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Brexit: Winners and Losers With the dust having settled somewhat following the UK’s historical referendum decision to leave the European Union, there are some clear winners and – unfortunately – some losers emerging in the aftermath. It should be noted that this list is by ...
And Finally... Trying to decipher platform performance during last month’s UK-inspired mayhem is almost as difficult as keeping track with the latest shenanigans in UK politics following the vote to leave the EU – but I’ve had a go and there ...
Strategy Talk: Building a “One-Stop-Shop” for FX Carlo Koelzer CEO of 360T and global head of FX at Deutsche Börse Group, talks to Galen Stops, deputy editor at Profit & Loss, about his plans for building a central limit order book and why central clearing is now a viable method for alleviating credit risk in FX. Following its acquisition by Deutsche Börse Group last year, 360T informed its clients that it planned to add a central limit order book (CLOB) and futures trading functionality to its platform.
The 2017 Profit & Loss Crystal Ball Colin Lambert has retrieved the trusty Profit & Loss Crystal Ball from the dark recesses of the office, given it a wipe, and peered into the future to produce 10 predictions for 2017. There is little doubt that as an industry foreign exchange is a more optimistic place than it was just 12 months ago – and hopefully the majority of themes in this year’s Crystal Ball reflect a more upbeat message. es, the coming year will not be without the challenges of legal battles that have dogged the industry for the past three years, but if nothing else the shock factor has worn off and most people see what is happening as the continuation of a long process.
2016 Crystal Ball: How Did We Do Last Year? In the interests of total transparency we also, as usual, cast our eye over last year’s predictions to see how they went. As always, these predictions will be viewed through rose-coloured spectacles to ensure we look as good as possible! We kicked off last year’s predictions by suggesting the entire FX world would take a more realistic view of developments – that liquidity and spreads would reflect this thought process, and that market share would be a declining influence in business decisions.
FX Platforms: Optimism Abounds for 2017 Galen Stops looks back at how the OTC FX platforms fared in 2016 and talks to them about their strategic plans for 2017. Speaking to platform providers at the end of 2015 about their prospects for the next year, they were all fairly bullish that a period of subdued volatility, and subsequently trading volumes, was about to come to an end. And on the surface, the reasons they cited for this optimism were logical. The US Federal Reserve had just approved a quarter-point increase in its target funds rate, the first change in rates since 2009 and the first increase since 2006. Many hoped that further rate increases were coming and that interest rate differentials might start to produce trading opportunities and therefore lift FX volumes.
Study: FX Dealers Narrowing Focus to Chase Profits A new study from Greenwich Associates suggests that FX dealers are narrowing their focus in terms of which products and clients they will cover. For the study, Greenwich says that it conducted interviews with 2,393 corporate and financial users of foreign exchange around the world about market trends and their relationships with their dealers. The results showed that, for the second consecutive year, significant market share was redistributed among the dealers in the top ranks of the FX market in 2016, with some leading dealers adding as much as two full percentage points in market share and others ceding similar amounts.
The FX Tape, What’s Different This Time Round? The consolidated tape for FX launched by FastMatch today looks very different to the one initially proposed by its CEO, Dmitri Galinov. Galen Stops takes a look at what's changed. FastMatch has today announced plans to launch a consolidated tape for FX, something that its CEO, Dmitri Galinov, has been working towards for some time. Profit & Loss previously reported on an earlier proposed iteration of this tape back in May 2016, but the one launched today looks significantly different.
Platforms Volumes Show Sizable September Boost The first four platform providers to publish FX average daily volume (ADV) for September have all reported significant month-on-month (MoM) and year-on-year (YoY) increases. FXSpotStream’s ADV for September was $23.9 billion, which represents its highest ever monthly ADV since the service was founded nearly six years ago. It is also a 24.6% MoM increase and a 54.9% YoY increase in ADV. The record setting volume in September caps a newsworthy month for FXSpotStream, as it revealed exclusively to Profit & Loss that it has added State Street as its 13th liquidity provider, has hired a new CTO and is planning to launch a new analytics suite.
Spreading the Wealth With more information becoming increasingly accessible to a wider set of FX market participants, are we witnessing the democratisation of data? Galen Stops takes a look. The starting point for claiming that data is being democratised in FX, and in the financial markets more broadly, is to point out how much more accessible data has become to a wider range of market participants.  At the retail level, people can use smartphones to find out a currency exchange rate at any time in just seconds. At the professional level, trading firms can now access high-speed market data from numerous sources at affordable prices, while aggregators allow them to rapidly compare the data coming on from these sources. 
