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MARCH 2013 VOL. 14 / ISSUE 139 www.profit-loss.com
FX Concepts’
Bob Savage: THE PHILOSOPHICAL TRADER
Currency funds suffered from the low volatility that defined 2012, but FX Concepts’ new Chief Strategist Bob Savage is cautiously optimistic that 2013’s start can be sustained as hot spots around the globe promise to keep things interesting.
ParFX Prepares for Q1 Launch
GFI’s Hybrid Approach: More than Matching
NFA Closes Loopholes post-PFG
SPECIAL REPORT: COMING TO TERMS WITH CRISIS
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Profit & Loss
PROFIT & LOSS MARCH 2013 INSIDE THIS MONTH:
editor’s note
20: An Appropriate Code for a Changing Landscape
A
fter the torture of 2012, we have definitely got a market on our hands to kick off 2013, although I suppose it is characteristic of the times that so much of what is happening is still being driven by central
22 : Out on a Limb? EU Moves Ahead on FTT
35: GFI: More than Matching
36: TraFXpure Rebranded Ahead of Launch www.profit-loss.com
banks. Either way, an increase in volatility is to be welcomed, accompanied as it is by what seems to be a return to fundamentals in the market as the risk on/risk off rollercoaster grinds to a halt. I would invite you to take in a fascinating cover interview with FX Concept’s Bob Savage in this issue - I certainly felt educated when I finished reading it! Certainly, as we report, market participants from all sides have welcomed the increased activity – indeed it is hard to find anyone from any area of the industry who is not enjoying current conditions, especially when compared to last year. It is also a good time for new platforms to launch – rather now than at a time, which seemed likely late last year, when activity was very subdued. With this in mind we report on the latest developments surrounding the next entrant to the industry, the newly named ParFX. One thing that hasn’t changed from last year is the impact of the regulators, and this issue of P&L highlights – unfortunately – the degree to which financial markets, and the banks in particular, are under the cosh. With the Libor scandal continuing to unravel markets, hints that a similar problem has existed in NDFs, and fines over mis-selling of interest rate swaps, it’s a bad time for the industry. This is regrettable because it makes it easier for the authorities to impose unpopular, unnecessary and, frankly, ill-advised measures such as the financial transaction tax. The FTT is a bad idea that has been proven not to work before, and merely trying to capture tax from participants in products rather than geographies does not hide the fact that the idea is so bad, it beggars belief that people wish to impose it. Make no mistake, the industry has, to an extent brought this upon itself, and without doubt, the actions of a few are now starting to have an impact on the broader environment. I personally don’t believe the FTT will work without universal buy in – which it will not get – but we are in for a tough year or so battling to keep it in check. The end result has to be an exodus from European financial markets, meaning lower taxes to treasuries and even, at the worst extreme, a decline in Eurozone financial product turnover. How long can it be before the pension plans and corporates of the world make the Eurozone authorities realise that it is they that will be paying the tax, and not the intended target – banks and high frequency trading firms? Away from that, preparations are in full swing for the first of our FX Growth Markets conference series, as well as the first Forex Network event of 2013, in London in April. It’s never too early to book a place, and grab a table at the Digital FX Awards Dinner that follows the conference at the Chiswell Street Brewery in the City of London. As always, details of how to attend can be found on our website or within these pages, and, as always, we look forward to seeing as many of you there as possible. Certainly there is much to discuss. Have a good month.
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Contents
On the Cover... FX Concepts’ Bob Savage: The Philosophical Trader Currency funds suffered from the low volatility that defined 2012, but FX Concepts’ new Chief Strategist Bob Savage is cautiously optimistic that 2013’s start can be sustained as hot spots around the globe promise to keep things interesting. P&L’s Julie Ros sat down with Savage for a macro view of the markets, and a micro view of FX Concepts .....................................................12
12 36 17 35
SPECIAL REPORT: Coming to Terms with Crisis
45
Singapore Prepares to Host ACI World Congress ...........18 ACI Model Code: An Appropriate Code for a Changing Landscape ..........20 Out on a Limb? EU Moves Ahead on FTT ..........................22 RBS Takes Financial Hit Over Libor .......................................25
FEATURES:
Fixing Malpractice Spreads to NDFs....................................26
European Parliament’s RTS Rejections Scrapped ...........28
FSA Targets UK Banks Over IRS Mis-selling .......................27
FX Turnover Continues to Decline........................................30
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Contents
P&L’S SQUAWKBOX: News from Around the Globe ..................................................8
TRADING ROOM: 10 Years Ago in Profit & Loss: Headlines from February 2003 ..............................................33 January Brings Relief for Market ...........................................34 GFI: More than Matching.........................................................35
DIGITAL MARKETS TraFXpure Rebranded Ahead of Launch............................36 Years Ago in Profit & Loss Customer Service the Wright Way........................................37
Headlines from March 2003
32
Standard Bank Selects Caplin Trader for Online Trading...........................................39 What’s New? .................................................................................40
MARKET OF THE MONTH
TwoFour Releases New Front-End........................................41
The Australian dollar By Kit Juckes, Global Head of FX Strategy, Societe Generale ................................................42
MONEY MANAGEMENT NFA Adopts PFG Report Recommendations....................45 In Brief.............................................................................................46
42 49
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RETAIL RADAR New Global Payment Solution Features Currency Overview .................................................49 Forex Visionaries – Part Five ...................................................50 On the Radar ................................................................................52
MOVERS & SHAKERS People on the Move ..................................................................53
THE LAST WORD
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The last word on some of the themes covered in P&L’s Squawkbox, through your correspondence...........56
P&L’s Squawkbox: News from around the globe CHICAGO CME adds OTC FX to Core. CME Group’s interactive margin calculator, CME Core, is now supporting OTC foreign exchange calculations. The expanded product support allows cleared OTC customers and clearing companies to view internal margins and exact positions, as well as calculate portfolio margining savings. CME says it has also upgraded its scalability enhancements, following requests from users of CME Core. The expanded product support now allows multiple portfolios to be margined simultaneously across products, removing the limits of the portfolio size, and permitting more than 10 portfolios to be uploaded and margined at once. A number of new pairs have also been added:
USD/BRL, USD/CNY, USD/INR, USD/MYR, USD/CLP, USD/RUB and EUR/USD. In total 38 currency pairs are now supported by the Core offering. The enhancements came into effect six months after planning began, says Derek Sammann, senior managing director, interest rates and FX products. He tells Profit & Loss, “We are now supporting FX as part of our plan to expand the overall set of services that we are bringing to the OTC clearing service at CME. Additional asset classes that we now clear – like FX NDF’s – can now be evaluated using this great new tool to determine what to expect in terms of margin if you choose to clear at CME. This is part of our overall plan to continue to bring value
added tools and services to the broader OTC markets that we now serve.” CME Core is also now supporting calculating interest rate swaps margins with a Delta Ladder-based sensitivity calculation. All IRS users have now been given access to the Delta Ladder estimation engine. CME says, the tool provides low latency IRS margin calculation for portfolios represented by DV01 (the dollar value of a 1bp change) across the tenor/curve structure which normalised product representation for submission to the margin engine.
LONDON FX Clearing starting to take off. LCH.Clearnet, has cleared more than $500 billion in notional foreign exchange nondeliverable-forwards (NDFs) through ForexClear since its launch in March last year, the firm says. The company says that volumes were driven by record figures of $207 billion in the fourth quarter, and that the success of the FX NDFs clearing service was driven by an increase in demand for clearing services as FX market participants manage their counterparty risk exposures. There are currently 14 members of ForexClear’s risk management framework and it offers 11 currencies, the Brazilian real, Chilean peso, Chinese yuan, Indian rupee, Korean won, Russian rouble, Colombian peso, Indonesian rupiah, Malaysian ringgit, Philippine peso and the Taiwanese dollar, all against the US dollar.
Gavin Wells, CEO of ForexClear, says, “The strong growth in volumes cleared through ForexClear indicates that FX participants have full confidence in our offering and we are very proud of the outstanding progress made since launch just 11 months ago. Furthermore, we remain fully committed to supporting the ambitions of global regulators, as demonstrated by our timely delivery of reliable and comprehensive FX data reporting.” LCH.Clearnet recently began reporting cleared FX trades to a swap data repository (SDR) run by the Depository Trust and Clearing Corporation (DTCC). The development came into effect to ensure compliance with the Commodity Futures Trading Commission’s (CFTC) regulation to mandate the reporting and recordkeeping of all FX trades, except spot, through a registered SDR.
The service’s client clearing arm has now received regulatory approval, and will soon launch in line with member and client demand. The enhancement to the offering will better support clients as they work toward regulatory compliance with a risk management system and the protection through segregation of margin capital forming the service, says the company.
of BOCHK, says, “BOCHK has been taking a leading role in the development of the offshore RMB business. We are pleased to be the first bank designated as a market maker for the new USD/ CNH futures and will be committed to providing transparent and competitive markets for these contracts to help facilitate the global usage of RMB funds.” Derek Sammann, senior managing director for interest rates and FX products at CME, tells Profit & Loss, “As the renminbi continues to internationalise, it will become increasingly important to provide global access to these products, and the commitment of Bank of China Hong Kong helps support our model to be the global provider of choice for exchange-traded and OTC FX products.”
BOCHK was the first to launch RMB deliverable forward contracts and interest rate swaps for investors and institutions to hedge currency and interest rate exposure while effectively managing the related risks. The bank says, “By leveraging the global service network of its parent, Bank of China, BOCHK will continue to expand its RMB product suite through innovation, providing total solutions to investors as well as corporate and personal customers.” The partnership builds on the existing relationship between CME and the Bank of China Group; the Bank of China, New York branch, was signed as a CME Clearing settlement bank and collateral custodian, subject to regulatory approval, in September last year.
