Month: January 2017

2016 Crystal Ball: How Did We Do Last Year?

In the interests of total transparency we also, as usual, cast our eye over last year’s predictions to see how they went. As always, these predictions will be viewed through rose-coloured spectacles to ensure we look as good as possible!

We kicked off last year’s predictions by suggesting the entire FX world would take a more realistic view of developments – that liquidity and spreads would reflect this thought process, and that market share would be a declining influence in business decisions.

Wall Street Blockchain Alliance Adds FX Specialist

OTC Exchange Network (OTCXN) has joined the The Wall Street Blockchain Alliance (WSBA) as a corporate member.

OTCXN is utilises blockchain technologies and smart contracts for its peer-to-peer trading network, which will launch initially for the FX market.

OTCXN’s trading platform leverages proprietary blockchain and smart contracts technology designed to provide transparency and operational controls to enable safe and secure trading directly between counterparties, even if they are not known to one another.

The aim of OTCXN is to replace the current credit system in FX, whereby firms are required to establish credit arrangements with prime brokers – a process that can take as long as 18 months to complete – in order to participate in the FX marketplace.

Less Volume, but More Automation

Data from the UK’s FX Joint Standing Committee (JSC) shows that while overall volumes dropped, e-ratios in spot and across the broader market both rose from April. Meanwhile in the US survey spot e-ratios dipped slightly, as they did across all FX products.
The JSC survey suggests the UK market had a spot e-ratio of 62.2%, the highest registered since the October 2012 survey. This is a significant increase on the 57.9% highlighted in the April 2016 survey and the 54.5% ratio in October 2015.

FX Turnover Slows Further in October

Data from the world’s FX committees reinforces the sense that April was a minor outlier in FX turnover, with all but one centre reporting a slowdown in activity from April 2016 to October 2016.
In April 2016 – coincidentally the month of the Bank for International Settlements’ (BIS) Triennial Survey of FX Turnover – there was a late spike in activity as the Bank of Japan surprised markets through its inactivity on monetary policy, leading to yen volumes soaring. This spike has largely been reversed in the latest surveys.

BoE’s Salmon Expects More Surprise Flash Moves in FX

Chris Salmon, executive director, markets, at the Bank of England (BoE), said in a speech today that, while he has confidence in the ability of the FX market to process identifiable risks, he expects to see more surprise flash moves in this asset class.

Speaking at the OMFIF City Lecture in London, Salmon looked at the depreciation of sterling following the UK Brexit referendum result and the sterling “flash crash” that took place on October 7, 2016, to provide insight into how the market is functioning.

Solving the RMB Dilemma

The Chinese authorities face a range of challenges as they seek to protect the economy in the face of downward RMB pressure.

In 2016 the Chinese authorities are assumed to have intervened in the currency markets, not in order to depreciate the RMB but actually to maintain the value of the currency.

“The consensus from economists is that there’s going to be downward pressure on the RMB,” noted Shawn Baldwin, chairman of AIA Group, on the opening panel at Profit & Loss Shanghai.

Sterling Steadies After Supreme Court Decision

The UK Supreme Court has decided, by a majority verdict, that the UK’s parliament must approve the government’s decision to trigger Article 50, which formally starts the process for Britain to exit the European Union.
Although the decision was largely expected, sterling rose briefly to 1.2540 before dipping sharply as the details emerged – specifically that the government did not have to consult the regional assemblies in Scotland, Wales and Northern Ireland – dropping from the 1.2540 level to 1.2440 before recovering to 1.2490.

Hedge Funds Outperform Stocks, Bonds: Survey

Hedge funds outperformed equities and bonds on a risk-adjusted basis in 2016, according to the Alternative Investment Management Association (AIMA) and data provider Preqin.
Hedge funds’ risk-adjusted return, as measured by the Sharpe ratio, was 1.45 for the year, ahead of the S&P 500 (1.1), MSCI World (0.68) and Barclays Global Aggregate (0.20) indices, according to AIMA and Preqin, who based their analysis on a database of more than 3,000 funds.
The analysis finds that hedge funds also outperformed stocks and bonds on a risk-adjusted basis over three years and five years.

CFTC Extends Comment Period for Reg AT Rules

The US Commodity Futures Trading Commission (CFTC) has extended the comment period for the supplemental proposal for Regulation Automated Trading (Reg AT) to May 1, 2017.
Profit & Loss has reported extensively regarding the numerous concerns articulated by market participants about the Reg AT rules.
Central to the controversy is the requirement that proprietary trading firms keep a source code repository for algorithms and make it available for inspection to any representative of the CFTC or the US Department of Justice whenever it is requested.

CLS Signs MOU with Chinese Think Tank

CLS Group has signed a memorandum of understanding (MOU) with the National Institution for Financial Development (NIFD) in China.

The MOU defines close cooperation between the two institutions on research and broadening awareness relating to FX, payments and settlement to support the healthy development of the Chinese economy and renminbi internationalisation.

CLS’s head of Asia, Rachael Hoey, and NIFD chairman, Professor Li Yang, signed the MOU on Monday, January 23.

“China’s financial development would be enhanced by integration with global financial markets and infrastructure to support its important and growing role in the world,” says Hoey.