FX Operations and Credit: Hampering Liquidity, Raising Costs (White Paper)

The FX market currently looks like the ultimate mismatch. Front office processes have been transformed to accommodate the realities of electronic trading – operations and credit haven’t. This is acting as a drag on FX liquidity, as well as imposing an enormous cost burden: ~£20bn per year for the top global investment banks and buy-side institutions. Fortunately, as Anoushka Rayner, Global Head of Sales and Business Development at Cobalt explains, there is a simple and readily achievable remedy: centralised standardisation.

The FX market has a proven track record for acting on its own initiative to ensure that trading is always orderly and unnecessary risks are curtailed, with the creation of CLS an obvious example. There is now a pressing need for it to act in similar fashion to address the issues of post-trade processing and credit management.

Operational Drag

The FX front office has evolved to accommodate the shift from a voice brokered market – resulting in transparency, efficiency, liquidity and consistency – by bringing counterparties together so they can interact more effectively. In doing so, all participants have benefited from lower frictional costs and greater transparency.

Sadly, the same cannot be said of FX post-trade processing, which still uses much of the same basic infrastructure it used to support voice broking. In two decades, it has remained essentially unchanged, resulting in legacy processes/practices that are wholly unsuited to supporting electronic trading as conducted in today’s FX front offices. These processes/practices are also excessively costly, to the extent that post-trade costs can now even exceed the potential profit from the execution of a trade.

At the core of the problem are the fragmentation, replication and complexity of internal processes. This is hardly surprising given that at least 23 services are usually involved in managing current FX post-trade activities, which inflates both costs and operational risks. Multiple vendors are needed, as are multiple copies of the same trade (20+ is not untypical). At the same time, existing legacy processing technology cannot keep up with market evolution and so requires additional outlay to pay for the manual processes needed to cover its shortcomings.

In some cases, extremely costly processes persist. These could be dispensed with altogether in a more efficient processing environment. A case in point are confirmations, the costs of which at some top tier FX banks – just for their EB and PB businesses alone – run to nearly USD5mn per year.

Attempts to respond to changes in the front office by changing post-trade methods have also made the situation worse, as new substandard processes are layered on top of an already fragile and inefficient process stack. Each new process added therefore effectively exacerbates an already suboptimal process flow, in terms of both cost and risk.

These issues apply across all FX-related instruments, which when one considers that volume in uncleared FX derivatives (a market approximately twice the size of spot) totaled ~USD88trn at 2018-year end, illustrates the sheer magnitude of the problem. In fact, for FX derivatives, the risks and costs of these operational limitations are even more acute, as the processes involved are more complex than for spot.

These issues are collectively hampering the FX market’s overall efficiency and growth. This applies across bank to client, bank to bank and prime brokerage segments. In some cases, it is already causing market distortion, such as driving participants to review their position in FX prime brokerage. Given the FX market’s established reputation for resolving structural issues of this nature, it should be possible to find a solution internally, rather than directly involving external bodies, such as regulators.

Credit

A related area that is also creating unnecessary cost and risk – as well as damping liquidity growth – is credit management. Given the large trading volumes now conducted via API and at high frequency, FX is probably the market least tolerant of latency. Yet despite this, antiquated and fragmented credit management processes still persist, causing significant practical problems. Workaround remedies have emerged in an attempt to address these but create different problems instead. Credit kill switches are a case in point, because they can create disputes when clients find themselves having to reduce positions at unfavourable prices and also requiring a manual unwinding process, exposing both clients and banks to further issues.

Credit-related risks, such as over-commitment, still remain stubbornly high, while workaround remedies actually reduce credit efficiency, such as over-allocating to accommodate localised management of credit within venues. Costs are also an issue in credit management, with top tier banks spending considerable amounts unnecessarily on redundant/inefficient credit processes and technology.

The Remedy

The good news is that a solution is already entirely achievable at technical level. The obvious remedy is a single centralised shared ledger platform using standardised data that can handle all the necessary post-trade activities (plus credit) in one solution. It would mean that compliance with many of the principles in the GFXC’s FX Global Code of Conduct could become an achievable and immediate reality rather than merely being aspirational. A case in point is the principle relating to real time monitoring of trading permissions and credit provision

A centralised industry shared ledger platform would deliver multiple practical benefits across the market place. The most obvious would be to eliminate duplication and cost saving. Instead of running multiple versions of inadequate processes, participants could handle trades using a single set of consistent industry-standard processes. In the long term this could deliver cost savings of up to 80%, with ~50% possible in the medium term.

An additional benefit is cost transparency. In the current environment, with the accumulation of multiple layers of legacy operations and credit technology/processes, it is often extremely difficult to determine the post-trade cost of a transaction. A central standardised process would by contrast make the measurement and monitoring of post-trade costs straightforward and potentially deliver the same degree of transparency as already available for FX execution costs.

This shared ledger approach would also deliver various credit management benefits. For instance, the availability of near real time credit data would enable more efficient credit processes, such as:

  • Preventing erroneous credit cut-offs (thus improving client relations)
  • Making more efficient use of available lines
  • Avoiding over-commitment risks
  • Alleviating balance sheet pressure

Centralising credit management using a shared ledger enables more dynamic control across all types of trading relationship (bilateral, tri party and quadri party). This will dispense with the need for over-allocation and rebalancing in order to accommodate localised management of credit within venues. Those issuing credit will also be taking control of it (as is the case in equity markets) and will therefore be able to recycle it back into the market in the most efficient manner (a key consideration for non-CLS currencies and non-CLS members). Ultimately this will result in venues receiving business because they offer the best price, not because there is residual credit left at them.

In operational terms, workloads will also reduce when using this sort of solution, as less remediation will be required. Efficient credit management and automated processing will drive a reduction in failed trades, thereby also reducing the need for manual intervention and repair.

Liquidity and Regulation

The cost and efficiency benefits delivered by a centralised industry shared ledger platform have important implications for liquidity and market participation. Trading volumes in G7 pairs have been declining in recent years for a variety of reasons, but operational/credit inefficiencies are clearly playing some part if they are cutting trade margins to near zero.

If individual ticket processing costs decline significantly, then logically this will boost existing participants’ willingness to trade, both in general, but also potentially in smaller transaction sizes. By the same token, new participants may be encouraged to join the market once they can see that the processing cost burden and operational risks have been alleviated.

Finally, there are also prospective regulatory advantages to the FX market adopting a centralised shared ledger solution. Some regulators are already clearly aware of the issues, as shown by the FCA and BoE’s convening of a ‘Technology Working Group’ to reform post-trade processing so as to reduce complexity, encourage innovation, and improve systemic resilience. A shared ledger platform could support this initiative in various ways, but one of the most obvious is with regulatory filings.

At present, participants (often using manually intensive processes) incur substantial costs collecting trade data and submitting it to regulators. Market-wide adoption of a shared ledger solution would instead make it possible for participants to submit regulatory filings far more easily, plus do so in a consistent format. This would enable better monitoring of any potential systemic risks, plus delivering lower regulatory costs for all concerned (including regulators). Central banks could send a strong message here by adopting a shared ledger solution for their own trading activities, which would also serve as a clear signal to the organisations they regulate.

Conclusion

Adopting a single centralised utility for FX post-trade functions based on a common data standard ticks numerous boxes for all market participants. These include considerable cost savings, reduced credit/operational risks and better use of balance sheet, which in turn also facilitate greater trading activity and more diverse participation, as well as enhanced price discovery and lower regulatory overheads. Finally, it will also reinforce the FX industry’s existing reputation for innovating in the common interests of all market participants.

Five more banks and financial institutions join the Trade Finance Distribution Initiative

Commonwealth Bank of Australia (CBA), ABN Amro, London Forfaiting Company, Crown Agents Bank and Natixis have joined the Trade Finance Distribution Initiative (TFD Initiative).

They join ANZ, Crédit Agricole CIB, Deutsche Bank, HSBC, ING, Lloyds Bank, Rabobank, Standard Bank, Standard Chartered Bank, and Sumitomo Mitsui Banking Corporation as members.

The TFD Initiative is an industry-wide drive to use technology and standardisation for the wider distribution of trade finance assets. Since launching earlier this year, a growing number of banks, institutional investors, trade associations and trade finance service providers have joined as members.

Trade finance presents a compelling multi-trillion dollar investment opportunity for institutional investors seeking sources of long-term, low-risk returns based on the tangible flows of goods and services. However, there is no scalable market infrastructure in existence to facilitate the exchange of trade finance assets between banks and institutional investors.

This has led to the creation of the TFD Initiative. Its members will work together to utilise and adopt a common infrastructure powered by Tradeteq, the global trade finance distribution platform. Tradeteq’s technology allows banks and institutional investors to efficiently connect, interact and transact. It uses machine learning technology for supply chain predictive analysis, transaction level credit scoring, risk management, reporting and portfolio composition.

Anne-Cécile Delas, Global Head of Trade & Treasury Solutions at Natixis, said: “The distribution of our trade finance assets is key to better serving our clients. Networks like the TFD initiative, gathering banking, regulatory and buy-side sectors, will help to make trade finance assets more accessible to a wider range of investors, in a standard and processed way.”

Sylvain Labattu, Executive Director in Global Commodities & Trade team at CBA, said: “We view the TFD Initiative as a crucial process in the opening up of risk distribution in the trade finance asset class. Staying at the forefront of industry-wide technological and process developments enables us to better connect with and serve both our domestic and global corporate client base through excellence in structuring and distribution, access to data and analytics, and best in class corporate digital offering.

Simon Lay, CEO at London Forfaiting Company, said: “We are pleased to become a member of the TFD Initiative and help shape the use of enhanced technology in our industry. The interest in this forum signals that there is growing interest to establish trade finance as a liquid and scalable asset class to a new investor pool. We all stand to gain by increasing collaboration, leveraging new technologies and adopting standardised processes in the trade finance space.”

Robert Pothoven, Associate Director at ABN Amro, said: “We look forward to collaborating with other members of the TFD Initiative and believe bringing the industry together offers a great opportunity to drive forward adoption of more efficient technology throughout the trade finance market.”

Duarte Pedreira, Head of Trade Finance at Crown Agents Bank, said: “The TFD Initiative has the potential to reshape the trade finance market. By opening up the asset class and making it more accessible outside of the traditional banking world, the TFD Initiative is, in essence, creating a fairer playing field, where non-bank investors can also benefit from the excellent risk/reward opportunities presented by trade finance assets. Crown Agents Bank is proud to work alongside our peers to optimise the benefits of trade finance to our clients.”