HONG KONG CME gets a CNH market maker. CME Group has designated Bank of China (Hong Kong) Limited (BOCHK) as a market maker for USD/CNH futures. The BOCHK is among the first group of market makers and is the sole bank to currently offer the contracts. The first of the physically deliverable contracts commenced trading on CME’s Globex platform on 25 February this year, offering almost-24-hour a day access to investors from anywhere in the world, CME says. By making the contracts available on Globex, potential investors have the opportunity to enjoy opportunities in the CNH market while being supported with greater flexibility to manage RMB and funding costs, adds CME. David Wong See Hong, deputy chief executive
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P&L’s Squawkbox: News from around the globe LONDON Not unprepared…under-prepared. Financial institutions are “under-prepared” to meet the requirements of the new regulatory landscape for OTC derivatives, despite the fact that the market continues to grow and companies seek to further increase their trading activity, a new study claims. The survey, OTC Derivatives Trading Trend Survey, was conducted by voice and electronic financial trading communications provider, IPC Systems, in order to demonstrate the industry’s preparedness for the OTC derivatives market’s new swap execution facility (SEF) model ahead of implementation.
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Released in February, the results show that 94% of respondents – from hedge funds, investment banks, broker dealers and exchanges – said that they are already trading swaps or other OTC derivatives, or are set to do so in the next six months. 74% said that they expect their trading volumes to increase in the coming year. According to the results, 62% said that their companies already are or will be connected to one or more SEF, 39% are connected, or plan to connect to more than 10 SEFs, and 23% intend to connect to more than 20 SEFs. The preparedness of the industry as a whole is not clear-cut; the survey says that 36% of market participants have not yet put a plan in place to meet the demands of the new regulations, with 62% believing that their organisations were not well-prepared for this. Of those surveyed, only 19% said the industry as a whole is well prepared to meet the new rules. When considering the role that regulation is set to play in the market, there were mixed results, says the company. While 26% of respondents believe that the benefits of new rules outweigh any associated costs, 31% said that new regulation will have a negative impact on market conditions and will lead to increases in the cost and complexity of trading, with few or no benefits for participants. Over half of those surveyed (57%) expect
new regulations to increase transparency within the market and transactions, with 53% citing this as moderately or critically important. 43% rated reducing systemic risk was moderately or critically important and only 29% expect new regulations to case a reduction in such risk. When looking to the future of the market, 66% of respondents also predict that there will be a trading shift to the futures industry, although 19% expect the importance and value of the OTC derivatives market to continue to grow. Ganesh Iyer, senior product marketing manager at IPC, says, “The survey results confirm what we've been hearing from the market and it paints an interesting picture. OTC derivatives trading has been hotly debated for the last few years, yet there is concern – and in some cases an outright admission – that neither individual firms nor the industry as a whole are well-prepared for the coming changes. ”This concern is juxtaposed against an already operating and fast-growing market,” adds Iyer. “Taken together, these points underscore what we have concluded and what our customers have learned: connectivity to SEFs and the various other OTC derivatives execution venues is critical not only for addressing compliance concerns but also for gaining competitive advantage and capitalising on new opportunities.”
Global Market: Global Events Michelle Hemstedt, Commercial Director Tel: + 44 (0)20 7382 0332, michelle@profit-loss.com
Cindy Loveday, Event Manager Tel: +44 (0) 20 7382 0335, cloveday@profit-loss.com
Cover
FX Concepts’ Bob Savage:
THE PHILOSOPHICAL TRADER
Currency funds suffered from the low volatility that defined 2012, but FX Conceptsʼ new Chief Strategist Bob Savage is cautiously optimistic that 2013ʼs start can be sustained as hot spots around the globe promise to keep things interesting. P&Lʼs Julie Ros sat down with Savage for a macro view of the markets, and a micro view of FX Concepts.
Julie Ros: How is Track.com being integrated into FX Concepts? Robert Savage: It’s a wholly owned subsidiary; it’s still a standalone product. We’re taking what we’ve learned and are applying it to FX Concepts’s own product. We are trying to see what technology and ideas can help them and vice versa. That’s the first move. The second move is from a personnel level. I’ve taken on a larger role at FX Concepts as their chief strategist. The role of a chief strategist at a fund is not about running models, it’s about really guiding the business forward. So that’s ultimately my vision, and [FX Concept’s CEO and founder] John Taylor’s vision, which are being melded together to create a vision of what FX Concepts is going to look like over the next five to 10 years and what the game plan is for us to get there. I want to grow FX Concepts to $10 billion under management in FX and other assets classes – some in fixed income, some in indices and equities and some in commodities. So when people think about FX Concepts, it’s not just an organisation that looks through the FX lens, but that lens is a useful one for looking at the world of available, tradable, liquid products. If we’ve learned anything in the last five years it’s that by me being pigeonholed into FX only and when FX has 4% actualised vol, your returns are going to be disappointing, so you’ve got to have something in place to sustain that. JR: Any new products in the pipeline? RS: We’ve had a new product over last six months called Pure Beta Plus, which is effectively a risk parity trade that has, unlike our competitors, a very substantial FX component. So we have bonds, FX, commodities and broad indices, but we’re only trading liquid, positive carry vol weighted components – so 25% goes into commodities, 25% of the risk goes into each of these areas. That means you might actually have a very small 10 I March 2013 I Profit & Loss I www.profit-loss.com
amount of commodities in dollar terms because they’re more volatile. It also might mean that you actually have a larger percentage of bonds, because they’re less volatile, but over time that will change, and we harvest the volatility of the market on a daily basis. So as things move up and down, we are reweighting accordingly. It started last year and was on a runway for 19% return, which gets people excited, but I think it shows that you can take an FX lens and really get a broader perspective on other markets. That’s what FX Concepts is all about. Not that we’re going to lose our central mission or central idea of our 31-year history of trading FX, we’re going to be the best that we can in those models. But everybody knows them – trend, carry, mean reversion, vol, we do them all and were in the top three percentile in DB Select last year and made a 1% return. That’s just not going to be exciting to all investors, although some are going to see through that and say ‘These guys are experts in this and were up 1% when the average fund was down 4-5%.’ JR: Since you joined FX Concepts, what has been the major change? RS: Having done this before, you’ve got to learn about what you have first, so there haven’t been any major changes. I’m not a big advocate of rushing in to change a culture that I respect and know has been around a long time. I have been spending the last few months really learning what the strengths of the organisation are and how to get the most out of it. One thing I’m doing is trying to take the lessons that we’ve learned over last three years about risk management and help optimise that and make it much more algorithmic, and come up with a way of tying more econometric fundamental ideas into their process. That’s what John has always done. He’s a very
Cover
“For all funds, this has been a difficult three years so we’re trying to live within our means and make the right long-term investments for growth, and in the short term, keep things as tight as possible“
thoughtful, cyclically attuned leader and I’m trying to take my fundamental understanding of how the markets work and apply that to models and help them think through which set of models may perform better over others in certain circumstances. That’s not so easy to do. JR: And it hasn’t been an easy time in the markets either… RS: For all funds, this has been a difficult three years so we’re trying to live within our means and make the right long-term investments for growth, and in the short term, keep things as
tight as possible. JR: What are the most interesting events on the horizon this year? RS: The focus has shifted from European breakups, to the US debt downgrade, to Japan and the yen debasement, and then there’s the insipient global stall speed growth problem, which begs the question of what is the correct balance of government and private sector involvement in almost every aspect of the economy? When you look at places like Europe, there are doubts
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BIO Robert Savage was appointed FX Concepts’ chief strategist with the purchase of Track.com, which he co-founded, in September 2012. Track, a niche research provider focused on macro markets, now operates as a wholly owned subsidiary of FX Concepts, a New York-based hedge fund. Savage, a 23-year veteran of Goldman Sachs, and two former Goldman colleagues, John Frankel and Elaine Laurence, cofounded Track in January 2010. During his years at Goldman, Savage served as managing director of FX macro sales, publishing research focused on the foreign exchange markets and the macroeconomic environment. His time with Goldman was primarily with the FX business where he was a strategist, trader and salesman. In addition to Goldman, Savage worked as the head of New York FX trading for Lehman Brothers and as a director of proprietary trading at Bank of America Securities. Currently, he sits on the Board of Directors of IKOS, a Cyprus-based Quantitative Hedge Fund, and on the advisory boards of Market News International and BlueWater Advisors. He started his career as a lobbyist working in Washington and Nashville, TN as director of communications for the US Business and Industrial Council. He focused on national industrial policy and the need for strategic production capabilities in the US. Savage earned a BA in Political Philosophy from Yale University in 1984. FX Concepts, founded in 1981 by John Taylor and with about $3 billion under management, is an independent absolute return manager specialising in systematic investment strategies in currencies, fixed income, and commodities.
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Special Report: Coming to Terms with Crisis
• Singapore Prepares to Host ACI World Congress • An Appropriate Code for a Changing Landscape • Out on a Limb? EU Moves Ahead on FTT • RBS Takes Financial Hit Over Libor • Fixing Malpractice Spreads to NDFs • FSA Targets UK Banks Over IRS Mis-selling The last few months have been a sobering time for financial markets as they are rocked by scandal after scandal. From mis-selling of interest rate swaps products, through concerns over NDF fixing mechanisms to what is the biggest issue of all – Libor manipulation – the industry has been on the receiving end of some harsh, but unfortunately justified, criticism. It is against this backdrop that ACI - The Financial Markets Association has released its updated Model Code - the association’s best practice document. In terms of timing it could hardly be better, providing the industry with a reminder of what is expected of every single participant, across all asset classes. In this report, we speak to the head of ACI’s Committee for Professionalism, which oversees the Model Code, as well as preview the association’s annual centrepiece, the World Congress in Singapore. To give context to these discussions, we also bring readers up to date on the latest events surrounding the Libor and NDF fixes and the likelihood of further financial punishment for mis-selling interest rate swap products. Whichever way one looks at it, the mistakes detailed in this report have to be avoided in the future, and perhaps best practice documents with teeth are a possible solution?
Special Report ACI Singapore World Congress
Singapore Prepares to Host ACI World Congress ACI members gather for the 52nd World Congress this month, and are set for two days of high level debate over the future of markets.
