The Currency Ethicist: One Man’s Push to Fix a Tarnished Market

Last week, the Bank for International Settlements launched a code of conduct for market professionals operating in the world’s largest and most liquid financial market – foreign exchange – and in doing so, laid out its vision of how banks, asset managers, hedge funds, corporates and infrastructure providers should behave and operate when exchanging an estimated USD5.3 trillion a day.

At the heart of this initiative was David Puth, Chairman of the BIS Market Participants Group. A former JPMorgan Chase & Co. and State Street Corp. executive, David led the initiative alongside his role as chief executive officer of New York-based CLS Group, a utility that settles trillions of dollars of currency transactions a day and is considered by the U.S. Treasury to be a systemically important piece of the financial system.

He spoke to to Bloomberg about the importance of developing industry-led guidance around trading behaviour and best practice requirement, and how the code of conduct aims to provide a common set of guidelines to promote the integrity and effective functioning of the market.

Read the article, or watch the Bloomberg interview

Euromoney FX Rankings 2016: Shuffling The Deck

The constitution of the FX market is changing – it is no longer the exclusive preserve of banks, with a non-bank prop fund breaking into the top 10 for the first time, despite solid continuing performances from City, JP Morgan and UBS.

The release of Euromoney’s annual FX rankings for 2016 showed some significant changes in the performance of global banks at the top flight of the table, but also the rise of non-bank challengers such as XTX Markets, which secured 9th position ahead of Morgan Stanley, with a 3.87% market share on debut.

Relative to competition from other major banks, Citi strengthened its position with a 4% lead at the top of the table, despite an overall year-on-year decline in comparison to its 2015 figures. This decline in volume was mirrored across the top 5 global banks, as FX trading divisions struggle to tackle growing compliance and cost challenges. Over a 7-year period, combined market share among this group has fallen almost 17% from a high of 61.5% in 2009.

Deutsche Bank continues to undergo restructuring and cost cutting and suffered heavy falls across FX Spot and FX Forward markets, while retaining its crown in the FX Options market. Overall, the bank fell from second to fourth, losing almost half if its 2015 market share.

As many banks continue to face balance sheet pressures and the constraints of capital requirement rules, non-bank liquidity providers have in many cases flourished. Beside major gains by XTX Markets, Tower Research Capital, Jump Trading, Virtu Financial, Lucid Markets and Citadel Securities all secured a top 50 ranking.

According to Euromoney, total volumes taken into account for the 2016 rankings amounted to almost USD 95 trillion. Foreign exchange settlement volume from Chatsworth Client, CLS, hit USD 4.96 trillion in April, up 5.7% from the previous month, and up 6.9% from the USD 4.64 trillion in April 2015.

FX-MM Review: FX as an asset class

FX-MM explores the changing nature of trading volumes, strategies and technology in foreign exchange (FX), as investors face dwindling returns in other asset classes.

As part of the article, Roger Rutherford, Chief Operating Officer at ParFX, analyses the growth of electronic trading in spot FX, whilst sharing his thoughts on future market and technology trends.

He also highlights the corrosive impact of disruptive high frequency trading on the ability for market participants to execute efficiently, before emphasising the need for a truly level playing field in foreign exchange.

David Mechner, CEO of Pragma Securities, also provided insight into the role and value of algorithmic trading in currency markets.

Read the full article.

Greenwich Associates FX Report: A bite size digest

Greenwich Associates has published an interesting report covering the changing nature of liquidity provision in the global foreign exchange (FX) market, as well as the impact of macroeconomic and regulatory factors in driving a market structure evolution.

The paper, entitled Diversifying Liquidity: Attaining Best Execution in FX Trading, highlighted the continuing growth of non-bank liquidity providers, with the largest FX dealers executing less than half of global buy-side FX volume.

However, despite the growth of competition from non-bank liquidity providers and the challenges posed by incoming regulatory requirements, interviews with over 1,600 top-tier foreign exchange users globally found that the world’s largest dealers are expected to continue to play a major role in facilitating FX trading.

The report also noted growing demand for a more granular understanding of best execution by utilising sophisticated transaction cost analysis (TCA) tools to analyse existing trading relationships and engage with new counterparties.

