Before getting onto today’s theme I have some sad news to impart. Gary Munday, known to so many dealers of a certain generation as a member of the powerhouse Marshalls’ dollar-mark team, died suddenly at the weekend, aged 59.
As I never traded dollar-mark Gary never took my line, but he did my institution’s and he was well-liked by my colleagues who did work with him. My condolences to his family and friends at this very sad time.
Turning to today’s theme, it struck me over the weekend that if ever there was an FX-related example of the triumph of optimism over reality, or hope over expectation, surely it must come in the form of Ice Futures US.
This column is going to sound angry, but it isn’t really, it is more mystified!
I think this morning in Asia we saw how the lack of risk takers in banks is confusing and, possibly, deterring customers from having a punt on events. Into the bargain I think they highlighted the point I made last week about how a couple of opportunistic macro funds, who were not ring-fenced by their mandate, are actually having a decent run of things at the moment.
If you ever wanted an example of how an enhanced market structure – specifically around electronic trading – helps to build volumes, one need look no further than NDFs. Volumes have been climbing steadily over the past five years, indeed I am starting to think they may eclipse FX options soon, and how people trade them also appears to be shifting, to the degree that I wonder if the NDF market is giving us a glimpse into the market structure of the foreseeable future?
We often think 'big is better', but some hedge funds over the years have undergone the type of experience to make them question that adage. The scale of their success ultimately put too much pressure on the business and they had to scale back, or bifurcate their funds into internal and external investment pools. There is another advantage of not being institutionalised, as well, because thanks to the changing market structure, style drift may not be as taboo as it once was.
Markets are busy but there’s not much happening market structure wise so let me take this opportunity to offer some consumer advice/life coaching to readers. If you work in foreign exchange, you are bound, at some stage, to be asked, “what do you think of the (fill in currency)?” You have two choices – either mumble something about it not going far (without defining “far”), or make a big, bold prediction (with no time horizon). In both cases, be prepared to blag it.
Following up on a column from last month that elicited an interesting idea from a correspondent - should trading businesses be penalised for not adhering to the correct procedures when it comes to HR? There are few traders who care about the HR function, but the number of unfair dismissal cases being lost by banks would suggest that something needs to be done to ensure that the next generation of traders doesn't face the trauma faced by some of the current crop.
What’s in a name? It’s a question that is asked in all walks of life almost on a daily basis and the last week or so has seen it asked in financial markets as Thomson Reuters Financial & Risk Division prepares for life as Refinitiv. I must confess that on reflection I don't have that much of a problem with the name itself, but the rebranding opens the window on a period of vulnerability for the renamed business as competitors eye one of its prized assets.
In this column on June 7 2018 I wrote that the time had come for someone to show industry leadership when it comes to arguing the foreign exchange industry’s corner specifically around pre-hedging and Mark Johnson’s pending appeal. I looked particularly at the industry associations and, some believe, called them out on it. It is pleasing to see that there is a response from the industry, but it is not yet enough and more can be done - especially by one or two associations.
There are those in the FX world who believe the narrative of a return to bilateral, relationship-based trading was driven by a group of liquidity providers talking their book. Looking at the numbers in last week’s FX committee turnover surveys, specifically the spot e-trading statistics from the UK and US, I think it is fair to say that the cynicism is wrong, or the narrative is working, or both, because the last two years has seen a definitive shift in trading away from anonymous venues towards disclosed channels.
Spoofing is the low hanging fruit for prosecutors thanks to it being easy - especially on regulated venues - to spot. But this visibility should not just be about bringing charges, it should be used for preventative means. What interests me is how these alleged spoofers thought they could get away with it and in reality the only way they did is because the surveillance procedures in place at venue and institutional level were either too slow, inadequate, or non-existent.