A
CI Singapore, which will be hosting the 52nd ACI World Congress from March 14-16, at the Marina Bay Sands Convention Centre has unveiled an extended list of confirmed speakers as well as further details of the business programme. The line up features speakers from the asset management, banking and regulatory segments of the industry. ACI Singapore says the highly intensive business programme has been structured over two days with a keynote address on each day, as well as five interesting and topical panel discussions comprising some of the leading minds and exponents in the financial markets. The Congress gets underway officially on the Thursday evening with the opening ceremony at which delegates will hear from Congress chairman, Andrew Ng; president of ACI – The Financial Markets Association, Manfred Wiebogen; and the guest of honour, Ong Chong Tee, deputy managing director at the Monetary Authority of Singapore. ACI Singapore’s organising committee says the first day will see high level discussions focusing on macro issues affecting the global financial markets. Following a welcome address by Daniel Koh, president of ACI Singapore, the Congress keynote address will be delivered by Tharman Shanmugaratnam, Deputy Prime Minister of Singapore and chairman of the International Monetary & Financial Committee at the IMF. Following the keynote address, the first panel will consider the global outlook and this will help to provide a framework for many of the discussions to follow. The panel will be chaired by Ng Kok Song, advisor and chair of global investments for the Government of Singapore Investment Corporation (GSIC), one of the most respected and influential sovereign wealth fund managers in the world. Philipp Hildebrand, the former head of the Swiss National Bank, who is now at Blackrock, Jim O’Neill, the chairman of Goldman Sachs Asset Management, and Professor Eisuke Sakakibara, the former vice minister of Finance in Japan who is remembered as “Mr Yen” in the financial markets, will make up the panel. The second panel will then consider the Future of Banking and whether there is a new banking paradigm. This panel, which will comprise top global banking leaders, ACI Singapore says, will be chaired by Loh Boon Chye, deputy president of Bank of America Merrill Lynch in Asia. The panel will be moderated by David Clark, honorary president of ACI, who will guide John Cryan, president-Europe, Temasek Holdings; Piyush Gupta, CEO, DBS Group Holdings; Antonio Horta-Osorio, group chief executive, Lloyds Banking Group; and Robert Morrice, CEO, Barclays Asia Pacific through a range of topics relevant to the banking industry. The final business session of the first day will be a regulatory panel that will look at the balance between safety and functionality in the financial markets. This panel will chaired by Lee Chuan Teck, assistant managing director of the Monetary Authority of Singapore. Panelists slated to speak are Belinda Gibson, deputy chairman of the Australian Securities & Investments Commission (ASIC); Daryl Ho, head of market development at the Hong Kong Monetary Authority (HKMA); and Stewart MacBeth, president and CEO of DTCC DerivServ, The Depository Trust & Clearing Corp. ACI’s General Assembly will close out proceedings on the first day before delegates adjourn to Gardens by the Bay for an evening networking event.
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ACI World Congress features speakers from the asset management, banking and regulatory sectors. The second day will focus on the specific Asian theme of the Congress, namely “Understanding Asia – Impact & Influence”. Following a keynote address from Antony Leung, chairman Greater China, Blackstone Group and former financial secretary to the Hong Kong SAR, panel four will discuss the impact of China and the rest of Asia on Financial Markets. This panel will be chaired by Anita Fung, CEO of HSBC Hong Kong who has also headed HSBC’s Global Banking & Markets Businesses in Asia. Leung will join the panel, and speak alongside other speakers that are still to be named. The final panel will look specifically at the hedge fund industry in Asia. Besides looking at the challenges and benefits of setting up a fund in Asia, the panel of highly influential hedge fund managers will also offer their views on the markets and some trading ideas which could specifically benefit trading participants. This panel will be chaired by Danny Yong, one of the leading hedge fund managers in Asia, and will be a “closed door” session where their views will not be published. Speakers will be Bart Broadman, managing director of Alphadyne Asset Management; Adam Levinson, chief investment officer, Fortress Asia Macro Funds; Ramin Touloni, executive vice president & chair of the Asia Pacific portfolio committee, Pimco; and Zoltan Varga, executive managing director, Och-Ziff Capital Management Group. The final networking event of the Congress takes place that evening, the gala dinner at Marina Bay Sands, during which the traditional and ceremonial handing over of the ACI flag will take place from ACI Singapore to ACI Germany. ACI Singapore says delegates will experience exciting local flavours and culture within a massive flower dome on the Friday night. It also has an “accompanying person” program, which will showcase the multi-cultural and multi-racial facets of Singapore. “We trust that you are as excited as we are with the programmes, both business and social, that delegates and accompanying persons will experience during the 52nd ACI World Congress,” ACI Singapore managing director Mervyn Fong says. “And we look forward to welcoming all of you to Singapore in March 2013.
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Special Report ACI Model Code
An Appropriate Code for a Changing Landscape ACI – The Financial Markets Association officially launched the latest version of the Model Code, at a reception co-hosted by ACI UK and ACI’s Committee for Professionalism in London, in February. Alice Attwood spoke to chair of the CFP, David Woolcock, about the importance of a global directive in our increasingly electronic market.
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he financial markets’ reputation remains at a low point given the numerous scandals to hit over the “What we past few years and the foreign exchange and money have tried markets have not escaped their share of criticism. This to develop makes it an opportune time for ACI – The Financial is a truly Markets Association, through its Committee for international Professionalism (CFP), to release an updated Model Code code that – the association’s best practice document. everybody The Model Code is a set of guidelines, both technical can use” and ethical, which cover the professional activities of ACI members. Work on the first version began in 1973, which David Woolcock was then published in 1975. It was later updated in 2000 and presented in Paris, although this edit saw a number of additions, but few revisions. In September last year the rewritten the need to have the same level of integrity and high standard code was presented to ACI’s Board in Paris, including updates process is key.” which were required to reflect the dynamics of today’s market. McDonnell added that a commitment to adhering to the Model The CFP is responsible for market practices and advises the Code remains indicative of a company’s commitment to best ACI Executive Board. David Woolcock, global head of sales and practice, “Our model allows us to face regulators, face our business development at Eurobase, was appointed chair of the counterparts and possibly most importantly, face our customers CFP at the 51st ACI World Congress in Dubai last year. Since and say, I believe in and practice, to the highest level of integrity, stepping into the role he has been overseeing updates to the to the highest levels of professionalism, to the highest level of Model Code in order to create a more appropriate set of rules that ethical behaviour in all dealing, trading and every transaction I are suitable for the increasingly electronic market. have with you. This is above and beyond any legal or regulatory Speaking at the launch of the new Model Code in London, ACI requirement. UK president and global head of FX at RBC Dexia, Morgan “Furthermore, if you do not believe in these standards, and you McDonnell reiterated the market requirement for a moral code of do not practice to the level demanded by the Model Code, there is conduct. “As we go down the path of far more automation and no place for you in ACI.” straight-through-processing, we need to be able to trust our Woolcock himself, speaking at the event, noted, “With this providers implicitly,” he told attendees. “While we may not see launch of the new Model Code we are ending the process of the faces or directly converse with our price makers and takers, drafting and producing a re-written Model Code, which will come
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Special Report
Out on a Limb? EU Moves Ahead on FTT Colin Lambert reports as the EU Financial Transaction Tax moves closer… and hears why it probably won’t work.
and 0.01% on derivatives (including all currency trades), the EU said the tax would apply to all market participants based in the EU, regardless of where the transaction was executed, but it then widened the scope to include all derivatives with an “economic link” to the EU. Proponents of the tax argue that it could raise anywhere between EUR 20-40 billion per year, however critics, including the Swedish Government which experimented with a similar tax and abandoned it, argue it will merely drive companies offshore and hit It is disappointing that the EU is pursuing the FTT, whose cost will domestic pension funds, ultimately fall on consumers and businesses and be a drag on the corporations and private investors Eurozone economic recovery more. Algirdas Šemeta, commissioner he reality of a Financial Transaction Tax (FTT) in Europe responsible for taxation and customs union, audit and anti-fraud has moved closer after 11 EU countries overcame the at the European Commission, says, “It should be remembered objections of some partners to support proposals for the that, under enhanced co-operation, other member states can sign tax on share, bond and derivative trades. In a move designed to up at any time. Some have already expressed potential interest in thwart attempts to evade the tax by re-domiciling, the EU has doing so. also proposed to bring all parties who trade with an EU entity “For everyone in the single market, a common approach – even into scope. if not at 27 [members] – is preferable to a patchwork approach, Germany and France, along with Italy, Spain, Austria, Portugal, not least because it will avoid complexity and added burden for Belgium, Estonia, Greece, Slovakia and Slovenia, voted for the businesses and investors,” he continues. “It is clear that a tax, which will now be taken by the European Commission to be significant number of member states is prepared to back the drafted into a law to be voted on – probably in mid-2013. The Commission's proposal for enhanced co-operation on the FTT. I proposals are for a tax of 0.1% on share and bond transactions would ask all member states to take their Treaty obligations
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Special Report
RBS Takes Financial Hit Over Libor Colin Lambert reports as the Royal Bank of Scotland reaches a deal with regulators over Libor malpractice.
