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The DNA of a Flash Crash A new paper uses trade repository data to forensically analyse the Swiss franc de-pegging and while Colin Lambert finds its conclusions are familiar, the paper offers other insights The story is familiar to anyone in the foreign exchange business – on January 15, 2015, the Swiss National Bank shocked the markets with the announcement it was abandoning its Swiss franc ceiling to the euro at 1.2000. Chaos ensued as EUR/CHF collapsed over 40% before recovering sharply, after which the industry was left to rake over the ashes of what was to many a debacle.
The Reality Check Much has been made of the sharp drop in spot FX volumes in the recent BIS Turnover Survey, but, Colin Lambert asks, is what we are seeing merely a return to a longer term trend? A regular theme in Profit & Loss over the past two years has been, since the traumatic events of January 15, 2015 around the Swiss franc peg, the return to relationship trading at the expense of the all-to-all model. Analysis and data recently released by the Bank for International Settlements based upon its recent Triennial Central Bank Survey of FX Turnover appears to support the notion that the FX market is losing its infatuation with market share at all costs and is much more choosy about who it deals with.
The FX Jobs Market: A Game of Musical Chairs As the FX jobs market becomes ever more competitive, Galen Stops talks to recruiters about the skill sets that firms will be looking for in 2017 As the FX industry continues to evolve, so too does the skill set that employers require and the roles that are available. For example, once upon a time it would have seemed inconceivable that vendors and ECNs would need liquidity managers. Now many of them employ people in a role similar to that of an e-trader, but instead of taking risk their job is to examine the liquidity available and help guarantee the efficiency of trading for clients and optimise P&L for their own company.
FX Volatility: Creating a New Playbook In recent years, the FX market has had to cope with some major spikes in volatility, forcing firms to adjust how they trade this market. The number of large market moves on the back of thin liquidity during unanticipated (and anticipated) market events seen last year – from SNB to Brexit to the US elections – raises the question whether there a need for a new “FX Playbook”. Speaking at Profit & Loss Forex Network Chicago, Stephen Flanagan, executive director, global FX e-commerce risk manager at JP Morgan, highlighted how firms have made adjustments.
The 2017 Profit & Loss Crystal Ball Colin Lambert has retrieved the trusty Profit & Loss Crystal Ball from the dark recesses of the office, given it a wipe, and peered into the future to produce 10 predictions for 2017. There is little doubt that as an industry foreign exchange is a more optimistic place than it was just 12 months ago – and hopefully the majority of themes in this year’s Crystal Ball reflect a more upbeat message. es, the coming year will not be without the challenges of legal battles that have dogged the industry for the past three years, but if nothing else the shock factor has worn off and most people see what is happening as the continuation of a long process.
2016 Crystal Ball: How Did We Do Last Year? In the interests of total transparency we also, as usual, cast our eye over last year’s predictions to see how they went. As always, these predictions will be viewed through rose-coloured spectacles to ensure we look as good as possible! We kicked off last year’s predictions by suggesting the entire FX world would take a more realistic view of developments – that liquidity and spreads would reflect this thought process, and that market share would be a declining influence in business decisions.
Has it Become Harder to Find Alpha in FX? It’s not necessarily that extracting alpha in FX has become harder, but rather that the way it needs to be extracted is changing, said panellists at Profit & Loss’ Forex Network Chicago conference. Douglas Cilento, global head of execution at AQR, opened the discussion by point out that FX has traditionally been viewed as a good market for generating alpha because there is a large segment of non-profit seeking market participants, there are inefficiencies in the market and, because currency is not something that can be bought and held with the expectation of a return, it is effectively a market without beta.
Who Are The Potential Buyers of Nex? There was a fair amount of chatter about the future of Icap (soon to become ‘Nex’) at the recent Profit & Loss Forex Network Chicago conference, with much of it centering around likely purchasers of the company once it sells its global wholesale broking and information business (IGBB) to Tullett Prebon. “The other broader question hanging around the firm as it transitions into Nex is whether [CEO Michael] Spencer is priming the new entity for a sale,” Profit & Loss noted in an article published prior to the conference last month. It seems that many of the attendees of Forex Network Chicago had, in their own minds at least, decided that the answer to this question was that the firm is indeed up for sale. The speculation then turned to who would be interested and able to buy the firm.
Have Buy Side Firms Been Asleep at the Wheel? In recent years the sell side has justifiably been criticised for its behaviour in the FX market. But should regulators and market participants be taking a closer look at how the buy side operates in this market? Galen Stops reports. The FX industry has been rocked by a number of scandals in recent years and in many cases the implications of these scandals is only now coming home to roost. Two of the largest custodian banks in the world, BNY Mellon and State Street, have agreed $714 million and $530 million settlements, respectively, related to allegations they systematically set disadvantageous rates for their customers in contrast to their claims to be achieving best execution for them.
The FX Consolidated Tape: A Perennial Chicken and Egg Problem At this point it is widely known in the FX market that there is an initiative underway, being spearheaded by FastMatch, to build a consolidated tape for FX, similar to the one that exists in equities. But given the differences ...