The rise of electronic execution and the subsequent decline of voice brokerage was also striking, with a 32% jump in buy-side trading handled by multi-dealer trading platforms and a 50% reduction in phone-traded volume since 2008. These changes contributed to an overall growth in electronic trading, which now accounts for 73% of all FX volume executed annually.

In line with the growth of electronic trading, a jump in the adoption of FX algorithmic trading amongst the hedge-fund community was particularly notable. From 2014-15, automated execution amongst this group of traders almost doubled from 33% to 61%; in contrast, the growth in adoption rates for fund managers and pension funds showed a mere 5% rise over the same period.

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Lananh Nguyen at Bloomberg covered the growing popularity of algorithmic trading amongst hedge funds here

David Rutter: leading the blockchain and Treasuries revolutions

R3’s David Rutter is profiled in this month’s Risk magazine, charting the former ICAP e-broking chief’s inspiration to form the bank consortium focused on developing blockchain-inspired technology, as well as new US Treasury platform LiquidityEdge, which is now going head-to-head with the likes of BrokerTec and Nasdaq’s eSpeed.

Read the full article.

R3 recognised at Sell-Side Technology Awards

Blockchain consortium R3 scooped Best Sell-Side Start Up and Best Overall Sell-Side Product of the Year at this year’s Sell-Side Technology Awards earlier this week in New York.

In his write-up of the evening’s proceedings, Victor Anderson, Editor at Waters Technology, charted the firm’s innovative approach to developing blockchain and distributed ledger technologies, as well as its partnerships with leading financial institutions.

Read the full article


Reporting from the SWIFT Business Forum 2016

Over 1,300 fintech professionals arrived at Tobacco Dock in East London yesterday morning for SWIFT’s annual Business Forum London conference, which has become the must-attend yearly event for this rapidly growing industry.

After a quick coffee in the sunlight-filled atrium of the impressive nineteenth Century tobacco warehouse, the day’s proceedings kicked off with a panel debate based around the event’s theme for 2016: building the future. SWIFT’s CEO, Gottfried Leibbrandt took to the stage along with Digital Asset Holdings’ Blythe Masters, RBS’s Director of Payments Marion King and Andrew Hauser, Executive Director of Banking, Payments and Financial Resilience at the Bank of England.

The themes that emerged in this session set the tone for the day, with one of the reoccurring debates focusing around how banks and other incumbent service providers could co-exist with fintech startups seeking to ‘disrupt’ and innovate in areas such as payments. SWIFT’s inspired agenda ensured that almost every panel debate featured representatives from both sides of the fence, and it was fascinating to see the level of collaboration between some of the giants of the banking world and young, agile startups, with both sides bringing their inherent unique strengths to the table.

Of course the most popular theme of the day was blockchain, with seemingly every panel discussing how distributed ledger technology could be used to revolutionise their particular areas of the industry, and the R3 initiative being singled out as leading the charge in light of its launch of the Corda platform, which Barclays had tested in front of a live audience just a few days earlier.

There was a distinct air of excitement and positivity in all the conversations we had and overheard at the event yesterday, and we left with a sense that, even though we are only four months in, 2016 could usher in some of the most significant developments the fintech space has seen for a very long time.

London’s leading position as a USD 2.2 trillion hub for FX trading would be harmed by a Brexit, according to poll of currency market professionals

London’s position as the world’s main currency trading centre would be threatened by a British exit from the European Union, with Frankfurt, Paris, New York and Dublin likely to be the main beneficiaries, according to a survey of foreign exchange (FX) market professionals.

As reported in Bloomberg and Reuters, the research team at Chatsworth Communications polled 12,000 members of the ACI Financial Markets Association, the largest global trade body representing the international currency markets, for their personal views ahead of the UK Referendum vote on 23 June.

Key findings:

  • Two-thirds (65%) of respondents believe a UK vote to leave the EU would negatively affect London’s position as the world’s largest FX trading centre, while 13% believe a Brexit would have a positive impact.
  • Of those concerned about the negative impact on London, more than 70% identified Frankfurt as the trading centre most likely to benefit from a Brexit, followed by Paris (49%), New York (40%) and Dublin (28%).
  • 80% of all respondents believe the UK will vote to remain in the EU.

London’s dominance of the foreign exchange market has grown exponentially as the size of the market expanded, and is, by far, the largest and most established centre for currency trading. Nearly 41% of global trading goes through London, more than double the market share of New York, according to data from the Bank for International Settlements (BIS)*.