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he Royal Bank of Scotland (RBS) has been hit with fines submissions. from the US Commodity Futures Trading Commission, the The CFTC says that the offences continued even after the US Department of Justice and the UK’s Financial Services authorities’ investigation was made public. Authority, over misconduct by some of its traders surrounding the The FSA says the misconduct “was widespread” and says that Libor fix. “at least” 219 requests for inappropriate submissions were The CFTC has fined RBS, which agreed to the fine as part of a documented – and that an unquantifiable number of oral requests, plea bargain, $325 million and the DOJ has levied a $150 million which by their nature would not be documented, were also made. fine, while the FSA has hit the firm with a £87.5 million fine. At least 21 individuals including derivatives and money market The authorities say that RBS’s breaches of the rules traders and at least one manager were involved in the “encompassed a number of issues, involved a number of inappropriate conduct, the authorities say, adding that the staff employees and occurred over a number of years”. The individuals members were in multiple offices, including London, New York, involved in the misconduct were located in the UK, Japan, Singapore and Tokyo. Singapore, and the US. The FSA says that RBS failed to identify and manage the risks Between January 2006 and November 2010 the FSA says the of inappropriate submissions and established a business model misconduct included RBS making Japanese yen (JPY) and Swiss that sat derivatives traders next to Libor submitters and franc (CHF) Libor submissions that took into account its encouraged the two groups to communicate without restriction derivatives trading positions; allowing derivatives traders to act as despite the obvious risk that derivatives traders would seek to substitute submitters and make JPY Libor submissions that took influence RBS’ Libor submissions. It also allowed derivatives into account its derivatives trading positions; making JPY, CHF traders to act as substitute Libor submitters which created an and USD Libor submissions that took into account the profit and obvious risk that derivatives traders would make submissions that loss of its money market trading books; RBS derivatives traders took into account their trading positions, the FSA adds. colluding with other Libor panel banks and inter-dealer broker RBS did not have any Libor-related systems and controls in firms to influence the JPY Libor submissions made by other place until March 2011, failed to adequately address the risk that panel banks, including one derivatives trader entering into “wash derivatives traders would seek to influence RBS’s Libor trades” (i.e. risk free trades that cancelled each other out and for submissions until June 2011, and failed to adequately address the which there was no legitimate commercial rationale) in order to make corrupt brokerage payments to one broker firm to garner influence. The extent and nature of the misconduct has cast a shadow The derivatives trader used this influence to get on the reputation of this industry and we expect firms to the broker firm to try to change other panel take steps to ensure that this can never happen again banks’ JPY Libor submissions, the FSA says. The bank was also found guilty of having derivatives and money market traders collude with individuals at other panel banks and inter-dealer broker firms who sought to influence RBS’s JPY and CHF Libor risk that money market traders would take into account the
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Special Report
Fixing Malpractice Spreads to NDFs Colin Lambert reports on concerns in Singapore over behaviour surrounding some NDF fixings.
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ith the banking industry already reeling from the discovery of malpractice in money market fixings (see Libor story this issue), evidence of wrongdoing has spread into the FX market with reports that dealers at banks in Singapore colluded to manipulate fixing rates submitted for non-deliverable forwards. An initial report on a Reuters newswire has been confirmed by local market sources that evidence had been uncovered in Singapore of FX dealers colluding over the fixing of rates for NDFs for the Indonesian rupiah, Malaysian ringgit and Vietnamese dong. The news was not entirely unexpected, Profit & Loss has reported on whispers in the market over such activity We have been told by the authorities that withdrawing previously (Profit & Loss, November 2012 and from the fixing - which is what we wanted to do - is not P&L’s Squawkbox, July 1, 2012). going to be allowed Following the report, market sources in Malaysia say that Bank Negara, the country’s central bank, ordered local banks to withdraw from the Singapore fixing, submit quotes and the highest and lowest are normally withdrawn pending the launch of its own local fix. Reports in Indonesia also to ensure a balanced fix. In the case of the NDF fixes, as was the say that the country’s central bank, Bank Indonesia, has taken case in Libor, it is claimed that “four or five” banks have similar action. uncovered evidence of collusion, meaning, according to the senior The discovery of the malpractice came to light following an banking source, the fixing rate could have been manipulated “but order from the Monetary Authority of Singapore to banks in the not by much”. Prior to the discovery of collusion, 18 banks fixed city-state to review their processes for benchmark fixings, with the rupiah rate, 15 the ringgit and 12 the dong. particular regard to Libor. Sources familiar with the issue tell A source at an interdealer broking company says that up to 20 Profit & Loss that it was at this time that potential irregularities dealers have been suspended as part of the investigation, pending were uncovered as part of a routine check of other fixings. “We further study of available resources. understand that several banks were involved,” says a senior In Indonesia, the central bank has proposed the establishment source at a bank who claims that institution is not involved in the of a domestic fix for the rupiah and has told local traders not to issue. “And that instant messaging and emails were used, as they take offshore NDF rates into account when submitting rates. were in Libor, to submit high or low rates.” Similar action is reportedly taking place elsewhere around the As is the case with most benchmark fixings, a group of banks region in what is seen in some circles as a blow to Singapore’s
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Special Report
FSA Targets UK Banks Over IRS Mis-selling If malpractice over Libor fixings wasn’t enough, the banking industry is now likely to be hit by another fine – this time in the UK for mis-selling interest rate swaps. Colin Lambert reports.
independent reviewers. The decision follows intensive work by the FSA to scrutinise the pilot review of sales carried out by the banks and the independent reviewers. The pilot was established to allow the FSA to consider the banks’ proposed approaches to reviewing sales and to ensure they would deliver the right outcome for customers, it says. The FSA says that the work on the At least 90% of sales did not comply with one or more regulatory pilot has confirmed its initial findings requirement, the FSA says of mis-selling of IRHPs. It adds it looked at 173 sales to “non ritain’s Financial Services Authority says that four of the sophisticated customers” and found that over 90% of the sales biggest UK banks have agreed to work with it to did not comply with at least one or more regulatory investigate cases of mis-selling of interest rate hedging requirement. “A significant proportion of these 173 cases are products – principally interest rate swaps – to customers with a likely to result in redress being due to the customer,” the FSA view to paying compensation that could run into the billions. says, adding, however, that the small number of typically The FSA has confirmed that Barclays, HSBC, Lloyds and more complex cases in the sample may not be representative RBS will start the full review of their sales of interest rate of all IRHP sales. hedging products (IRHPs) to small businesses. This follows The pilot has also enabled the FSA to consider the an announcement in June 2012 from the FSA that it had found “serious failings” in the sale of IRHPs. The banks have Following this report, RBS says it will “meaningfully increase” its agreed to work on reviewing individual provisions for redress to clients sales and providing redress to customers based on principles outlined in the FSA’s pilot report which was overseen by
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European Parliament’s RTS Rejections Scrapped Alice Attwood reports on the latest developments in the implementation of EMIR rules.
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t the beginning of February the European Parliament’s Economic and Monetary Affairs Committee (Econ) voted to reject two of the Regulatory Technical Standards (RTS) produced by the European Securities and Markets Authority (ESMA) under European Markets Infrastructure Regulation (EMIR). The rejection was overturned two days later, causing a split between commentators some of whom suggest the outcome negates the chance of further delays to implementation, while others remain cautious and expect EMIR’s deployment to suffer further delays in order to ensure its appropriateness. Econ initially rejected two of ESMA’s RTS rules by 24 votes to 20 in a vote on 4 February. The RTS rules in question cover the clearing threshold for non-financial counterparties, especially the condition which states that if the clearing threshold for one asset class was exceeded by a counterparty, the counterparty would be automatically held to have exceeded the threshold for all asset classes; as well as requirements over timely confirmations, with particular attention on how this obligation would affect smaller, non-financial counterparties.
“[EMIR] will make a huge range of hedging strategies too expensive and complicated to carry out, leaving them exposed to potentially catastrophic real-world risks such as currency fluctuations and commodity prices.” Zohar Hod, SuperDerivatives
The technical standards were first published by ESMA in September and were approved by the European Commission (EC) in December, although the rules have attracted some critics’ attention over suggestions that the rulings differ from the original document. However, later that week, Parliament withdrew and cancelled its rejection vote and allowed RTS to go ahead as planned and without edits. On 7 February, Sharon Bowles, chair of the Econ committee, declared that it would agree to a phasing-in of the proposed RTS rules for non-financial firms over an ‘appropriate period of time’. Bowles also gave assurances that Parliament’s concerns over the particular RTS aspects would be responded to in a stream of Q&A booklets, covering legal areas of uncertainty.
Fallout Another rejection would have seen the rules sent back to ESMA for redrafting, therefore delaying the implementation of EMIR. By delaying the new regulations, there was the risk that some politicians may accept less-than-appropriate standards in order to combat further delays, allowing and driving implementation sooner. David Clark, chair of the Wholesale Markets Brokers’ Association (WMBA), explains the story so far, "The delay in EMIR comes from the withdrawal by Econ of the resolution on technical standards. This reflects political positioning between the European Parliament and the Commission about level two
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“From the markets’ perspective, it is better to have delay than badly drafted or implemented regulation, and further delays should not be ruled out.”
David Clark
“The market requires clarity and wants greater safety and understanding in terms of what each company needs to do in order to be compliant – so that they can prepare.”
Robin Poynder
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FX Turnover Continues to Decline It may have been a good start to 2013, but as Colin Lambert reports, the data for October 2012 was anything but good.
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he latest round of FX committee surveys indicate that the decline in foreign exchange turnover seen in April 2012 accelerated into October 2012. Activity in October was at levels last seen in October 2010. Much of the decline was registered in North America and the UK, however, for across Asia, activity was flat to slightly up. Across the four centres that reported data in October 2011 (UK, North America, Singapore and Australia), overall FX average daily volume declined 17.1% year-on-year. For the first time since these surveys began, the Tokyo Foreign Exchange Committee is reporting October data, however year-on-year data from that centre is not provided – The TKFXC last reported in April 2012, from there, across all centres, activity dropped by 12.3%. The decline in exchange rate volatility in October 2012 seems to have had the biggest impact, year-on-year spot activity (ex-
Japan) fell 22% – activity was down in every centre reporting, and across the five centres (the New York FXC data includes Canada, but the latter does break out its own numbers) spot average daily volume (ADV) fell 7.5% from April 2012. Year-on-year, taking all committees’ (ex-Tokyo) reports, spot activity was down 19.4%. This decline in activity is most visibly seen in those platforms reporting monthly volume data (see sidebar); however, anecdotal evidence from the wider industry would appear to suggest that the four centres’ decline accurately reflects the global picture, with one or two exceptions. The UK remains comfortably the world’s largest FX centre, indeed its lead over North America has widened, whilst in Asia, Singapore remains the largest centre, albeit by a slightly lower margin than in April 2012. It remains to be seen whether the brewing NDF scandal involving the Singapore FIX (see story this issue) will have an impact on volumes. The SFEMC does not break out NDF volumes and any impact there is likely to be small in the bigger picture, however, there is a chance of a deeper impact if the centre suffers some reputational damage.
