PROFIT & LOSS EVENTS 2015
PROFIT & LOSS SCANDINAVIA September 16, 2015
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PROFIT & LOSS • SCANDINAVIA 2015
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Central Bank Governor Headlines P&L Copenhagen The recent Profit & Loss conference in Copenhagen saw over 300 delegates treated to a wide range of discussions and opinions from experts across the foreign exchange industry.
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er Callesen, governor of Danmarks Nationalbank headlined September’s Profit & Loss Scandinavia conference. In his remarks, he explained why the central bank needed to intervene after the Swiss National Bank unpegged the Swiss Franc on January 15. The governor noted that the krone exchange rate remained firmly anchored and also recalled a previous (public) statement that to prevent excessive capital inflows, the DNB had put bond issuance on hold earlier this year. Callesen also reiterated a previous public statement that a lot of these capital inflows had reversed recently and that the central bank would also like to see inflation higher. The day kicked off with an interview with Patrick Fleur, head of the trading and execution desk at PGGM (see story this issue) before the panels swung into action. The issue of market liquidity was discussed at length by panel one, which featured, Svante Hedin, global head of electronic markets at SEB; Niklas Karlsson, global co-head of currencies, commodities and corporates at Danske Markets; Paul Allmark, global head of e-commerce at EBS Brokertec; and Iskander Vanblarcum, head of EMEA sales for Thomson Reuters. The panel discussion highlighted the slightly divergent views of buy, sell and vendor side representatives. While Fleur thought that the loss of bank warehousing capacity, especially in the spot market, had been filled by newer market entrants, the sell-side speakers stressed how liquidity in the Scandinavian market had been negatively impacted by the withdrawal of the international banks. They noted this had resulted in the unwanted knock-on effect of increased volatility. Speakers agreed that the spot foreign exchange market was still functioning but further out, the forwards market remained fragmented and a concern. The panel also discussed if best execution always meant the best price and even though global scale played an important role in markets, niche players in the Scandinavian markets remain valuable. Discussion then moved onto customer service with panel two agreeing that customers still value reliable execution, efficiency and transparency and while there may have been a few “bad apples”, banks retain their customers’ trust. Alan Schwarz, CEO of FX SpotStream; Dave Reid, director at CitiFX Prime; John Ashworth, CEO of Caplin Systems; and Darren Brighton, head of FRC efficient access sales at UBS made up the panel. The panel stressed it is incumbent upon the banks and platforms to educate their customers and help 4
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guide them through the various ongoing regulatory issues, including MiFID II. A slight change of tack in the next session provided a legal overview of a market still dominated by scandals and negative news headlines. In a panel made up of KC Lam, director, international sales at SGX; David Holcombe, head of FX product at Nasdaq; Henry Price, director of product strategy at Traiana; and Jeremy Bell, senior product manager at LCH.Clearnet; operational risk and how institutions have struggled to overcome challenges in the form of misconduct and market dislocation prompted by the Swiss National Bank’s decision to unpeg the Swiss Franc on January 15 was the focus on the hour. Consensus centred on the need for the customer to fully understand every aspect of this business, and the need to get them to that point, leaving no stone unturned. The panel also touched on surveillance and behavioural management being both driven by regulators but tailored to client needs, and the potential capital savings from strong operational risk management Next, solving the issue of best execution took centre stage with a P&L Insight session. Jonas Lundbek Hansen, head of algo quant at Nordea Markets and Jim Cochrane, director, analytics, at ITG, joined Profit & Loss managing editor Colin Lambert for a spirited discussion about achieving better execution. The session discussed the merits and the level of advice needed for customers before they sought to use different algorithmic strategies. Speakers also noted that users needed to ask more detailed questions on algos and that while they are there to make things better they can still be dangerous. Clients also need to define what they want, and how they define best execution, then they can make an informed choice over if they need to use an algo or a pre-trade tool. The subject of what is credible TCA (transaction cost analysis) was also discussed both in terms of pre- and post-trade analysis. The last panel of the day saw three economists and strategists representing Denmark, Norway and Sweden on the panel. Inflation expectations, potential moves in interest rates and the reasoning behind them, economic policy and diverging housing issues were all discussed in a lively session. The key themes for the day were undoubtedly liquidity and the efforts of the industry to recover from both the events of January 15 and the chat room scandal of the previous two years. Rebuilding trust was seen as a key issue and to do this, the key areas for delivery were transparency and client service.
SCANDINAVIA 2015 • PROFIT & LOSS
Keynote Address: Per Callesen, Governor, Danmarks Nationalbank
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A Changing Market Patrick Fleur, head of the trading and execution desk at Dutch asset manager PGGM gave his views on liquidity, risk, the Fix, internalisation and more at Profit & Loss Scandinavia. Profit & Loss: How do you think the events of the last two years have changed how you operate in the foreign exchange market?
out from T+7 has seen liquidity diminish as these new entrants don’t have the warehousing capacity the banks used to provide the market.
