The Debriefing session brought together each of the five speakers after convening with their table heads to get feedback from each of the respective working groups, the results of which were presented in a panel discussion about the findings.

In the final act of Forex Network Chicago, The Debriefing session featured the five topic speakers providing an overview of the working group sessions that took place around each of the five topic working groups.

The main speakers and the table heads they worked with included: Geopolitics: Mario Manna, CEO, Nightberg, with support from table heads George Dowd, president, G. Dowd & Co; and Bob Savage, CEO,

Regulatory: Chip Lowry, senior managing director, State Street Global Markets, and chair of the Foreign Exchange Professionals Association (FXPA), assisted by table heads Matt Kulkin, partner, Steptoe & Johnson; and Lisa Shemie, assistant general counsel, Bats Global Markets.

Liquidity: Jeremy Smart, global head of distribution, XTX Markets, with support from table heads John Estrada, global head of e-FX, Credit Suisse; Steve Reich, head of FX and commodity liquidity solutions, GTS; and Petra Wikstrom, global head, FX execution and alpha solutions, BNP Paribas.

Execution: Paul Aston, CEO, Tixall Global Advisors, with assistance from table heads Dr Ralf Donner, executive director, algo strategy, Goldman Sachs; and Bill Goodbody, SVP, head of FX, at Bats Hotspot.

Technology: Svante Hedin, global head of electronic markets, at SEB Merchant Bank, with support from table heads John Ashworth, CEO, Caplin Systems; and Mark Bruce, business development, head of FICC, Jump Trading.


Starting again with Geopolitics, Manna explained that the working group began with the premise that the long period of low interest rates was the root cause of many of the problems being seen in financial markets. Concerns arising from that included demographics, technology, Fed credibility, as well as a loss in faith in the functioning of capital markets.

Manna said that “a major pensions liability and insurance industry crisis” is looming on the horizon, adding that this is not being talked about as much as it should. The working group looked at how a collapse of the insurance industry, as well as how people fund and insure themselves, could impact many different businesses.

Manna also pointed to how technology has been ingrained into the financial markets to such an extent that it is potentially impacting price moves and trends.


Generally, the Regulatory working group felt there would be no roll-back of regulations and that competing regulatory goals would continue to discourage harmonisation. Depending what happens with the next US administration, Lowry noted that the group felt there may be a pause in implementation, but didn’t expect to see a wholesale roll back in the US or in Europe.

Lowry spent time hypothesising that different global regulators will have different end goals. “As a result, we’re seeing regulators in the US that aren’t harmonised with the EU. In fact, these different goals of what regulators want in the US and EU encourages disharmonisation, so we don’t expect to see harmonised rules any time soon,” he said.

For the buy side, Lowry explained that the working group felt that clients may initially choose the path of least resistance, but noted that this is not necessarily the cheapest path to take. “Uncleared margin rules (UMR) encourage clearing, but this overlaps with liquidity and execution, and switching costs are high. I don’t think that point is really recognised by regulators,” Lowry noted. “So although it’s clear from all the analysis that’s been done, uncleared margin rules make it more expensive than clearing, and I don’t know if that cost is perceived to be higher than what a switching cost would be for the buy side. As a result, at least on an interim basis, we expect the buy side to choose the path of least resistance as opposed to the cheapest path, which might lead to suboptimal strategies and different implementations of strategies by region. If in the US, forwards and swaps are outside UMR, but NDFs are in, we may continue to see NDFs used in the US, but not elsewhere – or you may see people starting to use cash-settled forwards as opposed to physically settled forwards – or you may see people abandon those instruments altogether. We don’t know what’s going to happen, but at least in the short-term, we think that’s a distinct possibility.”

