The FX industry has been caught out by the advance of technology before, so although the report looks at the issue across broader markets, the FCA’s study on algorithmic trading should be essential reading for anyone senior in the industry. What concerned me reading the report was further evidence of a lack of understanding about the potential impact and risks associated with using algos at the highest level. Of course, whilst highlighting these themes I have grabbed the opportunity to suggest silly names for algo strategies!
As I am writing this on St Valentine’s Day I did think about exploring something my colleague discovered, the launch of Iustcoin, which can be spent in certain “specialist” service sectors, however I fear the content would not pass muster with readers’ filters and so we are stuck with the more mundane. I can however, make a very tenuous link to the aforementioned cryptocurrency by discussing manipulation – specifically, are we getting a little carried away in looking for market manipulation?
Less than two weeks ago I discussed platforms raising brokerage rates and made the observation that “I don't see why FX market participants shouldn’t pay a small amount more brokerage given the level of investment by several platform providers over the last year or two”. I also observed that if customers do complain about higher brokerage then the providers will at least know that they care little about the level of service they are getting as long as there is a price and the bro is low.
Well, I can report that early feedback is that I was dead wrong on the first and spot on with the second!
Confirmation, to me at least, that we need to talk about market participants in more nuanced terms comes in the form of recent news and that perennial source of good gossip – the rumour mill.
I have banged on enough about the need to get away from the “bank/non-bank” divide because quite frankly it doesn't exist anymore. I have also argued before about re-thinking how we bucket providers in this business and I strongly believe that the greater transparency that will come with better explanations of risk management policies will drive such a change.
The world is all about keeping the customer happy and that is not always the easiest thing to do - they are such irrational things sometimes! Aside from such matters, two news items this week have piqued my interest - not only do they mean that Thomson Reuters can have a long hard look at its FX business, but we will also find out if customers really do care more about market quality than they do the brokerage bill that arrives every month!
This is normally the column where I “entertain” you with my own semi-annual complaint about the FX committees’ semi-annual turnover reports all being different (perhaps this is a task for the GFXC – produce uniform reporting?) I have, though, given up on that crusade for a while and prefer to take the data for what it is – an interesting snapshot into the FX market on a regional basis.
The surveys in the UK and US are the most comprehensive (but still structured differently!) and I wonder if we are starting to see evidence of the impact democratisation in FX markets?
There's a lot of noise about the latest front running accusations in FX world, with people talking excitedly about a fundamental change in how the market operates, but it strikes me that the changes these people talk about have already happened. Does any one really carry risk any more? Aren't targets expressed not in P&L terms but in fees generated and market share (which is itself a quasi fee)? Nothing is going to change - including the lawyers getting rich at the industry's expense!
It wouldn’t be the modern day FX market if the year didn't kick off with legal issues and 2018 is no different. What is different this year is that they could, conceivably, pull the curtain down on a sorry saga and provide critical direction on two grey areas in the industry.
There have been regulatory fines handed down regarding last look but as far as I can tell a case currently being heard in London is the first where an employee is claiming they were dismissed largely because of their use of the practice.
Bitcoin futures are one month old which means the first maturities are happening and while I can't think anyone would look at the futures for a ‘buy and hold’ strategy, the first month has been a somewhat sobering experience for many. There has, inevitably, been a lot of chatter about how volumes aren’t what they expected, although I can’t decipher whether this is genuine disappointment or just the crypto-bashers doing their thing, but either way, the modern day Green Shield Stamps haven't followed the script.
Regular readers know I am concerned that MiFID II will – in the area of best execution – do little or no good, rather it will turn TCA in particular, into something it should never be, a box-ticking exercise.
It is a sad aspect of life in the compliance bowl in which we all now live, that box-ticking is so often the path of least resistance to a quiet life, but does it improve things? I doubt very much it does.