 40

36 FEATURES: All Change: Options Set for a Diﬀerent World .................16

The Players ....................................................................................18 Photos from Proﬁt & Loss FX GROWTH MARKETS COLOMBIA & MEXICO.................15

P&L’S SQUAWKBOX: News from Around the Globe ..................................................8

TRADING ROOM:

26 21

Thomson Reuters Restructures Transactional Sales.....................................................................20 The Beneﬁt of Flow ....................................................................21 Brokers Go Head-to-Head in US IRS Market .....................22 ISDA Emphasises Importance of Non-Cleared OTC Derivatives Market............................................................23 CFTC to Weaken RFQ Rules? ...................................................24 10 Years Ago in Proﬁt & Loss Headlines from April 2003.......................................................25 EBS Rebrands, Hires Two..........................................................26

I April 2013 I Profit & Loss I www.profit-loss.com

Contents

DIGITAL MARKETS What’s New? .................................................................................27 Barclays Unveils Gator...............................................................28 Basel Committee Updates FX Settlement Guidance.....29 Knight Capital Getco Unveils Management Team .........29 FXC/FMLG Update PB Recommendations.........................29 History Made as Dealers Start to Report Trades .............30 Years Ago in Profit & Loss

Headlines from March 2003

p.25

MARKET OF THE MONTH Time for bottom up selection in emerging market FX By Roderick Ngotho, The Royal Bank of Scotland ..........32

30 MONEY MANAGEMENT Paper Argues the Diversiﬁcation Beneﬁts of CTAs.........33 In Brief.............................................................................................34

RETAIL RADAR

On the Radar ................................................................................35

MOVERS & SHAKERS People on the Move ..................................................................37

THE LAST WORD

32 6

I April 2013 I Profit & Loss I www.profit-loss.com

The last word on some of the themes covered in P&L’s Squawkbox, through your correspondence...........38

P&L’s Squawkbox: News from around the globe LONDON were previously solely A new fix is live... Icap’s electronic based on the platform that foreign exchange trading platform, EBS, was traditionally the and Thomson Reuters have merged the primary liquidity pool in sources for the Thomson Reuters and EBS each currency. 30-minute FX fixing to offer a holistic Phil Weisberg, global head view of the FX market on Thomson of foreign exchange at Reuters Eikon. Thomson Reuters, says, The FX fixing is blended via a proprietary “This collaboration algorithm to ensure that all traded liquidity Gil Mandelzis between Thomson Reuters across the Thomson Reuters Matching and and EBS is a great example of the industry EBS Market platforms is working together to improve the overall used in the fixing trading experience for the benefit of all calculations, providing market participants. By blending Thomson transparency and the most Reuters and EBS sources for our 30accurate picture of liveminute FX fixings we are ensuring that traded prices to FX maximum liquidity has been calculated market participants, say within each currency fixing and therefore the companies. providing maximum transparency for the The dually supported Phil Weisberg marketplace as a whole.” fixing is currently Gil Mandelzis, chief executive officer at available via Thomson EBS, adds, “The FX industry is focused on Reuters Eikon, the company’s flagship ensuring a fair, robust and transparent desktop product, and will be available on the marketplace and is continuously evolving newly dubbed EBS Market later this year. and innovating to push this agenda The fixing has been developed to promote forward over many fronts. This is another greater transparency across the platforms, in grass roots initiative that will improve order to meet increasing demand for more current practices significantly for the timely and precise reference data, based on benefit of all market participants. EBS is real-time market transactions. pleased to lead such changes, together The blended fixing brings together liquidity with Thomson Reuters and in partnership from both platforms for greater accuracy and with other market participants.” market colour; the 30-minute fixed rates

The fixing services were introduced in 2006 at the request of the Bank of England as it halted the publication of FX rates. Daily benchmarking at 11am and 4pm GMT were initially provided by both Thomson Reuters and EBS on FXFIX and FXCLOSE. From March 2011 the services were expanded to deliver fixings every 30 minutes in EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF and USD/CAD and were available on Eikon as well as Thomson Reuters 3000 Xtra.

LONDON …A new platform is not. Icap’s EBS has denied talk in the markets that its EBS Direct product has been put on hold at a preliminary stage while it enhances its technology infrastructure. EBS Direct was unveiled in late November 2012 (Profit & Loss, December/January) and at the time the company said the launch would be December 2012. It did indeed launch in that month, with 20 or so pilot customers using the platform, but Profit & Loss has been told that other firms have not yet been allowed to start using the platform due to concerns over the weight of traffic over the platform.

Sources familiar with the matter say that the EBS Direct service has received a lot of interest since its announcement, to the degree that in addition to the more than 20 liquidity providers signed up publicly, it has over 200 liquidity consumers lined up ready to go. Sources at three of these firms tell Profit & Loss they are not currently live on EBS Direct and do not expect to be until the middle of the year, two sources say they originally expected to be live in Q1. Sources familiar with the situation say that the plan from day one was to build a dedicated infrastructure for EBS Direct and that the plan was always for a mid-2013

launch, once the company had learnt from the beta testing period and adjusted the model accordingly. That beta testing program is continuing with a limited number of liquidity providers and consumers, the sources say, adding that a full launch will not proceed until it is ready in a scalable fashion. In response to queries regarding the market chatter, Gil Mandelzis, CEO of EBS, says in an emailed statement, “EBS is committed to delivering best in class, robust, scalable and reliable solutions to our clients. We are on track, according to our plans and are very pleased with the progress.”

year (see Profit & Loss, July/August 2012). “Giving our traders and customers access to FastMatch’s ECN capabilities will provide additional alternatives to source liquidity by accessing larger pools of buy/sell opportunity, as well as faster execution,” says Craig Messinger, executive vice president and global head of trading and risk management for BNY Mellon Global Markets. “Participating in FastMatch continues BNY

Mellon’s tradition of electronic innovation in the FX space,” adds Jorge Rodriguez, executive vice president and global head of foreign exchange sales for BNY Mellon “With investors increasingly focused on the importance of managing currency risk, we’re committed to putting in place FX service enhancements that will enable us to add even more value to client relationships across the BNY Mellon enterprise.”

NEW YORK FastMatch gets an investor. The Bank of New York Mellon has joined the FastMatch FX ECN to allow its traders to route trades to the venue – as part of the arrangement, BNY Mellon is taking an undisclosed stake in the platform. The bank joins founder partners FXCM and Credit Suisse (whose Crossfinder technology provides the backbone of the platform) as owners of the venture, which launched last 8

I April 2013 I Profit & Loss I www.profit-loss.com

P&L’s Squawkbox: News from around the globe

LONDON BGC on the prowl. BGC Brokers, an entity of BGC Partners, has acquired the business and a number of assets of London-based broking company, Sterling International Brokers. Sterling, which specialises in traditional money broking services including the execution of money market deals in sterling, euro and other major currencies, as well as

complements the products we offer clients and we look forward to adding this excellent business into our firm imminently.” Sterling is regulated by the Financial Services Authority and its clients include banks, building societies, as well public sector and commercial participants in the sterling and currency markets.

related derivative products, was previously owned by the Skipton Building Society. The acquisition will see BGC acquire Sterling’s business, team of brokers and product suite. Mark Webster, executive managing director and general manager at BGC, says, “The firm's focus on Sterling and other major currency transactions

MUMBAI EBS adds onshore INR. Icap’s EBS has launched two new rupee products on its anonymous platform in India, EBS Market. Spot USD/INR and the INR Fix are now available on the electronic platform for onshore bank customers to trade. The first trade in EUR/USD was executed on EBS Market by an Indian private sector bank on 24 January. The INR Fix is also available for onshore bank customers to trade on the platform, they will also have the ability to match corresponding interests to buy and sell trades. In another development, Icap says that banks in India that satisfy eligibility criteria can now trade all G7 currencies available on EBS Market, as well as a range of emerging market currency pairs. Digant Bhansali, vice president at Icap India, says, “Icap recognises that emerging markets

are one of the prime growth areas in FX and that India is one of the cornerstones of that growth. The launch of the EBS Market platform in India leverages the expertise and local market knowledge of Icap India, which has been successfully established in the country for more than a decade, with the world’s leading electronic FX trading platform.” Darryl Hooker, global head of emerging market sales at EBS, says, “India is a market with tremendous growth potential and this marks an exciting new development for EBS, with more than 20 banks now ready to access the largest source of genuine, executable spot FX liquidity. EBS Market customers in India will be able to trade in a stable environment that promotes fair access for all participants, on a system supported by robust, proven technology.”