The group also felt that regulations continue to demand resources to comply with the rules, which means less money for innovation. “With more money needed for complying with rules and less money for technology and innovation, at some point in the future, we are likely to see a consolidation in the long tail. As these costs go up, will the number of small investment managers – and there’s a huge number of them – have to consolidate with somebody else because they simply cannot afford to comply with all the rules and regulations? Do we end up with even more consolidation at the top?” he queried.

On the topic of the Global Code, Lowry’s group voiced concern that many of the market participants covered are still largely unaware of its existence.

“Here in this room, we live and breathe this stuff so this is axiomatic to us, but you’d be surprised how many people in this industry that are covered by the Global Code don’t even know it exists. So clearly, we need a global outreach and education effort,” he said.

Most importantly, the group found that proper adoption of the Global Code could be the last remaining chance for the FX industry to remain self-regulatory. “Is this really our industry’s last chance at being a self-regulated industry – or maintaining as much of that as possible – is this our last stand? If we mess this up, do we just see prescriptive regulation come onto us as we’ve seen in other industries?” he asked.


Rather than determine whether or not liquidity is definitively worse today, Smart’s working group felt that it depends on how you define it – is there less liquidity, is it different, or is it just fragmented? It was generally agreed that it is harder for the buy side to measure liquidity and gain access, and that more liquidity has gone dark. Meanwhile, liquidity varies by currency pair, size and asset class.

Notably, the working group found less risk appetite in the market, especially amongst the banks, while liquidity itself has become more volatile.

“Despite my overall premise that liquidity is actually poorer in the market – there wasn’t a complete consensus view around that – we couldn’t say it is definitively worse. But most people decided we couldn’t look at it as a single entity – it depends on how you look at it. People used the following adjectives: there’s generally less liquidity, but it’s also different in nature and it’s extremely fragmented,” he explained.

He then went on to note that someone gave the example that any retail client that wants to come in and trade one million units actually gets an incredibly good price, good service from the market, and infinite liquidity. “But for a large buy side player trying to execute a very large piece of risk into the market, that’s far more difficult and their liquidity is perceived to be considerably worse,” Smart said.

The working group then talked about how to best define liquidity. “One basic definition was to measure it in terms of spread – in which case, again, a spread in small size is pretty good, but in large size, perhaps not so good. Depth is definitely more challenged, and immediacy probably scores quite well on that, while resiliency is pretty bad – in other words, you touch the market and liquidity disappears quite quickly. Equally important, spread consistency and market impact are critical components of measuring liquidity both in terms of quantity and quality,” he said.

“Related to that and related to the point about fragmentation, there was a view that more liquidity has gone dark and is now transacted in private pools of capital or private rooms whether that be bank internalisation or private relationships on ECNs, and that’s not just by venue, but by protocol – last look, no-last look, etc, etc. That makes it harder for the buy side to measure liquidity and to measure the cost of execution, which is the best judge of liquidity ultimately and it makes it far more difficult for the buy side to access that liquidity, because it’s simply far more complex to try to reach out to all those different pockets of liquidity.

“And it varies considerably by currency pair. In spot, G3 liquidity is pretty good. The consensus among us was, why does anyone make a market in euro/dollar in one million. It’s the most commoditised product on the planet. In EM, the general feeling is that liquidity is pretty poor overall…and that liquidity varies by size and then by asset class. By asset class, I mean spot liquidity is one component, but everyone felt options liquidity in particular is extremely poor, and forward and term liquidity are quite poor,” said Smart.

One of the big reasons for this is a reduction in risk appetite within banks generally, the working group determined. “Certainly the idea of running very large positions in banks and losing a lot of money trading is not something managers in big banks have the appetite for right now,” he added.

Liquidity has also become more volatile. While liquidity in normal market conditions can be pretty good and fairly resilient and come back pretty quickly, Smart noted that as soon as market events happen, liquidity disappears pretty rapidly.

“The ability to actually make prices is becoming a kind of specialist service,” he pointed out. “The market, particularly in the electronic space, is becoming self-referential so when liquidity starts to disappear out of the electronic market, and reference prices start to disappear, people really struggle to make prices.”

