Probably the big news in markets this week was the swingeing cuts at Deutsche Bank and while I cannot see this through anything other than a prism of regulation – specifically the courage of some regulators to take action while other put their head in the sand and hope it goes away – I wonder […]
The news this week that Citi served a 90-day notice to the largest non-bank market making firms in FX – including Jump Trading, XTX Markets, Virtu Financial, HC Technologies and, at an earlier point in time, GTS – that it is no longer willing to offer them FX prime brokerage (PB) services, certainly got tongues […]
March 25 marks the one year anniversary of the launch of CME’s FX Link, probably the most significant attempt by a market intermediary to establish a bridge between OTC and futures markets. In terms of volumes, as expected the growth has been steady rather than spectacular, although FX Link did hit a new record high on March 7 at just under $2.7 billion notional. Generally speaking the platform is handling average daily volumes in the region of $1-1.5 billion in 2019.
It’s a valid question to ask FXPBs what constitutes a “good” client these days. Post-Basel III, firms taking big positions in non-spot products are going to consume vastly more balance sheet and capital than a firm trading only spot in smaller amounts, which can easily be serviced with a relatively little net open position (NOP).
This obviously suggests that, for example, an HFT deploying a spot-only strategy could potentially be a more attractive business proposition than a large macro fund trading longdated NDFs or options products.
However, speaking to a number of FXPBs, it immediately becomes apparent that such a view is too simplistic. One FXPB head says that this basic analysis is correct, but only assuming a legacy pricing model, which is derived primarily by frequency and size of transaction activity.