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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.
Building a Modern FX Platform Rick Schonberg, global head of product for trading and clearing and the North American head of trading solutions at Currenex, talks to Galen Stops, deputy editor at Profit & Loss, about the launch of X2 trading platform. “In some ways it’s easier and in some ways it’s harder,” explains Schonberg, who describes the number of execution choices available to these traders as “mind numbing”. He says that many institutional clients, such as corporate treasurers, used to trade FX by doing what was effectively a telephone request for quotes (RFQ) to a handful of banks and then automating that into a GUI on a multi-bank platform
Can Blockchain Help Alleviate the Credit Crunch in FX? Franck Mikulecz, managing director of FXCH, talks to Galen Stops, deputy editor of Profit & Loss, about how blockchain technology can help mitigate some of the credit challenges facing the FX industry. With blockchain, or distributed ledger technology, still being so new to financial services, Mikulecz claims that banks are still trying to figure out the most effective way to deploy this technology. “I can see a lot of banks have an interest because they know that the market will evolve and the market will potentially be disrupted by the technology but they don’t really know how it’s going to happen and they don’t really know how to use it themselves.
Building New FX Strategies Giovanni Pillitteri, global head of foreign exchange trading at GTS Securities, talks to Profit & Loss deputy editor, Galen Stops, about how his firm takes a holistic view of financial markets in order to build effective FX strategies. In recent years there has been a well-documented trend of non-bank market makers expanding out of their traditional core equities business to trade FX. GTS Securities is one such firm, with Pillitteri explaining how its equities expertise can help inform and improve its FX strategies. “We look at the various asset classes in a very holistic way and there are multiple strategies that we have that has correlations between FX and equities,” he says.
Strategy Talk: Building a “One-Stop-Shop” for FX 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.
Does the WMR Still Serve a Valid Purpose? 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.
Central Banks: Both Killers and Causes of FX Volatility Bob Savage, CEO of CCTrack Solutions, talks to Profit & Loss deputy editor, Galen Stops, about why geopolitical unrest this year hasn’t translated into more FX volatility. This year has been marked by a high degree of geopolitical unrest and uncertainty, with Britain voting to leave the European Union, Italian banks struggling ahead of an important referendum later this year, questions being raised about the future of Europe and a divisive US presidential election. Meanwhile the war in Syria continues, ISIS has not been defeated, Russia is considered to be actively attempting to expand its sphere of influence and there is the suggestion that some long-time US allies in Asia – such as the Philippines – could drift closer in their relations to China in the coming years.
Why FX Needs a Unique Regulatory Approach 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.
Room for Numerous Prime Services Models in FX Louisa Kwok, head of prime of prime sales and products at ADS Securities London, explains to Profit & Loss deputy editor, Galen Stops, why there’s room for numerous different prime services models in the FX market. With many of the traditional FX prime brokers (PBs) being increasingly selective about who they will offer their services to, this has created a gap in the market that many firms appear eager to fill. Subsequently, numerous prime services offerings are being touted to market participants under the banner of prime-of-prime.