As 2016 comes to a close the regulatory agenda shows no signs of slowing. While the FX market itself has largely not been directly addressed by new regulations, it has been swept up in many of the broader OTC market reforms.
March 1 will mark the implementation of the variation margin requirements for non-cleared derivatives, meaning that thousands of counterparties – including asset managers, pension funds, insurance companies and hedge funds – will need to change their existing collateral support agreements, or set up new ones, before this date.
With thanks to those of you who appreciated the irony of Boaty McBoatface being a financial markets signal, we move onto the second of this year’s awards – this time an Accolade.
Had it not been for the need to highlight the Subversives of the Year, we would have kicked off – as we did last year – with the Central Banker of the Year.
At the irrational end of the scale (as opposed to the accolade end) I feel an honourable mention has to go to Haruhiko Kuroda, governor of the Bank of Japan and Thomas Jordan of the Swiss National Bank.
Matt Kulkin, a partner at Steptoe and Johnson, explains to Profit & Loss deputy editor, Galen Stops, why a “copy and paste” approach to regulation won’t work for FX.
FX is often referred to as an “unregulated” or “self-regulated” market, and yet in recent years bans have been fined billions of dollars by regulators for alleged infractions in this market, while criminal charges are being brought against FX traders in the US courts.
Kulkin explains this disparity by pointing out that the entities involved this market are regulated and therefore subject to oversight by a various national authorities. However, unlike the securities markets or the OTC derivatives markets, there aren’t concrete regulations regarding the market place, he says.
Carlo Koelzer CEO of 360T and global head of FX at Deutsche Börse Group, talks to Galen Stops, deputy editor at Profit & Loss, about his plans for building a central limit order book and why central clearing is now a viable method for alleviating credit risk in FX.
Following its acquisition by Deutsche Börse Group last year, 360T informed its clients that it planned to add a central limit order book (CLOB) and futures trading functionality to its platform.
Alex Dunegan, founder and CEO of Lumint, talks to Profit & Loss deputy editor, Galen Stops, about the challenges facing the buy side around selecting and evaluating benchmarks.
The WMR benchmark has come under severe scrutiny since the allegations that banks colluded to manipulate it, leading to changes in the way that the benchmark is calculated and questions from buy side firms about whether they should be using it at all.
Dunegan claims that this is a “critical” question, and provides his take on the answer.
In a speech in New York last night, Timothy Massad, chair of the US Commodity Futures Trading Commission (CFTC) argued that the changing nature of liquidity is not principally caused by regulation.
Discussing the various impacts of the UK decision to leave the European Union on June 23, Massad said, when discussing liquidity in derivatives markets, that during the vote and immediate aftermath prices did not disappear and market depth was good.
However he added, “We must also recognise that liquidity today has changed. There is an iconic model of liquidity: traditional dealers who use their balance sheets to make a market for their customers regardless of price. Dealers who will catch the proverbial “falling knife”— that is, they stand ready to buy even if prices are rapidly falling. That is not how our markets work today.”