The more things change…
The global economy was in trouble in late 2001 as the tech bubble burst and the US coped with the aftermath of 9/11, including a war in Afghanistan. Share values were slashed and investment dollars dried up.
Not a good environment then for emerging markets (this is the bit where things have changed) as we discussed at the time. It was noted that emerging markets were standing on the edge of a precipice due to a lack of liquidity, risk aversion and damaged consumer confidence in the main export markets.
In a look at the regions, economists saw China as the nation most likely to avoid trouble in a continued slowdown and, quite presciently, it was noted that China was the nation most likely to help regional Asia go forward.
Bond markets in eastern Europe were recovering from the initial shock to the system, although Turkey remained at risk due to the deteriorating situation in Afghanistan. Over in Latin America, the situation, with China not yet on the investment radar and the US pulling money back, was seen as worsening.
FX Turnover on the Decline
Showing that P&L’s editor has got quicker at his job (note, not better!) can be found in our report in the November issue on the BIS Triennial Survey of FX Turnover. Overall FX turnover was at $1.2 trillion, which, eagle-eyed readers will observe, is less than average daily turnover in spot FX, according to the latest survey.
Reflecting uncertainty at the start of the e-age and also the impact of post 9/11 in the US, turnover was down from the $1.49 trillion recorded in the 1998 survey. Spot trading fell by 32%, which would, we suggest mean that high frequency trading was not yet an influence in the market.
A (good) Insight into Lehman Brothers
Long before the sad demise of Lehman Brothers, P&L sat down with the co-heads of the bank’s FX business in 2001 – Mark DeGennaro and Ivan Ritossa. The bank was in the throes of making a series of key hires as it started the process that would – before its untimely collapse – result in the bank challenging for a place at the top table in FX.
The FX business was very much seen as growing in tandem with the general global markets business, and the strategy was very much integration where possible with other asset classes. The three key areas for development were seen as derivatives, research and e-commerce. The latter saw the bank become a liquidity provider on three platforms, Atriax, FXall and Currenex.
The article concluded by noting that Lehman’s growth strategy was considered and was no “short term phenomena, but here to stay”. Hmmmm.
CLS Takes a Step Forward
The much-troubled launch of CLS Bank for continuous linked settlement of global currency trading, took a tentative step forward with the announcement that a live service was expected to be launched in the first half of 2002. It was not the first time the market had been given new launch dates as the service suffered repeated delays after failing to achieve its initial launch date of October 2000, and indeed earlier in 2001.
The company now said that trials would start in the first quarter of 2002, which would enable a full service to be available the following quarter. In reality, CLS hit the street at the end of the third quarter following another minor delay. That said, as has been said in recent years, it’s better that they got it right, because it has proven its worth.
Hotspot Adds an ’i’
Hotspot FX announced plans for an electronic marketplace for institutional FX dealing dubbed Hotspot FXi. As well as having the ability to deal on live spot prices, participating institutions would also be able to enter live bids and offers.
The platform would offer anonymity and the efficiencies (at that time) achieved by click and deal technology. Hotspot FXi also offered an API to enable users to achieve straight-through processing (STP).
Institutions were offered the choice of accessing the market directly or by means of a prime brokerage relationship with a Hotspot FXi participant. AIG International (whatever happened to them?) was the initial liquidity provider, and arranged prime brokerage relationships with qualified investors interested in trading on the platform.