Thomson Reuters has
added EBS to its post-trade network, Thomson Reuters Trade Notification (TRTN),
which will enable EBS to offer complete straight through processing to its
"In addition to the existing EBS post trade capabilities, we selected
Thomson Reuters ...
As leverage requirements make FX exposures a bigger pain point for the banks, many are looking towards compression services to solve for this. Galen Stops looks at how these services work and what they could mean for the industry.
One of the responses by global regulatory bodies to the 2008 financial crisis was to require banks to hold more capital against their financial exposures, creating a bigger buffer to protect them against adverse market conditions.
Capital constraints have widely been cited as a reason for declining activity in some markets and liquidity events in other, therefore it is not surprising that compression services, whereby offsetting trades are netted off against one another to reduce the notional amount on banks’ balance sheets, have found favour amongst banks and major dealers.
Cobalt DL (Cobalt), which plans to launch distributed ledger-based FX post-trade platform in 2017, has announced a partnership with SETL to deploy its Open CSD distributed ledger within the platform.
Although a spokesperson for Cobalt declined to name a targeted go-live date for the platform next year, the firm claims that it has 15 institutional FX participants already committed to the service.
Profit & Loss previously reported on Cobalt’s plans to try and reduce post-trade costs for financial services firms by creating a shared view of trade data.
As buy-side workflows are becoming complex, these firms are looking for ways to simplify how they view and manage them, claims Basu Choudhury, business intelligence, Nex Traiana.
He says that, whereas in the past buy side firms used to probably have only one prime broker (PB), today they might have four or five prime brokers, or even have bilateral relationships. Further, when they execute they might do so via an anonymous venues or they might trade against another buy side firm that is using a prime broker.
“So what we’re seeing and hearing is that they want a single panel where they can see their PB relationships and bilateral, and even clearing at some point within one dashboard, one platform, where they can manage the matching, [confirmations] and settlements,” he says.
Cobalt, the shared back and middle office FX infrastructure provider, has unveiled its new credit management platform.
One of the issues that this credit engine attempts to solve for the market is the challenge faced by credit providers. Over the last ten years the number of prime brokers in the FX market has shrunk, in part because the risk of suffering a major loss from a defaulting client has in some cases failed to justify returns.
According to Cobalt, this risk is driven by the inability to allocate and manage credit at FX trading venues in real-time, meaning the party with the credit risk is often the last to know. By enabling central real-time credit management, the Cobalt claims that its platform overcomes these issues entirely.
As Cobalt prepares to go live, its founders reflect on the difficulty for banks to innovate like they used to, why blockchain technology in its traditional format is ill-suited to processing FX transactions and why shared infrastructure is – finally – a reality.
The first thing that Andy Coyne and Adrian Patten, the co-founders of Cobalt, are keen to emphasise is that the system that they have built is very real and is already up and running. Currently, Cobalt has live transactions from 12 banks going through the system and is due to go into full production this year. They insist that “full production” whilst a technical reality is really only when the final paperwork and vendor risk management (VRM) documents get final sign-offs.
On a panel discussion entitled “The Twists and Turns of FXPB”, speakers at Profit & Loss Forex Network Chicago discussed the possibility for technology to radically re-shape the prime services ecosystem.
Technology’s impact on prime services was the jumping off point for the last panel at Profit & Loss Forex Network Chicago. Peter Plester, head of prime brokerage at Saxo Bank A/S highlighted the impact that technology had already in terms of risk management in this segment pointing out that the traditional plumbing for starting up a prime broker was to connect to NEX Traiana and the various ECNs and have STP for tickets, but that the central risk system internal to the PB was fairly manual.
Galen Stops examines the extent to which banks in different emerging markets face the same challenges when trying to build out their e-FX businesses, and questions the extent to which technology developments in these markets will follow a familiar pattern.
Talking broadly about how firms in emerging markets operate is often misleading, given the diversity of these markets and how widely the demands and conditions vary within each one. And yet, when it comes to banks in emerging markets that are looking to build out their e-FX businesses, there are some common themes that can be identified. For starters, these banks actually tend to have a sizable and often fairly diverse customer base, although each of these clients tend to trade FX on a smaller scale in terms of transaction size compared to their counterparts in more developed countries.
It is something of an attention-grabber when someone who builds solutions on distributed ledger technology (DLT) says, “We are not a blockchain company”, however that is exactly how Tim Grant, co-founder and CEO of DrumG, starts our conversation. “We are a company that builds on blockchains; not one blockchain, but the right one – we build ledger appropriate solutions,” he explains. “We would never say ‘our blockchain is better than yours’. What we say is ‘our ability to choose the right blockchain and build on it, is better than yours’ – there’s a significant difference.”
FX industry veteran and Profit & Loss 2012 Hall of Fame inductee, David Ogg, reflected in a recent video interview on how the rapidly evolving crypto markets resemble the FX markets of the past.
“It’s like FX in the 1980s,” said Ogg, who is currently the head of FX and trading venues at OTCXN, before adding, “The front-end technology is pretty primitive.”
By contrast, he said that OTCXN has developed “cutting edge” technology in terms of how it displays liquidity, offering visual tickers that enable traders to get a visual representation of what is happening in the market with just a glance.
IHS Markit is partnering with Cobalt through its MarkitSERV business to deliver and sell post-trade processing services for FX, and is also making a strategic investment in the firm.“In working together, MarkitSERV and Cobalt will offer a shared post-trade infrastructure designed to replace legacy technology and manual processes, bringing increased efficiency and reduced operational risk to the FX market,” says IHS Markit in a release issued today.The integration between the firms is already complete, with trade data flowing from customers and trading venues via MarkitSERV into the Cobalt platform.
Kate Lowe, global head of trade services at State Street, talks to Profit & Loss about how new margin requirements could shape buy side behaviour in the FX market, and why 2019 is likely to be a “staging” year for many of these firms.Profit & Loss: As you’ve been talking to clients at the start of 2019, what’s been the major areas of focus for them?Kate Lowe: Well one of the big talking points at the moment is the impact that the uncleared margin rules (UMR) are going to have on the industry. In September this year, the threshold for firms that have to post initial margin for u
In recent years there has been a significant re-pricing of credit, but are there more adjustments to come?This will be one of the key themes addressed by speakers at the upcoming Profit & Loss conference on March 27.Senior figures at Eaton Vance, Citi and JP Morgan will discuss some of the key factors impacting how credit is priced in the FX market, and discuss the major trends shaping post-trade decisions amongst trading firms.Talking points for the event will include:How are the structures of FXPB businesses changing in response to client demands?