André Casterman, Board Member at Tradeteq and Chair of the Fintech Committee at the International Trade and Forfaiting Association, adds: “We are pleased to welcome our latest members. The existing trade finance infrastructure that institutions rely on is outdated, and the industry is on the cusp of change. This is a truly international, collaborative effort that includes the banking community, institutional investors, trade associations and other service providers.

“Our members have told us how the benefits of greater trade finance distribution will be felt along the entire trade finance supply chain, from issuers providing letters of credit right through to corporations seeking cross-border funding. By working together, we are one step closer to achieving our objectives.”

Renowned Professor, Rama Cont, joins Mosaic Smart Data as Scientific Advisor

Mosaic Smart Data (Mosaic), the real-time capital markets data analytics company, has appointed Oxford University Professor of Mathematical Finance, Rama Cont, as Scientific Advisor.

Professor Cont’s role will be to help Mosaic Smart Data utilise the latest academic quantitative finance research in the development of its machine learning, artificial intelligence and data analytics capabilities. Professor Cont will work directly with Mosaic Smart Data’s data science team to make the latest in data science technology available to Mosaic’s customers, as well as guiding Mosaic’s R&D activities.

In addition, he will contribute to Mosaic’s quant talent recruitment and develop links with the broader research community.

Professor Cont was appointed Professor of Mathematical Finance at St Hugh’s College Oxford in 2018. Previously, he held the Chair of Mathematical Finance at Imperial College London and has 20 years of experience working with the financial markets.

Rama Cont said: “What intrigued me most about working with Mosaic Smart Data was the opportunity to take the theoretical work we are doing on the academic side and demonstrate its practical application in the cut and thrust of the capital markets. Mosaic Smart Data’s customer base, with some of the world’s top financial institutions, provides an unparalleled opportunity to apply this academic research for the best of the best.

“By bringing together Mosaic’s team of highly experienced data scientists with our own world-class researchers, we have an incredible opportunity to bring the most advanced data science ideas to real-world applications. This will strengthen both the Mosaic platform and academic research efforts.”

Matthew Hodgson, CEO and founder of Mosaic Smart Data, said: “The firms that succeed in tomorrow’s markets will be those which can harness their data most effectively, extracting the most useful insights in real-time to drive productivity and performance. Our mission is to provide the tools to make that happen.

“We’ve been working with the scientific community since our beginnings and in 2018, Mosaic became the first fintech to collaborate with the European Space Agency. By working with Rama, we will have direct access to the most promising research being developed at the world’s top institutions to ensure that Mosaic Smart Data’s analytics is always at the leading edge of what’s possible in the capital markets.

Previse’s AI tech scoops up two awards, in two cities, on a single day

Previse scooped up two awards in two cities yesterday as it won the ‘Best use of data and analytics in financial services’ award at the FStech Awards 2019 in London and the ‘Best small employer’ award at the Family Friendly Working Scotland (FFWS) Top Employers Awards 2019 in Glasgow.

Previse was recognised by the FStech judging panel for its unique application of artificial intelligence (AI) technology to get suppliers paid instantly. The fintech overcame tough competition, seeing off banking giants such as HSBC, Morgan Stanley and Credit Suisse.

Previse’s AI technology analyses its clients’ ERP data to predict the few invoices which are unlikely to get paid. The rest can then be paid instantly by a funder, such as a bank. The buyer then pays the funder back on its normal payment terms.

From its inception, Previse has recognised the global scale of the slow payments issue that it aims to solve and so has built its technology to cover the earth. The company’s AI technology can analyse huge amounts of data for each client, each of which has global supply chains, hundreds of suppliers and use multiple currencies. It has huge growth potential and will help unlock $650 billion tied up in slow payments globally.

Previse have already analysed over $150 billion of spend generated from three million suppliers and their algorithms are constantly improving their accuracy as they analyse more data.

Now in their 19th year, the FStech Awards recognise excellence and innovation in the field of information technology within the UK and EMEA financial services sector. Judges included senior personnel from Deutsche Bank, KPMG, EY and Nationwide Building Society.

Upon receiving the FStech award, Previse’s co-founder and CEO, Paul Christensen, commented:

“When Previse’s founders gathered in a tiny room in London, just under three years ago, we recognised that the smart use of data and analytics can eradicate the global problem of slow supplier payments. Our capabilities in these areas are core to the business and we now have offices in London, Glasgow, Edinburgh, Germany, Vietnam and the US, which house some of the world’s leading machine learning PhDs.”

“Winning this award ahead of some huge institutions that have been around for decades is a proud moment for our company. We have signed up eight multinational clients and have partnered with organisations such as PwC, Oracle & RBS-NatWest and are tackling the problem head on.”

“Previse’s mission is to ensure that every supplier in the world can be paid instantly and at the fairest rate. With rapid progress and the enthusiastic participation of some of the world’s largest buyers, we are well on the way to achieving it.”

The FFWS Top Employer Awards, which are now in their fifth year, celebrate forward-thinking employers who understand how flexibility is good for people – helping them successfully balance work and home life – as well as for business growth.

The winners were announced to an audience of 150 Scottish business leaders at a spring-themed Brewery Bash at WEST Brewery in Glasgow yesterday afternoon.

Cobalt strengthens team as it moves ahead to re-engineer the FX market

Cobalt, the foreign exchange (FX) infrastructure based on shared ledger and high performance technology, has hired five experienced professionals to lead its drive to re-engineer the FX market.

Post-trade FX is currently riddled with complex legacy systems and manual processes, creating unnecessary cost and risk across the market. The new hires bring a wealth of FX experience to the company and will play an important role in the rollout of Cobalt’s shared infrastructure which optimises risk management and slashes cost by up to 80%.

Bob Linton, based in New York, has become head of connectivity and onboarding at Cobalt. He will be responsible for replacing old, legacy technology incumbent in many institutions’ post-trade FX operations with Cobalt’s low latency, high performance shared ledger technology. He joins following a 13-year stint at market infrastructure technology provider, Traiana. 

Dan Evans was appointed product analytics lead and is focused on product innovation and reporting as well as highlighting the hidden opportunities for financial institutions. Dan is experienced in analysing FX trading data both as a director of FX trading at UBS, where he spent seven years, and as the director of his own consultancy.

John Fitzgerald joins as information security manager. John has over 15 years in risk and security management and prior to joining Cobalt, he was the lead for information security at Rathbone Brothers Plc.

Nitin Talway has been appointed head of support. He has over 13 years’ experience in the FX industry having previously worked for institutions including Bank of America Merrill Lynch, RBS/Natwest Markets and Credit Suisse.

Kameldeep Bhachu is now a senior business analyst at Cobalt. He previously worked at Murex and in the FX and treasury divisions at Morgan Stanley, UBS and Royal Bank of Canada. He brings extensive front to back knowledge of the FX cash and derivatives business.

Darren Coote, managing director of Cobalt, commented: “We are thrilled to welcome Bob, Dan, John, Nitin and Kameldeep to the rapidly expanding Cobalt team. They bring a breadth of FX experience across the interdealer and prime broker space and have an intimate knowledge of the competitive landscape as well as financial institutions’ systems. Each will play a key role in reengineering the FX market from the ground up, getting rid of legacy systems and replacing them with new technology which is more suitable for the low-latency FX market of today.”

LiquidityEdge posts record trading volumes in February

Electronic US Treasuries (UST) trading venue, LiquidityEdge, has announced it experienced record trading volumes during February 2019.

On February 28, participants traded over USD 31 billion (single count) across both on-the-runs and off-the-runs. It also experienced a record week last month, with USD 101 billion traded between 21-28 February.

The surge in activity was due to the treasury auctions, calendar rolls and the record number of unique participants benefiting from the directed, disclosed model championed by LiquidityEdge. The flexibility in its structure allows clients to choose between one-to-one or many-to-many models, facilitating a combination of anonymous and/or disclosed streaming executable prices creating a bespoke order book for each participant.

This follows on from its record month in January, where it recorded average daily volumes of USD 16 billion, representing a rise of 250% from 2018. A recent Greenwich report referenced LiquidityEdge’s rapid growth and linked it to the rising buy-side interest in aggregating and trading via direct pricing streams

LiquidityEdge is the first US Treasury venue to genuinely challenge the existing market structure that resides between bifurcated D2D and D2C, taking market share from both the traditional interdealer exchanges and RFQ platforms. Since launch, over 100 clients have joined the system, with end users including primary dealers, regional dealers, asset managers, and hedge funds.

The company was founded in 2015 by Wall Street veteran David E. Rutter, who also set up enterprise blockchain firm, R3.

Nichola Hunter, CEO of LiquidityEdge said: “This trading data demonstrates that we are successfully challenging market structure and bringing about change in the largest global fixed income market for the benefit of participants. We expect our market share to continue to grow based on our deep customer pipeline and number of clients currently integrating into the platform.”

Harnessing the potential of blockchain for insurance in 2019

Over the past couple of years, insurers have migrated away from their conservative image, leveraging several emerging technologies, including blockchain, to re-think their current business models. One of the most significant technologies leading this digital transformation, blockchain is streamlining back-office processes and systems – and heading into 2019, insurers are accelerating their deployment of the most innovative use cases of enterprise blockchain technology yet.

Laying the back-office building blocks

Insurance companies face a complex web of challenges in today’s market. Regulatory demands are piling up, fraudulent claims are commonplace, and the flow of data is ever increasing. Meanwhile, as digital technology permeates the financial services industry more broadly, customers expect a greater level of innovation than ever before.

Despite the growing demand for tailored products and services, insurers recognized that for transformation to be sustainable, it must begin in the back office. Legacy systems combined with patchwork solutions have perpetuated a closed-off information environment with data silos and resulting operational inefficiencies. Building customer-facing digital solutions on these crumbling foundations would have disastrous consequences.

That is why, over the past two years, insurers have been hard at work behind the scenes deploying cutting-edge enterprise blockchain platforms to overhaul and modernise their back offices. Integrating even just the foundational technology can have a huge impact on a company’s transparency, stability, and efficiency.

By taking the first step of moving its transactions onto a shared ledger, an insurer can potentially eliminate fraudulent and duplicate claims by logging each transaction in a decentralised repository. Instantly, an insurance company is able to verify the authenticity of a customer, policy or claim. This is a simple premise but a huge step forward for the industry.

