Shortly after Citadel Securities won the Best Market Maker in Major Currencies category at Profit & Loss’ The FoXys Reader’s Choice Awards, Kevin Kimmel, global head of e-FX at Citadel Securities, sat down to discuss what firms want from a modern liquidity provider.
“I think it’s important for market makers to customise their liquidity to each individual consumer,” says Kimmel.
Although he acknowledges that “market impact” has become something of an industry buzzword recently, Kimmel maintains that there truly is a large segment of the liquidity consumer universe that is looking to trade with firms that are willing to warehouse risk because it will help minimise their market impact. There is also though, he says, clients that are much more aggressive in accessing the market that just want tight prices and a high fill rate.
Dan Torrey, global head of FX e-commerce sales at Northern Trust, explains how technology can help revolutionise regional banks’ e-FX businesses.
Torrey concedes that, prior to joining Northern Trust, he had been uncertain about whether or not claims that the increasing availability of technology is helping to democratise the FX markets were accurate.
However, he says that his own experience in building out Northern Trust’s e-commerce business has convinced him that these claims are not overblown.
“What’s happened is that through the technology, being able to bring in house better e-commerce pricing, being able to reduce a lot of latency, being able to expand the pairs in which we’re competitive and then to provide that downstream to our customers, means that we’re not just another custodial bank offering to them, we can actually competitively go after third-party accounts where we couldn’t’ get them before,” says Torrey.
Firms are increasingly demanding more sophisticated tools around FX execution analysis, explains Petra Wikström, global head of execution and alpha solutions at BNP Paribas.
Wikström says that for some time, firms have been looking at post-trade analytics to help improve their FX execution but that, increasingly, they are shifting their focus towards pre-trade analytics.
“Now a lot of the demand is coming in the pre-trade understanding of market impact: how it trades over the trading day across currency pairs, across time zones, across trade sizes, but also coming into that are whether there any differences across different venues,” she says.
Rosario Ingargiola, founder and CEO of OTCXN, argues that accessing wholesale liquidity is one of the biggest challenges in the FX market today that could be alleviated by fintech solutions.
Speaking about different approaches to the FX market by fintech firms, Ingargiola says that one strategy is to look at areas where new technologies can reduce costs in terms of how firms operate and another – which he says OTCXN is pursuing – is to use technology to change the way that firms operate altogether.
The area where he sees the biggest opportunity to change the way that firms operate using fintech solutions is around using credit to access the FX market.
Despite two years of intensive work to produce the FX Global Code of Conduct, Chip Lowry, senior managing director at State Street Global Markets and chairman of the Foreign Exchange Professionals Association (FXPA), warns that the hard work in terms of adherence to the Code is just beginning.
Having just participated in a panel at Forex Network New York discussing the implementation of the Code, Lowry comments: “It took two years to get to this point with the Code, and that’s been a lot of work. But I think that one of the things that came out on the panel was: now the hard work begins.”
As buy-side workflows are becoming complex, these firms are looking for ways to simplify how they view and manage them, claims Basu Choudhury, business intelligence, Nex Traiana.
He says that, whereas in the past buy side firms used to probably have only one prime broker (PB), today they might have four or five prime brokers, or even have bilateral relationships. Further, when they execute they might do so via an anonymous venues or they might trade against another buy side firm that is using a prime broker.
“So what we’re seeing and hearing is that they want a single panel where they can see their PB relationships and bilateral, and even clearing at some point within one dashboard, one platform, where they can manage the matching, [confirmations] and settlements,” he says.
Although Dmitri Galinov, CEO of FastMatch, defends the controversial practice of last look in FX, he also claims that it will be eliminated within the next two years.
Explaining why last look has become such a hotly debated topic within the FX industry, Galinov explains that it is “a valuable tool” that enables liquidity providers to quote tighter prices to their customers.
The problem, as he puts it, is that “consumers want tighter prices but they don’t want last look”. For now, however, the two appear to be mutually exclusive, which is why this is a difficult issue for the industry to solve.
A more volatile trading environment is exposing a segment of businesses that are currently being under-served by FX service providers, claims Moises Michan, a managing partner at Tanridge Capital.
“I think that when you start looking into these higher volatility environments is when you start having treasurers and heads of family offices realising that they’re not FX experts, there’s a lot of mechanics a lot of input going into the FX market, and they do have exposures,” he says.
Michan says that Tanridge capital is focusing its efforts on providing FX asset management services for small to medium sized institutions that don’t meet the client requirements of the big banks.
Speaking at Profit & Loss’ Forex Network London, Paul Chappell, CIO of buy side firm C-View, explained how liquidity trends are being negatively impacted by the Fix scandal.
In a featured new segment introduced at Profit & Loss’ Forex Network London called BURSTS, Paul Chappell, CIO of buy side firm C-View, sought to explain liquidity trends in the FX market in the context of the recent scandals that have plagued the industry.
In this TED Talks-styled presentation, Chappell sought to address why there are, in his opinion, only a few genuine market makers left in the FX market that everyone else prices off, and why currency managers have seen their returns significantly reduced.
Lots of people are talking about the Global Code of Conduct, but are they asking the right questions? Profit & Loss deputy editor, Galen Stops, discusses why incentives might be more important that enforcement mechanisms when it comes to ensuring adherence to the Code.