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And Another Thing…

WMBAA unveils SEF agenda and P&L’s editor bemoans the “nanny culture”…

WMBAA Unveils SEF Debate Agenda

The Wholesale Markets Brokers’ Association, Americas (WMBAA) has unveiled the preliminary agenda for its second annual Swap Execution Facility Conference. CFTC chairman Gary Gensler is delivering the keynote address to accompany a series of panel discussions and presentations.

The conference, which is to be held in New York City on October 3, will seek to build on the work at the first conference, held in Washington DC in October last year. It will focus on the role and operation of swap execution facilities under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The conference will provide global financial institutions with a comprehensive overview of this new regulatory category for US swap market intermediaries.

A full agenda and additional information is available at

And Another Thing…

Is the “Nanny State” culture creeping into the trading room? Any time I start a column with that line, my colleagues inevitably shudder because they know yet another ill-informed rant is likely (and it is), but I also ask it as a serious question.

The losses at UBS have intrigued me because the bank prides itself so much on its risk management structure and skills, and also because I have had the opportunity to speak to several of the trader’s colleagues – all of whom say they support him fully and hint that “outside” forces were at work; specifically that it was becoming unacceptable to have a loss on a trading book.

This is not the first time this subject has prompted debate in my social circles – pretty much all the major losses that have been covered up (allegedly in some cases) started with a dealer or desk unwilling to take a loss. Why is that? What is wrong with getting the market wrong?

I often point out that if you meet a trader who has “never made a loss” you have either met the quietest trader ever, or a liar. It is part of the learning program of every trader – I am inevitably drawn to a comment in Steve Drobny’s first book Inside the House of Money, when he asked his subject “what makes a great trader?” The answer was simple – scar tissue.

Cash FX desks have largely avoided being dragged into the “fraudulent loss” mire, mainly because the operation is so simple it is hard to hide anything. FX options have suffered (Allfirst and NAB being prime examples), as have other derivative products, but the cash markets have dodged a bullet.

That said, I continue to hear complaints of traders that are losing money to customer trades, to which my answer is normally “well you are a client-centric organisation”, which in turn gets a snort of derision. The point these traders make is that they are paid to make money, but are often giving profit away to clients.

It worries me that people are concerned about losing money full stop. In the e-FX space there are banks that are cutting clients off because they don’t make money out of almost every trade. It’s nonsense. Surely the idea is to utilise the intelligence you get from certain flows and make money out of a client over a period of time. If we are going to micro-manage trades there is no hope.

So, to get to the illogical rant, who do I blame? Fixed income managers. The insidious creep of the FICC model has inevitably led to a breed of managers that have come up through the fixed income space (it’s the one that makes the most money after all). The problem is, the FX culture is different. It is a culture in which it has always been a fact of life that sometimes you just get stuffed. Sometimes you just plain get the market wrong.

Sometimes, you just lose money. It’s not a shameful thing, it’s often a badge of honour. It is certainly part of a learning process to make you a better person and trader.

So please, can we get away from this concept that appears to be creeping into banks’ FX operations that you have to make money on every trade, you have to analyse every trade? The future of this business still lies in human hands – and humans are just that – human. Let them lose money without worrying – it may not stop a real rogue trader, but it may stop normal, law-abiding traders from treading the wrong path because they are scared for their job/reputation.

Profit & Loss

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