My colleague Galen Stops and I were recording some material for our podcast series “In the FICC of It” late last week and during this hour or so we made the observation that one of the buzz phrases that seems to be used more and more in the industry (and that we dislike intensely) is “unique liquidity”.
I accept that the FX market does have unique characteristics, participants and flow, but am I sceptical of those claiming “unique liquidity”? You betcha!
One of the problems with being associated with a subject for several years is that you can feel the issue and the debate is getting a little tired just when a lot of other people start getting involved. I feel this way about last look, but rather than bang on about it yet again I thought it might be worthwhile looking at how the industry got itself into this mess in the first place – and, possibly, how it can avert further damage.
The FX TCA analysis from LMAX Exchange should be welcomed for highlighting the absence of price improvement in too many TCA calculations, but there is still more work to be done and ground to be covered before the industry truly has a genuine TCA metric. What about market impact relating to the "parent" order? Do we differentiate between rejections for predatory traders and hedgers? After all, as any divorcee, if they are honest, will probably tell you, both parties play a role in the break up.
The retail FX sector has long bothered me, as regular readers can attest, and my distaste for many providers in the sector was only heightened when one offered me “expert comment” on what will likely to happen to the euro in the wake of Sunday’s French election result…on Wednesday. This is so detached from the reality of the modern FX market that it makes me wonder how this firm thinks it is providing good service by offering “commentary” almost four days after the results?
I suppose it was inevitable really…the feeding frenzy that has attracted so many sharks – by which of course I mean lawyers – has apparently led to internecine warfare. According to a report, a third law firm has convinced BlackRock, Pimco and BlueCrest Capital Management to join another class action lawsuit against the banks over benchmark manipulation. The problem is the two law firms currently organising a class action in the US don’t like it – apparently they don't like sharing their lunch.
So Tuesday saw the first of our monthly Insights calls and it was a lot of fun creating the content and my thanks to everyone who joined.
I was very much a trial run so I prepared quite a lot of content – most of which involved me debunking what I consider to be some of the myths around last look and the giving up of client IDs and tags – but going forward we want to make these calls much more interactive.
In other words, surprise me!
Sign up for the new Profit & Loss monthly Insight calls with yours truly to see what I really mean by "sometimes right; sometimes wrong; always certain!" Into the bargain we will throw in a brief section on "Things That Make You go Hmmm..." as well (and it's not often C&C Music Factory make it into financial journalism).
Oh, and while we're at it, have we seen evidence that October's sterling flash crash had nothing to do with a news item?
The major liquidity providers in FX are looking at their client tail - and the sharper, or smarter, traders are being cut. Part of me thinks these traders should take their chances with the other professionals, but I am worried that some - as evidenced by a recent conversation - have this view about asset managers and corporates. Of course tensions exist in relationships between provider and consumer but the solution should be simple and not to the detriment of the wider world.
It has always driven me a little nuts when I ask about a firm’s strategy going forward and am told something along the lines of, “We listen to our clients – new products and services are driven by client demand”.
Yes, of course, a service provider that does not listen doesn't last long, but I have always argued superior service is about anticipating client demands, not reacting to it, and the story of CME Europe may be a case in point.
How ironic is it, when the same US president that accuses just about everybody else of being a "currency manipulator", decides he wants to talk the dollar down? About as Ironic as the Swiss minister who this week claimed that Switzerland was not a currency manipulator - this in spite of the Swiss National Bank telling everyone it bought 66 yards of EUR/CHF in 2016. Perhaps it was short covering, I don't know. Either way, what happens in FX markets when everyone is trying to manipulate?