On Monday I called for a radical re-think around the FX industry’s use of benchmarks – and this elicited (and continues to do so) considerable feedback. Re-reading the latest class action over activities around fixes, however, made me realise this case could also end up revolving around pre-hedging – and if it does, then not only do certain industry bodies face a real challenge, but more broadly we have to discuss much more than restructuring one small piece of the market.
The FX market is still “completely under-futurised” right now, according to Carlo Kölzer, CEO of 360T and global head of FX at Deutsche Börse Group.
Deutsche Börse announced plans to buy 360T in 2015 and this deal can subsequently be viewed as part of a broader trend of large exchange groups buying OTC FX platforms.
This begs the question of whether these exchanges will try to replicate the “vertical silo” model that they have developed in other markets, whereby they effectively manage to keep customer transactions within their business silo for the entire lifecycle of the transaction by offering pre-trade data and analytics, execution and post-trade clearing and settlement services all in one venue.
Many FX participants are already reviewing their FX operating model, building support for FX clearing and Futures in addition to their OTC FX.
This is not in the belief that the entire FX market will move to a cleared model, but it is evident that pioneering firms are already staking their claim as well as exploiting the values that hybrid OTC and Cleared products can bring; blurring the historic lines that have previously separated bilateral FX models, PB’d access to markets, OTC clearing, and FX Futures
Greater automation in emerging markets is widely seen to be merely a matter of time. Profit & Loss talks to Darryl Hooker, former co-head of EBS Brokertec Market and currently consultant at Capitolis about his experience in helping bring a larger ‘e’ focus to Russia and China.
Profit & Loss: Can you give us an insight into the thinking that saw you focus on first Russian markets and then China when you were at EBS? What are the main signals that identify a frontier market ready to move into the mainstream of EM?
Darryl Hooker: A common pitfall in emerging markets is to make the mistake of considering them collectively despite the fact that they have very particular and specific nuances.
This week’s podcast sees Colin Lambert and Galen Stops discuss the latest lawsuit facing banks over their actions in FX markets, during which Lambert invokes the spirit of a film that he can’t remember the name of, by asking, “Could you ask me that question again Galen?”
Stops also has a series of questions relating to the Virtu-ITG tie up reported this week as our two podcasters discuss the evolution of the non-bank trading firm business model. Where do these firms expand? Lambert is fairly confident (is he ever not?) that it is not by buying other trading firms, but both men see opportunities away from trading.
They also discuss volatility in crypto markets and ask – at what stage does the institutional enthusiasm for crypto start to weaken?
This week’s podcast also highlights how Lambert giveth…and taketh away…as it is bookended by praise and ridicule for his colleague! Find out why by listening in to this week’s edition.