Not Necessarily Consolidation But... There isn't much left up for grabs, but 2018 will see a deal in the platform world, says Colin Lambert. In all the history of the Profit & Loss Crystal Ball, platform consolidation has been the most fertile ground.....mainly for critics! If viewed in terms of the number of deals, however, the story is a little different. The headline has been in demand from exchange groups for an OTC presence, culminating in deals for Hotspot, 360T and Fastmatch, and it is hard not to see this continuing – in spite of CME finally deciding to do something about further penetrating the OTC space by launching a service itself rather than entering partnerships.
The Great Divide Colin Lambert believes data will become a commodity and will generate a divide between the "haves" and the "have nots". There is little doubt that data drives most things in foreign exchange. Pricing is the obvious area, but client business is now also analysed to great depth as service providers seek to more clearly define the value they extract from their franchises. Throw in operating metrics as well as reporting, and data permeates just about every part of the business.
CME Group Set to Acquire NEX CME Group is set to acquire NEX in a transaction valued at £10 per share, consisting of 500 pence in cash and 0.0444 CME Group shares. The proposed transaction has been approved unanimously by the board of directors of both companies and is expected to close, pending approvals by regulators and NEX shareholders, in the second half of 2018. "At a time when market participants are seeking ways to lower trading costs and manage risk more effectively, this acquisition will allow us to create significant value and efficiencies for our clients globally," says CME Group chairman and CEO, Terry Duffy. "As one organisation, we will be able to employ the complementary strengths of each company to serve a wider client base while diversifying our combined businesses across futures, cash and OTC products and post-trade services."
CME and NEX: Building the Supermarket If there’s one thing that has become abundantly clear over the past few years, it is that many OTC platforms have decided that they need to scale their businesses up and out in order to be successful in today’s FX market. This was made abundantly clear in a press call today when Terry Duffy and Michael Spencer, respectively the CEOs of CME Group and NEX Group, talked about the logic behind their $5.4 billion tie-up. “Effectively, what we’re building is a bigger supermarket,” said Spencer. “Why do people shop in supermarkets? Because it’s convenient to buy everything in one place.”
LMAX Exchange Posts Strong 2017 Financial Results As LMAX Exchange Group (LMAX) reports strong 2017 financial results, its CEO, David Mercer, insists that the firm is well positioned to compete with larger FX platforms that have been acquired by exchange groups. LMAX’s EBITDA was £8.8m, up 58% year-on-year, and it has reported a gross profit of £25.4m, up 22% year-on-year. This is the second consecutive year that the platform has posted significant financial growth – looked at over a two-year period, its annual EBITDA growth is 151%, will on an annual basis gross profits are up 28% and notional volumes are up 20%.
Some Initial Thoughts on the 360T/GTX Deal…. So the big news this week was that 360T has agreed to buy the GTX ECN for $100 million. This is obviously an interesting deal in a number of ways, and here are some of my initial thoughts. Firstly, let’s look at the price per $1 billion of spot FX average daily volume (ADV). We did a very rudimentary analysis of this when Deutsche Börse announced the purchase of 360T back in 2015 and found that it paid about $11.36 million per $1 billion dollars of spot FX ADV, compared to about $12.7 million per $1 billion of ADV paid by then-BATS Global Markets for Hotspot.
In the FICC of it In the latest edition of Profit & Loss' podcast series, In the FICC of It, managing editor Colin Lambert and editor Galen Stops discuss some of the news stories that have hit the headlines over the past week. They discuss the surprising departure of Fastmatch CEO Dmitri Galinov, the drivers of latest deal in the FX trading platform world and the challenges and opportunities facing the CTA industry. They close out with a few quick thoughts on the first anniversary of the FX Global Code and as you would expect, they are "off message"!
In the FICC of it This week's In the FICC of it Colin Lambert and Galen Stops discuss the implications of an FX market where intermediaries are sometimes more profitable than the risk-taking firms that are using their services, and the former - for once - is unsure who to blame for this state of affairs. Elsewhere, a new report claims that the FX Global Code is already leading to greater transparency and improved behaviour in the FX market, but Lambert isn't buying this explanation, and Stops recounts comments from a recent interview with the FinTech firm, Cobalt, and asks: is the #blockchain fad over in FX? The pair also explain that while, yes, hedge fund fees are in general still coming under downwards pressure, if you scratch beneath the surface there is evidence that investors are still willing to pay for alpha, they've just become savvier about analysing exactly what this constitutes.
