Articles tagged by market structure
The UK’s referendum
decision to leave the European Union has led to wild swings in the valuation of
sterling, and caused significantly increased volatility in many other
But while analysts,
strategists and economists will spend the next few ...
This week's Bundesbank paper on HFT in bund and equity markets caused a stir - as anything on this subject does of course - and it highlights to me again, how FX is in front of other markets in being inclusive and functional. It is significant that while some regulators want FX to be equities-like in market structure, more are looking to an FX solution - the speed bump - to save equity market problems.
I am not sure we should be talking about speed bumps for the real issue is the dysfunctional liquidity stream.
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.
Last month I wrote about the challenges of regulating machine learning, but will AI highlight the different market structure between equities and FX – something that is a long running theme of this column? The value of AI is unarguable, but it strikes me that it will be put to different uses in FX than, for example, equities - and that is because of the different market structures of each instrument. One use is revolutionary, the other? Well we're kind of used to it...
Automation is important in markets, it brings valuable efficiencies and helps the financial markets industry advance – it’s what keeps us moving forward. It is not, however, the be all and end all, and while the FX spot market largely exists in an automated environment, firms should not be fooled into thinking they don't need well-qualified and astute humans in key roles – one of them spot trading - for the latter role in particular, provides a crucial sanity check.
In this week's In the FICC of It podcast, P&L's editor Galen Stops tries to rein in a punchy managing editor Colin Lambert. So to find out what is a "social experiment" and what report "is a propaganda exercise" listen in. Along the way there will be more considered opinion and insight on the changing dynamic of the LP-client relationship, including a quick way to identify changing LP behaviour, as well as a look at what is, at face value, a surprising deal involving FXall and 360T.
Those of you wise enough to listen in to our weekly podcast will know that I am currently in South Africa, although not, I should point out, to stalk the Global FXC. Instead I am here as part of my work with ACI Australia’s Dealing Simulation Course and last week we worked with the IMF to run the course for 30 African central bankers, which made me realise I only told half of the story in last week's column on the FX industry's priorities.
We often think 'big is better', but some hedge funds over the years have undergone the type of experience to make them question that adage. The scale of their success ultimately put too much pressure on the business and they had to scale back, or bifurcate their funds into internal and external investment pools. There is another advantage of not being institutionalised, as well, because thanks to the changing market structure, style drift may not be as taboo as it once was.
This column is going to sound angry, but it isn’t really, it is more mystified!
I think this morning in Asia we saw how the lack of risk takers in banks is confusing and, possibly, deterring customers from having a punt on events. Into the bargain I think they highlighted the point I made last week about how a couple of opportunistic macro funds, who were not ring-fenced by their mandate, are actually having a decent run of things at the moment.
In this week’s podcast Galen Stops explains the devil in the detail behind the SEC rejecting bitcoin ETFs, the changing market structure in crypto generally, and how market participants are going about institutionalising the new asset class.
Colin Lambert meanwhile, is in a punchy mood and wants to take everything and everybody to task.
They observe how crypto-strategists are just the same as fiat strategists; discuss the barriers to entry for currency managers; the pricing of credit and liquidity in FX; and Lambert in particular has a problem with investors’ approach to allocating to hedge funds.
It's a bumper edition of In the FICC of it this week as Colin Lambert and Galen Stops prepare to head off to Forex Network Chicago 2018, with both giving previews of the main issues that they plan to tackle on the panel sessions that they are moderating.
The pair also discuss a report by the New York state Attorney General, which highlighted some major concerns about some of the crypto trading venues operating today. But the most interesting aspect of this story is the response of one exchange that decided to hit back at the AG in rather spectacular fashion - Lambert and Stops highlight some of the shots fired on (where else?) Twitter.
In this week’s podcast Galen Stops shares some feedback about a previous week’s discussion on electronification of NDFs and Colin Lambert reports from an equity-focussed market structure conference, some of the statements from which, surprised him and lead to another one of his “theories” about the relationship between FX and equities.
Our two podcasters also dive into the big announcement from the crypto world that Fidelity are stepping into this space in a big way and ask the question, who comes next?
They close out with a brief example of the challenge facing Refinitiv as it rebrands, before asking the question first put in yesterday’s And Another Thing…Was FXMarketSpace really, as Stops puts it, “the right idea at the wrong time?”
In football parlance it’s a tap in for Galen Stops and Colin Lambert in this week’s podcast as they have more academic-research-that-states-the-obvious to poke fun at. Listen in as they discuss last week’s report on the Swiss National Bank debacle in 2015 as well as the FX market's handling of the Brexit vote. They also take a look at the potential impact of last week's HSBC announcement that it had settled FX trades using distributed ledger technology, as well as the mysterious disappearance from marketing material of two asset classes at a recent platform media day.
There’s something for everyone in this week’s In the FICC of It podcast as Colin Lambert and Galen Stops traverse the US legal system, trading, crypto and China.
Listen in as Lambert explains why he is mystified at the prosecution’s flip-flop in the Mark Johnson case and angry at the FX industry’s previous lack of effort to explain how markets work to the US legal authorities; and Stops takes a look at a new report n his favourite industry – CTAs. Having had the data explained to him, Lambert also thinks he knows why some CTA sectors are doing well and some aren’t, so that’s another of his “theories” then…
Our podcasters then move onto debate whether crypto markets will evolve to an OTC model and whether this would be a good thing for attracting institutional money to what is still a relatively nascent market.
Stops closes out by reporting from an analysts’ briefing this week that highlighted a change in approach on the part of China to its programme of liberalisation of the yuan.