Geographies Activity in the UK fell to $1.92 trillion per day, down from $2.014 trillion in April 2012 and $2.038 trillion in October 2011. Both declines, 7% year-on-year and 5% from April 2012, beat the global trend, as did the 15.7% year-on-year decline in spot activity to $678 billion per day.
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CLS Unveils Comparative Data for Turnover Surveys o accompany the FX committee surveys on averge daily volume in the FX markets, CLS, the utility established to reduce settlement risk in FX markets, has released its comparative data for the months of October 2011, April 2012 and October 2012. The data cannot be compared directly as CLS does not cover all currencies, however it is a useful barometer of market activity. CLS says that activity in all products fell by 7% year-on-year to October 2012, however it increased by 4% from April 2012. The utility says it settled an average daily value of $1.713 trillion in October 2012, down from $1.846 trillion the year before and $1.65 trillion in April 2012. Across product segments, CLS settled values dropped 15% in spot year-on-year (+3% from April 2012); rose by 1% in FX swaps (+5%); and fell by 4% in outright forwards (+6%). Analysis by Profit & Loss shows that those platforms that report monthly data had a mixed time compared to the wider
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market. On a year-on-year basis, EBS dropped 45.5%, Hotspot FX by 33.4%, CME by 26.6%, and Thomson Reuters by 22.6% FXall, by contrast, saw activity rise 9.3%. A better comparison can be made by looking at the six monthly change, mainly because of the inclusion of Japan in the data – the Japanese yen being a major part of both EBS and CME volumes. From April 2012 to October 2012, when overall activity according to the FX committees dropped by 12.3% and spot activity by 7.5%, the picture is not as stark. EBS dropped 15.6%, Hotspot FX dropped 8.8%, Thomson Reuters fell 7.7% and CME dropped by 6.7%. Again FXall bucked the trend, rising 5.6%. It should be noted that FXall is the only platform to include all FX activity in its data. It could be that much of the FXall increase has been driven by the wider increase in activity in FX swaps as reported by the FX committees.
Trading Room
Years Ago in Profit & Loss
Headlines from February 2003 The Rise of Currency n the March 2003 issue of Profit & Loss we took a look at the increased interest on the part of investors in currency as an asset class. Under the title “from service class to asset class” we discussed the trends in currency investing with several asset managers and experts from the market. It was noted that underperformance in traditional asset classes was helping to drive enquiries into currency investing, therefore times were somewhat similar to those that have existed these past three or four years since the GFC got into full swing. In a generally optimistic outlook for the future of currency investing, it was noted that the creep of consolidation in the market was a potential issue, with more than one manager expressing fears of a currency market held in the hands of just a few banks. As we now know those fears were generally misplaced. It was agreed that asset managers were increasingly likely to allocate some of their risk budget to currency and therefore currency would take its place alongside other markets as an absolute return asset class.
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What Do These Things Do? special report featured in the March 2003 issue, looking at the credit derivatives market, then still, to a degree, in its infancy. We noted, “It seems strange that the explosion in derivatives trading across all asset classes took so long to get to the one area that permeates the entire financial market spectrum – credit. Once achieved, the growth has been spectacular in percentage terms although of course, it was starting from a small base. Notwithstanding that, the credit derivatives market is rapidly gaining recognition around the world.” In a five story report we examined the roots and development of the credit derivatives market, as well as how the industry could have used it to cope with some of the events prior to its development, such as the collapse of Long-Term Capital Management in 1998. Pricing models were studied, along with several bank and multi-dealer offerings then coming to market, as well as the moral hazard that existed around credit events. We concluded that, “Ignoring the credit derivative market means missing an important factor – its impact in levelling prices and repackaging opportunities. This ‘cheapest to deliver’ feature is a compelling argument for using the market. Anyone in the
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credit market not using these products is effectively trading with one or both hands tied behind their back.”
Remember This? ew platforms in the FX markets were not particularly unusual around this time, although several were struggling to keep their heads above water and one high profile casualty had already been registered. Following a soft launch in late 2002, we reported on PrismLight, an FX trading platform that was a 70:30 joint venture between Synapse Technologies, part of the Singapore Technologies (ST) holding company, and FNX. PrismLight’s proprietary application, the Treasury Hub, was to be offered with FNX’s Sierra ASP product to provide straightthrough processing from requests for quotes through to deal entry, risk management and accounting. Members were able to request prices electronically from multiple banks and other members for FX spot, forwards, NDFs, swaps and money market transactions. The system also included a secure messaging system. Trading activity commenced with a soft launch in November 2002 with nine relationship banks: ANZ Banking Group, Bank of America, Commerzbank, Citibank, Hongkong and Shanghai Banking Corporation, Chinese Banking Corporation, Standard Chartered Bank, S-E Banken and Societe Generale, as well as four ST companies: ST Treasury Service, ST Assembly and Test Services, ST Engineering, and Chartered Semiconductor Manufacturing.
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The Birth of Forex Network? t was in the March 2003 issue of Profit & Loss that we announced plans for a joint conference with FMA USA, the now defunct ACI arm in the US, for a two-day conference in Chicago. Profit & Loss had, of course, hosted several conferences prior to this in London and New York, but the move to Chicago was something a little different and in the event proved to be a tremendous success. It was from this event that the brains trust at Profit & Loss (honest we do have one!) put their heads together and came up with the concept of Forex Network. Born in Chicago, and still going strong – see you there later this year!
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Trading Room
January Brings Relief for Market An upturn in volatility has translated into higher volumes in the FX market – and a bonanza for one platform, as Colin Lambert reports.
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resh from a tough end to 2012 – which effectively capped a poor year for FX markets generally, both volatility and volumes returned to the market in January 2013, raising hopes of a better year for market practitioners. Both multi and single dealer platforms saw increased activity and currency managers took advantage of the increased volatility to turn in a better result in one month than they had in the whole of 2012. Increased activity in EUR and JPY helped Icap’s EBS to a very strong bounceback from a poor December. Overlaying the positive sentiment across the market was the January report from CLS Bank, which says the utility handled more than 40% more instructions in January at 1,244,505 per day than it did in December. In value terms, CLS handled $5.19 trillion per day, up 12.6% from December. In year-on-year terms, instructions handled rose 31.1% and value handled rose 18.5%. All platforms to report data indicated a
healthy bounce in activity. CME says that it averaged 900,000 contracts per day, up 21% from January 2012 and 13.3% on December 2012. January included a monthly average daily volume record for Japanese yen futures. In notional terms, CME averaged $122.4 billion per day. Icap’s EBS meanwhile bounced strongly from a poor December, rising 54% on the month to $141.3 billion per day – a 22% year-on-year rise. Thomson Reuters average daily FX spot volumes for the month were $126 billion across its three main FX spot trading services – Thomson Reuters Dealing, Matching and Reuters Trading for FX. This represents a 23.5% increase from December, although it is significant that of all the platforms Thomson Reuters failed to rise year-on-year, ADV dropping by $1 billion per day. FXall’s trading volumes across both its relationship and active trading segments were $109 billion per day, a 9% increase from December and a 31.3% year-on-year
increase. “Increased trading volumes [on FXall] were attributable to deeper liquidity in our active trading business where we've seen record volumes on our order book globally,” says Phil Weisberg, global head of foreign exchange, Thomson Reuters. “Uncertainty around US agreement on the fiscal cliff and positive non-farm payrolls both were catalysts for increased volatility in USD, GBP reached its lowest level for 12 months against EUR and a five-month low against USD following uncertainty over renegotiations of Britain’s relationships with the EU and news that the UK economy was on the brink of triple-dip recession. This increased volatility and drove volumes up across all TR platforms. Emerging market currencies performed well remaining strong performers with record months on Matching for Hungary, Czech Republic, Poland and China.” Knight Capital’s Hotspot FX rounded out the regular reporting period by posting
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Trading Room
GFI: More than Matching With the NDF market outside the wider FX exemption by the US Treasury, GFI Group is positioning itself for growth in the product as its hybrid model comes into its own. Julie Ros reports.
