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.
I was not surprised to hear that another two FX platform providers are working on the delivery of a mid-market matching, or ‘dark’ mechanism to add to their suite of services. Inevitably given the (apparent) success of BGC’s dark pool MidFX, this is an avenue that they should explore. Given that nothing is launched without extensive customer feedback, one has to assume this is client driven, but that begs the question. If customers like ‘dark’ trading, why has there been no serious challenge to BGC?
So what that yet another bank has issued a boilerplate last look disclosure? Well actually this typifies the culture of "adequate disclosure" that exists in foreign exchange markets at the moment. Yes, it is a step up from previous efforts, but is it enough to rebuild trust? The FX industry must continue working towards true transparency of action, but when it cannot even deliver a coherent message on the foundation stone of its rebuilding efforts, are we right to be sceptical of its efforts?
It's time the FX industry started looking at the FX Global Code through a different lens - from the bottom up. I am told about 80% of major market participants have signed a Statement of Commitment - although finding them all on the many registers is difficult - so as well as celebrating that fact, let's start looking at those who haven't signed. And while we're at it, how about looking at how we deal with the inevitable breaches when they come?
The paper has been a long time in the works, so the IA's proposed guidance around last look may not burst the bubble of those optimists who think last look is a dead issue, but it should concern providers that their clients apparently think they don't go far enough. That said, I also think this paper highlights how the buy side can be too demanding around certain issues when it could focus on having a more positive impact by doing something itself.
Automation is important in markets, it brings valuable efficiencies and helps the financial markets industry advance – it’s what keeps us moving forward. It is not, however, the be all and end all, and while the FX spot market largely exists in an automated environment, firms should not be fooled into thinking they don't need well-qualified and astute humans in key roles – one of them spot trading - for the latter role in particular, provides a crucial sanity check.
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?