It’s been a busy 20 years since Profit & Loss launched. Colin Lambert and Galen Stops have picked out 20 key events or trends during that time and asked senior industry figures for their perspective on them – here’s numbers 5-1. 5. Chatrooms It seems incredible that it is now over six years since word […]
Galen Stops charts the ups and downs of FX prime brokerage over the past 20 years and looks at how this segment of the market might be ripe for innovation going forward. Ask anyone who has been around in the FX market for the past 20 years to list the key developments that have shaped […]
Lizzy Birmingham provides a brief roundup of the major FX moves this week, and the drivers behind each. 1) SNB Upholds Ultra-Loose Policy The Swiss franc was up 0.2% to 1.12127 per euro on Thursday following Swiss National Bank (SNB) president, Thomas Jordan’s, announcement to maintain loose monetary policy. In an interview with Bloomberg, Jordan […]
To channel my inner Shakespeare, “to re-paper or not re-paper – that is the question”. I could continue with something like, “whether ‘tis nobler in the mind to stand by the price and wear the loss, or run crying to the authorities and try to get it cancelled” but that kind of loses poetic effect. Anyway, what I want to say is why do markets let people get away with rank stupidity and lack of operational discipline by letting them re-paper trades?
A new research report from JP Morgan Chase Institute highlights the impact of central bank communication choices on financial market volatility.In the report, Does the Timing of Central Bank Announcements Matter?, the authors analysed data around the Swiss National Bank’s (SNB) decision to remove the EUR/CHF floor in January 2015, and found evidence that the timing of the decision increased subsequent market volatility.This latest research builds on a previous paper released by JP Morgan in June 2018, in which it found evidence that many hedge funds had predicated trading strategies on the belief that the SNB would maintain the EUR/CHF floor at 1.20.
The January 3 flash event in FX markets continues to fuel the news cycle and in this week’s podcast, Colin Lambert and Galen Stops discuss the real impact of algos – widely cited as a major factor in the event – in markets. For once they agree on a central theme in the debate, including Lambert (very reluctantly) shooting down one of his own arguments with Stops last year on trend following, but as always there’s room for divergent views.
Inaugural financial markets research from the JP Morgan Chase Institute studies trading behaviour around three major market events, and while the findings will not come as a surprise to most FX market participants – active traders were much more involved in the market than passive investors or corporate hedgers – they should prove useful to central banks as they come to terms with a changing market structure.
The research, FX Markets Move on Surprise News, was written by Diana Farrell, Kanav Bhagat and Chen Zhao at the Institute and looks at three specific surprise events, the Swiss National Bank’s decision to remove the EUR/CHF floor in January 2015, the Brexit vote in June 2016 and the 2016 US presidential election.
Galen Stops takes a look at some of the potential risk concerns associated with the prime-of-prime model in FX.
I n a recent survey conducted by Profit & Loss 57.25% of respondents said that they think the trend towards more firms using prime-of-primes (PoPs) rather than traditional FX prime brokers (FXPBs) could increase the impact of a shock event.
This is in contrast to 27.48% who said that it won’t and 15.27% who think the impact of a shock event would be unaffected by this change. The logic underpinning this concern is based on the fact that risk is increasingly being pushed towards less well-capitalised institutions.
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.
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.