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s the industry continues to await final rules governing trade and settlement of non-deliverable forwards, GFI Group is aiming to leverage the strong uptake of its hybrid offering for NDF products with a new feature offered on the GFI ForexMatch platform, Join the Trade (JTT), which launched in Q4 2012. JTT is triggered as a popup alert when a
trade is entered on ForexMatch indicating to traders that there is activity in a particular currency. “It’s something that the brokers do here by voice, but now we’ve electronified it. Join the Trade works well because when you make noise about a trade, it tends to generate interest when a trader sees action happening and wants to get in on it. Now traders can put up their own side, and they like the fact that the broker or the market Nick Brown can’t see whether they’ve “Our screen trading system lets you put put on a buy or sell,” your own curve out there – bid/offer, says Paul Millward, head spread/run, whatever – it is much more of FX e-commerce at than just purely matching, plus it’s hybrid: GFI Group in New York. broker and screen.” JTT has been available for Latam NDFS on ForexMatch for about three that the client is receiving, as well as gives months, having started with him a bit more colour about what’s going USD/CLP before expanding into on in the market,” Millward says. the other currencies. “Depending “About 70% of these trades are client Paul Millward on price, counterparty or client, driven and 30% are broker driven,” he “Depending on price, counterparty or client, the hybrid approach means the says, adding that JTT shows trading at a the hybrid approach means the broker can broker can facilitate the trade by certain level in a particular currency, but facilitate the trade...or the client can do it putting in the price and executing there’s no indication to the rest of the himself, which improves the volumes and the the order or the client can do it market about direction or amount. information flow.” flow that the client is himself, which improves the Nick Brown, head of FX at GFI, adds: receiving, as well as gives him a bit more colour about what’s going on in the market,” volumes and the information flow “It’s not just about matching. Our screen
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Digital Markets
TraFXpure Rebranded Ahead of Launch Colin Lambert reports as one of the more talked about platforms of the past year is given a new name, and readies for launch. Additional reporting by Julie Ros. nterdealer broker Tradition has rebranded its TraFXpure venture ahead of a launch in the coming weeks. The firm says the platform will now operate under the name ParFX and be a wholly owned subsidiary within the Tradition group. Launch was originally slated for the end of January, however Profit & Loss understands that this date has slipped due to unforeseen complexities around building the credit functionality for the platform. It is believed a launch will occur in early March. In addition to the new name, Tradition has unveiled further details regarding the platform as well as two new founding banks. The Bank of Tokyo-Mitsubishi UFJ and Nomura Securities have both added their names to the list of founders of the platform. They join an “We are greatly encouraged by the support being shown by such existing group of nine founder a large number of market participants in the spot FX market” members – Barclays, BNP Paribas, Deutsche Bank, Morgan Stanley, eight ISVs. Marcus also reveals that ParFX will charge a Royal Bank of Canada, SEB, Standard Chartered, State Street and brokerage fee of $2 per million, and market data at cost. UBS – which believe, Tradition says, that the platform will Although the $2 per million fee is broadly in line with industry greatly benefit the market with an offering that is focused on norms, Profit & Loss understands that it will slightly undercut delivering equality and efficient execution for all participants. many of ParFX’s rivals, with the exception of what one source at Speaking to Profit & Loss last month, Dan Marcus, managing director, strategy and business development at Tradition, said that a rival company says are “exceptional” deals for some of the the platform was aiming to launch “within weeks”. It has 20 firm’s biggest customers. It is also understood that participants on banks in testing, 11 of which are founding members, as well as the platform have agreed to a minimum brokerage per month.
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Digital Markets
Customer Service the Wright Way At a time when companies are vying for business on the premise of offering something different, innovative and new, how do clients choose who to work with? Alice Attwood talks to Jeremy Wright at RBS about the importance of customer service and why the bank’s China strategy is helping to grow its futures business elsewhere, in the face of new regulation.
ifferentiation in this crowded market remains one of the most sought after commodities in the industry, with consistent claims that a product is brand new and the market has never seen anything like it. Well, amongst the noisy claims is Jeremy Wright, global head of futures and options at the Royal Bank of Scotland (RBS), who says that we should take things back to basics and that the most important selling point of any business remains good old-fashioned customer service. While not a new concept, the traditional focus on the customer has perhaps been lost of late in place of a consistent stream of ‘bigger’, ‘better’, ‘faster’, even ‘sexier’ offerings coming to market, says Wright. He stepped into the role two years ago and has since strengthened the team from front to back, not least through hiring more than 20 people for the front office, but also by instilling a customer-focused environment. He tells Profit & Loss, “I have worked to create a strong customer service focus among the team, in terms of ethos and capabilities. It is of paramount importance that we deliver this clear message. In today’s market, you have to be able to offer more than just a price; efficiency, customer service, best execution and pricing must be offered in a complete package. The
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“We have significantly realigned the infrastructure, not least through ensuring that we increase internal awareness of the business, something that can be forgotten in larger businesses.” Jeremy Wright
goal is beyond simply reducing costs in the back end, by offering value-added services, such as research, trade ideas, first hand market flow insight, best execution, clearing flow and electronic execution for various products. We are differentiating ourselves, starting with superior customer service.”
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Digital Markets PREMIUM CONTENT click here to subscribe
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Digital Markets
Standard Bank Selects Caplin Trader for Online Trading Standard Bank’s corporate and investment banking division has partnered with Caplin Systems to provide the framework for its new single-dealer platform. Alice Attwood reports.
eb trading and technology infrastructure provider Caplin Systems will support Standard Bank as it creates its multi-asset online trading venue utilising Caplin Trader 3, Caplin’s new HTML5 Web trading offering for its corporate and investment banking division. Caplin’s service allows banks to develop sophisticated and differentiated online trading tools, accessible across desktop and mobile devices. The system is designed for global use by Standard Bank staff, corporate treasury departments, SMEs and the institutional buy side. The project is being undertaken by a 12person team, made up of Caplin and
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“This partnership... gives us the opportunity to develop a new generation of SDP targeted primarily at corporate treasurers rather than professional traders and investors.” Paul Caplin
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WHAT’S NEW?
360T Adds Fenics Pricer
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enics Software, a subsidiary of interdealer broker GFI Group, has partnered with independent trading venue, 360 Treasury Systems (360T), to embed the Fenics FX options pricing engine into 360T’s Tex multi-dealer trading platform. The agreement will see prices generated by Fenics ePricer offered within the Tex platform, which can then send requests-for-quote to the 360T liquidity pool. The Fenics tool provides indicative price discovery across a number of
currency pairs and has been configured to support the Tex platform’s strategies and workflows, such as one and twolegged vanilla strategies, supporting both live (without hedge) and delta-hedged requests. This combined system also includes all benefits of a multibank platform like the documentation of best price execution and a fully straight-through processing (STP), the firm says. Richard Brunt, managing director for Fenics, says: “The partnership will introduce Fenics technology to a wider user base
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Digital Markets
WHAT’S NEW?
MarkitServ and Misys Extend Clearing Partnership
Corporation (DTCC) and Markit, is the only middleware provider with live connectivity to LCH.Clearnet, Singapore Exchange and CME Group for FX clearing, it says. MarkitServ has processed 99.9% of all centrally cleared FX trades to date, says the company. Keith Tippell, director and co-head of FX at MarkitServ, says, “In this fast-changing and uncertain environment, our collaboration with Misys leverages the synergies between our respective services to deliver superior, scalable and high performance access to end-to-end processing of new FX clearing flows to all CMS customers. Combined with our partnership with Swift to receive trade messages and deliver cleared status notifications via the Swift network, and our FX CCP connectivity, this collaboration reinforces regulatory processing efficiency in the FX market.” Gilmore Bray, director of Misys Global Managed Services, adds, “Our partnership is a significant enhancement as it enables
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lectronic trade processing service provider for OTC derivatives, MarkitServ, and treasury and capital markets services provider, Misys, have partnered to offer an end-to-end service for Misys Confirmation Matching Service (CMS) customers to deliver foreign exchange trades to central clearing counterparties. The new offering will integrate MarkitServ’s FX clearing gateway with Misys’ CMS, offering CMS customers access to all FX CCPs and other FX market participants. The MarkitServ tool is a single point of access to all FX CCPs used by executing brokers, clearing brokers, trading venues and buy side companies. CMS is a post-trade treasury system used by over 1,000 banks, brokers, fund managers and corporate treasurers to improve trading efficiency and reduce risk. The deal allows CMS clients to use MarkitServ’s Swift interface – and industry-standard Swift MT300 messages – its connectivity for FX clearing validation and clearing broker acceptance, and its network to transmit trade notifications to designated FX CCPs. The partnership will support CMS clients in centrally clearing OTC FX transaction, as directed by DoddFrank and EMIR directives. MarkitServ, jointly owned by the Depository Trust & Clearing
HTML5 is a technology whose time has come... it is future proof, highly efficient and productive our clients to view through a single window the end-to-end status of FX trades requiring central clearing. Misys CMS will utilise the Swift network to deliver trades to MarkitServ on behalf of
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Digital Markets
TwoFour Releases New Front-End TwoFour provides new HTML5 browser-based, high performance GUI. Julie Ros reports. woFour Systems has released an HTML5 front end that gives users the ability to access positions, statements, reports and cash balances directly online, as well as via mobile devices. The new version, released in late 2012, also provides white labelling services and relatively quick, global implementations. Chris Davis, managing director of sales and marketing at TwoFour, says the new release, which enables internal users on the trading and sales side and external users on the client side, to directly access such information as positions, reports, RFQs,
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“Institutions can now provide a portal for their external clients to connect and view their positions and trading activity.” Chris Davis
streaming prices, confirming and instructing trades, cash balances, deposits and withdrawals. “Institutions can now provide a portal for their external clients to connect and view their positions and trading activity. A user will be able to check positions on a mobile device or monitor operational KPIs, while sitting in a meeting. It’s now a mobile world,” he says. The new release not only helps firms expand their client base, but also helps to offload work from the back office by giving clients the ability to manage their accounts. “As you increase volume and expand your client base, most organisations have to continue to hire operations staff to manage that, but by taking those functions that are normally done in the back office and pushing them out to allow the client to direct where to settle, the clients are
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Market of the Month
Australian Dollar
The Australian dollar By Kit Juckes, Global Head of FX Strategy, Societe Generale
The laws of gravity and the Australian dollar - when it can’t go any higher, it’s about to fall back to earth with a bump. he Australian dollar is the Michelin three-starred restaurant of the currency world. As the highest-yielding currency of any triple-A rated economy, it attracts capital inflows that are sensitive to the credit rating first and the ‘value’ of the currency second. Some people only eat at the very poshest restaurants and they are often the kind of people who don’t look at the prices on the menu. This is all well and good but justifying a high price is one thing, justifying an ever-increasing one is a different matter entirely. There is only SO much that anyone will pay for a meal in a restaurant, and the Australian dollar probably reached that level when it hit USD 1.10 in the summer of 2011. Since then it has been going nowhere, looking expensive but supported by its relatively high real yields, even though the Reserve Bank of Australia has cut the cash target rate five times since then, from 4.75% to 3% – and they may not be done with easing yet. If RBA rates fall any further, the New Zealand dollar may find itself
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supported by higher markets than its Australian cousin. And the relative story will gradually erode. The Fed can’t cut US rates any more, the ECB is indicating considerable reluctance to ease further and as time goes by, markets will inevitably price in rates rising in countries where they can’t go down. As and when that happens, the Australian dollar is likely to stop going nowhere and start going downwards.