Infrastructure and data were also mentioned as issues impacting liquidity. “There’s a huge amount of data available in the market, but the tools to actually analyse and use it to measure where liquidity is and the best way to transact and maximise your liquidity is really difficult,” Smart said. “There was a strong feeling that the buy side needs to step up to the plate and demand the services in terms of data analytics, etc, and for the sell side to step up and start providing the tools to facilitate that.”

So will the market return to the perceived “good old days”? Will liquidity characteristics fundamentally change to what we are seeing now? “The broad answer was no. This is the new normal,” said Smart.


Aston described the operational challenges of the execution process, whereby expertise is specialised and infrastructure expensive and complicated. Also important though, he noted, is trust in one’s counterparties. Meanwhile, benchmarking and measurement, as well as assessing the cost-benefit of execution and fair value cost of transacting also featured in his summary of the group’s findings.

“We started out by summarising the three pillars – visibility of the liquidity that you have, control over your execution, and controlling your implementation costs,” said Aston. “We got down to a nuts and bolts discussion centred around the fact that there are certain operational challenges to implementing an execution process. The process of execution is as complicated, if not more so, than your actual investment process for your other usual operations and core competency. This execution process requires very specialised expertise and infrastructure that’s complicated and expensive, and there’s some onerous aspects about putting something in place that’s best of breed, best practice and state of the art. It takes a lot of institutional assembly – it’s a full effort upon a lot of parties involved in an institution to do that.”

The group approached this by first looking at what one really needs to implement, without necessarily going down the path of putting together a full-blown execution process. “First and foremost, you have to trust in your counterparties to some degree, it’s really unavoidable. You have to trust they’re making you the best prices, understanding what their reputational effects are. Obviously, if they don’t do a great job on you for a trade or systematically, then they’re going to lose their share of wallet, so you really do have some capabilities to move around that,” Aston explained.

“You also have to have the ability to understand exactly what you’re benchmarking against and how you’re measuring your execution,” he continued. “You have to have a reference point and your reference point has to pertain to your particular mandate – there is no one-size-fits-all. People do use WM for a lot of purposes, but what is best execution, a point-in-time price? What happens if you’re implementing a really large transaction of several yards and it’s going to take you a week to implement that? All of a sudden, this point in time concept is irrelevant and you’re looking at a continuum of opportunities – what other news is happening?

“One way to look at this is that market makers are effectively renting you their balance sheet, it’s a type of yield product, like any other interest rate product, it’s a short-term loan to provide you with liquidity over a period of time and there’s a fair value for that,” he said.

“Roughly speaking, most of the TCA analysis and theories into what’s a fair price and spread, etc, roughly calibrate to how deep liquidity is in terms of the inventory that you

have, how long you have to wait to offset that risk and how risky it’s going to be over that period of time. So spread is loosely correlated with expected volatility and expected depth of the market, there’s a fair value around that. If you’re looking towards systematically achieving best execution, what you’re looking for is trading on a cheap basis,” said Aston. “Just like fixed income investing, you’re looking to get into a position cheap, not rich. But when you factor in all these other costs, it may be a fair value of cost benefit for actually dealing with a counterparty that can provide a lot of that infrastructure,” said Aston.

“Banks have already made a massive investment in their connectivity and technology,

there are comparative advantages that other counterparties have relative to your own internal operations, so it could be that you’re dealing rich and spending more on a TCA basis, but when you factor in the total cost of implementation and the operational cost of doing this, there may be a fair value associated with that. It convolutes the issue of execution a bit, because it’s not just TCA monitoring the market, it’s aggregating things, which really gets into the entire institutional investment process of what you’re doing, where your expertise lies and what it’s really going to cost you to implement this, and all those factors have to be considered in execution overall,” Aston concluded.