In addition, with the rise of the Internet of Things (IoT) and connected devices, blockchain provides an efficient and secure way to manage, share and leverage an ever-growing amount of data. Purpose-built enterprise blockchain platforms like Corda overcome the challenges of traditional public blockchains by ensuring sensitive data is only shared with parties that have a need to see it in each instance.

The potential efficiency gains for both the insurer and the insured are dramatic. Consider, for example, a reinsurer, insurer, and broker consolidating their policy data and storing it on a blockchain – the underwriting and application process could be reduced from weeks or even months to near real-time, with no burden on each entity having to gather, reconcile and submit documents.

These core benefits of blockchain technology are now being realised across the global insurance industry, with forward-thinking initiatives such as the RiskBlock Alliance and [ITIC Geneva 2018 contributors] B3i leveraging the power of collaboration to drive adoption and deployment.

By moving to a model in which disparate parties such as insurers, reinsurers and brokers can share and store policy information in a cryptographically secure way, the industry has laid the foundations for the next phase of blockchain-enabled innovation.

A convergence of technologies

Insurers are acutely aware of the need to evolve in order to stay competitive, and streamlining market operations with blockchain technology is freeing up precious capital and resources previously spent on auditing and administrative costs.

Newly created roles such as chief digital officer and chief innovation officer are now commonplace across the industry, with firms vying to increase their market share by developing solutions that meet customers’ demands for innovation while increasing efficiency and profitability. Once data has been migrated to a blockchain platform, the potential to apply other technologies such as artificial intelligence (AI) to utilise this immutable, real-time information is vast.

Dynamic pricing is an example of an emerging blockchain-enabled innovation that benefits both the insurer and the customer, with broad-ranging potential across health insurance, car insurance, property insurance and beyond.

Taking the case of shipping insurance, advances in technologies such as AI and telematics enable insurers to access detailed, real-time information about a ship’s location, age, and condition. This means that if a ship enters pirate waters, its location data can automatically be updated on the blockchain and the insurer can make the necessary adjustments to its risk profile and policy pricing. The same applies to the inverse scenario – for example, if a ship is young, in good condition and doesn’t stray from safe waters. Now consider that the ship is transporting refrigerated cargo, which is also insured. How does an insurer know whether a temperature spike is taking place in a crate at sea a thousand miles from its destination that could potentially destroy the cargo? Thanks to telematics, sensors in the cargo containers can communicate accurate information about temperature, humidity, and atmosphere. This information can be updated in a smart contract on a blockchain platform in real time, enabling an automatic pay-out to the customer if the cargo is spoiled by high or low temperatures. This saves the insurance company time and money while providing the customer with a better experience.

Dynamic pricing also has huge potential in the health insurance space. Health insurers require a vast amount of information about a customer’s medical history and lifestyle in order to piece together a policy, and provision of false or inaccurate information is commonplace. Blockchain enables insurers to accumulate data from multiple verified sources with updates occurring in real time, allowing them to carry out more frequent risk assessments and customise pricing accordingly.

Usage-based insurance (UBI) is another innovation currently reshaping the car insurance industry. Many cars now come equipped with connected features or advanced driver-assisted systems, which are having a profound impact on the way auto insurers handle policies.

Traditionally, car insurance policies have been based on driver characteristics like age, personal information and accident history. With UBI, insurers are able to incorporate driving behaviour data such as speed and hard braking that is updated in real time on the blockchain. In addition, telematics technology in the car can measure the time a driver spends on the road each day, opening up opportunities for pay-as-you-drive insurance policies that incorporate this data into a smart contract.

A digital future

These developments would be innovative in any sector, but when you consider that the processes underpinning the insurance industry have remained largely unchanged for hundreds of years, the evolution is even more dramatic.

By harnessing the potential of blockchain to tackle back-office challenges head-on, insurers have made the necessary investment to position themselves to take advantage of the myriad of opportunities and further efficiencies that blockchain – and its convergence with other new technologies – will deliver over the coming years.

London maintains its grip on global FX market

London has become a hub for Chinese yuan trading and continues to solidify its role at the centre of the global FX markets – even with the spectre of Brexit looming on the horizon – according to the latest data from the Foreign Exchange Joint Standing Committee (FXJSC).

Chaired by the Bank of England, the FXJSC’s semi-annual turnover survey is considered a benchmark for the health of the UK’s wholesale FX market. The numbers for the six-month period leading up to October 2018 were published earlier this week and showed a sharp 17% rise in yuan turnover compared to the April 2018 results.

In particular, USD/CNY turnover increased to a staggering $73 billion per day, its highest absolute turnover to date, and overtook EUR/GBP as the seventh most traded currency pair in London. The UK government has made a concerted effort to promote yuan trading since its internationalisation began and the FXJSC numbers indicate that the hard work is now paying off, according to Pragma Securities, an algorithmic trading technology provider.

This marks a notable moment for what is arguably the most important emerging currency to the global economy. By promoting free use of the yuan, the Chinese monetary authority is enabling Chinese corporates and financial institutions to develop their businesses overseas, which in turn is leading to a continued rise in the currency’s market share.

FX – the largest and most interconnected of global markets – is the crowning jewel of London’s financial services industry and the City is a natural hub for the yuan as it continues its path to internationalisation.

More broadly, the FXJSC survey pegged average daily UK FX turnover at USD 2,611 billion in October 2018, the third largest turnover figure on record for the survey. While this represents a fall of 4% from the record high of $2,727 billion reported in April 2018, it still makes for promising reading in the uncertain macroeconomic and political climate.

In particular, FX spot activity rose to $775 billion, its highest level since April 2015 and a year-on-year increase of 11%. This growth in spot activity was also seen in data released by the Fed in New York, and is reflective of the bouts of volatility which spurred higher trading volumes on electronic platforms such as ParFX.

With the March 29th Brexit deadline fast approaching, the UK could find itself in a very different position when the results of the next FXJSC survey are published, but the signs look overwhelmingly positive for the UK maintaining its tight grip on the global FX market.

Sibos London – plan ahead with military precision to get the best results

It’s that time of year when the great and the *good of global finance converge to hobnob and sell to each other in an exclusive global venue.

No, not Davos. That’s all after-parties, skiing and Leo DiCaprio…we’re talking about Sibos, SWIFT’s annual payments summit.

This year it’s in London. In September. Take away the dead summer months and that’s not far off.

With its frequently brilliant Innotribe sessions and a solid line-up of speakers and panellists, the event has become an unmissable fixture in the financial year for both established and challenger financial firms

Over 7,500 delegates attended Sibos in Sydney last year. Expect that to increase substantially, as London is such a sweet spot as a financial technology hub.

Thousands of financial professionals are going to visit this year.

Chatsworth’s advice? Start planning and booking now. Side venues, hotel rooms, camels, whatever you need. It’s going to be a busy one.

We’ve been covering Sibos for many years, helping our clients make an impact with their investment. We cannot emphasise enough the need to plan from now to maximise your investment.

Don’t commit the funds and then scrabble around two months beforehand. Think about your content. Plan your marketing and PR like a military campaign.

Sibos creates an ocean of announcements, deals and commentary. The media attendance at Sibos is pretty good, but these poor folks get slammed with press releases and announcements.

Make sure you craft your news for optimal market relevance. Got data/analytics? Share it. Contextualise your story. Make your announcements and data market relevant.

So how do you create cut-through when hundreds of other firms are looking to do precisely the same?

Plan your meeting schedule with military precision. And speak to the Sibos team – they are helpful, experienced and will advise you.

Smart social media. Obsess over the conference schedule – map your content to the speaker sessions and your organisation’s view.

Don’t just bang out pointless posts saying something is ‘interesting’ or ‘insightful’ and never reduce yourself to only liking other content. Engage in the debate. If you have a position, share it and build your audience.

And importantly, don’t forget about the people who are not there. More people read about Davos than attend it. The same goes for Sibos; communicate outside of the goldfish bowl.

Overall, get on the case now – don’t wait until August. If your organisation is attending, this will likely be one of your largest marketing and communications investments this year.

Fail to plan, plan to fail. As a US four-star general once said: “There are no secrets to success. It is the result of preparation, hard work, and learning from failure.”

*it’s all relative

Using effective infographics to frame your business narrative

The old saying that a picture is worth a thousand words is a vast underestimation. In fact, the human brain processes visual content 60,000 times faster than it does text.

Communication is 93% non-verbal, even in the virtual online space. The brain sees in pictures and that’s how you can easily access your memory.

Images communicate. They make us curious and stimulate our minds as we view them. Visual content works and infographics, in particular, offer a highly effective way in conveying complex information in a simple and concise way.

Infographics are great for breaking down research and multiple data points into a digestible format. As a result, they are one of the most used B2B marketing tools where concepts are often complicated and benefit for a clear visual structure.

They are also excellent at fostering engagement. Infographics are liked and shared on social media x3 times more than other types of content. Speaking of engagement, people following text directions alongside illustrations perform with 300% more accuracy than with no pictures. Clearly, Ikea and Lego are onto something here.

Chatsworth employs our understanding and experience to deliver effective infographics which explain complex structures and ideas with clarity and context. Get in touch and we’ll help bring your narrative to life. 

Briefing: FX, the world’s largest and most liquid financial market

The foreign exchange (FX) industry is now emerging from a difficult period of scandal. Following the resulting increased scrutiny, which culminated in the creation of the FX Global Code, the global USD5 trillion-a-day market finds itself at a crossroads.

The Code’s efficacy is yet to be tested, but adoption continues and is strong. Why does any of this matter? Well for one, foreign exchange remains the world’s largest and most liquid market and plays a critical role in enabling international trade and investment.

Currencies provide a bell-weather for economic health, and short-term sentiment and speculation of course, but also a tool for hedging and the genuine flow of business and goods across borders.

Trust in its operation has to be restored, not just for investors but for the broader reputations of the institutions with FX operations.

A handful of banks, and non-bank trading firms – still mistakenly referred to as “the buy-side” – now dominate FX completely. This concentration was built over two decades and these global franchises have also been the first to adopt new technology and models, from prime brokerage to really maxing out on their API trading strategies.

A common muttering on FX street is that the banks have been distracted by regulation, paving the way for non-banks to steal clients from underneath the noses of the banks. Fair comment or sour grapes?

