This week the Global FX Committee meets in South Africa for its regular semi-annual meeting and it does so at a time when there are still lingering doubts in a small number of quarters over some of principles in the FX Global Code, and more broader doubts over adoption in certain market segments – not least the buy side.
If ever the FX industry needed an example of why the Code is important, however, it can be found in the latest regulatory finding against a bank.
I’ve spent too much time for anyone’s good on US legal and regulatory matters recently so, apart from saying that having listened to the oral arguments for Mark Johnson’s bail case I am much more optimistic about his appeal – the government’s case does appear to be at best careless, at worst misleading – I want to get into a regular staple of this column, the rumour mill!
It is inevitable when a deal gets done in the platform world, especially when it involves an exchange, that we inevitably look for the next deal.
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.