2018 is a big year for the FX Global Code as it will celebrate its first anniversary – a date by which all participants are expected to have adhered to the code’s principles. Will the code be a success? Colin Lambert thinks he has the answer.
It was, and still is, depressing having to read through legal papers and regulatroy notices on a regular basis, all of which deal with misconduct in FX markets, and nobody whould be misguided enough to think that such actions will not continue in the year ahead. They will, and probably the year after that.
There is an upside in having to rake over the ashes of past misdemeanours, however, because it offers a timely and regular reminder of the importance of the FX Global Code.
There isn't much left up for grabs, but 2018 will see a deal in the platform world, says Colin Lambert.
In all the history of the Profit & Loss Crystal Ball, platform consolidation has been the most fertile ground.....mainly for critics! If viewed in terms of the number of deals, however, the story is a little different.
The headline has been in demand from exchange groups for an OTC presence, culminating in deals for Hotspot, 360T and Fastmatch, and it is hard not to see this continuing – in spite of CME finally deciding to do something about further penetrating the OTC space by launching a service itself rather than entering partnerships.
Other cryptocurrencies will continue to catch up with bitcoin this year, but this is by no means a bad thing for this nascent industry, says Galen Stops.
"Whether it works out or not, the bitcoin story definitely has further to go. And regardless of its success or failure, it seems increasingly likely that virtual currency, in one form or another, is here to stay" - "Does Bitcoin Have a Future?" (Profit & Loss, December 2013).
A lot has changed in the intervening years since Profit & Loss published the above statement in conclusion to its first ever feature length article on bitcoin.
The euro performed well in 2017, but can it keep going? Galen Stops suggests that political factors mean that this currency could surprise markets in 2018.
This time last year, the European Union was still grappling with the fact that one of its biggest members was poised to leave the club, people were nervous about a populist, anti-EU party winning the Dutch general election, and even more nervous about a populist, anti-EU party winning the French election and presidency.
As a result, markets were – understandably – pricing a lot of risk into the Eurozone.
The continued implementation of Mifid II will be generally characterised by lots of hard work in the background and not much immediate action in the foreground, argues Galen Stops.
We all know the metaphor of the swan gliding seemingly serenly through the water, while in fact its feet are paddling away furiously underneath and out of sight.
Well that swan is a pretty accurate representation of what the January 3 go- live date of MiFID II was like for many market participants, by all accounts. A huge amount of work had gone in behind the scenes to make sure that firms were compliant so that, when it arrived, the big day passed largely uneventfully.
Not so much a price prediction, more a market structure view, but Colin Lambert believes the nature of trading in Bitcoin will change in 2018.
If you ever wanted to know the financial markets' equivalent of playing Russian Roulette, look no further than attempts to predict the price of bitcoin going forward.
There were not many who saw a decline in bitcoin at the start of last year, but even though there was a consensus that it was going up (and why wouldn't it when you have a limited supply trying to meeting increased demand driven by publicity?), no one remotely nailed the year-end of $16,000. the highest estimate of the price this time last year was probably around $2,000 - and even during the third quarter of the year when it rose past $4,500 no one was thinking a further quadrupling.
Colin Lambert believes data will become a commodity and will generate a divide between the "haves" and the "have nots".
There is little doubt that data drives most things in foreign exchange. Pricing is the obvious area, but client business is now also analysed to great depth as service providers seek to more clearly define the value they extract from their franchises. Throw in operating metrics as well as reporting, and data permeates just about every part of the business.
Galen Stops digs a little deeper into the results of the recent JP Morgan e-trading survey and finds some surprising statistics.
For those of you who missed it, there were some noteworthy nuggets of data contained within JP Morgan’s recent e-trends survey. But digging a little deeper beyond the headline figures reveals some even more interesting trends emerging in the FX market.
The first thing to point out is that the survey raises some curious questions about algo usage amongst clients. On the surface, it presents good news for algo providers – although only 8% of respondents said that they currently use algos for execution, 24% said that they plan to increase their usage of them in 2018.
Although it required a heavy lift from the financial services industry, the Mifid II implementation deadline came and went with minimum disruption. However, as Galen Stops points out, the real change is still yet to come.
So here’s the good news for the FX industry: the January 3 Markets in Financial Instruments Directive (Mifid) II implementation deadline passed without any significant market disruption at the start of this month.
“January 3rd went relatively smoothly, our members generally reported a largely uneventful launch although the industry is continuing to work through a number of minor issues, which is what you would expect at this point in time,” says James Kemp, managing director, Global FX Division, Global Financial Markets Association (GFMA).
The announcement by BNY Mellon this week that it is launching an FX prime brokerage (FXPB) service is interesting for a couple of reasons.
Superficially, it bucks a trend that has developed in recent years of banks scaling back, or even shutting down, their FXPB businesses. However, Profit & Loss already argued in a special report looking at prime services published in Q3 2017, that this trend was beginning to reverse itself.
So perhaps more significant is that it indicates that the barriers to entry in FXPB have been lowered as the cost of technology and infrastructure has both decreased and become more available.