BIS establishes working group to strengthen code of conduct standards and principles in FX markets


In the recent release of ‘The Fair and Effective Markets Review’ FEMR, into how to restore trust in FICC markets, the report made the following recommendations in sections 4a and 4b:

4. Launch international action to raise standards in global FICC markets

a. Agree a single global FX code, providing: principles to govern trading practices and standards for venues; examples and guidelines for behaviors; and tools for promoting adherence. The Review strongly welcomes the recent announcement by central banks to work towards those goals; (BIS and national central banks including the Bank of England 4.3.3)

b. As part of that work, improve the controls and transparency around FX market practices, including ‘last look’, ‘time stamping’ and ‘internalisation’ (BIS and national central banks including the Bank of England 4.3.3)

Following the recommendations The Bank of International Settlements (BIS), has now Continue reading

Poll results: Last look, lack of time-stamp and internalisation of flows – Which practice is most open to abuse?


A few weeks ago, we explored last look’, ‘time stamping’ and ‘internalisation’three practices that The Fair and Effective Markets Review FEMR, felt needed improved controls to help restore trust in FICC markets.

At the end of the post, I opened a poll asking buyside and sellside readers: “Which of the three practices are most open to abuse, resulting in sub-optimal client execution?”

The results, though limited and highly unscientific, are nonetheless interesting, as they highlight the almost diametrically opposite opinions of buyside and sellside. Buyside readers, overwhelmingly thought that the practice of ‘last-look’ was most open to abuse.

Whereas sellside readers, who are at the sharper end of this, felt that although last-look was open to abuse, ‘lack of time stamping orders/trades ‘was far more likely to result in sub-optimal client execution.

Poll results on Sellside practicesPoll results from unscientific and limited study asking “Which of the three practices are most open to abuse, resulting in sub-optimal client execution?”

FX Platform consolidation: 360T sold to Deutsche Boerse for €750m (as previously mentioned)


As first mentioned last month, the multi-bank FX platform 360T has now been sold to exchange operator, Deutsche Boerse for €750m ($805m), beating off interest from rival exchange operator CME Group.

360TThe transaction, which was announced today (Sunday), is the latest in a string of recent FX platform transactions, which I guess started with FXall being bought by ThomsonReuters back in 2012, and which may well see FastMatch as the next target, with exchange operator ICE as rumored suitor.

Platform costs based on daily volumes2Table showing relative costs of platforms in terms of (A) $bln daily vol, (B) cost/institutional client

Although not confirmed, I would think CME group was attracted to 360T’s dealer-client franchise. As it played to the client clearing capital efficiency proposition that CME has been developing, helping to facilitate bank-client trading relationships by mitigating counter-party risk, rather than competing for the execution of the transaction.

So, having lost out on 360T, it’s certainly possible that CME may cast an eye over Fastmatch as it would also open new clearing opportunities.

Corporate Bond platform Bondcube closes (after only 3mths)


Higher costs of regulatory capital, has resulted in a massive reduction in bond inventory held by primary dealers, and as a result, banks have been withdrawing from capital-intensive market making operations and embracing so-called ‘capital lite’ agency type operating model.

According to a report from McKinsey and Greenwich Associates, broker-dealers will need to leverage e-trading technology far more to assist their clients in liquidity discovery and help them with trade execution, as it has become increasingly difficult to find the ‘other side of the trade’. As can be seen from the graph below Continue reading

Fair and Effective Markets Review (FEMR) releases Final Report


The Fair and Effective Markets Review today published its Final Report (see link at bottom of post), which sets out 21 recommendations to help restore trust in the wholesale Fixed Income, Currency and Commodity (FICC) markets.  The Review was established by the Chancellor of the Exchequer and Governor of the Bank of England in June 2014 to help to restore trust in those markets in the wake of a number of recent high-profile abuses. Back in October the FEMR published a consultation document, (available on the Bank of England website), on what needs to be done to reinforce confidence in the fairness and effectiveness of the FICC markets.

The final report from the FEMR is centred on the following principles: Continue reading

ESMA provides clearing exemption for NDFs (for now)


Back in October 14, European Securities and Markets Authority (ESMA) published a consultation paper on the mandatory clearing of swaps and Non-Deliverable Forwards (NDFs). At the time it was thought the publication was significant, coming a week before the Global Markets Advisory Committee (GMAC) of the CFTC, was to hold a public meeting to discuss whether a clearing mandate is appropriate for NDF’s, with a particular focus on how such a mandate would impact foreign exchange contracts. It was felt that the timing could signify a convergence between Europe and US on NDF clearing mandates.

However, on the basis of feedback received to ten key questions, ESMA has decided to not propose a clearing obligation on the NDF classes at this stage. ESMA believes that more time is needed to appropriately address the main concerns raised during the consultation, although there is still a possibility to propose a clearing obligation at a later point in time in order to take into account further market developments.

Below is a summary of the questions and some of the key responses from the report:

1) Clearing Obligation procedure
2) Structure of the NDF classes: Participants felt that the definition of what constitutes an NDF (currency pair, settlement currency, settlement type and maturity) was not broad enough, and that the criteria should also consider the documentation under which the contract was concluded. Specifically it was felt that only contracts which are traded under non-modified EMTA templates should be subject to the clearing obligation. This would ensure that only standardised classes were considered for clearing.
3) NDF classes proposed for the clearing obligation: Reservations towards mandatory clearing for NDF (or at least mandatory clearing under the proposed time frame) for two main reasons: a) The clearing offer for this asset class is still in its infancy and b) Lack of international convergence
4)  Maximum maturity of the NDF contracts
5)  Criteria for the determination of the dates
6) Categories of counterparties
7) Dates of application of the clearing obligation
8)  Frontloading and the minimum remaining maturity
9) Other comments
10) Cost Benefit Analysis

Full consultation feedback Statement paper here

Who say’s MiFID can’t make you smile!


Please forgive this blatant re-posting, but it will bring a rare smile to all those struggling with regulatory matters!

Just what’s needed to get you into the festive MiFID spirit, curtsey of this clever little ditty from the people at RegTech’s blog….

Xmas

♫ MiFID II is Coming To Town … ♫

You better know deals

You better not bribe

Better not launder

ESMA’s telling you why

MiFID II is coming to town

They‘re checking reports

And transparency

ESMA’s regulating

Intermediaries

MiFID II is coming to town

They see your algorithms

They know your HFTs

They know if you’ve been market making

So follow the new rules, please

You better report

You better not lie

You better record

ESMA’s telling you why

MiFID II is coming to town

MiFID II is coming …

MiFID II is coming …

MiFID II is coming …

MiFID II is coming to town

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