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Drilling for the New Oil If data is the new oil, then how trading firms “drill” it in order to generate alpha becomes increasingly important. Galen Stops reports. So often has the phrase been used recently that it’s in danger of becoming something of a cliché but, apparently, data is the new oil. To see evidence of this, look no further than the technology giants that have emerged out of Silicon Valley. Yes, Facebook doesn’t charge users money for the social media platform it provides, but is it free? Arguably, users “pay” with the data that they create via their interactions on the platform, which Facebook is then free to use and sell to generate profits.
The Franchise Builder? TCA can be about more than measuring execution quality. Colin Lambert talks to a firm that believes it can be the genesis of a new type of bank-client relationship in FX. A TCA report has been analysed and the lessons learned – time to file it away, never to be seen again right? Wrong, according to Andy Woolmer, CEO of NewChangeFX, who believes the data offers a tremendous opportunity to build a new type of FX franchise. “Clients originally used our data for TCA, but it has moved beyond that and it needed to,” he explains. “Too many times the TCA provided to a client was based upon execution from the algo that was used – that circularity represented a problem for the asset manager and, by association, the bank. Why would they want to get involved in something where the trade feeds the analysis?
The Human Problem The wealth of data and predominance of electronic trading mean TCA in spot FX should be a relatively straightforward process. But what happens when a market is mainly voice traded and data is sporadic? Colin Lambert finds out. Among the many upheavals created by the impending MiFID II regulation is the requirement to timestamp all trades in compass of the regulation. In FX markets this has created a paradox, for while it is easy to timestamp a spot FX trade, this product is not “in scope”. FX forwards and swaps, on the other hand, are in scope and they are mainly traded over voice channels and no public central limit order book (CLOB) has enough volume or data to provide a “market” price.
CLS Enters the Market Data Fray Galen Stops takes a look at the new data service launched by CLS Group. In September, CLS announced the launch of its new data service, CLSData. Speaking to Profit & Loss at the time of the launch, the firm’s CEO, David Puth, explained that CLS was “now entering the data market space in a very comprehensive way”. Since its launch in 2002, CLS has recorded every single transaction submitted to it, and considering that an average daily volume (ADV) of over $1 trillion is processed by CLS each day, this represents a massive and rather unique data set.
A Slow Burn TCA in FX has long been viewed as the ultimate box-ticking exercise, but that is now changing as asset owners and oversight functions focus more keenly on the value they leave on the table when hedging their currency exposures. But what, Colin Lambert asks, should good FX TCA look like? Several years ago at a Profit & Loss Forex Network New York conference, the then head of an execution desk at a major Canadian pension fund recounted an experience he had earlier that year. Five weeks of meetings and conference calls had taken place to decide whether or not to sell USD/CAD 500 million, during which time the market had drifted some 200 points lower. Once the decision was taken to sell, another week went by as the method of execution was debated, during which Funds fell another 50 points. When the deal was finally executed,
Data: The Lifeblood of the FX Market Probably the biggest change in the FX market over the past 10 years has been the availability of data. This is not to say that we never had data before, most voice traders relied upon their brokers to tell them where the market was – and although it was (very!) unreconstructed, it was data. In terms of hard numbers on a screen, the market was revolutionised by Reuters terminals in the 1970s, enhanced by the launch of rival offerings (nearly all borne out of a news service), and then again with the launch of electronic trading and mobile apps.
Capitolis: The Airbnb of Credit? Galen Stops speaks to market sources about the feasibility of splitting prime services into credit provision and trade processing. Capitolis is the latest venture headed by Gil Mandelzis, the former EBS BrokerTec and Traiana CEO. Mandelzis co-founded the company along with his former Icap and Traiana colleague, Igor Teleshevsky, and former Thomson Reuters CEO, Tom Glocer in New York earlier this year. Mandelzis operates as CEO of the firm, Teleshevsky is VP of R&D and Glocer is listed as an executive chairman.
OTCXN: Can Digital Solutions Bring Back FX Growth? Galen Stops explains how OTCXN is applying blockchain technology to help firms access wholesale liquidity. OTCXN seeks to leverage its own proprietary blockchain technology to solve what its CEO and founder, Rosario Ingargiola, says is currently the biggest challenge in the FX market: accessing wholesale liquidity. This challenge is caused by a credit gap in the market, according to Ingargiola, that has in turn occurred because the banks have been broadly reducing the number of firms that they are willing to extend credit to.
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.
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.