Meanwhile, in the post-trade space, there is a growing consensus for a shake-up of the current model, which is expensive and outdated. Demands for instant settlement continue to grow and more participants are backing DLT/blockchain-based platforms.

Many of the post-trade giants of today were established more than 20 years ago, as is their technology, so there is certainly scope for disruption. New entrants such as Cobalt are shaking up the post-trade FX landscape, while incumbents sensing their dominant position under threat, are eyeing the roll-out of DLT-based systems and – in some cases – investing in start-up systems.

 The move towards automation and straight-through processing began many years ago. Lower costs generally translate into lower barriers to entry, and we have already seen new entrant establish themselves as key market players. This will gather pace and will open the door to a new wave of market players to enter the FX market.

We would most certainly not bet against the blockchain, despite the inevitable kickback to the hype cycle. Cloud computing went through a hype cycle and subsequent trough of disillusionment before becoming a ubiquitous part of the IT landscape on what Gartner calls the slope of enlightenment.

The past is the key to the future of FX. The winners will continue to innovate using technology and will meet the challenges of adopting big data and analytics, distributed ledger technology, cloud computing, robotics and artificial intelligence (AI) head on.

Baby, It’s Cold Outside – Chatsworth Christmas Charity Appeal

This year, Chatsworth is donating to Crisis to support work helping homeless people in dire need during the winter months. 

Crisis is a practical, front-line organisation providing accommodation,  food, haircuts, access to doctors and dentists, and advice on benefits, housing and finding jobs.

Please spare a few minutes to listen to and share the podcast with the brilliant Chris O’Dowd and Anne-Marie Duff.  

Written by award-winning screenwriter Regina Moriarty and directed by Virginia Gilbert, Baby It’s Cold Outside, is a thought-provoking journey, finding humour in the darkness whilst hitting home the impact of homelessness.

This season is a good time to reflect on all we have and those who may need our help.

Happy Christmas – wishing you and yours the very best for 2019.

Crisis public relations and issues management

When it gets stormy, Chatsworth’s special situations service helps protect and enhance your reputation, ensuring we tell your side of the story and mitigating potentially negative news which could impact your reputation. Our team has decades of experience advising organisations and individuals with intelligence and discretion. 

Working with full confidentiality, Chatsworth delivers strategic and tactical PR advice and support when our clients need it most. We give leaders informed advice whether they are facing a potential crisis or in the midst of an existing one, helping them to prepare for and manage the communications challenges which affect their organisation’s reputation, ability to operate or valuation. 

Chatsworth has extensive expertise in litigation support – managing the communications process during the course of any legal dispute or adjudicatory processing to protect the client’s reputation. We work closely with in-house and external counsel, leveraging our media relationships to counteract negative publicity, interpret often complex legal issues. 

From positive story formulation to rapid rebuttal and response. Chatsworth will move the compass needle your way.

Trad-X wins OTC trading platform at Risk Awards 2019

Trad-X, the market-leading platform for global interest rate derivatives, has been named OTC trading platform of the year at the Risk Awards 2019, which took place in London last night (November 27).

The Risk Awards are the longest-running and most prestigious awards for firms and individuals involved in the global derivatives markets and in risk management. Trad-X was recognised for demonstrating innovation in its technology, products and growth initiatives.

The platform has seen notional trading volumes for EUR and USD products increase by more than 40% year-on-year, and is in the final stages of launching a dealer-to-client central limit order book (CLOB) for EUR-denominated interest rate swaps.

A core component of the Trad-X offering is its reference screens. This ensures the calculation methodology and pricing on the platform is transparent, irrefutable and offers a full audit trail. It was also one of the first to offer the choice of direct execution on the platform via click-and- trade screens, API access or hybrid execution. This enables Tradition’s voice brokers to combine their understanding of market depth and client positioning and submit bids and offers that comply with best execution requirements.

Dan Marcus, CEO of Trad-X, said: “Receiving this prestigious award concludes a milestone year for Trad-X. The launch of MiFID II meant the European derivatives market faced its biggest upheaval since the 2008 financial crisis. We remained strategically clear-sighted on its impact, engaged extensively with regulators to ensure minimal disruption to our clients and accelerated our strategy of hybrid execution. This approach is now yielding results and has led to a significant uptick in trading activity.

“We will continue expand and innovate our business in line with market evolution and client requirements. The launch of our dealer-to-client offering is the first in a line of new products and enhancements we expect to launch over the coming months.”

Mosaic Smart Data launches instant reports for FICC analytics

Mosaic Smart Data (Mosaic), the real-time FICC data analytics company, has launched a new feature for its MSX platform enabling users to instantly generate text reports on their trading activity data using machine learning. The feature will be available to all MSX users and will allow a trading activity report, which would take a member of staff hours to create, to be generated instantly.

Using a machine learning technique called natural language generation (NLG), MSX can generate trading activity reports on any set of analytics on the platform including both voice and electronic trade data. These reports highlight trends and identify anomalies in the transaction data which provide points of interest for traders and sales teams. Using advanced machine learning techniques, the reports can also provide explanations for these anomalies, moving the analytics beyond simple description to providing causative analysis.

The feature offers significant productivity gains for banks’ staff by rapidly generating accurate reports which would otherwise take several hours to compile. The reports can be shared internally to monitor FICC performance or created to provide clients with additional insights on the market and their activities.

The data analysed by the NLG reports is fully customisable by the staff member and can be selected in real-time. This is subject to limits by permissioned controls set by compliance and management, ensuring that data and analytics is only viewable to staff authorized to see it.

Matthew Hodgson, CEO and founder of Mosaic Smart Data, said: “Having advanced analytics at your fingertips is one thing, but for it to really be powerful it needs to be comprehensible to anyone in the bank who needs to use it. This new feature allows users to instantly create the narrative around the data analytics, highlighting the key outliers or trends in the data which they need to pay attention to, enabling rapid understanding of the information.

“Imagine if the bank’s highest performing, most experienced quant could write all the reports it generates. And now imagine those reports could be produced in seconds across the entire global bank 24 hours a day. The gains in efficiency, performance and business insight would have an almost immediate impact on the bottom line.”

ACI FMA teams with Interarab Cambist Association for FX Global Code

ACI – The Financial Markets Association (ACI FMA), has teamed up with the Interarab Cambist Association (ICA) to promote the FX Global Code amongst financial institutions in the Middle East and Africa.

The ICA is a trade association representing professionals working at banks and financial institutions across the Middle East and Africa. Established in 1972, it has members in 15 countries and provides training and workshops relating to asset classes including FX, interest rate products, equities and commodities.

The partnership forms part of the ACI FMA’s goal of strengthening engagement with professionals and institutions in emerging and developing markets. As part of the collaboration, the ACI FMA and the ICA recently combined their annual member conferences – the ACI World Congress and ICA Annual Conference – for the first time in Cairo, Egypt, under the theme “Together Towards Tomorrow”. Over 500 economic experts and financial markets professionals participated in the conference between 25-27 October, making it one of the most high-profile events in the region in 2018.

Rui Correia, Director of Education at ACI FMA, commented: “We are very pleased to build on our cooperation with the Interarab Cambist Association. The Middle East and Africa are amongst the fastest-growing developing markets for FX trading, with countries such as South Africa and United Arab Emirates emerging as key regional trading hubs.

“The launch of the FX Global Code offers a unique opportunity to ensure the all FX market professionals adopt universal standards of ethics, conduct and behaviour. This partnership is an important step in raising awareness of the FX Global Code and promoting adherence.”

The ACI FMA will be hosting a webinar entitled ‘FX Global Code – Education and Adherence’ on the 14 November. It features representatives from the European Central Bank, BBVA, Refinitiv and ING Bank. For more details and to register, please click here.

Cobalt appoints new global head of sales & business development

Cobalt, the foreign exchange (FX) post-trade processing network based on shared infrastructure and high performance technology, has appointed FX specialist Anoushka Rayner as global head of sales and business development.

Anoushka brings over 20 years of experience in the FX industry to Cobalt. She has held a number of high-profile roles, most recently as business manager and global FX sales specialist at Traiana. Prior to this she worked as sales director at smartTrade Technologies and as global head of FX option sales at FXCMPro, the institutional arm of Forex Capital Markets.

Anoushka will be responsible for managing Cobalt’s commercial relationships and will play a key role in scaling up the business as it gets ready for its launch later this year.

Darren Coote, Managing Director of Cobalt, commented: “We are very pleased to welcome Anoushka to our ranks as we work towards reengineering the largest and most liquid financial market in the world. She brings a wealth of experience and contacts to Cobalt and is a key part of our plans as we prepare to launch later this year.”

Anoushka Rayner said: “Current post-trade FX service providers and infrastructure are shackled by legacy technology and inefficient processes which are unfit for purpose. This increases costs for market participants and poses significant operational and systemic risk to the FX market.

“I’m excited to be working for Cobalt as I believe it poses the single biggest innovation to post-trade FX in the last 15 years and look forward to playing my part in creating a shared infrastructure which will benefit the entire market.”

Security tokens: the third blockchain revolution

Away from the mania of last year’s ICO gold-rush, the appeal and benefits of raising capital by issuing debt and equity on a blockchain-enabled marketplace has struck a chord in the institutional financial services world. As momentum builds among some of the biggest names in finance, we will soon see properly regulated tokens, fit for real businesses and sovereign entities, writes R3’s Todd McDonald.

2017 saw a huge boom in companies raising money by issuing their own digital currencies, a process that has become known as an initial coin offering, or ICO. Holders of these coins or ‘tokens’ are then able to freely trade them on online crypto exchanges.

ICO activity skyrocketed almost overnight, and by the end of 2017 start-ups had managed to raise a total of more than $5.6 billion. Not bad for a market that barely existed a year earlier.

The potential for quick returns attracted a lot of investors, especially inexperienced retail investors spurred on by stories of crypto-millionaires. As might be expected, the risks associated with these investments were not always fully understood. There have been countless instances of scams, fraud or outright Ponzi schemes, which would be seen as comical except for the fact that it put ‘other people’s money’ clearly at risk.

Unsurprisingly, the amount of money pouring into the sector means regulators are appropriately increasing focus on token issuance projects, particularly in the United States. This, combined with a steep decline in deployable money from cryptocurrency speculation, has led to a clear cooling off period for ICOs.

