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Competition Continues to Heat Up Amongst Liquidity Providers As more non-bank liquidity providers become active in the FX space, firms need to find ways to differentiate themselves to their counterparties, says Giovanni Pillitteri, portfolio manager at HC Technologies. “I do think that there will be certain consolidation in some counterparties,” he said in response to a question about increased competition amongst liquidity providers. “If your edge is only based on speed, that’s going to be commoditised, so you need to have the full spectrum of solutions and offer that full spectrum of solutions to counterparties to be able to compete in this environment.” Pillitteri also emphasised the importance of having a broader, cross-asset approach to trading in order to be a successful FX liquidity provider.
Do We Really Need Decentralised Systems? For all the hype and excitement around distributed ledger technology (DLT), speakers at the Forex Network Chicago conference debated the real value of decentralised systems such as blockchain. “If you’re trying to build a business you need to make it cheaper, quicker, with better customer services and hopefully allow people to have more access. Let’s be honest, blockchain fails on nearly all of those things,” asserted Adrian Patten, co-Founder and chairman of Cobalt. Patten added that the existing system for agreeing contracts has some elements that are beneficial, such as mediation, that decentralisation doesn’t necessarily allow for. By contrast, he described some of the things that he’s witnessed in the decentralised crypto trading space as “bloody scary”, adding: “A lot of these exchanges are being run on laptops and they’re lucky if they have Excel”.
In the FICC of It The band is back together again in this week’s podcast as Galen Stops returns from a short holiday to join Colin Lambert to discuss all things currency – this week (much to the relief of P&L’s audio engineers) with no interruptions from wildlife or pool attendants! Listen is as they highlight growing concerns in the industry that it may be harder to spread the word about the FX Global Code than previously thought, thanks to the realities of life on buy side and vendor side. On the subject of transparency and ethics, Lambert is keen to talk about the new phenomena of “full amount” trading in FX markets and Stops expresses his feelings about the proposed Code of Conduct for cryptocurrency markets. As always there is room for the random, so why does Lambert want a merger between the new digital assets association and the recently renamed Wholesale Markets Brokers Association? Listen in to find out.
Which Firms Will Drive the Next Wave of Crypto Adoption? One of the interesting characteristics of the cryptocurrency markets is that trading in these assets has predominantly been driven by retail players, with proprietary trading firms being the first institutional size firms to start getting involved. So which firms are likely to enter the market next, and will they propel the mainstream adoption of crypto trading? “Naturally a lot of prop desks are looking at the space in a discrete but very active way,” says Francisco Portillejo Hoyos, CEO of CRYPTALGO. “The other wave is that a lot of family offices are seeing a very nice diversification on their allocations.”
Crypto and FX: More Alike than We Think? FX industry veteran and Profit & Loss 2012 Hall of Fame inductee, David Ogg, reflected in a recent video interview on how the rapidly evolving crypto markets resemble the FX markets of the past. “It’s like FX in the 1980s,” said Ogg, who is currently the head of FX and trading venues at OTCXN, before adding, “The front-end technology is pretty primitive.” By contrast, he said that OTCXN has developed “cutting edge” technology in terms of how it displays liquidity, offering visual tickers that enable traders to get a visual representation of what is happening in the market with just a glance.
In the FICC of It High drama in this week’s podcast as it is revealed that editor Galen Stops has been removed from duties…either that or he is in Bali on holiday. Thankfully, P&L’s editor-in-chief Julie Ros is on hand to step in as guest podcaster, and while this does mean regular Colin Lambert feels he has to be on his best behaviour (he fails of course), it does mean we can bring you a quick trip around the wild life of upstate New York! The last week has seen the return of volatility to crypto markets, which has at least got Lambert excited (he never can resist a moving market), although Ros has a different take on what people should be talking about when it comes to these still relatively nascent markets. Our podcasters look at potential use cases for the technology underpinning the crypto space, liken it to the e-FX boom that accompanied the launch of P&L, before moving on to discuss the changing attitude of customers to FX markets. The randomisation that has become associated with In the FICC of It is maintained as well, with a closing question to Lambert that is definitely from left field!
FX Aggregation: When Less Can be More There’s an intuitive logic which states that the more liquidity providers (LPs) that a client puts in their aggregator, the better prices they should get. After all, increased competition should cause LPs to tighten their prices in order to win the trade. However, as Roel Oomen, managing director, electronic FX spot trading at Deutsche Bank, explains, this logic only holds up in a static environment, which the FX market most certainly is not. The reality is that LPs alter their spreads depending on how they perceive the liquidity environment to be at any given point in time.
In the FICC of it “I have a great idea,” said P&L’s managing editor Colin Lambert. “Let’s record the podcast by the pool…” Yes, we are back on the road again with this week’s podcast recorded in Hong Kong on the sidelines of the Profit & Loss conference there and thankfully our audio engineers managed to alleviate the worst impact from Lambert’s “clever” suggestion. So listen in as regular podcasters Lambert and P&L editor Galen Stops are joined by returning guest John Ashworth, CEO of Caplin, who immediately “owns” them by dropping a fantastic Hong Kong fact into the conversation very early. Topics include a discussion about a very eye-opening chat at the start of the conference which looked at the chaos in Washington DC, the evolution of AI and Fintech and the differing attitudes to crypto markets in Asia and the US. The podcast also includes Lambert’s observations on some very interesting answers to his questions on the future of the FX swaps market during the liquidity panel, however this week’s edition does come with a warning as it closes out by providing an image that some listeners may find disturbing!
Why FX is Still “Under-Futurised” The FX market is still “completely under-futurised” right now, according to Carlo Kölzer, CEO of 360T and global head of FX at Deutsche Börse Group. Deutsche Börse announced plans to buy 360T in 2015 and this deal can subsequently be viewed as part of a broader trend of large exchange groups buying OTC FX platforms. This begs the question of whether these exchanges will try to replicate the “vertical silo” model that they have developed in other markets, whereby they effectively manage to keep customer transactions within their business silo for the entire lifecycle of the transaction by offering pre-trade data and analytics, execution and post-trade clearing and settlement services all in one venue.
In the FICC of It This week’s podcast sees Colin Lambert and Galen Stops discuss the latest lawsuit facing banks over their actions in FX markets, during which Lambert invokes the spirit of a film that he can’t remember the name of, by asking, “Could you ask me that question again Galen?” Stops also has a series of questions relating to the Virtu-ITG tie up reported this week as our two podcasters discuss the evolution of the non-bank trading firm business model. Where do these firms expand? Lambert is fairly confident (is he ever not?) that it is not by buying other trading firms, but both men see opportunities away from trading. They also discuss volatility in crypto markets and ask – at what stage does the institutional enthusiasm for crypto start to weaken? This week’s podcast also highlights how Lambert giveth…and taketh away…as it is bookended by praise and ridicule for his colleague! Find out why by listening in to this week’s edition.