2016 Crystal Ball: How Did We Do Last Year?

In the interests of total transparency we also, as usual, cast our eye over last year’s predictions to see how they went. As always, these predictions will be viewed through rose-coloured spectacles to ensure we look as good as possible! We kicked off last year’s predictions by suggesting the entire FX world would take a more realistic view of developments – that liquidity and spreads would reflect this thought process, and that market share would be a declining influence in business decisions.
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Has it Become Harder to Find Alpha in FX?

It’s not necessarily that extracting alpha in FX has become harder, but rather that the way it needs to be extracted is changing, said panellists at Profit & Loss’ Forex Network Chicago conference. Douglas Cilento, global head of execution at AQR, opened the discussion by point out that FX has traditionally been viewed as a good market for generating alpha because there is a large segment of non-profit seeking market participants, there are inefficiencies in the market and, because currency is not something that can be bought and held with the expectation of a return, it is effectively a market without beta.
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Who Are The Potential Buyers of Nex?

There was a fair amount of chatter about the future of Icap (soon to become ‘Nex’) at the recent Profit & Loss Forex Network Chicago conference, with much of it centering around likely purchasers of the company once it sells its global wholesale broking and information business (IGBB) to Tullett Prebon. “The other broader question hanging around the firm as it transitions into Nex is whether [CEO Michael] Spencer is priming the new entity for a sale,” Profit & Loss noted in an article published prior to the conference last month. It seems that many of the attendees of Forex Network Chicago had, in their own minds at least, decided that the answer to this question was that the firm is indeed up for sale. The speculation then turned to who would be interested and able to buy the firm.
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Have Buy Side Firms Been Asleep at the Wheel?

In recent years the sell side has justifiably been criticised for its behaviour in the FX market. But should regulators and market participants be taking a closer look at how the buy side operates in this market? Galen Stops reports. The FX industry has been rocked by a number of scandals in recent years and in many cases the implications of these scandals is only now coming home to roost. Two of the largest custodian banks in the world, BNY Mellon and State Street, have agreed $714 million and $530 million settlements, respectively, related to allegations they systematically set disadvantageous rates for their customers in contrast to their claims to be achieving best execution for them.
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The FX Consolidated Tape: A Perennial Chicken and Egg Problem

At this point it is widely known in the FX market that there is an initiative underway, being spearheaded by FastMatch, to build a consolidated tape for FX, similar to the one that exists in equities. But given the differences in market structure between these two asset classes, what does an FX tape look like […]
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The Future of FCMs: Adapting to Survive

The plight of Futures Commission Merchants (FCMs) in recent years has been well documented. But can they adapt to survive and where are there parallels with the changes taking place in FX prime services? The FCM business model has been under strain post-financial crisis as the low interest rate environment has reduced their income, while […]
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As RMB Internationalises, Questions Arise Around Settlement

A turning point year for the Chinese currency, 2015 foretold a new era for the RMB. As the currency gains in prominence, China faces decisions around settlement mechanisms, which will be crucial to its acceptance as a truly international currency. Galen Stops reports. In a year in which FX trading volumes have generally been depressed, […]
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NBIM Steps into the Last Look Debate

In the latest issue of its Asset Manager Perspective, Norges Bank Investment Management investigates the role of last look in FX markets. The fund acknowledges that the practice “serves a legitimate need” of liquidity providers and can improve liquidity available to investors, however it also notes there are “intrinsic conflicts related to the asymmetry in […]
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Under the Hood of the LCH.Clearnet, CLS Partnership

LCH.Clearnet and CLS announced plans this summer to launch a service for clearing deliverable FX products. But how exactly will the new system work and is there really demand for this type of service? Galen Stops investigates. In August, LCH.Clearnet and CLS officially announced the long-awaited partnership between a CCP and the FX market’s risk […]
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Mind The Gap

Is the continued technological evolution of the FX market opening up gaps in banks’ risk management capabilities? Galen Stops takes a look. The numerous benefits that technology has brought, and continues to bring, to the FX market have been well documented, but some banking sources have expressed concerns about some of the risks created as a […]
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