Currency trading increased globally to an average USD 5.3 trillion (GBP 3.8 trillion) per day in 2013. The vast majority (75%) occurred in five jurisdictions: London (41%), New York (19%), Singapore (5.7%), Japan (5.6%) and Hong Kong (4.1%).*


Detailed findings:

A UK vote to leave the EU will…

  • Positively affect London’s position as the world’s largest FX trading centre: 13%.
  • Negatively affect London’s position as the world’s largest FX trading centre: 65%.
  • Have no effect: 22%.

How do you think the UK public will vote?

  • The UK will vote to remain in the EU: 80%.
  • The UK will vote to leave the EU: 20%.

Which global trading centres do you think will benefit the most if the UK votes to leave (NOTE: answered only by respondents who believe a Brexit will have a negative impact on London)?

  • Frankfurt: 71%.
  • Paris: 49%.
  • New York: 40%.
  • Dublin: 28%.
  • Zurich: 14%.
  • Hong Kong: 8%.
  • Singapore: 7%.
  • Geneva: 7%
  • Dubai: 4%.
  • Tokyo: 4%.

How long have you worked in the FX industry?

  • Less than one year: 0%.
  • 1-2 years: 9%.
  • 3-5 years: 10%.
  • 6-10 years: 16%.
  • 11-15 years: 17%.
  • 16-20 years: 18%.
  • More than 20 years: 30%.

The power or predictive analytics and machine learning

How powerful would it be to have the foresight to anticipate your customers’ individual needs or to recognize patterns that affect a whole market in real-time? This is what predictive analytics and machine learning promise to deliver. Much of this capability already exists and is being used to considerable effect, especially by technology giants such as Google and Facebook.

Diane Castelino PH.D, Data Science and Research Lead At Mosaic Smart Data takes a look at how this technology can be applied to the financial services industry. Read the full article

FinTech comes of age

The great and good of global finance and technology descended on the City of London Business School this week for a thought leadership discussion on the growing influence of new technology on the financial ecosystem. The discussion and content was excellent.

The FT’s chief economics commentator, Martin Wolf, chairing one of the panels provides an insightful summary of proceedings in his comment piece here

Chatsworth client,  R3 took a lead role in the panel debate, with observations on blockchain and its likely application to finance. The R3 team is leading the field in developing blockchain technology with its consortium of over 40 banks took a lead role in the panel debate.

We have worked in this field for over a decade, through the advent of electronic broking systems on traders’ desktops, evolving into more automation through API-based trading, first in equity markets and then into other asset classes such as FX.

This is now entering a whole new game, where incumbent systems and institutions are being challenged, and as a result need to adjust their models, technology and value proposition accordingly.

Our instinct is that the technology is the delivery mechanism but not the answer in itself.

Established systems, venues and institutions have the legal frameworks, proven capabilities, customer usage/coverage and liquidity in place – this is where their real value lies.

New technology is more likely to complement and integrate rather than entirely reorder the plumbing of global financial markets from top to bottom. That is why the meeting of the minds have to take place between financial markets practitioners and technologists.

Finance is a market of natural interest which rewards innovation  – it  will naturally size up and absorb the best emergent tech.

Symmetrical Triangle in USDOLLAR for the Next Move


Christopher Vecchio, Currency Analyst, at DailyFX, comments:


“The weak March US Nonfarm Payrolls report on Friday initially spurred weakness in the greenback in illiquid markets, but as participation has returned, the net effect has been negligible. The USDOLLAR Index is back to its levels ahead of the release, while EURUSD and USDJPY have given back their post-NFP moves entirely.


“Now, as EURUSD and GBPUSD continue to consolidate in steady ranges from the past few weeks, the broader USDOLLAR Index is exhibiting signs of a potentially bullish chart pattern on the H4 timeframe: a symmetrical triangle during an uptrend.


“Despite the onslaught of negative headlines regarding US growth, and the market pricing out a Fed rate hike to as far as January 2016 (per the fed funds futures contract implied probability), the greenback seems to be weathering the storm for the time being. This may have serious implications for various USD-pairs over the coming weeks, even if April has been the worst month for the buck during the QE era.”


