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And Another Thing…

I have been fairly robust in my view of certain events surrounding the de-pegging of the Swiss franc on 15 January and some of the responses I have received have been equally robust! All that aside, I consider myself a fair person and as such I feel there is a need to clarify something (and into the bargain bore you once more with one of my oldest ideas).

In my last column on this subject, I referred to banks and brokers “re-papering” trades as “reprehensible” and the “ultimate last look”. I stand by this opinion and feel no need to expand further.

What I do want to highlight is the problems caused by the attitudes of some clients and what appears to be an arbitrary act that highlights the anachronism of not having a modern and reasonable mechanism for setting the high/low.

As you can understand, two weeks in London talking to banks saw me on the receiving end of some “strong” feedback following my publishing the aforementioned opinion piece. This is good and something I welcome – it’s nice to receive positive feedback but for an observer/analyst/commentator, I am always more keen to hear why people disagree with me – it builds debate and, hopefully, informs future columns.

Something that struck me talking to bankers – and I know this is going to be difficult for some to understand given the “bash-a-banker” environment in which we live – was that some customers were routinely unfair, even unprofessional. On multiple occasions I was told that the same client insisted on having a stop honoured in EUR/CHF at, for example, 1.1950, but wanted a trade where they had hit the bank at 0.7000 “re-papered”. The expression involving “cake…and eat it” springs to mind.

As I argued during a very spirited discussion over dinner one night, I believe that all trades should have stood unless both parties agreed that they were obviously wrong – and by that I mean the hit down around 0.0015 on EBS. Obviously conditions were chaotic and people were breaking one of the golden rules of trading – never panic – and hitting prices everywhere.

As I stated when discussing those brokers and banks trying to re-paper the trades, I believe people need to take responsibility for their actions, and this view extends to clients who need to do the same. I have been told on the day and since of multiple hits at 0.70 in EUR/CHF – this is not a mis-hit, this is a deliberate trade by someone panicking and as such the trades should stand.

But of course they didn’t. Why? Because EBS unilaterally took the decision, which it has every right to do, to establish the “low” at 0.8500.

My argument is not with EBS or any other platform, it is with the industry as a whole. The changing market structure means that one venue can no longer be responsible for establishing the high/low.

I will not go into the arguments for this case, I have done it too many times before to mention (starting in October 2009 and every six months since), but surely we have a prime example of how the current practice costs institutions money (and yes, I know they can afford it, but that doesn’t make it “fair”) because it is insufficiently inclusive and does not reflect the modern FX market.  Twitter @lamboPnL

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