After a number of years having to take reactionary measures in
response to new regulatory requirements, panellists at Profit & Loss’ Forex Network New York conference expressed
enthusiasm for a new wave of innovation that has the potential to re-shape FX
As leverage requirements make FX exposures a bigger pain point for the banks, many are looking towards compression services to solve for this. Galen Stops looks at how these services work and what they could mean for the industry.
One of the responses by global regulatory bodies to the 2008 financial crisis was to require banks to hold more capital against their financial exposures, creating a bigger buffer to protect them against adverse market conditions.
Capital constraints have widely been cited as a reason for declining activity in some markets and liquidity events in other, therefore it is not surprising that compression services, whereby offsetting trades are netted off against one another to reduce the notional amount on banks’ balance sheets, have found favour amongst banks and major dealers.
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.
Jason Vitale has resigned from Deutsche Bank in London, ending a 12-year career at the institution.
Vitale, who was global head of FX prime brokerage and co-head of listed derivatives and markets clearing EMEA, is believed to be leaving for a new position in the industry.
He joined Deutsche Bank from State Street in June 2004 as client service and product development manager in its FX prime brokerage business, before being appointed to the European PB sales team. His role was expended in 2008 to include fixed income prime brokerage and in 2010 he was appointed global head of FXPB. He took on his current role in June 2012.
Brandon Mulvihill, managing director, head of FXCM Pro, explains that there is still not enough clarity about the different prime-of-prime services being offered in the FX market, and warns that it is a mistake to believe that these firms are currently ready to fill the gap left by the tier one prime brokers.
Profit & Loss: Since “SNB Day” there have been a lot of firms touting prime-of-prime (PoP) services to the FX market. Many of them actually provide very different services. Two years on from SNB, do you feel like these differences are better understood by market participants?
Darren Jer, CEO of MarketFactory, talks to Galen Stops about flash crashes, the new latency arms race and how technology will enable the FX market to keep growing in size.
Galen Stops: What’s going to be the main focus for MarketFactory as a company in 2017?
Darren Jer: Well let me just start by saying that FX is the biggest market that not everyone knows about. In the equities market last year, $114 trillion was traded across all exchanges; in FX, that figure is $1.4 quadrillion. In FX we talk in average daily volume (ADV) numbers all the time so we’re just used to the size of the market, $5.1 trillion per day, but the general public and traders in other asset classes don’t know the degree of notional liquidity.
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.”
Jefferies has hired Brandon Mulvihill and Anthony Mazzarese, both formerly at FXCM, as the firm looks to strengthen its FX business by expanding its prime brokerage capabilities.
Mulvihill has been named as managing director, global head of FX prime brokerage, and Mazzarese has been appointed as senior vice president, FX prime brokerage sales. Both will report into Ray Kamrath, global head of FX at Jefferies in New York.
Prior to this, Mulvihill was the global head of FXCM Pro. Mazzarese was a senior vice president at FXCM Pro, and before that, worked in an FX sales role at Citi.
Noble Bank International recently launched with a new business model aimed at alleviating the current credit constraints in the FX market. Will it be a “game changer” for the industry? Galen Stops takes a look.
If every new product or service launch that claimed to be “game changing” actually was, the FX industry would be a dizzying place to work in, such is the popularity of this phrase and its variant forms.
As a result, it was hardly surprising to see Noble Bank International (Noble) hail its new real-time, post-trade FX service as “industry changing”, when its official launch was announced last month. And yet, if the Noble model manages to gain significant traction within the FX industry, it could have a significant impact on how the market operates.
NEX (Nex) Optimisation has launched an automated credit rebalancing tool that specifically addresses limit over-allocation by prime brokers.
Rebalancer went live across five major ECNs on 2 July 2017, with further platforms going live throughout the year.
Designed in close partnership with Citi, Rebalancer is deigned to enable dynamic allocation of credit across client trading venues, allowing clients to move credit from one platform to another in real time.
Prime brokers currently allocate credit to multiple trading venues but do not have the ability to move it around if there is excess credit on one and a shortage on the other.
The Q3 edition of Profit & Loss will feature an in-depth special report on FX prime services, looking at the significant changes that have occurred in this segment of the market and how these will impact trading firms in the future.
But we want to hear from you about your expectations regarding the future of FX prime services, which is why we're asking you to fill out this 1-2 min multiple choice survey: https://www.surveymonkey.co.uk/r/PrimeServices
All survey responses will remain anonymous, but should you choose to include your email address at the bottom of the survey you will receive a free PDF of the special report when it is published in September.
There has been a substantial shift in FX prime services over the past two years: some FX prime brokers having been pulling back from the space, prime-of-primes have been expanding to fill the gap and now new firms are coming to market offering potential new solutions to the current credit constraints in the market.
But how will FX prime services evolve from here?
For the Q3 edition of Profit & Loss, we launched a survey to gauge market sentiment regarding this question. It’s not too late to have your say, the survey will close at midnight on July 31st : https://www.surveymonkey.co.uk/r/PrimeServices