US Dollar May Fall as Fed-Speak Underpins Bets on Rate Hike Delay

Ilya Spivak, Currency Strategist, at DailyFX, comments:


“Germany’s IFO Survey of business confidence headlines the economic calendar in European trading hours. The forward-looking Expectations index is expected to rise for the fifth consecutive month in March, registering at the highest level since July. The outcome seems unlikely to offer much by way of lasting Euro volatility however considering the results’ limited impact on the near-term ECB policy outlook. Indeed, sentiment may be improving because the central bank has expanded stimulus efforts, which hardly seems like a supportive narrative for the single currency.


“Later in the day, “Fed-speak” returns to the spotlight as Charles Evans – the President of the central bank’s Chicago branch – takes to the wires. Traders pushed out the likely timeline for the first post-QE rate interest hike after last week’s FOMC meeting, with Fed Funds futures now pointing to an increase in September (versus the June/July consensus prevailing ahead of the Fed announcement). Rhetoric supporting this shift from the typically dovish Mr. Evans may weigh on the US Dollar.”



US Dollar Bounce May Yield to Renewed Selling on PPI, UofM Data

Ilya Spivak, Currency Strategist, at DailyFX, comments:


“A quiet economic calendar in European trading hours is likely to see traders looking ahead to the US data docket for direction cues. February’s PPI report is expected to put core year-on-year wholesale inflation at 1.6 percent, matching the four-month low recorded in January. Separately, the University of Michigan consumer confidence gauge is expected to edge narrowly higher in March.


“Last week’s payrolls data notwithstanding however, US economic news-flow has tended to underperform relative to expectations since late December. This warns that analysts may be overestimating the economy’s vigor and opening the door for a downside surprise. Such an outcome may cool Fed rate hike speculation, weighing on the greenback.”


Euro And Yen Look To Greece Debt Negotiations For Direction

Ilya Spivak, Currency Strategist, at DailyFX, comments:


“Greece is in the spotlight once again in European trading hours. Officials from Athens are due to meet with representatives of the so-called “institutions” – the EU, ECB and IMF – in an attempt to avoid a cash crunch. Without a deal to unlock a €7.2 billion aid tranche, Greece may run out of money in a matter of weeks. That portends default and could pave the way for an exit from the Eurozone.


“Both sides are ultimately interested in an accord. The newly-minted Greek administration of Alexis Tsipras surely realizes its grip on power depends on its ability to deliver relief from years of Depression-like economic woes, which will be hard to do in a messy “Grexit” scenario. Meanwhile, Eurozone officials almost certainly want to avoid setting a precedent for a country to leave the currency bloc that may encourage further splintering down the road.


“With this in mind, another eleventh-hour deal seems likely. Such a result may offer a temporary lift to the Euro and boost risk broader risk appetite around the financial markets, which might put pressure on the safety-linked Japanese Yen. Follow-through might be limited however considering investors’ priced-in baseline outlook seems to lean in favor of resolution, not dissolution. Needless to say, continued deadlock may carry the opposite results, though this too could see restrained volatility unless all hope is truly seen as lost. Indeed, the markets seem content to offer the negotiating parties the benefit of doubt even as endless meetings yield no results as long as things remain in motion.”


CLS Settlement Data: January 2015


David Puth, CEO of CLS, comments:


“Currency trading activity increased markedly during the first month of the year. The SNB’s decision to remove a currency ceiling against the euro, and subsequent trading activity, was a primary factor behind the 16% rise in average daily volume submitted to CLS. The average daily value of trades also increased to USD5.31 trillion – up 9% from December 2014.


“CLS also experienced a record settlement volume day last month. Following the SNB’s decision, CLS settled a record 2.26 million transactions on 20 January, totalling USD9.2 trillion — with 99.5% of those transactions settled within 45 minutes.


“Given the divergent monetary policies that exist in many major and emerging economies, we expect continued volatility and increased activity in currency markets in 2015.”




CLS Settlement Service and Aggregation Service input data

Monthly volumes and values, January 2015


Total input volumes1 and values


In January 2015:


– The average daily input volume submitted to CLS, combining the settlement and aggregation services, was 1,419,369 up 16.0% from 1,223,109 in December 2014


– The average daily input value submitted to CLS was USD5.31 trillion up 9.0% from USD4.87 trillion in December 2014.


Screen Shot 2015-02-19 at 11.14.35


Input volumes are the number of instructions received by CLS on a given day for future settlement. Input instructions are not necessarily settled during the month in which they were submitted.


