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ECB publicly endorses FX Global Code

The European Central Bank (ECB) has become the latest central bank to endorse the Bank of International Settlements’ (BIS) FX Global Code, joining others including the New York Federal Reserve and the Reserve Bank of Australia. This signals that currency-trading institutions who do not sign up may well find their counterparties limited in future.

Whilst the ECB did not issue a legal mandate for its currency market counterparties to sign up to the Code, market participants have been invited to publicly declare commitment to the Code by May 2018, one year on from its publication. It is clear that the central banks are taking the Code very seriously, and rightly so.

The Code sets out a comprehensive set of best practice guidelines which outline how all market participants, regardless of institution type, should behave in order to uphold the highest standards of transparency and ethics in the wholesale FX market.

Since the final version of the Code was published two months ago, many institutions have already committed to adopting it. Those that haven’t will likely be spurred into action by the ECB’s firm encouragement.

This advocacy for an important set of principles is to be welcomed.

TRACE and Reg ATS: the changing face of US Treasuries regulation

Nichola Hunter, Chief Operating Officer at LiquidityEdge, explores new regulation coming down the track which will significantly impact broker-dealers in US Treasuries.

Regulatory changes are afoot in the US Treasuries market. While reporting transaction data to regulators has been the norm in the equities market for decades, in October last year the SEC approved FINRA’s new reporting rule requiring UST trades to be reported by the end of the day on which they were executed.

Starting in July this year, all broker-dealers registered with the SEC that are FINRA members must report transactions through the Trade Reporting and Compliance Engine (TRACE) system. This is a major development for the UST market and one that will cause no small number of headaches amongst participants. The cost and resourcing implications of such a major change to regulatory reporting cannot be underestimated.

Broadly speaking there are two camps that argue for and against more transparency. While it would be difficult to find anyone willing to argue that increased transparency shouldn’t be encouraged for the purposes of improved regulatory oversight, less certain is the path to real time public dissemination.

Typically, professional trading firms will argue that transparency is required to enhance liquidity, improve best execution processes while reducing overall transaction costs. However, many of the dealers will argue the exact opposite, citing experiences in other markets that attest to a reduction in overall liquidity, widening of the bid/ask spread and the negative impact of transparency on their hedging strategies.

Trade reporting is not the only regulatory burden on the horizon for UST market participants. While the SEC has traditionally exempted platforms that solely trade government securities from its regulatory regime for alternative trading systems, known as Reg ATS, changes in market structure have recently prompted it to change its stance.

Reg ATS was introduced in 1998 to enhance regulatory oversight of off-exchange equities trading and improve the transparency of operations and protections for investors, with the aim of promoting a fair and competitive market. It requires platform operators to register as a broker-dealer and disclose significant details about operations, as well as committing to providing market participants with fair access to its services and liquidity pool.

UST platforms were excluded from the rules at the time due to the unique regulatory framework for government securities in the US, which involves the SEC, Department of the Treasury and federal banking regulators. However, the SEC now believes that market conditions and the broader regulatory environment have evolved to a point where it is appropriate to extend Reg ATS to the UST market. It remains to be seen if the acting or any new SEC chair will pick up the baton and move forward with this change.

At LiquidityEdge we are well positioned to adapt to a potential extension of Reg ATS to UST venues. Our platform is built on tried and tested technology, widely used in the FX market to ensure robust performance and efficient market access. Thus, the technology need to meet many of the requirements of Reg ATS is already built into the fabric of the platform.

LiquidityEdge was designed to meet the evolving needs of US Treasury market participants and facilitate a more orderly and efficient trading environment. Transparency and fair market access play crucial roles in achieving this end goal, and if regulators consult closely with both platform operators and all types of market participants before putting pen to paper, they will help build an appropriate legislative framework for today’s complex US Treasury Market.

For more information, click here for Nichola’s full article.

Mosaic Smart Data named Best Use of Data and Analytics Innovation at the 2017 FStech Awards

Data analytics technology specialist Mosaic Smart Data has won the Best Use of Data and Analytics award at the annual FStech Awards, held in London on Thursday 23rd March.

Regulatory changes and advances in technology are revolutionising fixed income, currencies and commodities (FICC) markets and driving the need for intelligent data analytics and reporting.

MSX delivers a next generation data analytics platform for FICC market participants. By delivering the insights and real-time intelligence they need to harness exponentially increasing data as well as meeting regulatory requirements, it enables trading and sales teams to significantly enhance their workflow productivity.

The platform standardises and aggregates multiple data sets to enhance audit trails and reporting, enabling banks to comply with mounting regulatory requirements.

Mosaic has fully integrated predictive analytics into MSX, enabling financial institutions to more accurately determine future market activity based on sophisticated algorithms and historical data.

After collecting the award, Matthew Hodgson, CEO and Founder of Mosaic Smart Data, said: “In today’s digital world, banks need to have a deep understanding of the business they are handling in real time. The data is there, but it needs to be standardised and have intelligent analytics applied to it. It is an incredibly intensive undertaking which requires both innovative technology and thorough insight into the bank’s business needs.”

Read more about this story at Mosaic Smart Data’s website here.

R3 trials blockchain fixed income trading with 40 banks

Chatsworth client R3 CEV has successfully trialed five distinct blockchain technologies in parallel in the first test of its kind, as reported this morning by Wall Street Journal, Forbes and Reuters.

The trial represented the trading of fixed income assets between 40 of the world’s largest banks across the blockchains, using multiple cloud technology providers within R3’s Global Collaborative Lab.

This marked an unprecedented scale of institutional collaboration between the financial and technology communities exploring how distributed ledgers can be applied to global financial markets.

The banks connected to R3-managed private distributed ledger technologies built by Chain, Eris Industries, Ethereum, IBM and Intel. They evaluated the strengths and weaknesses of each technology by running smart contracts that were programmed to faciliate issuance, secondary trading and redemption of commercial paper, a short-term fixed income security typically issued by corporations to raise funding.

Each of the distributed ledgers ran a smart contract based on identical business logic to enable the banks to accurately compare the difference in performance between them. Cloud computing resources were provided by Microsoft Azure, IBM Cloud and Amazon AWS to host the distributed ledgers.

The R3 member banks involved in this trial included Banco Santander, Bank of America, Barclays, BBVA, BMO Financial Group, BNP Paribas, BNY Mellon, CIBC, Commonwealth Bank of Australia, Citi, Commerzbank, Credit Suisse, Danske Bank, Deutsche Bank, J.P. Morgan, Goldman Sachs, HSBC, ING Bank, Intesa Sanpaolo, Macquarie Bank, Mitsubishi UFJ Financial Group, Mizuho Financial Group, Morgan Stanley, National Australia Bank, Natixis, Nordea, Northern Trust, OP Financial Group, Scotiabank, State Street, Royal Bank of Canada, Royal Bank of Scotland, SEB, Societe Generale, Toronto-Dominion Bank, UBS, UniCredit, U.S. Bank, Wells Fargo and Westpac Banking Corporation.

Further exciting developments are set for the months ahead, as R3 continues to work with the banks in its Global Collaborative Lab to test and develop applications based on distributed ledger technology for the financial services industry. The Lab has quickly become a center of gravity for collaborative applied blockchain efforts in the financial services and distributed ledger technology industries.