“UBS gained market share, especially among financials and partially as a result of its strong electronic trading capabilities. Notably, Bank of America Merrill Lynch added share among both corporate and financial FX users.” While leading in terms of market share, Deutsche lost out on the title of 2013 Greenwich quality leader in global top-tier foreign exchange service, to Citi, driven predominantly by the bank’s strong corporate presence. Citi leads all dealers in the top-tier corporates space, with a market share of 10.1%, followed by HSBC at 8.4%. Deutsche and JP Morgan, which are in a statistical tie with market shares of 7.8% and 7.5%, are followed by Barclays and RBS, which are tied at 6.0% and 5.9%, respectively. These banks are the 2013 Greenwich share leaders in global top-tier corporates foreign exchange. Citi also claims the title of the 2013 Greenwich quality leader in global toptier corporates foreign exchange service. Among top-tier financials, Deutsche and

UBS statistically tied for first place with shares of 11.3% and 11%, respectively, followed by Citi and Barclays at 10.1% and HSBC and JP Morgan at 6.9% and 6.8%. The report says, “The strength of the world’s leading FX dealers can be attributed in large part to the breadth of their capabilities around the world.” While UBS and Deutsche led the European FX markets with shares of 11.2% and 11.1%, US-based Citi and Barclays ties for the next rank, with a market share of 9.4%. The US market is led by a tie between Citi and UBS, with Greenwich reporting market shares of 11.5% and 11.1%. Deutsche takes the next slot with 10.3%. The Asian market sees HSBC lead the fray with 13.5% of the market, followed by Barclays and Citi in second place. However, Deutsche’s 13.6% market share in Japan sees the bank beat Barclays, UBS and Citi. Last year Greenwich ranked Barclays the leading bank in FX in terms of market share (Profit & Loss, May 2012).

LONDON Deutsche biggest FX bank. Deutsche Bank has been ranked the leading bank in the foreign exchange market, in terms of global market share, by financial research company, Greenwich Associates. The top tier of global FX dealers includes six banks: Deutsche, Barclays, Citi, UBS, HSBC and JP Morgan. These banks comprise the 2013 Greenwich share leaders in global foreign exchange. According to the survey, Deutsche holds a 10.7% market share in global FX trading, with Citi, UBS and Barclays sharing second place with market shares of roughly 10% each, followed by HSBC and JP Morgan which are tied at 7%. The findings have surprised some in the industry where HSBC has generally been considered the largest FX bank due to its extensive global footprint. Greenwich consultant, Woody Canaday, says that most of the momentum in FX trading, leading to meaningful gains in market share during the year, were demonstrated by the top three dealers, Deutsche, Citi and UBS.

www.profit-loss.com I Profit & Loss I April 2013 I

P&L’s Squawkbox: News from around the globe LONDON Platform volume up in February. Those platforms that report data saw strong growth year-on-year in February, but more subdued month-on-month change. CME Group was first to report, seeing average daily volume of 1.1 million contracts per day – a notional, according to Profit & Loss estimates, of $137.5 billion per day. This represents an increase of 24.5% yearon-year and 8.2% from January 2013. CME also appears to have made a strong start to March, the exchange announced record open interest on March 7 in its global suite of FX products. A record $278 billion ($167 billion in futures and $111 billion in FX options) equivalent to 2.4 million contracts was posted on CME.

Icap’s EBS registered average daily volume of $149 billion, a 17.6% increase year-onyear and a 5% rise on the first month of this year. Thomson Reuters, which reports average daily spot volume across its Matching, RTFX and Dealing3000 venues, reports average daily volume of $137 billion. This is a slight increase from February 2012’s $136 billion, the firm had a particularly strong start to 2012 so its year-on-year comparisons suffer accordingly, and an 8.7% increase on January 2013’s data. FXall, which is owned by Thomson Reuters, saw a $1 billion increase in month-on-month volumes at $110 billion per day in February; however, the firm continues to record strong

year-on-year growth, in this case 26.4%. Unlike the other venues, FXall includes FX swap volumes in its data. Finally, CLS Group, operator of the Continuous Linked Settlement system, says it handled 1,351,490 instructions in February, an 8.6% increase on January and 29.7% up from February 2012. CLS’s Aggregation Service contributed slightly more to the month-on-month growth – 10.5% – than the traditional settlement services model, which grew 7.5%. In value terms, CLS processed an average daily value of $5.17 trillion, a slight decline from January’s $5.19 trillion, but well up on February 2012’s $4.76 trillion. As at March 22, Hotspot FX had yet to report February volumes.

Philippine fixed income, will head the Manila office. He has been with GFI since 2005 and previously worked as a fixed income trader in Manila and Hong Kong. The new office opens with a staff of 10 Aquino says of the new office, “The Philippines is an area of great potential for us and a natural step in our growth

strategy in Asia. Our presence will allow us to offer our expertise and services to one of the fastest growing markets in the region. I am very bullish on the Philippines. I believe our experience in international markets will offer utmost value to the development and expansion of the Philippine financial markets”.

be forced to settle contracts through the registered CCPs. The forced clearing has been directed in order to reduce counterparty risk, to prevent the default of one market participant causing the collapse of other market players, as seen in the global financial crisis in 2008. The bill forms part of Korea’s Financial Investment Services and Capital Markets Act (FISCMA), introduced in June 2011 to

support large investment banks in adopting alternative trading systems, but the act failed to be passed in its entirety until now. According to reports, South Korea’s OTC derivatives market reached 6,904 trillion won (USD6.32 trillion) by the end of 2011, around 100 times larger than its listed derivatives market, with interest rate swaps accounting for around two thirds of the overall OTC product suite.

MANILA GFI Group opens office in the Philippines. GFI Group has opened an office in Manila, the Republic of the Philippines. The new office will predominantly broker for the Philippine government and corporate fixed income products in the domestic market, says the company. Derrick Aquino, managing director for

SEOUL Korea to get CCP. South Korean lawmakers have passed a revised bill on capital markets that will allow the creation of central counterparties (CCPs) for the clearing of OTC derivatives. The Financial Services Commission (FSC) has confirmed that the country’s legislators passed the bill that will enable the OTC derivative CCPs to be set up in at least three weeks. Derivatives including interest rate swaps will

BOGOTA

Faces. Attending an industry event, party or fund raiser? We want your photos! Email them to jros@profit-loss.com for inclusion in future ediitons of P&L. This month, we are kicking off with a caption competition. Best one gets a bottle of champagne. Email your entries to Julie Ros at the above email for consideration...and don’t forget to send us your photos too.

10 I April 2013 I Profit & Loss I www.profit-loss.com

∙ Widest Market Connectivity ∙ Faster Price Distribution ∙ Streamlined Trade Processing ∙ Smarter Post Trade Network ∙ Real-time Business Analytics

At DealHub we don’t do ‘one size fits all’. From Tier 1 banks to specialist brokers, our incredibly flexible framework of high performance software is helping customers reinforce their advantage in a market that leaves little room for second best. Off the shelf convenience, with bespoke performance.

Pre Trade. At Trade. Post Trade.

www.dealhub.com

Cover

Traiana’s Andy Coyne:

TAKING THE REINS

Traianaʼs new CEO is not new to the company, having been the firmʼs first customer, instrumental in the development of its first FX matching system, as well as its flagship Harmony network. Andy Coyne talks to P&Lʼs Julie Ros about his now completely hands on approach to leading the post-trade processing firm.

