The US legal system continues challenge many aspects of the OTC market structure, the latest being a lawsuit brought by interest rate swap trading venue provider TrueEx against a group of banks. To me, not only does the lawsuit highlight the general misconception that liquidity is an apparently valueless commodity, but it also signals - should the decision a certain way - a fundamental change in who decides what liquidity goes where...and believe me the LPs will not be the ones deciding.
Next Tuesday sees Mark Johnson’s bail application heard in New York and the documents filed by prosecution and defence are available online, which gives the wider world an opportunity to study both sides of the case through one prism. I've taken a look at both documents and, as someone with more than 40 years experience in this industry, it concerns me that a central plank of the prosecution's case is backed up by an obvious and fundamental lack of understanding as to how the FX market handles large risk.
This will be brief, it being a public holiday here in Australia (happy birthday Liz!) – and on the subject of the aforementioned Queen Elizabeth II, my congratulations to former RBC and State Street FX stalwart as well as former ACI president Marshall Bailey for his OBE (to financial services and charity).
That’s as nice as it gets today, because I need to talk about that most polemic of men, the US president and his irresponsible, but not out of character, leaking of the employment data.
In my column of November 11, 2013, I argued FX “needs a hero” – leadership to counter the negative narrative that surrounded the industry. Thanks to those that delivered the Global Code, we received that leadership, but the work is not done - in fact it is now more needed than ever, so it's time for today's leaders to step up and explain why pre-hedging is important. Along the way it will help Mark Johnson, but equally as important, it will help the entire industry.
So the big news this week was that 360T has agreed to buy the GTX ECN for $100 million. This is obviously an interesting deal in a number of ways, and here are some of my initial thoughts.
Firstly, let’s look at the price per $1 billion of spot FX average daily volume (ADV).
We did a very rudimentary analysis of this when Deutsche Börse announced the purchase of 360T back in 2015 and found that it paid about $11.36 million per $1 billion dollars of spot FX ADV, compared to about $12.7 million per $1 billion of ADV paid by then-BATS Global Markets for Hotspot.
I do tend to give press releases about crypto the most perfunctory of glances – often because it’s yet another firm claiming to be taking a new and innovative approach when it is nothing of the sort. So when I saw the headline, “Crypto Prices Driven Purely By Mood of Investors” I gave the press release a minute or two fully expecting to bin it. I didn’t, because firstly market psychology fascinates me (I know – I need to get out more) but also because the findings of the research stressed both the challenges and opportunities afforded by crytpocurrencies.
We all know technology has changed the FX industry, but the reality of the modern foreign exchange market is that the underlying function is the same as it has always been - it just takes place, largely, on a different median. Over the past five years or more, however, there has been a much more fundamental and potentially serious change in the industry - the relationship dynamic is very different and continues to be under threat thanks to regulation and ridiculous attitudes.
There is probably more value in me writing about my holiday than the industry given how I did not, for one second, bother to look at what was going on! Luckily for you, dear readers, you will not have to suffer my eulogy to the Amalfi Coast, rather I want to discuss something that happened just before I went on my break, yet another unfair dismissal case - this one with the added spice of a plaintiff claiming whistle blower status.
A few of you have been in touch to say you couldn't make the Insights call on Tuesday but were still keen to hear my thoughts on Mark Johnson being handed down a two year jail sentence. As flattering as it is to have people want my opinion on it, I really only want to go into brief details because firstly there are things better left said on an informal, off-the-record call, and secondly, you should have been on the call!
I must confess something I did not expect to come out of last week’s Forex Network London was people saying to me that they are worried about the influence of data. I should stress that they were not suggesting data was useless – rather the inference was that some of their service institutions are over-reliant upon it and, even worse, a few have seen it as a panacea and subsequently forgotten some of the more traditional values in a relationship.