One of the things that makes FX a truly unique market is both its scale and the diversity of the market participants that operate within it. Asset managers, corporates, international banks, regional and mid-tier banks, hedge funds and prop trading firms from all around the world have a real need to access the wholesale FX market.
In many cases though, today, this access occurs via credit intermediaries. This intermediary model places fundamental constraints on the credit available to clients and, subsequently, on the counterparties that they can access.
The feedback period for Principle 17 of the Global Code - dealing with last look in FX markets - is over and we await the outcome. My understanding is that the outcome will not be as clear cut as many thought just a short while ago, but, sticking my neck on the line, I am happy to predict which way the decision will fall. After all, the legal industry is already circling FX on this issue - why give it more ammunition?
So we’ve just published our Q3 edition of Profit & Loss magazine, which includes our prime services special report, and I wanted to share some thoughts about one segment of it.
When I first started the report I was very negative on the prospects for FX prime brokers, over the eighteen months or so I’d heard so many complaints about credit constraints, about offboarding – I don’t think that was even a phrase that I’d heard prior to SNB – and the general retrenchment of FXPBs.
Now obviously SNB was a catalyst for a lot of these issues, but really it just exacerbated a trend that already existed and this was caused by the introduction of new regulations that made it more expensive for banks to offer FXPB services to a lot of clients.
At the very start of June, Profit & Loss published an article looking at why demand for cryptocurrencies had spiked in 2017, with the price of bitcoin rising over 200% between January and the latter end of May.
Subsequent to that, demand continued to grow, with the price of bitcoin reaching $4,950 by the start of September. Meanwhile ether – the native cryptocurrency of the Ethereum network – went from $8.29 at the start of the year to $388 by September.
I have learnt a life lesson - never promise a colleague you will write a column involving a theme they have suggested. I just did and therefore I hereby give you some observations on how specific instances of misconduct have repeated over the years; my thoughts on the latest in what could be a long running saga involving FXCM; an opinion on how traders have borne the brunt of misconduct charges due to cultural weaknesses at their institutions; and hedgehogs!
Over the past few years, some FX prime brokers have gone from aggressively competing for market share to off-boarding clients and increasing their fees. What happened to make the pendulum swing so dramatically, and is it due for another reversal? Galen Stops reports.
Relatively speaking, it wasn’t all that long ago that banks were aggressively trying to build out their FX prime brokerage (FXPB) businesses and competition was fierce. This precipitated a race to the bottom in terms of fees by some FXPBs. Numerous market sources claim that Morgan Stanley was at the forefront of this race, although they note that a number of major FXPB players were not far behind.
Profit & Loss talks to John Betts, CEO of Noble Bank International, about the demand for more innovation in FX and the potential impact of a shift towards real-time settlement.
John Betts: The fact that people are not just receptive to innovation but starting to demand it is a really good sign for the industry. I think previously everyone was too focused on the front office, but now there’s a recognition that the back office needs innovation too.
One challenge that I feel still exists, however, is that the back office is not something that’s very well understood, so when solutions are being proposed to back office problems it can be difficult for firms to distinguish between solutions that actually address these problems and ones that are shiny new objects that allow firms to tick an “innovation” box.