However, the benefits of a decentralized issuance and transaction marketplace and smart securities contracts have clearly captured the attention of institutional players. 2018 has seen increased focus on security tokens, which offer the promise of spurring a new, lower friction method of asset and capital formation. These ‘enterprise-ready tokens,’ if developed appropriately, could automate or simplify much of the asset origination, issuance, execution, and secondary trading processes that makeup so much of investment banking fees today.  Issuers of securities everywhere see the value in a more efficient, effective connection to those looking to allocate capital, all in a safe, regulated and automated environment.

If bitcoin represented the first blockchain revolution and the emergence of enterprise blockchain platforms represented the second, the creation of a new global capital market powered by enterprise security tokens will usher in the third.

Putting assets on the chain

The first instances of these new enterprise token will likely focus on what is called asset-backed tokens. Put simply, the digital token represents an asset that is held ‘somewhere else,’ often at a regulated custodian. The token acts as a ‘digital twin’ and can be traded or exchanged freely on a blockchain with settlement finality, while the underlying asset remains blissfully in place at a custodian.

This interplay of a regulated custodian linked with an on-chain digital representation, while seemingly straightforward, unlocks new ways for markets to transact and expand. It offers a way for businesses to begin to iterate and implement enterprise-friendly yet novel digital assets, all from a strong foundation of an accepted regulatory base.

Building the token ‘buy-side community’

Both emerging and established financial infrastructure players are currently developing solutions to enable the issuance and secondary trading of these asset-backed tokens.

If tokens are to become credible and useful instruments in the institutional world, the quality and type of investor they are able to attract must also be considered. For example, when companies embark on a capital raise, whether it is a Reg D placement or full blown IPO, they (and their investment bank partners) seek ‘strong-hand’ investors – those that aren’t in it just for a quick profit.

The same will apply in the future for companies issuing their debt or equity as tokens, and as such, they will seek out platforms that give them access and distribution to a buy-side of proven investors.

Corda: the natural home of security tokens

R3 is uniquely positioned to facilitate the emerging ‘token economy’ in a secure and regulated manner. The same enterprise-ready focus that led to the design and capabilities of our Corda platform can be extended to bringing the best innovations of the ‘wild west’ of the token world to the enterprise.

Corda was designed from inception to solve the problem of how to represent real-world agreements on a blockchain in a canonical and enforceable way, and this approach can be directly applied to security token issuance. Financial agreements on Corda take the form of smart contracts, linking business logic and data to associated legal prose in order to ensure that trades executed on the platform are rooted firmly in law.

Other key considerations for security token issuance, such as identity, security, data privacy, and settlement finality, are already handled elegantly by Corda and have been key drivers in securing its position as the blockchain platform of choice in capital markets.

Corda-based token examples actually emerged back in 2016, when we began a collaboration with Bank of Canada, Payments Canada and others under the name Project Jasper, where a token called CAD-COIN represented collateral held by the central bank. Since then, we have seen pilot and production examples from our partners, in particular from HQLAxin securities lending and Tradewind Markets in gold trading.

Connectivity with the established financial services community also differentiates Corda from any other platform in the space. R3 is already in talks with a number of major market infrastructure providers about creating regulated environments for security tokens, underpinned by Corda, and the 200+ member ecosystem includes most of the biggest names in financial services, giving token issuers access to a vast network of high-quality investors.  Corporates, banks, asset managers, and market infrastructure providers are also crowding in to provide a stable, regulated settlement asset on Corda.  Corda’s unique design supports delivery of digital security tokens against payment in digital cash instruments in a single, atomic transaction.  This will reduce time, cost, and perhaps most importantly, risk in the emerging token-enabled credit market on Corda.

Platforms like Corda provide the catalyst and foundation to enable security tokens to become a new and potentially invaluable tool in the capital markets toolbox. Unregulated ICOs provided the inspiration for this next wave, yet the shift is already underway to make tokens enterprise-grade. The third blockchain revolution of digital assets will arguably be the most important and impactful to date.

How to succeed in fintech and influence people

Once upon a time, I was sitting in Barclays head office on Lombard Street, writing a crystal ball briefing on the growth and threat posed by financial technology for the CEO.

The briefing was printed out and faxed to him because I didn’t have an email account from which to send it. They hadn’t sorted them out for the lower tiers yet. Oh, the sweet irony.

Fast forward a *few* years and fintech is now white hot and getting hotter. The sector has sky-rocketed this year, with worldwide global investment in the sector for the first half of 2018 exceeding the whole sum value of 2017.

It has been the breakout success story for London.

Where the Silicon Roundabout has failed to deliver on its hype and deliver us with a home-grown tech giant, the city has busily output dozens of outstanding, world-class, fintech firms.

Not wishing to crow, but London has received more investment in its fintech sector than any other country in the world, with over $16.1 billion of inbound investment during the first half of the year. That puts it firmly ahead of China ($15.1 billion) and the US ($14.2 billion). That is a success story, right there.

But the UK’s position as the leading fintech hub is by no means guaranteed. The history of financial markets teach us that liquidity is hard to shift – but when it moves, it moves fast.

So to Sydney

Australia’s magnificent capital – with a AU$60 billion ($43.3 billion) financial services industry. Think tank, Australian Fintech, estimates the sector has the potential to take up to 30% of revenue from traditional banking in Australia over the next few years, a prize worth a cool AU$25 billion (18 billion).

And so the banks, acutely aware that their lunch is under threat, are converging in Sydney for Sibos, the annual conference, networking event and shopfront for Swift’s services.

With its frequently brilliant Innotribe sessions and a solid line-up of speakers and panelists, the event has become a curious arena. It is hosted by an older, more established technology and payments infrastructure, but offers a safe space for challenger start-ups to engage, network and meet potential bank customers.

With start-ups to the left and shareholders to the right, banks may feel like they are in the squeezed middle. But in truth, finance and technology have become inseparable over the past decade or two. Crucially, the banks still hold the cards, the liquidity and the capital.

Fintechs need the banks. They have the markets, connectivity and ultimately the influence over any change to existing systems. And the banks, for their part, have been excellent investors and partners. They continue to engage and partner with fintechs – investing, encouraging, collaborating and beta testing. It was always going to be this way.

The bulldozer approach of some self-titled “disruptive” start-ups, where you build an alternative system and then trying to slam it into an existing market, simply does not work.

First on fintech

Chatsworth knows a fair bit about fintech. We were the first marketing and communications agency to focus on this sector, working on electronic broking, online banking and market data with systems like EBS, CLS, ICAP and Barclays.

Over time, the story and clients moved onto prime brokerage and API trading, through to today’s blockchain-inspired technology, smart analytics and machine learning. The markets and technology have evolved, but the methods and indicators of success remain the same.

We have launched and supported both larger infrastructure providers as well as some brilliant start-ups such as Previse, which tackles late payments for businesses, and Mosaic Smart Data, which applies smart data and analytics to wholesale financial markets.

Then there is R3, the breakout story in the enterprise blockchain space and the fulcrum for those looking to apply this technology to professional markets. Their model of engaging and working with banks, financial institutions and regulators right from the start has paid dividends, with over 200 organisations contributing to the development of the Corda platform.

This is ground-breaking innovation – delivered by super smart people who know markets and understand technology. They are working with banks and their customers to tackle real-world problems.

Traits of a successful fintech

So, what is the shared DNA of successful fintechs? Firstly, the combination of financial markets experience and technical and engineering excellence within their teams.

Second, an absolute focus on engagement with the existing market infrastructures to work and define the use cases before development.

And last, a seemingly inexhaustible supply of energy, drive, curiosity, and intelligence.

Of course, everyone says they are specialists in fintech, and blockchain in particular, nowadays – witness the sheer volume of self-appointed advisors and PR “specialists” on LinkedIn.

In truth, this gold rush of the inexperienced is partly to blame for an over-cooked news and hype cycle which inevitably sets unrealistic expectations for speed of adoption.

So choose your advisors wisely and trust your reputation to the best hands. They will articulate and tell your story with confidence, creativity, and commitment.

Wishing everyone a fantastic and productive Sibos 2018.

Chatsworth’s fast five for fintechs
  1. Focus your competitive fire on inefficient models – not individual organisations. Build relationships with firms and incumbents dealing with the same market challenge. Remember, a rising tide carries all boats.
  2. Know your AML from your KYC – digitisation to regulators signals potential facilitation of money laundering and terrorist financing. Engage with them.
  3. Don’t tech for tech’s sake – Stick to use cases with transformative potential.
  4. Don’t overuse “innovative” or “solutions” to describe your brand. This language is so clichéd and bland that it suggests the opposite.
  5. Collaborate and keep off the Kool Aid – engage with those who affect your ability to succeed and operate. But listen as well as talk, and don’t be afraid to change tack.

The FCA sandbox – a question of fair play at the heart of UK Fintech

Play is about being inquisitive. It is about trial and error. It is how we learn and improve. A world without play is a world without growth.

That is the insight at the heart of the FCA’s sandbox, and it is a fundamental reason the UK is at the heart of global fintech.

Other regulators have not taken such an enlightened approach. Last week French and German regulators threw their toys out of the pram claiming that FCA’s sandbox is anticompetitive.

They claimed that the FCA’s approach – which allows certain companies to test their technologies with real customers before getting full regulatory approval and within an environment which is more forgiving from a regulation perspective – is unfair to large established players.

This is not the first time foreign regulators have criticised the sandbox approach. In August, NYFDS’s Maria T. Vullo, rejected the idea of the NYFDS setting one up saying that only ‘toddlers play in sandboxes. Adults play by the rules.’

It is true that companies which are admitted to the sandbox get an advantage. They are not subject to the same strictures as a large bank would be when developing a new service. That does allow them to be more agile and test their services in real-world environments – an invaluable opportunity for developers of emerging technology.

That said, there is a strong argument to make that, far from being anti-competitive, the sandbox is actually helping to level the field between fintechs and the banks.

Regulatory approval is a long, protracted and extremely costly process. There are no guarantees. There is always the risk that the regulator won’t give the final go ahead, leaving a firm with significant legal costs, wasted time and nothing much to show for it.

Banks are in constant communication with the regulators. They can also hire armies of specialists to give themselves the best chance of getting their services approved. Many fintechs have neither of these advantages. The sandbox gives them a chance to work with the regulator in a more collaborative environment to find solutions to any regulatory challenges within the technology design and allow the fintech to change course if their current design causes the regulator too much concern.

In doing this, the sandbox helps reduce the costs of regulation for the companies which can least afford it, boosting – not stifling – competition.

