Month: October 2017

OFR Launches New Monitoring Tools

The US Office of Financial Research (OFR) has launched two new tools aimed at monitoring and measuring the risks and stress levels of financial markets. 

The first tool, the Financial System Vulnerabilities Monitor (FSVM), is replacing the OFR’s existing Financial Stability Monitor, which combined signs of vulnerabilities and stress.

By contrast, the FSVM focuses exclusively on monitoring vulnerabilities in the financial markets to signal potential risks, while the new Financial Stress Index (FSI) focuses on monitoring the stress levels of the financial markets.

Is the Stage Finally Set for FX Clearing?

Galen Stops takes a look at whether the predictions of FX moving towards a centrally cleared model might finally be coming true. 

Central clearing for FX has endured a number of false dawns in recent years. As long ago as 2011, Profit & Loss published an article, “FX Clearing – Are You Ready?” in which it was argued that Dodd-Frank was likely to drive FX options and NDFs products into clearing.

Then back in the first quarter 2014, staff at the US Commodity Futures Trading Commission (CFTC) indicated that the guidelines for the mandatory clearing of FX derivatives products, which included NDFs could be finalised within weeks. Indeed, Profit & Loss reported in mid-June 2014 that the CFTC was poised to fire the starting gun for mandatory FX clearing.

Survey: Hedge Funds Skeptical on Cryptocurrencies

In a new survey conducted by BarclayHedge, two thirds of the hedge fund respondents said that are not planning to invest in cryptocurrencies, despite the current hype around these digital assets.

The survey of 119 hedge fund managers and CTAs was conducted between September 11 and September 29, 2017.

Managers were asked if they currently invest in or plan to invest in cryptocurrencies. In total, 68% answered “No,” while 24% responded that they either currently invest or plan to invest within the next six months. A further 8% replied, “We’re studying the situation.”

Former HSBC Exec Found Guilty in FX Fraud Case

Mark Johnson, the head of global FX cash trading at HSBC, has been found guilty of eight counts of wire fraud and one conspiracy charge by a US court.

The jurors in the Eastern District Court of New York announced the decision on Monday.

They found Johnson guilty of defrauding Cairn Energy by using information provided in confidence to HSBC to about a $3.5 billion transaction to front-run the order and generate trading profits. 

Johnson was arrested at JFK airport in New York in connection with this case in June 2016, as Profit & Loss reported at the time. 

OTC FX Options Clearing: Are Prime Services Ready?

They may both have been a long time in the pipeline, but the wait for CME and LCH’s introduction of OTC FX options clearing services is nearly over. Yet with both due to launch before the end of 2017, just how much appetite is there likely to be from the prime services sector to support these initiatives? Nicola Tavendale writes.

While there are many different ways institutions can try to reduce their capital costs, clearing is by far the most efficient, according to Paddy Boyle, head of ForexClear at LCH. And even before the advent of the uncleared margin rules, there were already significant benefits to clearing non-deliverable forwards (NDFs), both in terms of enhanced risk management and obtaining operational and capital efficiencies, he adds. “Since the uncleared margin rules were implemented in September 2016, clearing has become a much bigger priority for many firms,” Boyle says.

And Finally…

For years now certain interests have been trying to impose an equity market structure on FX – look at MiFID II – and the reason it hasn’t happened is simple. That structure is inferior to the one that already exists in FX. It may suit equities – I’m not sure it does – but it doesn’t suit FX. It’s 30 years since the “Crash of ’87” which first highlighted the issue to me, and, three decades on, I don’t think much has changed.

ANZ Settles With Regulator Over Benchmark Case

In a brief statement today, ANZ has announced it has reached a confidential in-principle agreement with the Australian Securities and Investments Commission (ASIC) to settle court action relating to the Australian interbank BBSW market.
ANZ, along with NAB and Westpac, has been charged by ASIC in respect of allegations it attempted to manipulate the local interest rate benchmark setting process – the Bank Bill Swap Rate.
The bank has not said how much it has agreed to pay, nor whether it is admitting guilt.

Cobalt Signs with Solace

Open data movement technology provider Solace has announced that Cobalt, which aims to reduce the cost, risk and complexity of FX post-trade processing, is using it to facilitate the event-driven flow of information.
Cobalt CEO Andy Coyne, says, “FX is a high speed, high throughput market, and Solace plays a mission-critical role by guaranteeing the rapid, reliable delivery of massive amounts of information.”
The firms say Cobalt selected Solace technology for its “unique” ability to guarantee the delivery of very large volumes of messages while protecting downstream systems from high burst rates during periods of exceptional market volume and volatility.

Four Exit Wells Fargo FX Business

Four senior foreign exchange employees have reportedly left Wells Fargo following an internal investigation into an unspecified matter, according to reports.
According to a report by the Wall Street Journal the four were fired by the bank, however this cannot be confirmed independently.
An additional report in the Financial Times named the four as Simon Fowles, global head of foreign exchange trading, Bob Gotelli, head of foreign exchange sales, Jed Guenther, FX sales manager, and Michael Schaufler, chief spot dealer.

Making the Case for the Prime-of-Prime Model

The traditional assumption in the FX industry is that accessing a bank prime broker is always preferable to using a prime-of-prime. Galen Stops speaks to service providers seeking to challenge that assumption.

“One thing that’s quite interesting is that in the mindset of the FX industry, there’s a certain hierarchy,” says Jonathan Brewer, managing director of IS Prime. “There’s basically an assumption that if you want to participate in the FX market, then the pinnacle provider that you should aim for is a tier one prime broker (PB), and then you should only go and look for a prime-of-prime if, for whatever reason, your face didn’t fit at a tier one PB.”

Although to some degree this hierarchy might be psychologically driven, there are also very valid reasons why market participants might prefer an FXPB to a prime-of-prime (PoP) offering.