The FX market has a new benchmark until 2019 - and it's $5.1 trillion.
What is widely seen as one of, if not the, biggest challenge surrounding the BIS FX Working Group’s work on developing the Global Code of Conduct – adherence – was addressed by Chris Salmon, executive director, Markets at the Bank of England earlier this week and Salmon – the man responsible for the adherence piece in the Code – was optimistic that it would be effective.
Addressing ACI UK’s Square Mile Debate, Salmon noted, “It is no secret that all has not been well in FX or FICC markets more generally.”
He cited the erosion of trust in markets to preface his speech but identified an “ethical drift” resulting from “structural weaknesses” that presented opportunities for misconduct.
With new data showing that RMB trading grew 81.8% over the past three years, Galen Stops looks at the continued development of the currency and the growth of FX trading in the APAC region.
The growth of Chinese renminbi (RMB) trading in the global FX market has been well documented by a variety of sources, whether anecdotally by traders, logically by economists or quantifiably by trading venues and other data providers.
It was therefore no surprise when the latest Bank for International Settlements (BIS) triennial survey showed that the average daily turnover of RMB has grown from $120 billion in 2013 to $202 billion as of April 2016, an 81.8% increase.
Data from the Bank for International Settlements show financial reform has not led to a greater proportion of derivatives trading on exchanges. Colin Lambert finds out why.
As the world’s regulators, led by a very aggressive Gary Gensler-led Commodity Futures Trading Commission (CFTC), sought to reform financial markets post-global financial crisis, the outcome seemed at the time to be the inevitable growth of trading on exchanges. “The world is moving to Chicago” was used as an analogy to express this sentiment – that city being closely associated with the exchange model of course.
David Mercer, CEO of LMAX Exchange, talks to Galen Stops, deputy editor of Profit & Loss, about why FinTechs are enablers rather than disruptors of the FX market.
The world “disruption” is often applied to FinTech firms, yet Mercer argues that in FX the role of these firms is not to disrupt but to enable the growth of the market.
“We’re trying to enable the industry to operate more efficiently and more fairly. Other people put that disruption word around companies like LMAX Exchange but the FX market is the biggest asset class in the world, it doesn’t really need disrupting, it needs to grow and it needs to be enabled to allow it to grow.
The latest Bank for International Settlements Quarterly Report carries a paper, Downsized FX Markets: Causes and Implications, which suggests that amongst the many structural shifts taking place in FX markets, a move towards relationship trading is underway.
The authors suggest that this shift, along with the changes in the composition of market participants and their trading patterns may have “significant implications for market functioning and FX market liquidity resilience going forward”.
The paper notes that trading with non-financial counterparties has fallen 20%, a reflection of reduced global trade flows. It argues, however, that conventional macroeconomic drivers alone cannot explain the evolution of FX volumes or their composition across counterparties or instruments.
Much has been made of the sharp drop in spot FX volumes in the recent BIS Turnover Survey, but, Colin Lambert asks, is what we are seeing merely a return to a longer term trend?
A regular theme in Profit & Loss over the past two years has been, since the traumatic events of January 15, 2015 around the Swiss franc peg, the return to relationship trading at the expense of the all-to-all model.
Analysis and data recently released by the Bank for International Settlements based upon its recent Triennial Central Bank Survey of FX Turnover appears to support the notion that the FX market is losing its infatuation with market share at all costs and is much more choosy about who it deals with.
Chris Salmon, executive director, markets, at the Bank of England (BoE), said in a speech today that, while he has confidence in the ability of the FX market to process identifiable risks, he expects to see more surprise flash moves in this asset class.
Speaking at the OMFIF City Lecture in London, Salmon looked at the depreciation of sterling following the UK Brexit referendum result and the sterling “flash crash” that took place on October 7, 2016, to provide insight into how the market is functioning.
The increase in OTC derivatives positions that took place in the first half of 2016 reversed in the second half according to the latest data from the Bank for International Settlements (BIS).
The notional amount of outstanding OTC derivatives declined from $553 trillion to $483 trillion between end-June and end-December 2016, and their gross market value – the cost of replacing all outstanding contracts at current market prices – fell from $21 trillion to $15 trillion over the same period.
Pragma Securities has expanded its algorithmic trading platform, Pragma360, to include NDF products.
While the latest Bank for International Settlements (BIS) survey in 2016 showed that spot FX trading was down 19% compared to three years previous, it also showed that the NDF market grew by 5.3% over the same time period.
The growth of the NDF market, as well as the fact that these products increasingly trade electronically, is what prompted Pragma to start offering algorithmic tools for trading them, Curtis Pfeiffer, chief business officer at Pragma, tells Profit & Loss.
In addition to the Code, central bank governors under the auspices of the Bank for International Settlements have formally announced the formation of a Global FX Committee (GFXC), with the Bank of England’s head of markets, Chris Salmon, at the helm.
One of the core objectives of the GFXC will be to promote and maintain the FX Global Code by ensuring that the guidance set out remains relevant and taking into account good practices for supporting adherence. It will seek to promote collaboration and communication among local foreign exchange committees and other jurisdictions with significant FX markets.
Given how the EUR/CHF cross collapsed immediately following the removal of the pair’s artificial floor by the Swiss National Bank (SNB) in January 2015, it would seem an obvious answer to the question, “was the event expected” would be “no”. The cross fell from its SNB-imposed floor at 1.2000, hitting 0.7000 at one stage before the “official” low was set at 0.85, finally settling around 1.05.
A new paper published by the Bank for International Settlements (BIS), however, studies events in the FX market leading up to the removal of the EUR/CHF floor in January 2015, and while it is not conclusive, it does find evidence that some option markets were predicted the break lower in the cross.