Patrick Fleur: The biggest impact is on the benchmark-driven business. All of our internal foreign exchange gets benchmarked against the WM Fix. Before 2007/8, this wasn’t the case or a big issue as the liquidity of the market was large enough. We are slightly different from other asset managers as my team provides liquidity for our fund managers, which also means that we can capture the bid-offer spread. When all the chatrooms closed, the information sharing between the buy- and sell-side completely disappeared and the efficient pre-fix hedging that we used to have vanished.
P&L: What are your thoughts about internalisation?
P&L: Do you think the industry needs to come up with an efficient solution for the Fix, is better TCA the answer?
P&L: From your side of the market, do you feel the push for more transparency will have a negative impact on your performance – is a single market the solution?
PF: When the majority of people talk about Transaction Cost Analysis (TCA) they mean micro management and finding the best price during a specific short-term time frame. I think you can widen this time frame and compare the price against the average over a day for example. P&L: Do you feel as an end-user that there was a breakdown in trust between you and your liquidity providers? PF: I was disappointed in a few individuals, some who I had known for many years, but as an industry we have now moved on from bankbashing. The positive thing is that we are rebuilding trust in the whole industry, not just the banking sector. P&L: Are you concerned about the liquidity gaps we have seen in the markets recently? PF: While the warehousing capacity of the banks has dropped by around 75% over the last five years, foreign exchange is no longer a bank-only business. New entrants, for example hedge funds and Internet companies, have stepped-in and have filled some of these gaps. Spot has never been a problem and liquidity is there but we do have concerns over forwards which is still very much a bank-driven business, everything 6
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PF: We know of three major banks that have opened up their internaliser to both agencies and a limited number of asset managers. In effect it is creating the dark pool environment seen in the equity space. By using an algo you can compare an internaliser and TCA the trade, which means you can create a tape and find out where you get the best price from in both listed and OTC markets. But you have to remember that best execution is not the same as best price.
PF: There is a big debate currently going on around the transparency threshold and size, and this is where some of the wording, or guidance, in MiFID II is worrying, but I don’t think a single listed market is the solution to the problems we currently have. P&L: Looking at the asset management industry in general, do you think a more flexible approach to foreign exchange will become a differentiator within the business? PF: We act as a proprietary warehouse in the foreign exchange market, warehousing the risk internally, and helping to save the company exchange costs. However we still use the infrastructure of the liquidity providers in the market. P&L: Last look, how do you see it and does it need fixing? PF: Some liquidity providers and high frequency traders are using last look for the wrong reason, they are there to advertise and not trade. The end-client should be made aware if last-look is involved and be given the option to trade or not as the price may be different. But you don’t want to ban last look as it is still a client driven process.
SCANDINAVIA 2015 • PROFIT & LOSS
The Profit & Loss Interview Colin Lambert, Managing Editor, Profit & Loss Patrick Fleur, Head of the Trading & Execution Desk, PGGM Colin Lambert, Profit & Loss, with Patrick Fleur, PGGM www.profit-loss.com
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PROFIT & LOSS • SCANDINAVIA 2015
Mind the Gap: Liquidity and Marke
Iskandar Vanblarcum, Head of e-Commerce Solutions, EBS B SEB • Niklas Karlsson, Global C
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SCANDINAVIA 2015 • PROFIT & LOSS
et Making in Scandinavian Markets
EMEA Sales, Thomson Reuters • Paul Allmark, Global Head of rokerTec • Svante Hedin, Global Head of Electronic Markets, Co-Head of Currencies, Commodities & Corporates, Danske Bank
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PROFIT & LOSS • SCANDINAVIA 2015
The Val What do
Alan Schwar of FRC Effic CitiFX Prime
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SCANDINAVIA 2015 • PROFIT & LOSS
ue Proposition: o Customers Want from Their Banks?
rz, CEO, FXSpotStream • Darren Brighton, Executive Director, Head ient Access Sales, UK, UBS Investment Bank • David Reid, Director, e • John Ashworth, CEO, Caplin Systems Ltd.
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PROFIT & LOSS • SCANDINAVIA 2015
The “O” Word
Henry Price, Director of Pro LCH Clearnet • KC Lam, D Product, NASDAQ
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SCANDINAVIA 2015 • PROFIT & LOSS
oduct Strategy, Traiana • Jeremy Bell, Senior Product Manager, irector, International Sales, SGX • David Holcombe, Head of FX
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PROFIT & LOSS • SCANDINAVIA 2015
P&L Insight Session: Making Best Exe
Colin Lambert, Managing Editor, Profit & Loss • Jonas Lundbe Jim Cochrane, Director, Analytics, ITG
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SCANDINAVIA 2015 • PROFIT & LOSS
ecution Better
ek Hansen, Head of Algo Quant, Nordea Markets
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PROFIT & LOSS • SCANDINAVIA 2015
Divergence: Opportunity or Obstacle?
Carl Hammer, Chief Currency Strategist, SEB • Ole Håkon Eek-Nie Senior Vice President/Underdirektør, Global Head of FICC Researc 20
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SCANDINAVIA 2015 • PROFIT & LOSS
elsen, Chief Analyst, Nordea • Thomas Harr, PhD, ch, Danske Bank www.profit-loss.com
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Coffee Break in the Exhibition Hall
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PROFIT & LOSS • SCANDINAVIA 2015
Cocktail Reception
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