JR: What was the main surprise you found going from being a client of Traiana to running the company? Andy Coyne: It was a real honour having worked with the Traiana team for such a long time to suddenly be working there and running the business. It was a big change for me. With 250 people, Traiana is a bigger team than I was used to, and it’s a much more diverse business than it used to be – it’s very much in the cross asset space now. That was the real learning curve for

www.profit-loss.com

12 I April 2013 I Profit & Loss I www.profit-loss.com

me, but it was a nice surprise to see how much we’ve got going on in other asset classes, which diversifies both our client base and income stream. Generally speaking, it wasn’t a huge cultural change, I’ve known the team and worked closely with them for 12 years and we’ve developed products together along with my prime brokerage peers, so that was a fairly easy and enjoyable transition.

Cover

“I’d liken our client base to a network. We pretty much touch any market participant in some way, shape or form.”

JR: Is this your first non-bank job? AC: Yes. I’ve been in banking since 1985, so this is my first nonbank role.

Traiana. Having been a customer has been a huge help when I talk to the client base, which were originally my peers and are now my clients.

JR: Was it a tough transition moving from a suit every day to jeans? AC: It’s a habit I’ve found hard to change! The good thing about the change has been having banks as clients and being able to understand what they’re looking for from a relationship with

JR: You were Traiana’s first FX customer. You helped build its first matching engine and conceptualised the Harmony product. What was the industry like at the time, and how did Harmony come to be?

PROFIT & LOSS IN THE CURRENCY & DERIVATIVE MARKETS

Premium content Read the full version of Profit & Loss April

subscribe: www.profit-loss.com/?q=subscribe

www.profit-loss.com I Profit & Loss I April 2013 I 13

PROFIT & LOSS

EVENTS

2013

PROFIT & LOSS FX GROWTH MARKETS COLOMBIA BOGOTA, MARCH 5, 2013 Opening Address

Session 1: “The Electronification of FX”

Daniel Castellanos, Vice President, Asobancaria

Session 2: “Currency Wars”

Greg Anderson, North America Head of G10 FX Strategy, Citi

Session 3: “Is EM the New G10?”

Juan Carlos Escalera, Head of FI/FX Specialist Latam North, Thomson Reuters Felipe Trujillo, Head of Derivatives, Colombia Stock Exchange Paul Millward, Head of FX ECommerce, GFI Group Dave Reid, Director, CitiFX Prime Caio Blasco, Director of e-commerce and e-trading Latam, Deutsche Bank

Keynote Address: “Foreign Exchange Market and Regulation Developments”

Gabriel Casillas, Ph.D, Managing Director, Chief Economist and Head of Research, Banorte Alejandro Cuadrado, Executive Director - Latam FX Strategist, BBVA Camilo Pérez Álvarez, Head of Economic Research, Banco de Bogotá Daniel Niño, Economist, Pyxis Economica

Juan Sebastián Rojas Moreno, Jefe Desarrollo De Mercados, Departamento De Operaciones Y Desarrollo De Mercados, Banco de la República

PROFIT & LOSS FX GROWTH MARKETS MEXICO MEXICO CITY, MARCH 7, 2013 Session 1: “The Electronification of FX”

Session 2: “Competitive Edge”

Guillermo Camou, Director, MexDer, Scotiabank Global Banking and Markets: Paul Millward, Head of FX E-Commerce, GFI Group: Daniel Conte, CEO & COO, Americas, Member of Global Executive Board, 360 Trading Networks: Jorge Alegría, CEO, MexDer

Matt O'Hara, SVP, Global Head of Business Development, Marketplaces, Thomson Reuters: Dave Reid, Director, CitiFX Prime: Robert Sanchez, Director, AMR FX Division, Rosenthal Collins Group: Bradley Seelig, VP, Head of FX, Deutsche Bank

Session 3: “Currency Wars”

Keynote Address:

Session 4: “Is EM the New G10?”

Greg Anderson, North America Head of G10 FX Strategy, Citi

Jaime Cortina, Director of Operations, Banco de Mexico

“Recent Developments in the Mexican FX Market”

Gabriel Casillas, Ph.D, Managing Director, Chief Economist and Head of Research, Banorte: Luis Martins, Head of Foreign Exchange in Latin America, BBVA

Feature

All Change: Options Set for a Different World Many have come to drink at the FX options multi-dealer well, but how many will actually access liquidity? Colin Lambert takes a look at the industry landscape.

t must be tempting for some to look at the developing FX options multi-dealer platform (MDP) world and see the spot market just after the turn of the century. The similarities can be compelling; the market is increasingly going electronic, there are a number of providers circling the start line hoping to get a

jump on each other, some are targeting workflow, others pure execution. The fact is though, this assumption is wrong. This is not the spot market. As is widely recognised, and has been for the best part of a

Premium content

Subscribe to read the full version of Profit & Loss April: www.profit-loss.com/?q=subscribe www.profit-loss.com 16 I April 2013 I Profit & Loss I www.profit-loss.com

Walk W a alk to to Work Work o k 2013 2013 Friday F Frida y 13 13th 3th Sept September e ember S Supporting Demelza a - EveryChild EveryChild - Hop HopeHIV peHIV - Variety Variety a

Join the F&O F&O and FX industries in ndustries as a they the ey step s tep p out for for 4 children’s children’s charities s in the and around UK a aroun nd the world wor orld Registered charity no. 1124171

Show the City cares Show cares - help he elp over in 2013 us raise raise a over £100k £ 2013 4 distances distances – c.10, c.10, 20, 20, 35 35 and - ne new w ffor or 20 2013 13 - a 50 mile o overnight verrnight y yomp! omp! 5 starting startin ng points – Tunbridge Tunbrid dge Wells, Wells, Brighton, Brighton, o Guildford, Guildford, Tring, Trin ng, Billericay Billericay

Register R egister at at futur futuresforkids.org.uk/#/walk-to-work-sept-2013/4571209440 esforkids.or o g.uk/#/ /walk-to-work-sept-2013/4571209440 No entry y fees fees – simply commit com mmit to to raise raise £100 0 minimum as an individual in ndividual or £300 as a team team For F or any any further details on walking walking or sponsoring sponso oring please contact contact David david@contango.co.uk Da vid Setters Se etters at at da vid@contango o .co.uk

with IIn n association association w ith

Charter C harter SSponsor ponsor

SSupported u ported by up by

Feature

The Players This seeks to lay out (in alphabetical order) the various value propositions of the individual platforms as well as provide a flavour of what people in the industry are saying, both positive and negative.

Bloomberg loomberg has the benefit of familiarity to so many players, as well as that of existing desktop presence. The platform seeks to offer the same level of pre- and post-trade analysis tools as can be found on a single dealer platform – with added multi-dealer quote functionality. The analytics package remains its calling card, from a choice of models to scenario and portfolio analysis, it also has built in safeguards that allow one sided pricing for those less sophisticated. Trading is fully disclosed with a maximum of five RFQs allowed simultaneously. Very much seen in the industry as a relationship model, as well as a good tool for those players with options traders but not necessarily the budget for bespoke high end analytics – several different packages are offered to satisfy most needs. No real negative view of the platform beyond some players wishing they could get some of the less sophisticated customers

from it to their single dealer platforms. While brokerage-free trading is very much a strong point, some question if it may be forced to separate execution and analytics in the future with the subsequent restructuring of pricing. ______________________________________________________

Bridge ery much aimed at the active trader, but a very flexible platform. Interactions can be one-to-one, one-to-many, or any-to-any across several execution models. Operates a dark pool mechanism as well as an ECN, also has an innovative Scatterplot view of the market that utilises visualisation techniques. Screen real estate easy to navigate and it’s easy on the eye, it’s an intuitively built platform by people obviously experienced in trading options. Operates with pre-trade anonymity but post-trade disclosure and could be termed an exchange model with single dealer

www.profit-loss.com

Premium content

Subscribe to read the full version of Profit & Loss April: www.profit-loss.com/?q=subscribe www.profit-loss.com 18 I April 2013 I Profit & Loss I www.profit-loss.com

