Today’s column is about technology, speed and the race to zero. It also quotes Top Gun – a first in the pages of Profit & Loss – and in reality it does actually care that much. After all, do you pick sides when the National Football League owners (the billionaires) go up against the NFL players (the multi-millionaires) over money?
Speed of technology is important to a certain extent, but there has to be a point when it becomes largely irrelevant to the most important people in the FX industry – the customers.
The past year has seen me become increasingly irritated by platforms answering my call to help police bad behaviour in the Global Code era by saying either it’s not their responsibility or it’s an impossible request - so here's one area they can do something about. There are reasonable reasons for asymmetric price improvement data and - at a stretch - for asymmetric last look policies. But asymmetric response times? That's a whole different matter and something needs to be done now.
The hope that peer pressure will help drive adoption of the Global Code of Conduct's principles is fine, but what the industry also needs is real action to curb some practices that sit uncomfortably with some. Last look is one of them and while last year we had a spate of disclosures that highlighted how firms were hardening their stance on last look, this week has seen one bank - if I am reading this right - take a step further.
It felt like a traditional FX market on Friday in Asia as the industry coped easily with another geo-political surprise stemming from that most subversive of groups - the UK electorate. Speaking to people in the market there were, apparently, good bids all the way down in Cable from resting interest and manual traders were heavily involved in both that and the crosses.
This made me wonder whether the surge in interest in manual traders can be correlated with orderly market functioning?
I have been stating in recent months that one of the challenges for the FX industry will be promoting the “good news” story that it is reforming itself, while at the same time being on the end of negative headlines around actions that allegedly took place a decade ago.
This week’s headlines around HSBC and the alleged running of stop losses is a case in point, but the accusation from ECU Group against the bank also raises an early question about one of the Global Code of Conduct’s principles.
The foreign exchange industry has always prided itself on its ability to innovate and evolve and it does indeed have a positive story to tell in these areas, but one area in which it clearly fell down badly was in its inability to maintain control in an era of technological expansion.
It is hard to look back on the events of 2008-13 and not see them as a direct result of the oversight function either failing to understand, or failing to keep up with, the technological revolution.
My colleague Galen Stops and I were recording some material for our podcast series “In the FICC of It” late last week and during this hour or so we made the observation that one of the buzz phrases that seems to be used more and more in the industry (and that we dislike intensely) is “unique liquidity”.
I accept that the FX market does have unique characteristics, participants and flow, but am I sceptical of those claiming “unique liquidity”? You betcha!
One of the problems with being associated with a subject for several years is that you can feel the issue and the debate is getting a little tired just when a lot of other people start getting involved. I feel this way about last look, but rather than bang on about it yet again I thought it might be worthwhile looking at how the industry got itself into this mess in the first place – and, possibly, how it can avert further damage.
The FX TCA analysis from LMAX Exchange should be welcomed for highlighting the absence of price improvement in too many TCA calculations, but there is still more work to be done and ground to be covered before the industry truly has a genuine TCA metric. What about market impact relating to the "parent" order? Do we differentiate between rejections for predatory traders and hedgers? After all, as any divorcee, if they are honest, will probably tell you, both parties play a role in the break up.
The retail FX sector has long bothered me, as regular readers can attest, and my distaste for many providers in the sector was only heightened when one offered me “expert comment” on what will likely to happen to the euro in the wake of Sunday’s French election result…on Wednesday. This is so detached from the reality of the modern FX market that it makes me wonder how this firm thinks it is providing good service by offering “commentary” almost four days after the results?