You can’t fight progress, but you can rein it in and make sure it goes in the right direction – advances are not always positive. There is so much chatter about financial markets withering and dying if they do not go the fully quantitative path, but is that right? I understand that these firms are largely hiring engineers and mathematics or physics grads but while these people have undoubted strengths and can seriously add value to a business, they are not the be-all-and-end-all.
There is a lot of press around discussing the struggles currency managers are having in making money in markets that ostensibly should be fertile ground. We have some real moves, event risk, interest rate divergence and a changing market structure – all of which would suggest there is an opportunity for everyone, but it's not happening. One of the reasons for this is that different narratives are driving markets at different times - and that makes it hard for a single strategy to succeed.
One of the reasons I enjoy our conferences so much is the capacity of the high quality speakers with whom we are fortunate to engage to raise a point that just makes you think, “why have we not done this before?”
This week we held our inaugural Frankfurt conference and during our Technology Futures session the discussion turned to the role of technology in making markets safer. It was one of those great sessions where I turned up to moderate armed with a bunch of themes and questions following (ahem) “extensive research” and got to ask one of them!
Is it wrong to be a Clint Eastwood fan at my age? Why do I bring up Dirty Harry? Well I am currently towards the end of a seven hour layover in Hong Kong airport and happened upon the film FireFox, in which everyone’s favourite orang-utan sidekick stars as a pilot who steals a thought-activated fighter plane from the Soviet Union.
Obviously in my usual convoluted way I managed to get from this to trading FX and to the possibilities of a human trader using thought control to execute trades.
Does the FX industry want to continue along the road to modernisation, or has it gone far enough? Answering this question is the starting point for the issue I want to discuss, because there is a push out there for same-day and then instantaneous settlement of "spot" FX transactions, but at the moment who would want to be involved in that? All it would take is one slightly contentious move and one large barrier or stop executed and we would be in a pile of trouble.
Those of us, me especially, who have been waiting for the e-revolution in FX to hit the swaps markets may have reason for optimism today, although actual hard evidence through results may have to wait quite a bit longer. CME's new FX Link launched this morning in Asia, without much fanfare it has to be said, but launch it did - and it could be the start of a market structure change that we e-FX swaps proponents have been expecting.
Reading the summary of Employment Judge Jill Brown, who found that Barclays had unfairly dismissed its former head of automated FX trading David Fotheringhame earlier this week (and yes, you did read it here first!), I found myself shaking my head at yet another example of a bank throwing a member of its staff under the bus. The more I read, however, I found myself thinking that everyone involved was being shoved in front of the number 45 - thanks to a regulator's hastiness.
It didn’t exactly take Nostrodamus to predict a bid for NEX Group from an exchange operator – even I was all over this in this column in November 2015 when the Tullett-Icap deal was announced, and frankly any opportunity since has been taken to reinforce the logic. It’s simply an inevitable deal and was the day Icap shed its voice broking business. CME may not have it all its own way, though - and what else is likely to be on the table?
It worries me we are witnessing an increasing reluctance to accept responsibility when something goes wrong in financial markets and we need to do something about it. Let's not kid ourselves, just about every financial markets related fraud has occurred because someone, somewhere, didn't want to take a loss. If we don't halt this, are we breeding a generation whose first thought on incurring a loss is "who do I blame?" and second, more worryingly, is "how do I cover this up?"
There is plenty to worry about in foreign exchange circles, however I need to focus on something very serious that eats away at the core values of the FX industry. I am now informed that two major FX banks have banned the practice of graduates getting the desk lunches.
I can only assume that either some poor, over-pampered, fragile grad has complained that they can't deal with the pressure of getting the order right, or someone in HR has way too much time on their hands.