ZĞŐŝƐƚĞƌ dŽĚĂǇ͊

)3/ &DQDGLDQ 7UDGLQJ %ULHILQJ 0D\ _ 7RURQWR %RDUG RI 7UDGH

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

x /HDUQ DERXW KRZ UHJXODWLRQV DQG WKH VHDUFK IRU OLTXLGLW\ DUH GULYLQJ WKH x x x x x x x

HOHFWURQLILFDWLRQ RI IL[HG LQFRPH PDUNHWV (IIHFWLYHO\ QDYLJDWH WKH QXDQFHV RI 1DWLRQDO ,QVWUXPHQW - &RQVLGHU D FRPSDUDWLYH YLHZ RI &DQDGLDQ UHJXODWLRQV DQG OHDUQ KRZ RWKHU UHJLRQV UHVSRQG WR WKH VDPH LVVXHV $QWLFLSDWH WKH QHHGV RI WKH &DQDGLDQ EX\-VLGH 2YHUFRPH WKH FKDOOHQJHV RI H[HFXWLQJ PXOWL-DVVHW FODVV VWUDWHJLHV DFURVV JHRJUDSK\ 6DYH PRQH\ E\ EUHDNLQJ GRZQ FRVWV DFURVV WKH WUDGLQJ OLIH-F\FOH )LQG RXW KRZ HQKDQFHPHQWV WR ),; FDQ DGGUHVV \RXU EXVLQHVV FKDOOHQJHV $QG PXFK PXFK PRUH

$OORFDWLRQ RI

)5(( 3DVVHV )3/ 0HPEHU )LUPV %X\-6LGH 5HJXODWRUV

ZZZ IL[SURWRFRO RUJ FDQDGD

)3/ 1RUGLF 7UDGLQJ %ULHILQJ 0D\ %HUQV +RWHO 6WRFNKROP -RLQ )3/ DQG VHQLRU PDUNHW SDUWLFLSDQWV IRU D KLJK TXDOLW\ GD\ RI HGXFDWLRQ DQG QHWZRUNLQJ 7KLV HYHQW ZLOO RIIHU GHOHJDWHV

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¶V OHDGLQJ LQYHVWPHQW DQG EURNHUDJH ILUPV UHJXODWRU\ ERGLHV WUDGLQJ SODWIRUPV DQG VROXWLRQV SURYLGHUV

$Q DOORFDWLRQ RI )5(( SDVVHV DYDLODEOH WR )3/ 0HPEHU )LUPV EX\-VLGH UHSUHVHQWDWLYHV DQG UHJXODWRUV

ƌĞĂƚĞĚ ďǇ ƚŚĞ ŝŶĚƵƐƚƌǇ͕ ĨŽƌ ƚŚĞ ŝŶĚƵƐƚƌǇ

$JHQGD +LJKOLJKWV

x x

:KDW LV WKH IXWXUH LPSDFW RI 0L),' RQ RXU PDUNHWV"

x x

+RZ WR GHOLYHU YDOXH WKURXJK PXOWL-DVVHW WUDGLQJ

+RZ FDQ ILUPV HIIHFWLYHO\ UHVSRQG WR WKH QHHGV RI WKH 1RUGLF EX\-VLGH FRPPXQLW\"

+RZ ZLOO LQFUHDVHG XVH RI FRPPLVVLRQ VKDULQJ DJUHHPHQWV DOWHU WUDGLQJ EHKDYLRXU LQ WKH 1RUGLF UHJLRQ"

x x

(IIHFWLYH SUDFWLFHV IRU FRQWUROOLQJ WUDGLQJ FRVWV

:KDW¶V WKH EHVW ZD\ WR DFKLHYH LQIUDVWUXFWXUH RSWLPLVDWLRQ"

$ UHYLHZ RI WKH LPSDFW RI VSOLWWLQJ OLTXLGLW\ DFURVV JHRJUDSKLHV

7KH RSSRUWXQLWLHV DQG FKDOOHQJHV RI VHHNLQJ OLTXLGLW\ LQ WKH GDUN YV OLJKW

+RZ LV VRFLDO PHGLD UHGHILQLQJ WKH ZD\ LQYHVWRUV JHW PDUNHW-PRYLQJ LQIRUPDWLRQ"

ZZZ IL[SURWRFRO RUJ QRUGLFV

5( * 72 ,67( '$ 5 <

Trading Room

Thomson Reuters Restructures Transactional Sales Following the completion of the takeover of FXall, Thomson Reuters has unveiled its new sales organisation. Alice Attwood reports.

homson Reuters has restructured its transactional sales business, with the creation of three new business

Dealing and Matching products. This structure He tells Profit & Loss, “FX continues to means we are be a strategic priority for Thomson best positioned Reuters Financial & Risk business and we areas. to continue to are well positioned to provide a global Under the leadership of Jim grow our trading trading community that connects buy side Kwiatkowski, global head of transaction volumes to sell side and delivers a leading sales, the business has been split in to integrated work flow and transaction three areas: ‘dealer to client’, ‘new sales’, proposition. This structure will ensure that Jim Kwiatkowski and ‘bank/HFT liquidity sales’, a we leverage our best relationships with spokesperson confirms. Within this, there each of our clients, continue to effectively development; he was most recently senior have been a number of global role changes serve our Matching and buy side vice president and global head of business at the company, all reporting to relationship trading operations, Marketplaces. Based in New Kwiatkowski. communities, and are best York, O’Hara joins Kwiatkowski’s team to Kwiatkowski is the former positioned to continue drive the expansion of the global head of sales at FXall. As to grow our trading company’s FX capabilities into part of the reorganisation volumes.” global growth markets. O’Hara following the departure of head The personnel joined Thomson Reuters in 2006 of Marketplaces Jas Singh in changes span the as head of Treasury for the December (Profit & Loss, January 2013), he took on company’s global Americas; he has also served as management of global presence. head of Marketplaces. Before Matt O’Hara transactional sales across both Matt O’Hara has this he spent 10 years as head of FXall and Thomson Reuters been appointed head of North America e-commerce at JP Jack Linker Transaction Services, which includes the transactional business Morgan Chase.

www.profit-loss.com

Premium content 20 I April 2013 I Profit & Loss I www.profit-loss.com

Trading Room

The Benefit of Flow A new paper from the Bank for International Settlements empirically backs up what people have been saying for years – customer flow is good. Colin Lambert takes a look.

he benefits of customer flow to banks have long been understood in the foreign exchange market. Be it through the ability to offset risk, maintain a more valuable relationship in other areas of the institution, or just the ability to earn spread from less professional participants, customers have often been welcomed by banks. Nothing much has changed in the modern, etraded world, where the benefits of technology mean that more flow can be managed more efficiently, indeed it could be argued that customer flow is now more welcome due to the banks’ ability to handle it better. No longer, it seems, can we sneer at the trite comment “the customer is at the centre of everything we do,” even if we prefer them to use the more straightforward “our business relies upon customer flow”. The bank-customer relationship has

A portfolio following asset managers would return 15% p.a., one following hedge funds 10%

always been a complex thing. Some customers – the less well-informed or attentive it has to be said – are welcomed with open arms, whilst others, of a more professional nature generate a more mixed reaction within banking halls. The split typically breaks down nowadays in the FX committee survey

parlance of “Financial” and “NonFinancial” customers. The former made up of professional money managers trying to squeeze every last dollar for their investors and using the most up-to-date monitoring tools and trading technology, the latter content to receive the traditional sales service and executing as and when

PROFIT & LOSS IN THE CURRENCY & DERIVATIVE MARKETS

Subscribe to read the full version of Profit & Loss April: www.profit-loss.com/?q=subscribe www.profit-loss.com I Profit & Loss I April 2013 I 21

Trading Room

Brokers Go Head-to-Head in US IRS Market The US dollar interest rate swaps market is the new battleground for two inter-dealer brokers, as Alice Attwood reports.