Hedin noted challenges with regards to fragmentation and a lack of standardisation, as well as the fact that regulatory- driven instruments receive priority to the detriment of product innovation, during his overview of the discussions around the technology tables.

Observations amongst the working group included a need for technology and standards, as well as international agreements between central banks and regulators. The group also noted a trend towards specialisation in an interconnected world, while noting that outsourcing creates management challenges.

Looking first at fragmentation, Hedin noted that the group looked at this – not in the sense of ECNs and market fragmentation – but in terms of standards and practices. “As my own bank has brought equities guys into the FX space, it is always astonishing to see the journey they go through when they discover the complexities of managing all the dialects and nuances relating to the different types of participants in the OTC market, and how, over the years, they organically learned to interact with each other. There is an incredible complexity in this, and it can be a bit of a barrier,” he observed.

In terms of budgets and investments, both banks and financial institutions are under cost pressures for a number of reasons, said Hedin. “Regulatory change is responsible for a fair bit of that, and much of what’s left goes into compliance, which creates a challenge in terms of creating new value for clients and yourself,” he said.

He noted that data storage and analytics create value and competitive advantage, but solutions are needed to address how best to access and manage this data. “There are solutions to these problems, but they’re not necessarily cheap and tend to be quite complex, so can be a substantial barrier for firms,” said Hedin.

Finding and recruiting talent proved an important talking point amongst those in the working group. “The perceived identity crisis of the financial industry as a whole spans across, not so much the fintech sector, but buy and sell side market participants, making it more challenging to find and recruit the right talent,” said Hedin. “Graduates these days often seek other sectors than finance – the industry doesn’t have the image and the appeal it once did and that’s creating some challenges as well.”

The tech working group also looked at the digitisation of assets and observed that if the industry ever gets to a point in which it can effectively and immediately settle a good number of products against each other, that will fundamentally change the way the industry thinks about credit and opens up all sorts of possibilities to do business in a different way.

“We did observe that in reality, we’re quite far off this, even if from a technological perspective we would be ready to go. But we have a long way to go to get the right standards in place to get broad uptake on whatever we can conclude is the best way forward. Notwithstanding the fact that we also need central banks and regulators to coordinate internationally on how this is going to work in practice – and that’s a huge challenge. We took a bid/offer on when, if ever, we are going to see this – the range was between 10 to 30 years,” Hedin said.

Hedin also brought up disintermediation around the fintech sector. “To the extent that this crowd of fintechs will disrupt the banks and remove them from certain areas where they’ve been traditionally dominant, someone very

wisely observed that there’s a distinct difference that we tend to forget – that banks specialise in taking and managing various types of risk, broadly speaking, and doing so in a prudent way is ultimately how they generate value. Fintechs on the whole aren’t particularly comfortable with risk, it’s not typically part of what they do, and it can’t be, because they will struggle to find the right support to grow if that’s the case” he added.

Specialisation also came up. “In an increasingly connected world, in order to truly stay relevant, we see a trend towards specialisation within financial institutions, but also within the tech sector on the vendor side. Whilst this may be a welcome development, it also creates challenges for the consumers or takers of these services. So it becomes a complex problem, not just in terms of how you execute, but how you put your platform together with all the different components that you can source from left, right and centre, and all the aspects of managing that in an efficient way is a challenge in its own right. Maybe there’s a business opportunity out there for someone to offer that as a service,” said Hedin.

Lastly, the group talked about the battle for the end user experience. “For a number of years, banks have invested in single-dealer platforms, because it has been important for banks to manage the end-user experience, providing the stickiness of being in front of their client at all times. There was a fair amount of discussion around this and whether this is a viable business going forward, given the breadth of choice out there.

“One way to stay relevant, someone suggested, is to invite other participants to compete on equal terms over the proprietary channel – a comparison being Amazon and its Amazon Marketplace model, where Amazon still owns the portal and the overall experience,” Hedin concluded.

Galen Stops

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