Reasons for an overvalued currency Of course, the fact that Australia has (relatively) attractive interest rates is not the only factor which has been supporting it. The economy has benefited from China’s growing importance as a trading partner and from Asia’s resurgence in recent years. A pick-up in the Chinese economy at the start of 2013 is a good sign in that regard. Demand for Australian raw material exports boosts the dollar, and investment into the resources sector does even more. Furthermore, in a world where exchange rate trends
Australian Dollar
currencies are increasingly correlated with other asset markets, a ‘risk-on’ move which sees commodity prices rise at the same time as equity indices advance, is very helpful to the Australian dollar. All of these factors have allowed the Australian dollar to trade at levels that look overvalued on simple purchasing power parity (PPP) measures, or on more sophisticated fundamental equilibrium exchange rate models. The OECD’s measure of fair value based on PPP suggests the AUD is overvalued by over 30% and should be down at AUD/USD 0.75. That’s a lot to explain through capital flows alone. Our own estimates of longterm fair value are not so different and even if we look at medium-term models (based on current economic trends, as well as balance of payments), AUD is around 5% overvalued and vulnerable to any relative economic underperformance. See chart.
Overvalued but struggling to keep up We would be surprised, of course, if valuation measures didn’t tell us the Australian dollar was overvalued. As China’s economy regains momentum, as equity markets charge higher and as the
Market of the Month
rest of the world’s central bankers appear to be falling over themselves to see who can have the ‘least strong’ currency, no wonder the Australian dollar is so expensive. However, the fact that it is going sideways in such a friendly world should be cause of concern. Commodity prices are up, equity indices are higher, the Chinese economy has bounced and risk is ‘on’ but the Australian dollar is going down against the US dollar and even
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Market of the Month
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Money Management
NFA Adopts PFG Report Recommendations Alice Attwood reports as the National Futures Association continues to close loopholes following the PFG meltdown. he National Futures Association’s (NFA) board of directors has voted to accept the recommendations made by Berkeley Research Group (BRG) as part of its extensive audit of the collapsed Peregrine Financial Group (PFG). BRG was appointed to independently audit PFG following that firm’s collapse amidst accusations its CEO Russell Wasendorf had falsified financial statements, resulting in more than $200 million of client funds going missing. The firm has compiled 21 recommendations for the NFA, and the body’ board will appoint a special committee to oversee the implementation of BRG’s directives. According to the BRG, the 21 recommendations are designed to, “improve the operations of NFA audits,” and include topics such as auditor hiring, training, supervision and continuing education. The report makes particular reference to audit staff, stating that the NFA should enhance its training and procedures in order to instil a greater sense of professional scepticism, as well as conducting more testing of members’ internal controls, qualifications of outside auditors and sources of companies’ capital contributions. BRG also recommended that NFA take steps to better identify potential risk
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“With the full backing of the Board, management will implement these recommendations and we expect the result will be improved regulation and oversight and a stronger, more secure industry.” factors in futures commission merchant (FCM) operations. Todd Petzel, chairman of a special committee comprised of NFA's public directors that retained BRG in August 2012, says, “BRG conducted an independent, thorough, and accurate review of NFA's audits of Peregrine Financial, and identified areas in which NFA could have been more inquisitive. Its
recommendations are smart and appropriate. With the full backing of the Board, management will implement these recommendations and we expect the result will be improved regulation and oversight and a stronger, more secure industry.” The futures body has already taken steps toward addressing BRG’s recommendations, says president of the NFA, Dan Roth, “For example, we have
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Money Management MONEY MANAGEMENT > NEWS IN BRIEF
FX Concepts Transitions to MarketFactory Aggregator urrency hedge fund, FX Concepts, has transitioned its automated currency market data and execution activity through software company, MarketFactory’s FX Aggregator. MarketFactory’s offering is a single Application Programming Interface (API) that provides access to more than 50 venues and protocols through a single market data and trading API. FX Concepts will gain access to top liquidity providing banks and ECNs, as well as low liquidity, more accurate market data
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“Exceptional execution, enhanced market data and fast time to market were critical success factors for the client.” and improved execution. The companies have been working together on the project for around six months, with FX Concepts’ adoption of the new system driven by dissatisfaction
James Sinclair
AIMA Seeks to Help Managers Meet EU Regulation lobal hedge fund association, the Alternative Investment Management Association (AIMA), has launched an online self-diagnostic tool and detailed guide to implementation for firms needing to comply with the Alternative Investment Fund Managers Directive (AIFMD). The diagnostic tool and implementation guide, jointly produced by AIMA and PwC, the professional services firm, will assist AIMA member firms in preparing for and tracking their compliance readiness. The guide sketches out the various strategic and business options both EU
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and non-EU managers should consider when planning for compliance with the Directive. It is supplemented by an online self-diagnostic tool that will assist managers as they approach the relevant
implementation deadline. “We hope that these tools will enable hedge fund firms to get a better sense of the steps that they will need to take in order to respond to and comply with the provisions of the AIFMD,” says Andrew Baker, CEO of AIMA. “The AIFMD is a complicated piece of legislation. It is being implemented in EU Member States in a variety of different ways, while nonEU or ‘third country’ jurisdictions are also taking differing approaches to it. This leaves hedge fund firms across the world facing a lot of complex choices. “Even now, the full legal and regulatory
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Money Management MONEY MANAGEMENT > NEWS IN BRIEF
Parker Index Ends 2012 on a Positive Note T
he Parker FX Index rose 0.17% in December, according to Parker Global Strategies, with 24 of the 43 reporting firms achieving positive returns. On a risk-adjusted basis, the Index was up 0.07% in December. The median return for the month was +0.04%, while the performance ranged from a high of +5.51% to a low of -6.45%. Discretionary managers outperformed systematic to close out the year. In December, the Parker Systematic Index was down 0.15% and the Parker Discretionary Index was up 0.49%. On a risk-adjusted basis, the Systematic Index
was down 0.06% and the Discretionary Index was up 0.36%. The top three performing constituent programs for the month of December, on a reported basis, returned +5.51%, +4.30% and +2.60%, respectively. The top three performers on a risk-adjusted basis returned +5.34%, +4.63% and +1.51%, respectively. The compounded annual return since inception in January 1986 is up 10.62% on a reported basis and up 2.94% on a risk-adjusted basis. From inception the compounded annual return for the Systematic Index and the Discretionary
Stenham Hires Two tenham Asset Management has hired Akshay Krishnan and Rishi Patel to its team. Krishnan has joined the firm as senior
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research analyst, with responsibility for Global Macro strategies across the range of Stenham funds. His primary responsibility will be to work proactively on the Stenham
range of Global Macro funds of hedge funds, which includes monitoring, identifying and providing detailed analysis of Global Macro hedge funds. He will also
ESMA Moves to Curb Asset Manager Risk Taking he European Securities and Markets Authority (ESMA) has published final guidelines on remuneration of alternative investment fund managers (AIFMs). The
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rules will apply to managers of alternative investment funds (AIFs) including hedge funds, private equity funds and real estate funds. Non-EU
AIFMs who market funds (using passport agreements) to EU investors will also be subject in full to the guidelines after a transitional period.
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Money Management MONEY MANAGEMENT > NEWS IN BRIEF
Pay Rules Aligned with other Financial Sectors T
he new Alternative Investment Fund Managers’ Directive (AIFMD) establishes a set of rules that AIFMs have to comply with when establishing and applying a remuneration policy for certain
categories of their staff. ESMA says it cooperated with the European Banking Authority in order to ensure alignment of guidance on remuneration policies across financial sectors.
The guidelines state that for internal procedures, the governing body of each AIFM has to ensure sound and prudent remuneration policies and structures exist and are not circumvented; and that AIFMs
Alfa Capital Selects SuperD ussian asset management company, Alfa Capital, has selected SuperDerivatives’ real-time cross-asset front office system, SDX, to drive its
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structured products offering. Alfa took on the SuperDerivatives offering, which includes market data, independent price discovery and advanced
analytics, as well and pre- and post-trade management tools in order to boost its service to its domestic and international investors, it says.
Hedge Fund Redemptions Up in 2012 arclayHedge and TrimTabs Investment Research say that hedge fund investors redeemed a net $14.2 billion in 2012, reversing a $50.7 billion inflow to the industry in 2011. The results
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are based on data from 3,492 funds. Hedge fund redemptions hit a 44-month high of $20.7 billion in December, according to the latest monthly TrimTabs/BarclayHedge Hedge Fund
Flow Report, which noted that the industry earned 8.5% in 2012, far below the S&P 500’s 13.4% increase for the year. “Underperformance versus the S&P 500
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Retail Radar
New Global Payment Solution Features Currency Overview International payments provider Afex launches enhanced version of its platform, AfexDirect. Alice Attwood reports, with additional coverage by Julie Ros.
difference we’ve created is in how we present that data and create value-add around those international payments,” explains Guido Schulz, global EVP,
ncino, CA-based international payments provider Afex launched an enhanced version of its platform, AfexDirect, which provides its SME client base with new tools for managing currency risk. The latest evolution features improved search and display options, the ability to schedule
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payments to beneficiaries directly from available funding balances and a consolidated overview of currency exposure to simplify international treasury management. “The way we look at it, there’s a welldefined basket of functionality in the international payments arena. The
Guido Schulz
“Knee jerk reactions to micro market movements mean you can lose sight of the overall strategy”
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Retail Radar
Forex Visionaries – Part Five Andrei Knight In this last instalment of the serialisation of FX Street’s Forex Visionaries series, we hear from Andrei Knight.