nter-dealer brokers Icap and Tradition have both announced US dollar interest rate swap (IRS) trading initiatives in the US. The moves are widely seen as a move on the part of both firms to grab an early piece of a market that will be SEF traded under Dodd-Frank. Tradition was first out of the blocks with its hybrid interest rate swaps (IRS) trading platform, Trad-X, which launched 18 months ago, and is supported by 11 of

the world’s largest banks and is euro IRS offering.” already a hybrid liquidity source The entry in to the US market for euro IRS. is supported by a number of Daniel Marcus, global head of banks, including BNP Paribas, strategy and business HSBC, Morgan Stanley, development at Tradition, says of Nomura, Société Générale and the development, “Trad-X USD UBS. is a transparent industry initiative Dan Marcus Christian Mundigo, global and has been designed by the head of rates trading and comarket for the market. We hope it head of Americas fixed income at BNP achieves a similar level of success as our Paribas, says, “BNP Paribas believes Trad-

www.profit-loss.com

Premium content

Subscribe to read the full version of Profit & Loss April: www.profit-loss.com/?q=subscribe www.profit-loss.com 22 I April 2013 I Profit & Loss I www.profit-loss.com

Trading Room

ISDA Emphasises Importance of Non-Cleared OTC Derivatives Market With all the focus on the CFTC’s efforts to have mandatory clearing, ISDA has made a point of highlighting the role non-cleared trades have. Alice Attwood reports.

he International Swaps and Derivatives Association (ISDA) has reiterated the importance of the non-cleared OTC derivatives market to the global economy and says that “significant threats” to the continued functioning of the market exist due to the current regulatory proposals regarding margin requirements for non-cleared OTC derivatives. The proposals also fail to fully consider the lessons learned regarding margin practices during the recent

financial crisis, ISDA argues. In a paper, Non-Cleared OTC Derivatives: Their Importance to the Global Economy, published last week, ISDA says that the proportion of OTC derivatives cleared has grown rapidly over the past decade and is slated to reach 70%. It warns, however, that while the non-cleared sector of the market is smaller, it is critical to the global economy as non-cleared OTC derivatives are used by corporations, investment and pension funds, governments

and financial institutions to run their operations and manage risks. The paper notes, “As stated in the Second Consultative Document on margin requirements that was recently issued by the Basel Committee on Banking Supervision (BCBS) and the Board of Governors of the International Organisations of Securities Commissions (IOSCO), “a substantial fraction” of OTC derivatives will not be able to be cleared.” The ISDA paper also cites a report by

www.profit-loss.com

Premium content

Subscribe to read the full version of Profit & Loss April: www.profit-loss.com/?q=subscribe www.profit-loss.com www.profit-loss.com I Profit & Loss I April 2013 I 23

Trading Room

CFTC to Weaken RFQ Rules? A CFTC commissioner has offered hope for those seeking to dilute the proposed rules on competitive quotes

onfusion continues to reign in financial markets over the likely shape of SEF rules due to be announced by the US Commodity Futures Trading Commission (CFTC) after reports that the number of competitive request for quotes required could be cut from the proposed five, to just two. The Financial Times says that CFTC commissioner Mark Wetjen has sided with the two Republican commissioners on the CFTC board to reduce the number of competitive quotes an executing institution has to source for derivative transactions. As rumours circulate almost on a weekly basis that the final SEF rules will be released, the report has shaken some derivative trading technology providers by citing Wetjen as arguing for just two competing quotes and not the five that were originally proposed. If the rules do ultimately state that only two quotes are

“The CFTC’s proposed rule is too restrictive” Timothy Cameron

required it will be seen as a victory for the major banks over the growing band of SEF operators. One senior manager at a derivatives

“Buy side market participants are concerned that the SEF rules might increase costs and reduce the availability of tools that they need to risk manage their investment portfolios” Robert Pickel

trading platform says that the rule, if implemented, would make it much harder to argue the case for a SEF. “A trader can very easily take two individual price

www.profit-loss.com

Premium content

Subscribe to read the full version of Profit & Loss April: www.profit-loss.com/?q=subscribe www.profit-loss.com 24 I April 2013 I Profit & Loss I www.profit-loss.com

Trading Room

Years Ago in Profit & Loss

Headlines from April 2003 The Best of the Best… he April 2003 issue of Profit & Loss carried the second annual Digital FX Awards and for the second year in succession UBS Warburg (as it was then) won the top prize of best platform. We noted that the bank just pipped another pioneer in the platform space, Goldman Sachs, and that it remained the standout offering due to the breadth of its product suite. It had by far the best option trading technology on the street, was easily navigable that made content easy to find and, early signs of what was to become a dominant theme over the next decade, the best post-trade offering out there. Probably the highest compliment we paid the UBS platform that year was that we saw more and more institutions seeking to replicate their model – imitation being the sincerest form of flattery of course. Other winners that year included HSBC and Deutsche Bank (twice each), JP Morgan, Citi and Bank of New York, indeed the fact that there were only seven banks garnering real attention from users shows how far the banking industry has come over the past 10 years. And of course, to find out this year’s winners, you will have to pick up a copy of the next issue of Profit & Loss!

…And Monetising that Technology his issue of Profit & Loss also looked at the value of what was still a relatively new concept at the time – white labelling. The service’s time had come, we discovered, because, as one interviewee put it, “The technology has changed, and it has become possible to provide streaming access to liquidity in markets where previously that was difficult, such as spot. “There has been a change in attitude in institutions which lack global reach. They have accepted that they may not have access to the liquidity that higher banks enjoy, and they may not be able to compete in either their ability to manage risk or in technology. Finally, there is continuing consolidation of liquidity into a smaller number of institutions.” We did raise the prospect of white labelling merely becoming the latest driver in helping the big to get even bigger, but ultimately argued that the relationship was a “win-win” for

provider and client. Over the years some have discovered the downside of white labelling in terms of lack of updates to technology or because they have risen through the ranks and found themselves in competition with their technology provider, but overall it has to be said, the concept had stood the test of time well.

Years Ahead of Regulation e picked up on a new platform in the April 2003 issue, noting how the interest rate swaps market fulfilled two key criteria for electronic trading – namely volume and a degree of standardisation. It seemed a good time then for Swapstream to launch, a platform targeting this market. The platform’s liquidity providers could either take equity options in the group or receive a rebate on their dealing fees (both were dependent upon minimum volume requirements) and market making banks on the system had to submit curves and liquidity providers agree to minimum trade volumes. Swapstream was optimistic that it would not go the way of other ventures that had tried to penetrate the IRS market, namely Blackbird, Treasury Connect and CFOWeb because it replicated the ECN model but also replicated much of the methodology employed by voice traders. As things turned out Swapstream did struggle to get IRS traders interested, but then it could at least argue it was ahead of its time. After all, the CFTC must have been a fan!

And Finally… o, not a column from P&L’s Squawkbox, but rather we thought we would provide a list of institutions covered in this issue of Profit & Loss that may trigger a memory or two (mainly because they are no longer around). So here goes with the April 2003 list of those who didn’t quite make it in the same form to 2013. ABN Amro Bank One Merrill Lynch Moneyline Prebon Marshall Yamane Refco WestLB Suddenly a decade feels like a very long time.

www.profit-loss.com I Profit & Loss I April 2013 I 25

Trading Room

EBS Rebrands, Hires Two One of the major players in the inter-dealer space has a new name…and new staff. Alice Attwood reports.

cap’s electronic foreign exchange platform, EBS, has been renamed EBS Market as part of a restructuring of the management of the business. Nichola Hunter and John Schoen have been appointed the new co-heads of the EBS Market platform, reporting to Gil Mandelzis, chief executive officer of EBS, effective immediately. Mandelzis, says, “The EBS Market is a fitting name for a platform that has been and continues to be widely regarded as the leading source of benchmark pricing for the global FX market. John and Nichola have led an important and very successful effort over the past year in partnership with the entire EBS community. We are very pleased with the progress we have made and are excited about our plans for the future. I’m delighted that Nichola and John will be leading our flagship platform and developing a number of important initiatives that

“The EBS Market is a fitting name for a platform that has been and continues to be widely regarded as the leading source of benchmark pricing for the global FX market.”

Premium content

Subscribe to read the full version of Profit & Loss April: www.profit-loss.com/?q=subscribe www.profit-loss.com 26 I April 2013 I Profit & Loss I www.profit-loss.com

Trading Room

WHAT’S NEW?

