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Buy Side Looking for Simplified Workflows As buy-side workflows are becoming complex, these firms are looking for ways to simplify how they view and manage them, claims Basu Choudry, business intelligence, Nex Traiana. He says that, whereas in the past buy side firms used to probably have only one prime broker (PB), today they might have four or five prime brokers, or even have bilateral relationships. Further, when they execute they might do so via an anonymous venues or they might trade against another buy side firm that is using a prime broker. “So what we’re seeing and hearing is that they want a single panel where they can see their PB relationships and bilateral, and even clearing at some point within one dashboard, one platform, where they can manage the matching, [confirmations] and settlements,” he says.
FastMatch: Last Look Gone in Two Years Although Dmitri Galinov, CEO of FastMatch, defends the controversial practice of last look in FX, he also claims that it will be eliminated within the next two years. Explaining why last look has become such a hotly debated topic within the FX industry, Galinov explains that it is “a valuable tool” that enables liquidity providers to quote tighter prices to their customers. The problem, as he puts it, is that “consumers want tighter prices but they don’t want last look”. For now, however, the two appear to be mutually exclusive, which is why this is a difficult issue for the industry to solve.
FX Volatility Highlighting Under-Served Market Segment A more volatile trading environment is exposing a segment of businesses that are currently being under-served by FX service providers, claims Moises Michan, a managing partner at Tanridge Capital. “I think that when you start looking into these higher volatility environments is when you start having treasurers and heads of family offices realising that they’re not FX experts, there’s a lot of mechanics a lot of input going into the FX market, and they do have exposures,” he says. Michan says that Tanridge capital is focusing its efforts on providing FX asset management services for small to medium sized institutions that don’t meet the client requirements of the big banks.
C-View: “We Know Where the Bodies are Buried” Speaking at Profit & Loss’ Forex Network London, Paul Chappell, CIO of buy side firm C-View, explained how liquidity trends are being negatively impacted by the Fix scandal. In a featured new segment introduced at Profit & Loss’ Forex Network London called BURSTS, Paul Chappell, CIO of buy side firm C-View, sought to explain liquidity trends in the FX market in the context of the recent scandals that have plagued the industry. In this TED Talks-styled presentation, Chappell sought to address why there are, in his opinion, only a few genuine market makers left in the FX market that everyone else prices off, and why currency managers have seen their returns significantly reduced.
In the FICC of it - The Global Code of Conduct Lots of people are talking about the Global Code of Conduct, but are they asking the right questions? Profit & Loss deputy editor, Galen Stops, discusses why incentives might be more important that enforcement mechanisms when it comes to ensuring adherence to the Code.
Flash Crashes: A Not So Modern Phenomenon Following the sterling flash crash last year there has been much industry debate about what the increasingly regularity and severity of these events means for FX market participants and whether anything can be done to prevent or mitigate their impact in the future. According to Neil Crammond, risk manager for FX at Avem Capital, part of the reason why these flash events are occurring is simply that markets aren’t used to the levels of volatility that used to exist prior to the financial crisis and the implementation of quantitative easing by a number of central banks. “I think that the problem with the modern FX market is that pre-2008 if you came in every day and someone said to you that “we’re going to have a 300 tick move in the cable every day”, you’d trade according to that,” he says.
Credit Not Only Factor Changing Prime Services As access to credit has becoming increasingly constrained in the FX market, Noel Singh head of e-FX business development at Sucden Financial, explains that this is only factor at play in the evolving prime services space. Questioned on the new credit reality in FX markets, Singh responded: “I think credit is only one aspect of the story and I think that post-SNB, when the top tier prime brokers lost money because their clients couldn’t make good the losses, that started it, but I think it’s now the concept of how much is the wallet worth to the prime broker.”
Would the Global Code Have Prevented FX Scandals? One of the key questions surrounding FX Global Code of Conduct, of which the second part is due to be released on May 25, is whether it would have actually prevented the scandals that have dogged the FX industry in recent years. Brigid Taylor, global managing director of ACI, argues that it would have. “In financial markets people say: talk is cheap but my word is my bond. So if I say that I’m going to do something then I need to understand what that means, I need to understand how to apply that knowledge and then I need to do it,” says Taylor, adding that this knowledge ensures accountability.
Correlation Challenges for FX Traders Isaac Lieberman, CEO of Aston Capital Management, talks to Profit & Loss deputy editor, Galen Stops, why it’s hard to find uncorrelated markets to trade right now. “Volatility is very compressed right now because there’s a lot of central bank activity and markets are very highly correlated,” says Lieberman. He adds that the FX market needs a “theme” that will cause it to break away from other markets, but that in the meantime “we’re certainly waiting for volatility to return”. Lieberman says it’s become very hard to find uncorrelated markets, with equities, rates and FX all trading in unison and therefore dampening volatility. One reason for these correlations is the lack of interest differentials, but he also highlights central bank intervention as another factor that is causing this.
FinTechs: Enablers, Not Disrupters David Mercer, CEO of LMAX Exchange, talks to Galen Stops, deputy editor of Profit & Loss, about why FinTechs are enablers rather than disruptors of the FX market. The world “disruption” is often applied to FinTech firms, yet Mercer argues that in FX the role of these firms is not to disrupt but to enable the growth of the market. “We’re trying to enable the industry to operate more efficiently and more fairly. Other people put that disruption word around companies like LMAX Exchange but the FX market is the biggest asset class in the world, it doesn’t really need disrupting, it needs to grow and it needs to be enabled to allow it to grow.