Note: CLS reports both sides of an FX transaction. To adjust the average daily value data to equate to the same reporting convention used by the Bank for International Settlements and the semi-annual foreign exchange committee market reports, the gross values should be divided by two.


In January 2013, CLS recalculated its monthly data, resulting in non-material changes to volume figures by an average of 0.5%. The data above reflects this calculation.



Interdealer Brokers: Creating Market Structure Solutions from Within

The recent scrutiny of the FX market has placed further demands on global regulators as market participants become increasingly frustrated with the lack of regulatory harmony when it comes to the global financial industry.

Dan Marcus, CEO of ParFX and Trad-X, and Global Head of Strategy and Business Development at Tradition writes in Tabb Forum about how industry-led initiatives are helping to solve some of the key issues affecting the industry on a global scale without having to rely solely on regulation. Read the article here.

Marshall Bailey President of the ACI comments on the FX settlement

“The news announced today by the FCA and other international regulators is a moment of reflection for the FX market. The improper behaviour that has come to light has no place in financial markets and it is crucial that lessons are learnt from these events to ensure it does not reoccur. “Ultimately, it came down to the behaviour of individual market participants, and the ability of their supervisors to enforce the standards required through oversight and governance.


“We must work with international regulators to strengthen and implement these internal controls and ensure they are applied across all institutions globally. For it to be effective, harmonising the rules, guidelines and conduct expected of market participants is imperative if we are to stamp out unethical behaviour; it must apply across borders, as regional regulation or codes will only result in arbitrage opportunities and create additional uncertainty. Unfortunately, the actions of this relatively small unrepresentative minority has damaged the reputation of the market in the eyes of the public, but this should not be seen to reflect the broader health of the FX industry, nor should it trigger wider structural reforms.


The reality is that the FX market’s structure is broadly effective and well designed, and plays a vital role in the flow of global commerce. Nevertheless, we have a collective responsibility to work with policymakers and introduce reforms where needed in a considered manner that avoids the unintended consequences. “When considering the wider allegations of improper behaviour relating to Libor and other benchmarks, it highlights the need to shift the emphasis away from prescribed regulation – which is certainly part of the answer but not a panacea – to governing human behaviour. At the heart of this should be a renewed focus on instilling ethical conduct and individual responsibility across all institutions and regions globally.


“Market participants also need to be uniformly educated about what is and isn’t acceptable, and be aware that they, as individuals, are responsible for their actions. The ACI’s Model Code clearly defines the principles and ethics that professionals should adhere to in order to uphold market standards globally. It was initially compiled in response to an urgent international market need – the circumstances of which are not too dissimilar to what we face today – and is already backed by a number of central banks and FX committees. With sufficient backing and global enforcement, it can act as the logical bedrock for a formally adopted global standard governing behaviour and ethics across financial markets.


“The ACI also welcomes the recent consultations from the Financial Stability Board and the UK Treasury’s Fair and Effective Markets Review. These market-wide consultations are a sensible approach and set the scene for finding a collaborative solution to the current conduct and behaviour issues.”

Tradition named as Equity Derivatives Interdealer Broker of the Year

Tradition, one of the world’s leading interdealer brokers, was named Equity Derivatives Interdealer Broker of the Year at the GlobalCapital Global Derivatives Awards. The award winners were announced at a gala reception and dinner in London.


The accolade recognises Tradition’s market-leading position, its global product coverage and its ability to provide outstanding service to its clients in the equity derivatives markets.


The Global Derivatives Awards from GlobalCapital, a leading news service of Euromoney Institutional Investor Group showcase the achievements of participants active in the OTC, cleared and listed derivatives markets. The awards honour the people, companies and deals that made an impact on the global derivatives market during the last year. Winners in each category were chosen by GlobalCapital’s editorial board, based on a number of criteria including innovation, market impact, performance, client feedback and uniqueness of approach.


Steve Vjestica, Head of Equities at Tradition, comments: “Tradition has been a major player in the equity derivatives market for over twenty years, and this award is testament to the superior level of service, expertise and market knowledge our brokers offer our global client base on a daily basis. We are delighted to have received this recognition from GlobalCapital, and are committed to evolving our innovative equity derivatives offering in line with the changing needs of our clients and the market.”