Not only is the sandbox good for fintechs, but it is also good for the regulator, consumers and even the large banks themselves.

For the regulators, it is a chance to develop a deeper understanding of the latest technologies, such as blockchain and machine learning, by collaborating with their creators. This can help lead to more sophisticated regulation and help the FCA ensure it is keeping pace with technological change.

One of the core stipulations of the sandbox is the protection of consumers. This is something the FCA has emphasised time and again when talking about the sandbox. By taking this approach, it is allowing consumers to access new services years before they would otherwise be available while ensuring they still enjoy a high level of protection from the FCA.

Finally, a little healthy competition is good for banks. Change is not easy and, without dynamic, agile and hungry competition snapping at their heals, there is little real incentive for banks or infrastructure providers to make the much-needed upgrades to their systems and services.

There are many fintech ’specialists’ out there talking about how banks are going to be ‘disrupted’ out of existence by fintech ‘challengers’. The reality of the market is that most successful fintechs are forming partnerships with banks to the benefit of both parties.

Fintechs need the banks, which hold sticky client relationships and huge institutional expertise, while the banks benefit hugely from the innovation and efficiencies which fintechs can bring.

Sandboxes are an excellent way to nurture the next generation of partners, vendors and acquisition targets for banks – not their nemesis.

The UK remains the best place to start and grow a fintech. The FCA’s sandbox is a meaningful part of the reason why, long may it continue.

FX activity boosted by EM sell-off – August Spot FX Volumes

As the summer lull comes to a close, it has become apparent that there was no ‘sleepy summer’ for spot FX traders this year. Data from ECNs that publicly report their volumes has revealed that trading activity was largely up across the board in August.

NEX reported a 3% increase in spot FX trading activity as its volumes increased from $81.9 billion in July to $83 billion in August. Year-on-year volumes saw a slight increase of 2%.

Thomson Reuters’ spot FX volumes remained flat at $94 billion, but August’s trading activity represents a 14.7% increase when compared to the same period in 2017.

Cboe FX’s spot volumes rose by 3.9% from July to $34.5 billion. Year-on-year growth was an impressive 27.3%. The venue has now had 12 months during which ADV has been in excess of $30 billion per day.

Spot FX volumes on Fastmatch fell by around 2.5% from $20 billion in July to $19.5 billion in August. This follows a 9% decrease the previous month. However, year-on-year comparisons show an increase of 20%. Although it didn’t see an increase in ADV, its FX Tape saw a record amount of activity, averaging $83.6 billion a day in August.

FXSpotStream reported an ADV of $28.4 billion, up 2.5% from July and up a whopping 47.6% from August 2017.

CLS reported a 2.2% increase in August’s ADV to $425 billion. However, this is down 1.9% for the same period last year.

Spot FX*All figures in US$


Insight

After a very slow start to the summer trading season in July, data shows that most platforms experienced a slight recovery in spot FX volumes in August.

Despite the seasonal decline, trading activity in the market was stable, aided by volatility in emerging markets.

Once again, political events have played a major role in volatility. After the Turkish central bank lost its independence, the lira went into freefall.

The Argentinean peso was another currency in the crosshairs of currency traders. At the tail end of August, the central bank ratcheted up interest rates to a whopping 60%. Despite this drastic action, the currency continued to plunge 12%.

The Russian ruble experienced its worst month since April against the dollar, on the back of US announcements to introduce new sanctions against Russia

The decline in these currencies helped trigger a broader sell-off in the developing world’s markets, with JPMorgan’s emerging market currency gauge sliding 1% at one point to a new record low.


Future predictions

Industry insiders think that what happened in August is a sign of things to come over the next few months.

Political factors are continually weighing on currency movements. With prospective rate hikes from the US Federal Reserve coming into play before the end of the year and Trump’s Twitter account continuing to wreak havoc, many expect volatility to continue.

Some predict that the lack of stability and transparency in Turkey will drive more business away from the lira to ‘safe-haven’ currencies.

Closer to home, Brexit negotiations remain the topic of focus. There seems to be no end to near-term uncertainty; in fact, a Reuters poll predicts a no-deal Brexit could see GBP fall as much as 8%!

Cobalt appoints Darren Coote as Managing Director

Cobalt, the foreign exchange (FX) post-trade processing network based on shared infrastructure and high-performance technology, has appointed FX industry veteran Darren Coote as managing director.

Darren has been working with Cobalt since the end of 2017 as a strategic advisor and will now take on responsibility for the day to day management of the company. This comes at a key time for Cobalt as the company launches and looks to significantly scale its business.

Darren brings over 25 years’ experience in FX to Cobalt, having held a number of high profile roles running global FX trading and e-FX businesses at UBS where he drove the business through significant industry and technology change. He has also worked for Lloyds, served on a number of FX boards and committees including the Bank of England’s FX Joint Standing Committee and EBS’s executive board prior to the company’s sale to ICAP in 2006.

Adrian Patten, Co-Founder, and Chairman of Cobalt, commented: “We are very pleased to welcome Darren to our fast-growing team. He brings invaluable expertise and market contacts. We are confident he is the right person to lead Cobalt as we prepare to go into full production later this year.”

Darren Coote said: “Having worked in FX for over 25 years, I have seen first-hand the negative impact that aging, inefficient legacy technology is having on market participants and their bottom line. As the industry gets increasingly competitive and margins shrink, it’s important for institutions to save money and mitigate risk wherever possible.

“Cobalt is a unique solution which solves an urgent need for participants by creating a shared FX post-trade back office utility, significantly reducing risk and cost by 80%. I’m excited to play a key role in Cobalt’s development as we prepare to go live this year and re-engineer the FX market from the ground up.”

This May, Cobalt secured a strategic investment from Singapore Exchange (SGX), which operates Asia’s largest, most diverse and fastest growing FX exchange.

R3 Ledger

The Corda development community continues to build awesome new CorDapps harnessing the best of Corda. Do check out the latest addition, Parnika Sharma’s (BCS Tech) property listing CorDapp which showcases the power of an RDBMS running on a distributed ledger. We’ll be adding this to the growing list of Corda samples soon.

Meanwhile Corda 4 and Corda Enterprise 4 is taking shape, and a sneak peek at the content reveals a host of compelling new features and further improvements to the developer experience: contract constraints are a part of how Corda manages application upgrades and we’re adding the ability to constrain to any attachments signed by a specified set of cryptographic keys. 

This is an easier constraint method to use and requires less choreography between node administrators; support for multiple Corda nodes behind a single firewall, part of the strategy to reduce hosting costs; hardware security module support for safeguarding node cryptographic keys; a more consistent developer experience across the code (for example, error logging and the command line interface); improvements to the administration of a node’s membership to a Corda network, and – of course – we will be maintaining our high bar for the standard of documentation with further improvements to make it better than ever.


Bootcamp

Image result for corda bootcamp

R3’s Corda developer relations team is back on the road! Building on their massively successfully Bootcamp events held in major cities around the world earlier in the year, the team will be stopping off in more global locations in October to help you learn more about (and get the most out of) Corda.  Do take a look at the list of Bootcamps in the Upcoming Events section below to register for your nearest city and join our Corda experts for a no-cost evening of hands-on training, where any developer can arrive with their laptop and leave with a CordDapp.


Partner Spotlight

Corda

 Corda Enterprise Blockchain is now available on AWS! This Quick Start automatically deploys a Corda Enterprise node in a new or existing virtual private cloud (VPC) on the AWS Cloud in about 30 minutes. Corda Enterprise on AWS is a production-ready implementation of a Corda Enterprise node, which offers built-in resilience and high availability and which can scale as the needs of the node operator change. This partnership opens up CE availability to AWS’ 55,000+ partner network. Read all about it here.


R3search Rollout

Corda

In energy, R3 responded to the US Senate hearing regarding the energy efficiency of blockchain technology. The article in Brink, “Bitcoin is a Red Herring in the Discussion of Blockchain Energy Efficiency”, found that blockchain could aid the integration of smaller suppliers into the energy grid and enable provenance tracking of renewables.

We now have 18 public papers available for download, written by authors such as Vitalik Buterin, Ian Grigg, JP Koning, Rodney Garratt, Neepa Patel, and many other blockchain thought leaders! In capital markets, R3 Research has privately published “Building Blocks for Better Compliance: Can Blockchain Decrease the Burden of Financial Regulations?”, which focuses specifically on the recent MiFid II regulation in Europe. Members can access private papers here.


Life in the Fast Chain

Corda

Have you listened to our blockchain podcast yet? Check out our latest episode (online, iTunes, Spotify, Google Play, Overcast, etc) with Impact Chain Lab’s CEO and co-founder, Aishwarya Balaji. Aishwarya comes on to discuss how she got into the blockchain space, her company’s goals, their new project Bystander, and more.

If you haven’t listened to our last special, check it out! This special episode features R3’s Mike Hearn who talks about the Corda platform, the Corda network, his vision for the future of Corda and the potential future intersection of the blockchain, IoT, AI, and other emerging technologies.

To stay tuned, be sure to check out the podcast on your favorite app! 


Corda Certification

Corda

Certification can be obtained by passing the Corda Certification exam with a score of 75% or better. If you have attended a Corda developer training session or have equivalent experience, you should be well-equipped to take the exam with some additional independent study.

Developers who pass will receive an invitation to claim a digital badge that can be shared on social media and with the developer community at large.

Ready to take the exam?

Previse and Cobalt named amongst Top 101 Fintech Disruptors

BusinessCloud has revealed its list of the top 101 fintech disrupters in the UK, and it made for pleasant reading at Chatsworth Towers.

The award recognises companies that are disrupting the industry through technology – whether they are heavyweight incumbents to start-ups. BusinessCloud also canvassed the opinion of industry experts before they settled on the final line-up, and we’re delighted that two of our clients made the list.

One of those is Previse, a startup that applies machine learning technology to solve a global business problem – slow B2B payments. The London-based fintech enables buyers to have all their suppliers paid instantly, as soon as the buyer receives an invoice. It uses machine learning to root out the invoices which may not be paid, allowing a funder to pay the rest immediately.

Previse has made huge strides since its launch in 2016, recently raising £7 million in Series A funding. The startup has also received backing from leading business figures and top venture capital firms and has signed up seven large organisations. With strong plans for growth, the company is undoubtedly one of the hottest fintechs worth keeping an eye on over the next few years.

