Month: October 2016

CFTC Drops Deutsche Bank FX Investigation

The US Commodity Futures Trading Commission (CFTC) has closed its investigation into Deutsche Bank’s FX business, the bank revealed in its Q3 results today.

In May 2015, a number of major banks were fined more than $5.8 billion for practices relating to alleged collusion and manipulation of the spot FX market around the 4pm London Fix, by a number of regulatory authorities, including the CFTC.

Deutsche was not one of the firms named in those settlements, but remained under investigation by the CFTC for its FX market practices.

An Incomplete Picture: Spotting the Spoofer in FX

The incarceration of a trader convicted of spoofing has heightened awareness of the practice, but how hard is it to spot and how prevalent is it in FX? Colin Lambert investigates.

“You have to be pretty desperate to resort to spoofing markets – especially on exchanges where it’s nigh on impossible to shield your
activities,” argues a senior electronic trader in London. “Even in OTC markets it’s not easy to get away with given the MIS capabilities of firms today.”

And Another Thing…

This week’s Bundesbank paper on HFT in bund and equity markets caused a stir – as anything on this subject does of course – and it highlights to me again, how FX is in front of other markets in being inclusive and functional. It is significant that while some regulators want FX to be equities-like in market structure, more are looking to an FX solution – the speed bump – to save equity market problems.
I am not sure we should be talking about speed bumps for the real issue is the dysfunctional liquidity stream.

US Elections: What Does the USD Data Suggest?

TraderMade’s chief technical analyst, Steve Jarvis, has put out some interesting research looking at USD trading patterns around past presidential elections to see if there is any indication of what to expect in the upcoming one.

Using a USD trade weighted index chart for his analysis rather than specific FX rates, Jarvis looked at how the USD moved during the two months leading up to the previous seven US presidential elections and the two months after.

Going back to 1988, Jarvis highlights who was elected, their defeated opponent, and includes the percentage change for the USD index for the two months before and after the election, as well as the net change over the four-month period.

Edgewater Targets LatAm Growth with Matching Engine Launch

Edgewater Markets is expanding its LatAm business with the launch of a local matching engine in Mexico City.

The deployment of the server in the KIO-5 data centre in Mexico, which recently went live in Q3 2016, enables customers to cross connect directly to Edgewater’s local environment. It will support a range of currency pairs, with a strong focus on MXN crosses.

“We are constantly looking for ways to grow our business and to penetrate into new areas of the market and we identified order management as a gap in our offering. We have clients aggressing rates on our platform very actively, but we were lacking on order capability.

Cobalt Partners with SETL for Blockchain Platform

Cobalt DL (Cobalt), which plans to launch distributed ledger-based FX post-trade platform in 2017, has announced a partnership with SETL to deploy its Open CSD distributed ledger within the platform.

Although a spokesperson for Cobalt declined to name a targeted go-live date for the platform next year, the firm claims that it has 15 institutional FX participants already committed to the service.

Profit & Loss previously reported on Cobalt’s plans to try and reduce post-trade costs for financial services firms by creating a shared view of trade data.

MiFID II: The Business Benefits of Compliance

There’s a wave of change sweeping across non-equity markets driven by regulatory initiatives and the rise of non-bank liquidity providers. Other factors driving buy-side adoption of Transaction Cost Analysis (TCA) in FX are the need to generate alpha on investment returns, and regulatory scrutiny? of trading practices in over-the-counter (OTC) instruments.

TCA is a broad term which doesn’t describe the actual analysis to be carried out. Asset managers who rely on custodian banks to execute currency trades have a compliance obligation to analyze these FX trading costs.

By monitoring fill rates, TCA tools can help traders determine if ‘last look’ is occurring, and then decide whether or not to shift their trades to other venues.

Saxo Braces for US Election

Saxo Bank is increasing margin requirements on certain FX pairs, equity and fixed income products ahead of next month’s US election.

Saxo says that it will implement margin changes on products expected to be affected by the outcome of the election such as some single equity, index and fixed income CFDs, and certain FX pairs.

This includes taking most major FX pairs up to 2-3% with RUB and MXN going to 10% and 15%, respectively, while the minimum margin requirement on CFD indices will be 4% based on market volatility and liquidity leading up to and through the election.

Visa, Chain to Launch Blockchain Payments System

Visa is partnership with Chain to launch a new business-to-business (B2B) payments platform using blockchain technology.

The new platform, Visa B2B Connect, will be built using Chain Core, an enterprise blockchain infrastructure that is designed to facilitate financial transactions on scalable, private blockchain networks.

The plan is for Visa to use this technology to develop a near real-time transaction system designed for the exchange of high-value international payments between participating banks on behalf of their corporate clients.

The platform will be managed by Visa end-to-end and the firm says it will facilitate a consistent process to manage settlement through Visa’s standard practices.

Compression Comes to 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.