Fenics and Traiana Team Up for Reporting

FI Group’s Fenics Software has partnered with Traiana to integrate Fenics Professional with Harmony TR Connect and CCP Connect. The alliance agreement will see Fenics customers manage the reporting of OTC FX derivatives into swap data repositories and clearinghouses as well as gaining the ability to real-time report into a reconcile with trade repositories via the Harmony network, including the Depository Trust and Clearing Corporation’s (DTCC) swaps data repository (SDR), Global Trade Repository (GTR) and other trade repositories required globally by regulators. Using this connection to Harmony, Fenics customers will also be able to manage the affirmation, allocation and clearing process with their clients, counterparties and clearinghouses, in line with US and European swaps regulation. The deal will see Fenics clients become able to submit reportable foreign exchange trades, including options, swaps, deliverable and non-deliverable forwards (NDFs), to trade repositories over the TR Connect service. They will also receive relevant ‘trade enrichment information’, say the companies, which is then reported back to them. Richard Brunt, Fenics’ managing director, says of the collaboration, “There are great synergies between the two services. Traiana delivers connectivity to trade repositories to the Fenics client base who already use the Fenics Professional Desktop for their FX derivatives workflow. Our initial rollout campaign will be in the US, but we have already had strong

interest in this initiative from clients in other regions, which is hugely encouraging.” Harmony TR Connect provides a messaging hub to connect market participants and trade repositories, as well as supporting reporting activities, such as routing, matching, life cycle and trade amendments. Harmony CCP Connect provides a workflow system for client clearing over the Harmony network, including tools for CCP connectivity, trade routing and reporting for centrally cleared OTC FX options and NDFs.

First Derivatives Plans SEF

irst Derivatives says it has launched a Swap Execution Facility (SEF) initiative and appointed James Sanders as chief compliance officer to oversee the company’s registration as a SEF. The firm says it intends to register as a SEF in order to provide its customers with an enterprise-wide solution, particularly in respect of its Delta Flow platform. The firm says it will file its SEF registration with the US Commodity Futures Trading Commission (CFTC) later this year. Similar measures under European Market Infrastructure Regulation (EMIR) and the Markets in Financial Instruments Directive (MiFID) are also being adopted and, as such, the majority of swap contracts currently traded over the counter will migrate to multi-party electronic trading platforms, creating greater price transparency and increased liquidity as more participants enter the market.

Premium content

Subscribe to read the full version of Profit & Loss April: www.profit-loss.com/?q=subscribe www.profit-loss.com www.profit-loss.com I Profit & Loss I April 2013 I 27

Digital Markets

Barclays Unveils Gator Alice Attwood reports as Barclays rolls its own aggregator out to select clients. arclays has launched Barx Gator, a spot aggregator for clients, which was originally developed for the bank’s own trading teams. Gator is an execution tool that brings spot venues together and combines them with Barx PowerFill orders and Barclays’ own liquidity. The smart order router has been under beta release to clients for about a month and over 170 currency pairs are available. Tim Cartledge, managing director and head of BarxFX trading and global head of spot trading and head of FX trading for Asia, says, “The power and technology behind this tool are unique with algorithms that work for clients to get them better fills, particularly on non-

Premium content

Subscribe to read the full version of Profit & Loss April: www.profit-loss.com/?q=subscribe www.profit-loss.com 28 I April 2013 I Profit & Loss I www.profit-loss.com

Digital Markets

Basel Committee Updates FX Settlement Guidance The authorities have finally got around to updating the 2000 guidance, which would appear to be good news for CLS. he Basel Committee on Banking Supervision (BCBS) has urged FX market participants to reinforce their risk management practices associated with settlement risk. Although the updated report does not mention the utility by name, the recommendations would appear to urge wider adoption of Continuous Linked Settlement (CLS). The BCBS has issued guidance that updates its supervisory guidance for

Stefan Ingves

managing settlement risk in foreign exchange transactions, which was published in 2000. The committee says that since the publication of original recommendations in 2000, the foreign exchange market has made “significant strides” in reducing the risks associated with the settlement of FX transactions. “Substantial FX settlementrelated risks remain, however, not least because of the rapid growth in FX trading,” it adds.

PREMIUM CONTENT • Subscribe: www.profit-loss.com/?q=subscribe

Knight Capital Getco Unveils Management Team Getco and Knight confirm management team for new company, KCG. Alice Attwood reports. ollowing its merger at the end of 2012, Getco and Knight Capital last week announced the management team of the new public company. Under the new structure, the management team at Knight Hotspot will have new oversight and unsurprisingly given the nature of the merger, Getco staff make up the majority of the new team.

Maasland will have responsibility for Hotspot FX

The combined firm will be led by Daniel Coleman, chief executive officer of Getco. Thomas Joyce, currently Knight's chairman and CEO, will serve as executive chairman of the board of directors. Steven Bisgay will be chief financial officer of the merged firms. Bisgay had been in the CFO role at Knight Capital, pre-merger, since 2007, before this he was managing

PREMIUM CONTENT • Subscribe: www.profit-loss.com/?q=subscribe

FXC/FMLG Update PB Recommendations The lawyers group of the New York Fed has sought to update market participants in what is required of prime brokers in the new era of reporting. he New York Foreign Exchange Committee and Financial Markets Lawyers Group, both of which operate under the auspices of the Federal Reserve Bank of New York, have issued guidance for FX prime brokerage reporting obligations. The two committees say the guidance has been issued “in the interest of facilitating compliance with certain reporting obligations arising pursuant to rules that the Commodity Futures Trading Commission has issued in connection with the DoddFrank Wall Street Reform and Consumer Protection Act of 2010.” As far as allocation of responsibilities is concerned, the

committees say that unless otherwise agreed, as between executing dealers and foreign exchange prime brokers, the allocation for each of the parties’ respective responsibilities for Swap Reporting under Parts 43 and 45 of the Rules will be as set forth in the letter, dated December 17, 2012, from the CFTC’s Division of Market Oversight to the FMLG and International Swaps and Derivatives Association. “For the avoidance of doubt, this Market Practice does not create Part 43 reporting obligations for foreign exchange transactions which are not subject to Part 43 reporting obligations

PREMIUM CONTENT • Subscribe: www.profit-loss.com/?q=subscribe www.profit-loss.com I Profit & Loss I April 2013 I 29

Digital Markets

History Made as Dealers Start to Report Trades Alice Attwood reports as financial markets participants start to report their trades.

egistered swaps dealers are now submitting OTC derivative trade information to the Depository Trust and Clearing Corporationâ&#x20AC;&#x2122;s (DTCC) US swaps data repository (SDR), the DTCC Data Repository (DDR), in the five major asset

30 I April 2013 I Profit & Loss I www.profit-loss.com

classes. The DDR is the first SDR to offer reporting in all asset classes as the OTC derivatives market continues to move toward more stringent trade reporting and risk mitigation, following calls from

Digital Markets

“...FX firms are sending their trade repository data to CME Group and we are acting as the trusted entity to serve as their trade repository of choice.”

“...the industry will continue its work to ensure seamless, efficient and effective reporting of FX transactions, which will lead to greater transparency of the global FX marketplace.”