Another of Chatsworth’s clients named in the list is Cobalt, a foreign exchange (FX) post-trade processing network based on shared infrastructure and high-performance technology. Cobalt’s unique solution leverages highly optimised technology alongside an in-house immutability service based on distributed ledger technology (DLT) to deliver a shared back and middle office infrastructure that is scalable, secure and fast.

By creating a shared view of trade data, Cobalt frees up back and middle office resources from multiple layers of reconciliation; creating a ‘golden’ portfolio of FX transactions from which to provide multiple services.

In May, Cobalt secured a strategic investment from Singapore Exchange (SGX), which operates Asia’s largest, most diverse and fastest growing FX exchange.

It’s great to see startups such as Previse and Cobalt be recognized for shaking up the status quo in their respective industries.

As the original fintech PR company, we can say with confidence that there isn’t a more disruptive sector than fintech. It has finally come of age and made it into the US-run Merriam Webster online dictionary – perhaps fitting, considering the shared digital origins!

READ THE LIST IN FULL

CordaCon – live from London

R3’s annual flagship conference kicks off this week in London, bringing together hundreds of developers, business leaders and blockchain engineers.

If previous years are anything to go by, the content will be fantastic – real examples, real case studies, knowledge sharing for developers, issue analysis and discussion and engaging presentations.

CordaCon provides a unique opportunity to meet and hear from R3’s clients about how they are leveraging Corda to solve real-world business problems.

Taking place over the course of two days with separate tracks of content – Developer Day (DevDay) and Business Day (BizDay) – it includes senior leaders from financial institutions, corporations, insurance firms, technology firms, independent software vendors (ISVs) and more.

The event, now in its third year, has consolidated its reputation as the fulcrum event for professionals working to apply blockchain-inspired technology to their sectors.

This is in part due to R3 having attracted a critical mass of members and partner, but also because the team’s approach was right from the start.

Rather than build an off-the-shelf blockchain solution and take it to market, R3 worked tirelessly to bring together the leading thinkers from their respective markets with the best developers and software engineers.

The resulting technology, Corda, was launched earlier this year and dozens of CordApps are being developed for it.

Such was demand that this year’s CordaCon was oversubscribed several times over. R3 and Chatsworth will be live tweeting from the event and sharing content and updates as they arise.

Look forward to seeing you there!

Is Fintech “adorbs”, or a “bingeable time suck”?

As the first fintech PR agency, Chatsworth is definitely of the view that it is the former.

Why do we ask? Because fintech has come of age and made it into the dictionary as one of 840 new words, in addition to also added this year are “adorbs” and “bingeable time suck”.

It joins the dictionary alongside ‘haptics’, meaning the science of touch. This is tech behind the vibration of a smartphone responding to your finger and a whole host of linguistic upstarts/startups. 

The definition of fintech is officially the “products and companies that employ newly developed digital and online technologies in the banking and financial services industries”. Unfortunately for us Brits, it’s not the Oxford English Dictionary but the US-run Merriam Webster online dictionary – perhaps fitting, considering the shared digital origins.

But more surprising the word, fintech, is far from new. The dictionary pinpoints its first known use to way back in 1971.  That was a good year – certainly for music – with What’s Going On, Sticky Fingers, L.A Woman, Hunky Dory and Led Zep 4 all released.

But despite its entry into the dictionary, fintech is in the bottom 10% of most used words. Oh well, nothing wrong with a little “exclusivity.”

R3 Wins Best DLT Tech Provider at Central Banking Global Awards

Yesterday, the inaugural Central Banking Fintech & Regtech Awards were held at the stunning Marriot Tang Plaza Hotel. We were very proud to see R3’s Anthony Lewis in attendance to pick up the award for the Best Distributed Ledger Technology Provider.

The new awards were held to recognise innovation in financial and regulatory technologies that were changing the way central banks and supervisors work.

R3 was picked from a strong contingent of blockchain/DLT based companies that are revolutionising the financial sector due to their transformative success in the past year.

The startup is currently engaged with Bank of Canada inside ‘Project Jasper’, an initiative which sets out to develop an interbank domestic payments settlement system, already the proof of concept touted ‘significant benefits.’

In March, HQLAx and R3 completed the first live securities lending transaction on the Corda platform – between Credit Suisse and ING. The transaction showed that using blockchain could help make the securities lending process faster and more capital efficient.

Corda’s success is evident not only by the number of institutions that use the ledger but also by those looking to invest in the technology. The company has raised over $122 million from more than 40 institutions, including Bank of America Merrill Lynch, HSBC and CLS.

In July, Corda Enterprise was launched to meet the demands of modern day businesses, especially complex institutions. With the launch, companies can now select a version of Corda that fits their unique needs – regardless of their industry, size, and stage of development. This means a wider range of institutions can realise the full potential of blockchain – executing complex logic and exchange of assets directly, simply and in strict privacy, without the need for costly reconciliation or a trusted intermediary.

We are proud to see R3 be continually recognised at the forefront of blockchain development in the financial market as we see the world begin to open their eyes to the potential of this technology.

SEC Tick-Size Pilot cost investors over US$300 million

Analysis of more than four million orders identified significant degradation in execution quality, for stocks priced under $40 per share

Pragma Securities (Pragma), a multi-asset quantitative trading technology provider, has published new research showing that the Securities and Exchange Commission’s (SEC) Tick Size Pilot Program has had a negative impact on market quality and execution – costing investors more than $300 million since it was implemented.

The research paper, entitled Tick Size Pilot – Evaluating the Effect of the Pilot Program on Execution Quality, estimates that investors trading stocks priced under $40 incurred significant costs. The total additional cost for all Test Group stocks could exceed $350 million by October 2018, when the pilot is expected to conclude.

Born out of the Jumpstart Our Business Startups Act (“JOBS Act”), the SEC’s two-year Tick Size Pilot Program commenced in October 2016. It was intended to evaluate whether widening the minimum quoting and trading increments – or tick sizes – for stocks of smaller capitalization companies (under US$3 billion) would improve the market quality to the benefit of U.S. investors, issuers and other market participants.

David Mechner, CEO of Pragma Securities, comments: “While the SEC’s Tick-Size Pilot was launched with the intent of helping investors and issuers, the outcome has been very different. Concerns around execution quality and costs for investors were raised early on, and proved to be well-founded. Given our findings, we strongly recommend that the Tick Size Pilot be unwound at the end of the Pilot period.”

Read the Wall Street Journal’s incisive article to learn more about the Tick Size pilot program.

Market data fees back in spotlight

The lack of transparency and rising cost of market data is a concern continually raised by participants across FX, equities, fixed income and derivatives markets.

The issue was brought to the fore again with two major hedge fund trade groups, the Managed Funds Association and the Alternative Investment Management Association, asking the U.S. Securities and Exchange Commission (SEC) to carry out a full review of market data costs and to require exchanges to be more transparent about the fees they charge.

We take a closer look at the industry’s concerns, the transparency of market data packages, their associated fees, what regulators are doing to tackle the issue and where we go from here.

Industry’s concerns

The two hedge fund trade groups are concerned that institutional investors continue to experience significant increases in market data fees, new fee categories and unbundling. They believe this restricts trade and harms competition.

“Our members have likened the practice to ordering a hamburger which used to cost $20, but now costs $7 for the bun, $15 for the beef patty, $3 per fixing and $1 per condiment, for an overall total cost of $33 (with lettuce, tomatoes, pickles, ketchup and mustard),” the petition said, according to Reuters.

The hedge fund industry is not alone in raising these concerns. Back in December 2017, 24 trading institutions, including banks and asset managers, called for more transparency and requested exchanges reveal their profit margins for market data products.

Fees skyrocketing to benefit of exchanges

Over the past decade, the costs and fees associated with market data have seemingly skyrocketed. It is clear from exchanges’ results that this increase in market data fees is positively impacting on their revenues.

This CNBC article reported that market data fees have become the growth area for exchanges. Indeed, ICE gets about 44 percent of its revenue by charging for market data, and at Nasdaq it’s about 26 percent.

Cboe Global Markets reported a 51% increase in income from market data fees for Jan-June 2018 when compared to the same period in 2017. The firm cited increasing market data revenue as a contributor to its 6% year-on-year rise in net revenue.

CME reported an 18% year-on-year rise to $113.8m, primarily due to a fee increase put in place in April.

Furthermore, a report by the Healthy Markets Association found that some market participants have seen the cost for equity market data products rise from $72,150 per month to $182,775 in five years – an increase of more than 150%.

From this, it’s clear to see that prices are increasing and are an important source of income for exchanges. It remains to be seen if exchanges will act to reduce prices and increase transparency themselves or wait for regulators to get involved.

Shining a light on opaque market data packages

Market data fees remain one of the most opaque areas of trading and has been a constant bugbear for FX institutions as well those operating in other financial markets. Institutions are now realising that they are paying different amounts for the data they receive.

Dan Marcus explains: “Large institutions are negotiating better prices and cutting special deals based on how much they agree to trade on a particular venue. This means smaller institutions with lower trading volumes and less bargaining power are struggling to get value for money.”

This is against the spirit of the FX Global Code which advocates greater transparency and equality in the FX market, he adds. “Market participants simply want affordable, accurate market data that allows them to trade, is good value for money and is delivered in a fair, equal and transparent manner.”

Regulators and market participants taking action

There is now a realisation that institutions are paying vastly different amounts for the data they receive. The good news is that the industry participants are increasingly vocal about their concerns, and as a result, the distribution, cost and transparency of market data packages are now coming under scrutiny.

The SEC has responded positively to the industry’s concerns. SEC Chairman Jay Clayton has confirmed the commission would hold an industry roundtable on the issue at some point in the near future, but no date has been announced.

Back in March, the European Securities and Markets Authority said it shares concerns that have been raised over the increase in fees for market data in the region and intends to take a closer look at recent developments.

It’s positive to see regulators such as ESMA and the SEC carrying out reviews and it will be interesting to see if their research results in action which addresses the market’s concerns.

Dan Marcus believes market data doesn’t have to be opaque and expensive: “At ParFX, we deliver market data to our customers at no additional cost – everyone gets the same data, at the same frequency in parallel. We also don’t negotiate special deals – this is in direct contrast to the approach of other providers.”

We see the move towards lower market data costs as inevitable, as the current pricing structure is unsustainable. It seemingly does not provide value for money, prices out smaller participants and provides an unfair trading advantage to those with the deepest pockets.