You participated in professional chess tournaments and spent many years studying Japanese martial arts. Would traders be more successful by integrating Western and Eastern philosophies? Chess taught me to study my opponents' tactics and to plan several moves ahead, while martial arts taught me to keep a level head in stressful situations, as well as the value of patience. It is said that when the legendary swordsman Miyamoto Musashi was involved in a duel, the fight lasted exactly two moves. First his opponents would finally lose their nerve in the stare down and strike, and once the attack was seen it could then easily be countered and retaliated. This is certainly a lesson many traders could benefit from – who moves first, often loses.
patience? The number one issue I run across in coaching other traders is their impatience. They feel as if they're not participating unless they are in a trade, and as a result spend too much time trading (or most often sweating), and not enough time on analysis, practicing core skills, or simply watching the markets to get a feel for their "mood" on a particular day. So many of the losses are caused simply by jumping in (or out!) prematurely.
Being fast is not always the best option... but how can traders learn the art of
As an experienced mentor and trading coach, can you tell us which educational
And what about the financial world? As for the broader financial markets, I suppose they would be a bit better if more emphasis were placed on honour, integrity, and most of all on never-ending self-improvement.
model has been the most innovative and important in recent years? I think the giant leap forward in trading education came with the advent of online conferencing software. It is simply amazing that I can share my desktop and charts in real-time with traders all over the world. I can also wear a headset and speak out loud as I analyse a trade set-up and evaluate reasons for getting in, staying in, getting out, or staying out as I point to various candles or indicators on the chart. Plus, they can type their questions or even upload their own charts for evaluation. This is an interesting duality: you are far from people geographically speaking but closer than before... This is a giant leap forward, as previously doing a workshop involved hopping on a plane and flying out to their city (which I still very much enjoy
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NFA Unveils 2013 Board he National Futures Association (NFA) has announced the newly elected members the NFA board of directors and the 2013 nominating committee. The board of directors now includes Jeffrey Malec, chief executive officer and founding partner of Attain Capital Management, as an Introducing Broker (IB)
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Saxo Bank Opens Istanbul Branch axo Bank, has opened its latest branch, Saxo Capital Markets Menkul Değerler AŞ, in Istanbul. The opening of the new office follows Saxo’s acquisition of Değer Menkul Değerler, a local broker with a securities license. Saxo acquired 89.54% of the
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Retail Firm Granted ASIC License he Australian Securities and Investment Commission (ASIC) has granted a license to Intelligent Financial Markets (IFM), a new foreign exchange and contracts-fordifference brokerage, that is beginning operations this month. The company will focus on assisted and automated trading for retails clients and will
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AxiTrader Enters US Retail Space fter a spate of retail foreign exchange firms departing from the US market in recent months, Australia’s AxiTrader has entered the market. AxiTrader USA has received NFA regulation and commences operations as an introducing broker of Chicagobased institutional broker, Institutional Liquidity (ILQ), which also has a base in Australia. The US arm will be headed by Chicago-based Brian King, who previously worked at Refco with AxiTrader chairman, Goran Drapac.
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Cyprus-Based ForexTime Officially Launches ew foreign exchange broker ForexTime began operations last week with the activation of its Cyprus Investment Firm (CIF) license and the launch of its website www.forextime.com. Founded by Andrey Dashin, cofounder and shareholder of Alpari, ForexTime’s management team is being led by various industry experts from firms including Alpari. ForexTime provides access to the
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Movers & Shakers
StanChart Creates New Global Head Role argaret Harwood-Jones has joined Standard Chartered as global head of investors and intermediaries, sales and transaction banking, based in Singapore. In the newly created role, Harwood-Jones reports to Jiten Arora, global head of sales, transaction banking. She will be responsible for the business agenda for institutional investor and intermediary clients across the bank’s footprint, focusing on accelerating growth. Arora says, “She will drive a deeper focus in our investors and intermediaries segment to meet the evolving needs of our clients in this dynamically changing landscape.” Harwood-Jones was most recently at BNP Paribas Securities Services where she was head of client segments, asset managers and alternative investments. Harwood-Jones’ hire follows the hires of Alan Naughton as global product head, investors and intermediaries, transaction banking, and Andrew Hempshall as global head of solution delivery and service, investors and intermediaries, transaction banking (Profit & Loss, December/January).
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Bickmeyer Departs UBS odd Bickmeyer has left his role as executive director and foreign exchange hedge funds salesperson at UBS in Connecticut. In the role he reported to Jonathan Rudman, co-head of FX institutional sales at the bank. Bickmeyer was previously at Morgan Stanley where he was executive director, institutional FX sales in New York. He joined the bank in February 2006 from Goldman Sachs (Profit & Loss, March 2006). Before joining the FX team at Goldman Sachs in 2004, he was co-head of hedge fund sales at Merrill Lynch in New York. He began his career at Morgan Stanley in 1998 in FX sales. It was unclear at time of going to press where Bickmeyer is headed.
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WMBAA Appoints Chair and Vice Chair he Wholesale Markets Brokers’ Association, Americas has elected Tradition’s executive director Julian Harding and Stephen Merkel, BGC Partners’ executive vice president and general counsel, as chair and vice chair, respectively, of the association. Harding succeeds GFI executive vice president, Christopher Giancarlo. Both Harding and Merkel have previously served in the roles as the positions are rotated though the WMBAA’s member firms every six months. Harding says, “It is going to be both interesting and demanding to become chair of the WMBAA at this pivotal time. After more than two years of work, final rules establishing Swap Execution Facilities, or SEFs, are being finalised and the association needs to be actively engaged with policy makers as they conclude the process. Well-organised, robust SEFs are critical for market participants and American corporations as they trade efficiently, manage their balance sheets and grow their businesses.”
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New Role for Sears ussell Sears has been appointed to the newly created role of global head of sales at State Street’s eExchange group, in London. Sears has been with State Street since September 2002, serving most recently as European head of State Street eExchange group, which includes the Currenex and FX Connect businesses. A spokesperson confirmed the appointment, telling Profit & Loss that Sears reports to Martine Bond, deputy head of eExchange. Bond joined the company last year from Morgan Stanley where she was COO of the FX and emerging markets business (Profit & Loss September 2012). State Street acquired Currenex in 2007.
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Boisson Joins Unicredit rancois Boisson has joined Unicredit in London as global head of institutional foreign exchange sales. A spokesperson confirms that Boisson has started in the new position and reports to Jakob Groot, global head of institutional sales, also based in London. He joins Unicredit after a gap from the market to focus on an entrepreneurial project, becoming a founding partner of Money Never Sleeps, a real estate investment company in Miami, Florida. Before this Boisson was head of FX sales in the institutional client group at BNP Paribas after spending nearly 12 years at the bank, a role he stepped down from last year (Profit & Loss March 2012). During his time at BNP, he also served as head of international FX sales.
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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
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And Finally
The Last Word… The last word on some of the themes covered in Squawkbox last month, through your correspondence… By Colin Lambert So nothing has changed then? The February 7 column discussed the relative standings of the multi-dealer platforms, especially in light of what was a general bounceback in volumes across the board. Rather disappointingly for some readers I decided that nothing much had actually changed. The biggest single venue was still EBS, followed by CME, and the largest owner of FX venues was Thomson Reuters, thanks to its ownership of FXall, followed by State Street’s eExchange. Several correspondents pointed out that aggregation was taking a larger chunk of the market and as such should be taken into account, which I accept. The problem is, no-one has a benchmark against which to judge these venues, as no-one is willing to divulge volumes. Something that I think the January data did make clear is that in spite of all their attempts to break the traditional mould, EBS is still dependent upon the euro and yen markets, CME needs volatility (which is the case for all platforms to be fair) and Matching is still tied to the fortunes of the Commonwealth currencies. It will be interesting to see if the rebranded ParFX can shake things up, but if it is, it will not show up early. Early months can be a real hard slog for new platforms, and this, in spite of the upturn in general activity, is likely to be no exception. Steady as she goes for now then. Where do we go from here? The February 13 column got some very quick feedback, possibly because it involves the future of so many people in the industry. I was responding to a friend who tried to link the job cuts being seen currently with a lack of commitment to the FX market on the part of the banks. At the end of a long missive debating the role of the salesperson and trader – as well as how banks are subtly being shifted to a different position in the industry (more broking than banking), I stated, “Things are not bad – they are just changing.” I found the responses part heartening/part scary. The heartening part was obviously those that agreed with me, and said their institutions were starting to have discussions along the lines of moving to multi-skilled desks. It was interesting that a small majority thought that traders would make better sales traders than salespeople would. One contact summarised this nicely by stating that traders already talk sense about the market, it was just a question of cutting out the swearing! Some salespeople knew their stuff, but there was a newer generation, it was argued, that had not sat in a trader’s chair. The scary stuff was not so much people disagreeing with me and arguing that things will not change – they always change of course, but I declined to respond with that – more it was these correspondents thought I was being a “crony” and looking after my mates. It took some explaining, but the gist of the argument was that an older generation of salespeople (presumably “my mates”) had moved from the trading desk a decade ago and that I was arguing for them to be kept in jobs at the expense of newer people to the market. Arrant nonsense. My argument was for whoever had the skills necessary, for I do strongly believe these skills are necessary for a successful career and business. More to the point, I would point these critics in the direction of my column on February 11, wherein I argued that it was great we continued to get new blood into the market, it was just that I thought we had to train them differently. Either way, this is clearly an emotive subject and one, no doubt, to which we will return later this year. And speaking of emotive subjects, it never fails to impact on me the emotion that lives around EBS. We reported in midFebruary about a delay in the launching of EBS Direct, and the response was swift. It turns out, as I argued in And Finally on February 18, that the beta testing had been delayed a short while and that the problem was one of perception. People, perhaps in their eagerness to have a look at the product, had forgotten the beta testing period that had always been planned. I believe strongly that it is more important to get it right than to adhere to a deadline (within reason of course), but more importantly, the amount of interest expressed from different parties (all market participants and not rivals of EBS) shows me that the FX market’s fascination with the platform shows no signs of ending. Perhaps this is because the modern EBS had parents in the major banks, many of whom are still in senior positions within the FX industry? I don’t know for sure, but the level of emotion definitely strikes me as that of a parent for a child that has flown the roost! Colin_lambert@profit-loss.com 56 I March 2013 I Profit & Loss I www.profit-loss.com
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