Month: October 2018

Research Paper Finds Fix Tracking Error Increased Post-Reform

A new research paper that looks at trading around the WM Reuters benchmark fix between 2012 and 2017 argues that while the mechanism has been made more robust and less open to manipulation, the shift to a five minute window has made actually achieving the benchmark harder for some market participants.
The paper uses what the authors term “a unique dataset that allows us to identify the actions of individual traders” that provide new insights into how trading decisions affect the properties of the fix benchmark, and how the presence of the fix affects trading patterns.

MarketFactory Integrates API with Elysium

MarketFactory has integrated its API, Whisperer, with Elysium Technology Group’s middle and back office product, Mission Control.

Whisperer is a low-latency API that connects traders to over 80 ECN, bank and non-bank FX venues for market data, trading and market making. Mission Control is a cloud-based enterprise solution that enables FX trading operations to automate and optimise middle and back office functions.

A global investment bank was the first customer to go live with the integration last month, says MarketFactory in a release issued today.

NYDFS Approves Coinbase as Qualified Custodian

Coinbase Custody has obtained a license under New York State Banking Law to operate as an independent Qualified Custodian.

It will operate as a Limited Purpose Trust Company chartered by the New York Department of Financial Services (NYDFS).

Coinbase Custody is designed as an institutional-grade service for storing large amounts of cryptocurrency in a secure manner. All assets trusted to Coinbase Custody are stored offline.

“For our customers, operating under a New York State Trust Company is more than just a new license  –  it’s an important piece of regulatory clarity that will allow us to compliantly store more assets and add new features like staking,” says Sam McIngvale, product lead at Coinbase, in an online post announcing the news.

Emerging Markets: Picking the Winners and Losers

Rather than moving in a synchronised manner, speakers at the Profit & Loss Forex Network Chicago conference predicted that emerging market (EM) performance has become divergent due to idiosyncratic factors within each country.

“In general, EM does well when you have at least two out of three things: one is global growth, two is a weak dollar, and three is lower US rates. So, if you look at this combination and where we are in the cycle, especially given all the easy money that we’ve had since 2008, I would be very careful with the emerging markets right now,” said Mo Grimeh, CIO at Mogador Capital Management at Profit & Loss Forex Network Chicago.

Changes at NEX Markets

Profit & Loss understands that Laurence Timmons, head of sales for Asia Pacific at NEX Markets in Hong Kong, is returning to London. It is unclear if he is remaining with NEX and if so, to what role he will be appointed.
Serge Marston, regional head of sales for EMEA at NEX Markets, is believed to be taking on additional responsibility for Asia Pacific and while he will continue to be based in London, sources familiar with the matter say he will spend “significant” time in Asia Pacific.

And Finally…

Regular readers will know I have what I believe to be a healthy level of scepticism over the use of AI and machine learning in trading.
What will give me more confidence is the better embracing of adversarial AI, for only by imbuing an algo with a certain amount of cynicism will we empower it to trade effectively in markets because, and this is a point I have made before in these pages, it is quite easy to spoof an algo.

Why the Rising Tide of FX Options Volumes Means Ballooning Brokerage Fees

A storm is brewing in the world of FX derivatives. Driven by, surprise surprise, Brexit uncertainty and Trump – there’s a sizable chunk of activity in GBP/USD options relative to the other major currency pairs.

Now the geopolitical landscape is of course backed into the price of the underlying currency pair, as opposed to the activity of the options. But the challenge is that as volumes increase, investment banks have to inevitably pay more in interdealer broker (IDB) fees. And the bigger the volume, the bigger the brokerage cost. Already under intense scrutiny to reduce costs wherever possible, this is a major headache that any desk head could do without right now.

In the FICC of It

In this week’s podcast Galen Stops shares some feedback about a previous week’s discussion on electronification of NDFs and Colin Lambert reports from an equity-focussed market structure conference, some of the statements from which, surprised him and lead to another one of his “theories” about the relationship between FX and equities. Our two podcasters also […]

CLS Volumes Up In September

CLS has reinforced the impression that FX markets were busier in September by reporting a 7.7% increase in volumes handled from August. Earlier this month a series of FX trading platform providers also mostly reported a month-on-month increase.
CLS says it handled $1.729 trillion per day in September, a 1.2% decline on a year-on-year basis. Of this, $1.199 trillion was FX swap volume, up 9.3% month-on-month and 5.4% up year-on-year. In contrast, FX outright volumes were flat month-on-month at $83 billion, and down 18.6% from September 2017, Spot FX volumes were a mixed bag, comparatively, up 5.1% from August at $447 billion per day, but down 12.3% year-on-year.

CME Runs First NDF Optimisation Cycle

CME Group says it has completed its first initial margin optimisation cycle in collaboration with Quantile Technologies, which generated over $1.2 billion in NDF clearing across multiple currency pairs from banks including Citi and Standard Chartered.
CME announced its NDF service in late 2017 and started clearing at the start of this year with three futures commission merchants (FCMs), Citi, Credit Suisse and Morgan Stanley.
With the ongoing implementation of the uncleared margin rules across both sell-side and buy-side firms, CME has been focused on delivering the greatest capital and margin efficiencies for our global clients, the exchange group says.