New York Attorney General Highlights Crypto Platform Concerns A new report by the New York State Office of the Attorney General (OAG) claims that certain cryptoasset trading platforms suffer from potential conflicts of interest, have yet to implement serious efforts to impede abusive trading activity and provide customer fund protections that are either limited or illusory. The OAG’s Virtual Markets Integrity Initiative was launched in April 2018 as a fact-finding inquiry into the policies and practices of virtual asset trading platforms. The OAG sent letters and questionnaires to thirteen major trading platforms, with the questions reflecting areas of special concern for everyday retail customers, such as site outages, fees, and the effects of automated or "bot" trading.
P&L Talk Series with Edward Woodford Edward Woodford, the co-founder of the trading venue Seed CX, talks about what it really means to offer an institutional grade platform in the rapidly evolving crypto market. Profit & Loss: You recently secured $15 million of investment. There’s obviously a lot of crypto-related ventures out there looking for investment, what was the focus of your pitch? Edward Woodford: The key is that we’re entirely focused on the institutional market, which in turn affects how we build our systems, how we build our products, and it dictates our entire outlook and approach. The trend that we see is more institutional players coming into this space, this institutional flow dominates retail flow, and we’re looking to service these institutions.
Mixed Results in Early Platform Volume Reports The first group of FX trading venues to report average daily volumes (ADV) for September paint a mixed picture with regards to the level of trading activity, much as they did at the end of August. The ADV on CboeFX was $35.8 billion in September, a 2.5% increase compared to the previous month and an 8.1% increase compared to September 2017. FastMatchFX recorded an ADV of $18.6 last month, down 4.6% from the $19.5 billion it recorded in August and down 10.1% from the $20.7 billion ADV it saw in September 2017. By contrast, the ADV on the FastMatch FX Tape was $84.4 billion last month, beating the previous record high that it set in August of $83.6 billion.
Eastern Promise: Asia as a Crypto Hub How have crypto markets in Asia evolved in comparison to those in the US and Europe? And will these markets look more or less different in the future? Galen Stops takes a look. T aking a glance at the biggest crypto exchanges by volume and a clear pattern emerges: according to data from coinmarketcap.com, a website that tracks crypto trading volumes, at least seven of the top 10 ranked exchanges are based in the APAC region. By contrast, some of the more better known US-based exchanges are found much further down the list.
P&L Talk Series with Carlos Mosquera Benatuil Carlos Mosquera Benatuil, the CEO of Mexico-based Solidus Group, which focuses on digital finance through its crypto hedge fund, Solidus Capital, and crypto OTC desk, Solidus Markets, talks to Profit & Loss about why cryptoassets are more than just a vehicle for speculation in Latin America. Profit & Loss: What are some of the key differences you see between crypto trading in Latam compared to the US? Carlos Mosquera Benatuil: So there are only a few places for cryptoasset price discovery in Latam, but the bigger exchanges are pretty good. The market still lacks sophisticated traders, however, which has actually been a challenge for us as we’re looking to hire staff for the proprietary trading desk that we’re building out.
And Finally... A couple of months ago I wrote a piece highlighting what I suggested was the first signal of a real shift away from anonymous trading toward disclosed. The column received, as is usual I should point out, a mixed response, with several of you pointing out that without the anonymous pools of liquidity price discovery would be severely hampered and liquidity would dry up. Back then, I used FX Committee data for the basis of my argument, but now it looks as though the platforms are providing the ammunition.
In the FICC of It The band is back together again in this week’s podcast as Galen Stops returns from a short holiday to join Colin Lambert to discuss all things currency – this week (much to the relief of P&L’s audio engineers) with no interruptions from wildlife or pool attendants! Listen is as they highlight growing concerns in the industry that it may be harder to spread the word about the FX Global Code than previously thought, thanks to the realities of life on buy side and vendor side. On the subject of transparency and ethics, Lambert is keen to talk about the new phenomena of “full amount” trading in FX markets and Stops expresses his feelings about the proposed Code of Conduct for cryptocurrency markets. As always there is room for the random, so why does Lambert want a merger between the new digital assets association and the recently renamed Wholesale Markets Brokers Association? Listen in to find out.