Although much is said about the rising cost of regulation in financial markets, there have been few attempts to empirically demonstrate the impact.
A new Staff Working Paper published by the Bank of England, entitled Dealer intermediation, market liquidity and the impact of regulatory reform, and written by Yuliya Baranova, Zijun Liu and Tamarah Shakir, seeks to assess the impact and finds that while the cost of regulation is higher in stable market conditions, in periods of stress benefits accrue.
Although fintech solutions are likely to change how FX operates throughout the trade lifecycle, expect these changes to be evolutionary rather than revolutionary, explained speakers during a recent Profit & Loss webinar.
The word “disruption” has become synonymous with fintech in recent years, with numerous articles, whitepapers and analyst reports warning that fintech upstarts are looking to upset the applecart in financial services.
Yet speakers on a recent Profit & Loss webinar, FinTech in FX: Getting Beyond the Hype, which was sponsored by IHS Markit, preferred to talk in terms of innovation rather than disruption when discussing the impact of fintech in the FX markets.
The traditional Markets business model in banking is under pressure, Colin Lambert talks to Imed Souki, global head of FRC trading at UBS, and Christopher Purves, recently appointed head of UBS’ Strategic Development Lab for FRC, about how the bank is responding to a such a challenging environment.
Colin Lambert: UBS recently announced a change in structure for its FX, Rates and Credit (FRC) business, can you outline the new business model?
Imed Souki: There has not been a significant change in the structure of the business, it is really a continuation with me taking sole responsibility for the business today, whereas Chris is tasked with taking it where it needs to be in the future. The client relationship dynamic is changing and we want to ensure we are, and remain, relevant to our clients.
Rather than moving in a synchronised manner, speakers at the Profit & Loss Forex Network Chicago conference predicted that emerging market (EM) performance has become divergent due to idiosyncratic factors within each country.
“In general, EM does well when you have at least two out of three things: one is global growth, two is a weak dollar, and three is lower US rates. So, if you look at this combination and where we are in the cycle, especially given all the easy money that we’ve had since 2008, I would be very careful with the emerging markets right now,” said Mo Grimeh, CIO at Mogador Capital Management at Profit & Loss Forex Network Chicago.
At the Profit & Loss conference in Singapore Damien Loh, CIO of Ensemble Capital, talked how AI tools can be applied to FX trading.
Profit & Loss: Artificial intelligence has become a big buzzword in finance. What does this term mean to you and how are you actually using this technology?
Damien Loh: So it's a very buzzy term, and that's why we make a distinction by saying that we're using deep learning. AI can just be a general definition where any process that requires thinking is automated in some way and there are people using the AI catchall buzzword that just have a linear regression in an excel spreadsheet.. And you can tenuously call that AI, but it's nothing really game changing.
The communications channels have been buzzing following Thursday's column about banks taking more risk in their FICC businesses - especially FX - and some really good points were made by correspondents. But while there was general agreement that more risk-takers would benefit the broader industry, my correspondents and I diverged on a key point. To me this is not about spreads or the advantage of man over machine (or vice versa), it is about the risk taking role adding something different.