Derek Sammann

James Kemp

regulatory bodies and market participants alike. The DTCC says that there are currently around three million new positions across asset classes and a total of nearly seven million positions registered in the SDR. Michael Dunn, chairman

of the DDR, says, “Reporting across classes will, for the first time, provide supervisory authorities with the necessary information to monitor derivatives exposure and identify risk concentration in a timely fashion while also achieving greater

Premium content

Subscribe to read the full version of Profit & Loss April: www.profit-loss.com/?q=subscribe www.profit-loss.com www.profit-loss.com I Profit & Loss I April 2013 I 31

Market of the Month

Time for bottom up selection in emerging market FX By Roderick Ngotho, The Royal Bank of Scotland f the unsettling outcome of the Italian election wasn’t enough to prompt EMEA FX investors to cut bullish positions and initiate fresh bearish trades, then the stalemate in the US sequestration debate should have been a trigger. Surprisingly, investors reacted entirely differently. We expected to see global equities sell-off by far more than what manifested. We also expected to see emerging market FX volatility move sharply higher, especially given how low volatility has been, such as three-month implied volatility on G7 currencies sitting at pre-2008 crisis levels of about 9%, well below the peak of 17%. Instead, the three-month average implied volatility on EMEA currencies rose briefly after the Italian election, but

quickly returned to pre-election levels of about 7.9%. This compares to 15% at the start of 2012. This activity suggests, at face value, that investors are perhaps looking to treat Eurozone issues as a EUR specific story, and perhaps intend to continue looking at the rest of the FX world on a country-by-country basis. It appears that the market has chosen to be selective, as opposed to broad-based negative contagion. With the above in view, we reiterate our argument for a ‘bottom-up’ currency selection process over a generic, ‘buy and hold’ of emerging market currencies offering high carry. Our 60day correlation chart proves the view that EMEA currencies are

Premium content

Subscribe to read the full version of Profit & Loss April: www.profit-loss.com/?q=subscribe www.profit-loss.com 32 I April 2013 I Profit & Loss I www.profit-loss.com

Money Management

Paper Argues the Diversification Benefits of CTAs A white paper from Commodity Trading Advisor Campbell & Co argues that CTAs offer low correlation to fixed income and equity strategies, no matter what the rate regime. Colin Lambert reports.

s the global economy continues its somewhat stuttering recovery, thoughts are turning to the consequences of the end of the low

interest rate regime. Whilst many strategists believe low interest rates will remain in place for more than a year, a growing consensus agrees that the long

term trend is up. Against this background, commodity trading advisor Campbell & Co has published the latest in a series of white papers, this one looking at the

Premium content

Subscribe to read the full version of Profit & Loss April: www.profit-loss.com/?q=subscribe www.profit-loss.com www.profit-loss.com I Profit & Loss I April 2013 I 33

Money Management MONEY MANAGEMENT > NEWS IN BRIEF

Integral Unveils InvestorFX I ntegral Development Corp has launched InvestorFX, a currency trading system for investment managers. The new offering is delivered in the cloud, is hosted by Integral and the firm says it is a complete, fully automated service that supports optimal netting, best execution and process automation. The company adds that users can quickly ‘go live’ with the system without having to set

up, own or operate IT infrastructure or install any software. “When speaking to many of the world’s most sophisticated investment managers, we confirmed that the currency trading solutions available to them leave much to be desired,” says Vikas Srivastava, managing director and head of business development at Integral. “We recognised that there is a better solution and made a

significant investment to set a new standard for fairness and efficiencies in netting as well as process automation. InvestorFX is a simple and elegant solution that eliminates the need to compromise.” The system offers a choice of netting plans, designed to suit different needs, with all relevant details displayed on an interface. Once a netting plan has been selected, the user can then execute it from

Pine River Opts for FlexTrade lobal asset management company, Pine River Capital Management, has deployed multi-asset execution and order management systems provider, FlexTrade’s execution system, FlexTrader EMS. The offering is an execution management system for trading individual

securities or portfolios in equities, foreign exchange, equity options, futures and fixed income. FlexTrader provides customisable crossasset trading strategies, global access to broker algorithms and the ability to build proprietary algos. Pine River has taken on the system to

facilitate trading for foreign exchange, equities and listed derivatives. As part of the deployment, Pine River is live with FlexTrader for equities, FX, equity options trading and dispersion trading, and futures trading. Vijay Kedia, president and CEO of FlexTrade Systems, says, “As trading

Premium content

Subscribe to read the full version of Profit & Loss April: www.profit-loss.com/?q=subscribe www.profit-loss.com 34 I April 2013 I Profit & Loss I www.profit-loss.com

Retail Radar ON THE RADAR

Study Argues Six LPs Best for Retail Brokers ver two thirds of retail brokers believe that they need more than six liquidity providers to get optimal liquidity and pricing, according to results from Integral Development Corporation’s 2013 Retail FX Broker Survey. The survey was launched in December and was directed to ask senior decision makers at retail brokers what they thought their biggest opportunities and challenges would be in the new year. Integral received responses from global retail brokers, 50% of which believe that more of their peers should adopt an agency model during the course of 2013. Harpal Sandhu, chief executive officer of Integral, says, “Retail brokers understand that in an ultra-competitive market place, they need to access great pricing from multiple liquidity sources in order to compete and succeed. Thanks to innovations in technology, brokers now have the ability to easily aggregate pricing from a wide range of liquidity sources including banks, ECNs, and brokers to ensure they have access to deep liquidity and can achieve superb execution.” He adds that selection of forex brokers is an important aspect when considering private investors’ entrance to the markets as they are attracted to those where there is, “no perceived conflict of interest; they like to deal with a broker that can offer transparent pricing directly from the market. Furthermore, more brokers are enticed by the idea of a less risky business model with the prospect of steadier, consistent profits.” The study also covered the changing role of technology in the market and the fall out of regulatory challenges on retail businesses.

FX Solutions Exits US Market X Solutions has become the latest retail FX broker to exit the US market. The firm has reached an agreement with Gain Capital for the latter to acquire its US-based retail customer accounts. The transfer of FX Solution’s US customers took place on March 1 after the close of trading. Financial terms of the transaction were not disclosed. Glenn Stevens, CEO of Gain Capital, says, “We will work closely with the team at FX Solutions to ensure no interruption in service and a smooth transition of their customers’ accounts and assets.” Martin Belsham, CEO of City Index Group, which owns FX Solutions, adds, “As part of a global strategic review, FX Solutions will no longer be offering retail foreign exchange services in the US. This will allow the group to focus its efforts on growing the FX Solutions brand in the Middle East and Asia, where it has already seen tremendous success. The transfer of FX Solutions’ US-based customers to Gain Capital will ensure they continue to receive an excellent service from a leading US retail FX provider.” The move follows Gain’s acquisition of the retail accounts of GFT Forex’s US subsidiary in December. GFT announced at the beginning of December that it would cease supporting US retail FX trading and focus on its institutional relationships which exist in the US and globally. The firm’s departure followed that of Advanced Markets, which stepped out of the market and relinquished its US retail broker registration last September to realign its focus on the institutional space.

Thomas to Head Quantum Sales for Alpari (US) aul Thomas has joined the institutional division, QuantumFX, of Alpari (US). In the role of senior vice president of institutional sales, he will be responsible for overseeing Alpari’s new institutional initiatives in voice execution, which are being developed to enhance the client trading experience with a wider range of execution services and greater flexibility. Jermaine Harmon, CEO of Alpari (US), says, “Enabling voice execution is a natural extension of the QuantumFX business. We believe it will bring an ease and confidence to trading that can only be achieved by incorporating a human element.” Thomas has over 16 years of market experience with a career background from toptier banks such as Citigroup and BNP in institutional sales roles.