It’s time other venues and platform providers bring themselves in line with the standards we expect in 2018 by making market data more transparent and affordable for everyone.

Andy Bria joins LiquidityEdge as Chief Operating Officer

Electronic US Treasuries (UST) trading venue LiquidityEdge today announced that Andy Bria has joined as Chief Operating Officer, based in New York.

Since launching in September 2015, LiquidityEdge has rapidly grown its UST market share and volumes, establishing itself as an alternative model for fixed income. Following the success of the platform, LiquidityEdge has selected Andy to drive further growth and lead LiquidityEdge’s expansion plans.

Andy joins LiquidityEdge from NEX Group, where he held multiple senior roles across client services for both the flagship EBS and BrokerTec brands for over 13 years. Andy was Head of Client Services for six years and in 2011, successfully managed all client-facing aspects of the BrokerTec technology platform refresh.

Andy’s extensive experience in electronic trading and client relations, combined with his expertise in capital markets, ideally places him to help lead LiquidityEdge’s strategy and operations.

Nichola Hunter, CEO of LiquidityEdge, comments: “We’re delighted to welcome Andy to the team and believe his experience in electronic trading will be invaluable to LiquidityEdge in the years ahead. Andy’s strategic guidance will be greatly beneficial as we move into the next phase of growth and we look forward to working with him.”

Previse raises USD $7m in Series A funding round

Previse, the global supplier payments decisions company, has raised USD $7m in a Series A funding round, led by listed European fintech specialist, Augmentum Fintech PLC, and one of the world’s pre-eminent venture capital firms, Bessemer Venture Partners.

Hambro Perks and a number of existing and new angel investors also participated in the funding round.

Applying machine learning to B2B payments

Previse applies machine learning technology to solve a global business problem – slow B2B payments. The London-based fintech enables buyers to have all their suppliers paid instantly, as soon as the buyer receives an invoice. It uses machine learning to root out the invoices which may not be paid, allowing a funder to pay the rest immediately. The small fee paid by the supplier for instant payment is shared between the buyer, the funder and Previse.

How big is the slow B2B payments problem?

Slow business to business (B2B) payments caused by inefficient payment terms cost the world’s businesses US$300 billion every year. They cripple business and economic growth and are one of the leading killers of small suppliers. Paying slowly costs large buyers, because a supplier’s expensive cost of borrowing is priced into the cost of the goods or services supplied. Large buyers are also perceived to be taking advantage of their suppliers and are facing a growing public and political backlash as a result.

Significant demand for InstantPay

Since its founding in 2016, Previse has grown rapidly, signing up seven large organisations as well as receiving significant demand for its InstantPay technology from some of the world’s largest companies. It is also now listed on the G-Cloud – meaning instant invoice payment is now available for the £223 billion market that is public procurement.

The Series A funding will help scale Previse’s business to meet this significant, global demand, onboard clients and further develop its technology with the overall aim of ensuring that every supplier in the world can be paid instantly.

World-leading backers

Bessemer Venture Partners is America’s longest-standing venture capital firm. It has a global portfolio and has invested in companies such as LinkedIn, DocuSign, and Box. Augmentum Fintech is a listed fintech-focused venture capital investor and its portfolio includes leading UK fintech companies such as Zopa, Interactive Investor and Seedrs.

In 2017, Previse also raised £2 million in a seed funding round led by Hambro Perks, Founders Factor and high net-worth angel investors with close ties to high-profile multinationals.

It counts senior business figures such as Chairman of British Land, John Gildersleeve, and Sainsbury’s Chairman, David Tyler as members of its advisory board.

More positive news for high-flying UK fintech scene

This positive development from the London-based fintech comes just weeks after KPMG announced the UK held the crown for worldwide fintech investment in H1 of 2018. It attracted over US$16.1bn of inbound investment during the first half of the year, more than China (US$15.1bn) and the United States (US$14.2bn).

Previse has made huge strides since its launch in 2016, receiving backing from leading business figures, top venture capital firms and signing up seven large organisations. With strong plans for growth and a desire to transform global B2B payments, the company is undoubtedly one of the hottest fintechs worth keeping an eye on over the next few years.

Is the FX Global Code working?

In recent years, the FX market has been experiencing a period of turbulence. A series of scandals, following a string of misconduct issues, led to some market participants reassessing their existing relationships and trading processes.

To tackle the deficit of trust, the global foreign exchange (FX) market came together with policymakers to create the Global Foreign Exchange Committee (GFXC). This public-private partnership is tasked with overseeing and developing the FX Global Code, a set of guidelines which aim to improve transparency and ethics across the FX industry.

The FX Global Code debuted in May 2017. A little over a year later, the GFXC has carried out a thorough assessment of the progress so far and identified its priorities for the year ahead.

One of the main takeaways from the report was the sizeable levels of awareness and commitment theFX Global Code achieved in its first year. In a survey conducted in September 2017, 250 market participants said they would eventually sign the Statement of Commitment (SoC) to the Code. By May 201­­8, more than 326 had done so – an increase of 30%.

Along with the number of SoCs, 12 different public registers have been created to monitor and track sign-ups. Such numbers are indicative of how much the FX Global Code has embedded itself across the industry.

The Code has also achieved great penetration across the globe. It ranks high on the agenda of FX trade associations and at industry events around the world. Furthermore, in its first year, Mexico, South Africa, Scandinavia and Switzerland have either established FX committees to support the Code or are in the process of creating one. These local committees are critical to embedding a Code that is truly global and standardised.

Another success of the first year of the FX Global Code is the creation of training programs. These are created to aid FX traders that don’t have a process within their institution outlining how to follow the Code. One such program is the ACI FMA’s increasingly popular ELAC Portal, which provides step-by-step professional development for those looking to prove their adherence to the Code via tailored questions and real-life scenarios. This is a healthy sign that there is genuine demand in the FX community to follow the principles of the Code, and that it isn’t simply being forced upon industry professionals by the GFXC.

Of course, signing a SoC does not mean an institution has completely changed their practices to align with the Code. Rather, it indicates that they have reviewed their processes and intend to align with the principles laid out in the Code.

Looking the public registers, it appears the bulk of those that have adopted the Code’s principles are made up of sell-side institutions, central banks and FX market infrastructure providers. The buy-side and non-bank institutions are lagging behind, with only 11 of the top 25 asset managers and two corporates signing up to the Code.

According to the GFXC, the complexities of buy-side institutions and the lack of incentives for signing up are the reasons for the slow take up. The buy-side is much more diverse than the sell-side, and therefore has varying levels of resources.

At the same time, it is important to recognise that the Code has not been met with universal approval from all sections of the market. Issues such as last look have been contentious for some sections of the FX market.

Overall, it appears market participants believe the Code is robust in its current state, although evolution in line with market changes is inevitable. In this respect, a new working group has been set up to focus on integrating the Code into the ‘fabric of the FX market.’

To answer the question posed in the title of this blog, the Code is working and has achieved a lot of things it set out to do, securing significant awareness and commitment throughout the industry. However, there is a lot more that needs done – particularly around engaging the buy-side. It remains to be seen how the industry actually implements the principles laid out in the Code over the next year and the consequences, or lack thereof, for those that do not.

Global spot FX volumes cool off in July

Despite record-breaking temperatures across Europe and the US last month global spot FX volumes cooled off, with NEX, Thomson Reuters, Cboe FX, Fastmatch and FXSpotStream reporting decreases in average daily volumes (ADV).

NEX reported a 15% decrease in spot FX trading activity as its volumes dropped from $96 billion in June to $82 billion in July. This follows a 5% decrease in June from May. Year-on-year volumes remain the same.

Thomson Reuters’ spot FX volumes suffered a 14% decrease to $94 billion in July, its lowest recorded ADV of 2018. However, July’s ADV represents a 6.8% increase when compared the same period in 2017.

Cboe FX’s spot volumes encountered a 12% drop to $33 billion, compared with June’s $38 billion. Year-on-year painted a more positive picture for the platform with a 22% rise in spot FX volumes.

Spot FX volumes on Fastmatch fell by around 9% from $22 billion in June to $20 billion in July. This represents a steady 11% year-on-year when compared to July 2017.

FXSpotStream suffered the least this month, decreasing 8.7% from $30 billion in June to $28 billion in July. This represents a substantial 56% growth from the $18 billion recorded in July 2017.

CLS’s spot volumes also dropped 16.5% from June to $416 billion and were down 8% compared to the same period last year.

Global Spot FX

*All figures in US$

Insight

The summer lull weighed on spot FX volumes in July with major trading platforms all recording decreases of over 8.5%.

After a busy Q1 for trading platforms, firms are now returning to more regular levels of trading activity.

July saw the dollar rise against a basket of currencies due to continued fears over a trade war and expectations of US interest rate hikes.

The annual ‘summer slowdown’ means the results shouldn’t be interpreted as a worrying decline, but rather a seasonal break in trading activity.

On a more positive note, newly-released data shows FX trading volumes in London, the world’s largest currency hub, hit a new record in April. Over $2.72 trillion of trades were booked a day on average – beating the previous peak set in October 2014 – and is a strong vote of confidence in London as a global trading hub.

Looking beyond the UK, data from central banks in the USA, Japan, Singapore, Australia and Canada also paint a very positive global picture – suggesting trading activity is approaching close to USD 6 trillion a day. This would mark a new record for global trading activity.

Future predictions

So far in 2018, the FX market has reminded everyone of the difficulty in forecasting exchange rates as things can change abruptly and continuously.

All eyes are on the USA and China, which look set to continue their aggressive rhetoric as the trade dispute continues.

The Trump administration has threatened to slap more tariffs on Chinese goods. In response, the Chinese Government announced a list of possible tariffs ranging from 5% to 25% on $60 billion worth of U.S. agricultural, metal, and chemical products.

The trade war is fast becoming a currency war, with Trump accusing China and the EU of being ‘currency manipulators’ in an effort to gain an edge over the US by making their goods and services cheaper to buy in the US. Expect to see fluctuations in USD/CNY and EUR/USD over the coming weeks.

In Europe, the focus is on the Turkish lira. According to one analyst, buying the lira is like “catching a falling knife.” The currency has shed more than a quarter of its value against the dollar this year.

It will be interesting to see if the Central Bank of Turkey raises interest rates against the wishes of President Erdogan – an “enemy of higher interest rates” – in a bid to revive the lira’s value. Strategists at ABN AMRO believe it is unlikely that we’ll see any significant hike before Q4.