Sucden Adds Currenex Liquidity

“Our strategy is essentially platform and aggregator agnostic” ucden Financial has upgraded its technology options for foreign exchange and bullion clients by adding Currenex to its suite of connectivity services. Institutional clients can now trade FX and bullion via Currenex’s API and frontend trading systems, as well as offering the company’s front-end trading platforms to customers. Jonathan Brewer, head of e-FX business development at Sucden, says, “We are continually evolving to ensure that we have a broad and highly reliable offering for our clients. We focus on providing ‘best of breed’ technology to help our clients to trade effectively, giving them a range of trading platform options. Our strategy is essentially platform and aggregator agnostic and we will look to provide our clients with liquidity into any platform that is commercially viable.” Currenex’s first foray into the FX retail space came in 2011 as the firm signed Ikon Global Markets, a futures commission merchant and forex dealer member, to white label its technology. Sucden Financial is also now offering electronic pricing of non-deliverable forwards (NDFs) to clients. The company has been active in the market for a couple of years and has now made the tool available to its clients. Brewer says, “Previously we have only offered access to NDFs traded over the phone. This new offering will enable us to service existing clients better and will also enable us to access a new client base.” Asia is a key focus for the new service due to the popularity of NDFs in the region, Brewer says Asia is, “A region which we have identified as a key part of our growth strategy. In addition, many of the economies with currencies which trade as NDFs focus heavily on commodities. By offering NDFs electronically, we are therefore building on our strong heritage in the commodities space.”

www.profit-loss.com I Profit & Loss I April 2013 I 35

Movers & Shakers

Premium content

Subscribe to read the full version of Profit & Loss April: www.profit-loss.com/?q=subscribe

www.profit-loss.com 36 I April 2013 I Profit & Loss I www.profit-loss.com

Movers & Shakers

Kos Joins CLS ino Kos has joined CLS Group in New York as head of global regulatory affairs. He reports to chief executive officer of CLS, David Puth and will also join the executive management committee. Kos has more than 25 years’ in the industry and joins from Hamiltonian Associates, a specialised macro advisory research firm which he co-founded, where he was working with buy-side investors across global economic, currency and fixed income markets. Before this he was a managing director at Portales Partners and has also worked at Morgan Stanley Investment Management where he was managing director, global head of central banks and sovereign wealth funds. From 1985-2007 he was at the Federal Reserve Bank of New York (FRBNY) in a variety of regulatory and market roles, including head of foreign exchange from 19932000, and latterly as executive vice president of the Markets group, where he was responsible for open market operations, foreign exchange trading, treasury auctions, the discount window, and the correspondent banking services provided by the FRBNY to other central banks. He also served as manager of the system open market account, reporting to the Federal Open Market Committee on the implementation of monetary policy and market developments. Kos was seconded to the BIS in Basel, Switzerland, from 1989 to 1991 in the Secretariat of the Basel Committee on Banking Supervision, where he worked on the development of a capital adequacy standard for market risk. Puth says of the appointment, “As the regulatory environment continues to evolve, we are very pleased that Dino is joining CLS to lead our Global Regulatory Affairs team. With 22 years at the Federal Reserve Bank of New York, and a track record of working effectively with central banks, regulators and financial institutions, Dino is one of the most knowledgeable professionals in the FX market.”

Another RBS Vet Departs he Royal Bank of Scotland has seen the departure of another long serving staff member. Ron Karpovich has left his role as managing director, global head of FXmicropay at RBS Markets and International Banking in London, to join JP Morgan. According to market sources, Karpovich is joining JP Morgan’s foreign exchange services team, which covers FX payments services, in May, also in London. Profit & Loss understands that he will report to Pitts Robinson, global head of FX services, also based in London. Karpovich has been at RBS – and NatWest before RBS acquired it – since 1994 and has served in a number of roles, including director of e-commerce, global head of FX product management for electronic markets, global head of FICC product management and managing director for e-commerce, before stepping into his most recent role at the bank. A spokesperson at JP Morgan declined to comment on the hire.

Integral Loses Two oland Schilling and Sam Low have left Integral Development Corp, according to market sources. Schilling is joining Tullett Prebon in London as head of tpSpotDeal and Low is heading to CFH Markets, also in London. A spokesperson at Tullett Prebon declined to comment on the hire and CFH did not return calls by press time. Schilling joined Integral in November 2009 as vice president for European sales. He most recently served as an account management director. Before this he was at Logicscope, now MarkitServ, where he was head of sales, a role he took on in June 2008 after joining the company in November the previous year (Profit & Loss, July/August 2008). Prior to joining Logicscope, he held a number of trading and software roles at the Bank of New York, Credit Suisse, American Express, LTT Bank, Bloomberg and Netsys. Low joined Integral in London 2006 as director of European and Middle Eastern sales (Profit & Loss, July/August 2006). Before this he was at Fairex International Financial Systems in Singapore, serving as senior vice president of sales and marketing. Before this he was director of new business sales for the UK and the Middle East at SuperDerivatives and prior to that was at Bloomberg in sales, where he covered major accounts in London, Russia, CIS, Central Europe and the GCC. Integral declined to comment on the departures.

Brookleigh Search and Selection Offers Confidential Recruitment Services to the Global Financial Markets “We have continued to expand our geographical reach and broadened our sector expertise . We specialise in the following areas: Foreign Exchange, Emerging Markets, Fixed Income, Money Markets, Energy & Commodities, Wealth Management, Equity Markets, Systematic Trading and eCommerce.” Head Office: 68 Lombard Street, London, EC3V 9LJ - Tel: +44 (0)207 868 1703

www.brookleigh.com

And Finally

The Last Word… The last word on some of the themes covered in Squawkbox last month, through your correspondence… By Colin Lambert A Better Fix? In the February 21 column I argued that the market needed better benchmark fixes, mainly because the price action around the WM fix at 4PM London time continues to confound efforts to provide real best execution. For once I appear to have hit a positive vibe amongst the readership for not only did I not receive the usual smattering of sarcastic responses, but the responses were uniformly positive. It is becoming apparent that best execution is raising its head even further above the parapet and that it is going to become a bigger issue. If that is the case then the WM fix has to be looked at. I understand that customers need something to benchmark against, what I do not concede is that there is nothing better out there. I have argued before, and will continue to argue in future, that the algorithmic technology available at several venues, allied to the appropriate transaction cost analysis report (ie, one generated automatically and not pulled together by someone as an afterthought) offers a better execution for a client. Of course if they want, for example, to fix a Cable trade at 3.30PM in the New York afternoon they are not going to get a good fill, but the fact remains that if they are sensible about when they execute their business (as the vast majority of clients are), then this methodology offers a solution. Unfortunately the court cases involving the Bank of New York Mellon and State Street tend to have become discussion points for alleged bank shortcomings, when the real story here is that asset managers are finally waking up to how they should focus on their FX execution. If that is indeed the case, then we, as an industry, need a better fix. Or perhaps the answer is a wider choice, which amounts to much the same thing? Single Dealer Platforms The February 24 column expanded on the theme that the world is changing by seeking to discuss the future of single dealer platforms. The problem, as I laid it out, was the increasing number of clients using aggregation or multi-dealer platforms to execute business and strategies they had researched on a single dealer platform. It was quite an in depth piece and prompted a lot of thoughtful responses – so much so that I shall probably go into more detail in a feature later this year – but the crux of the matter was that banks had to become more “broker-like” in their approach and provide the highest quality execution tools and analysis software. Again, the response was largely in agreement, but what really fascinated me was the diverse nature of all the opinions. Clearly several people are studying several approaches to utilising the SDP in the future, which always makes for an interesting time for observers such as myself. The thing is though, I am not sure they are changing that much. They have to be built on a single technology base, be easy to navigate and provide a mix of principal, agency and DMA execution services. If you can cover all three of those bases then you are in decent shape. Oh yes, one other thing for those pushing their SDPs. I can tell you from experience that you are not “differentiating” yourself by offering the following: NDFs, options, algorithmic execution and emerging markets. Sorry to be the bearer of bad tidings but they are now considered “basics” by customers – differentiation comes in more granular form these days. I asked people for some amusing names for algorithmic strategies following a dinner with a friend who suggested the name “groper” for a strategy – being one that fumbles around in the dark and hopes to get lucky! I am here to tell you all now (and my email remains open to suggestions) that I am not, under any circumstances, going to name an algo after anyone’s ex-wife on the grounds that “it works well for a time but ends up costing you a load of money”. There. That’s clear enough I think. #StillGotIt Finally, it’s not so much feedback, but more a (rare) note of triumphism that I could not resist highlighting. In January (and in this column in the February issue of Profit & Loss) I noted the sad passing of my favourite watering hole in London and suggested, only semi tongue in cheek, that this was proof indeed that the UK was finished, and that it was time to sell Cable. That was at 1.5850. I occasionally tweet on the markets and in early March I threw out on my feed (@lamboPnL) “Cable at 1.4850 – everything tells me it’s time to buy”. As I write this, Cable sits at 1.5100, prompting a puffing out of the chest in the Lambert household and the Twitter hashtag #stillgot it! 38 I April 2013 I Profit & Loss I www.profit-loss.com