CLS FX Settlement Service: Apr 15 vol figures -9.9% broadly inline with other platforms

The CLS FX settlement system has reported a -9.9% drop in the average daily value of FX trades settled through their platform in Apr 15, taking volumes back down to $4.64trillion/day.

The monthly drop is slightly below falls reported last week by the major FX spot platforms which saw falls ranging from -10.6% for Reuters to -15.4% for EBS.

Details from the platform and charts are as follows: Continue reading

ICAP results, refocus of business on facilitating market efficiency and access to liquidity

The regulatory reforms of Dodd Frank, MiFID II, EMIR and Basel III, are fundamentally changing the structure of Global OTC markets. As a result, participants face higher costs for regulatory capital, mandatory trading of standardised derivatives, increased pre-trade transparency and post-trade reporting and a drive to central clearing.

On top of which banks have been hit with multi-billion dollar fines for manipulation of LIBOR rate fixings, and market collusion around FX manipulation.

As a consequence, banks are re-engineering their businesses, shifting from capital intense (balance sheet consuming) activities to ‘capital light’ business models, driving down costs by moving from voice to electronic execution, from bilateral to cleared and from principal to agency – capital efficiency, low risk, client servicing is the name of the game.

Whilst challenging traditional business models, the regulatory reforms have also created opportunities for innovative new trading platforms, regulatory compliant market infrastructure, and services that facilitate the ‘capital-light’ business models.

Inter-Dealer Brokers (IDBs), the middle men matching buyers and sellers in the OTC markets, have been quick to spot opportunities to re-invent themselves, and invest in new technology solutions that will enable them to remain at the centre of execution in the new market order.

ICAP, the biggest of the IDBs, gave a glimpse under the hood of these changes in their full year results which were released yesterday, and although overall revenues are down 7%, they make fascinating reading in the trends that they reflect, and the speed by which IDBs are re-positioning the business to benefit from the changes in market structures and drive to market efficiency.

  • Overall revenues down 7%
  • Electronic Markets & Post Trade services account for 75% of profits (70% prev)
  • Post-Trade revenues up 8% driven by Tri-Optima and Traiana
  • Merger of FX (EBS) and Rates (BrokerTec) into a single offering (accounting for 64% of group revenues) took six months: EBSBrokertec
  • Electronic markets revenue split: EBS 48% (46%prev), Brokertec 49% (50% prev)
  • Headcount changes: Global broking -24%, Electronic markets +12%, Post-Trade +10%
  • Moving outside the traditional inter-dealer market, to service segments traditionally seen as customers (buy-side firms) such as hedge funds, asset managers, retail brokers
  • Spend on new initiatives £43mln
  • Including EBS Direct, EBS Select, eFIX, new HTML5 platforms,

ICAP investmentInvestment in new Products by ICAP

EBSDirect, the new relationship based FX platform from EBS has proved a huge success, as can be seen from the volume figures below:

EBS Direct VolumesEBSDirect Monthly Volumes

Interestingly, Tradition another major IDB, has also been exploring opportunities from new market structures, and recently announced the launch of a new electronic repo-market DBV-X to facilitate the efficient use of collateral.

Regional banks upping their game, as Standard Bank rolls out an award winning SDP

We often comment on how regional banks are upping their game, and investing in new single-dealer platforms (SDPs) to enable them to better serve, protect and grow their client franchise.

With that in mind, it was great to see that Standard Bank’s newly upgraded SDP eMarketTrader has just been voted Best Super Regional Bank SDP’ in the Profit & Loss 2015 Digital FX Awards.

According to Profit & Loss editor Colin Lambert:

For the first time in three years a new entrant joined the winners’ circle: Standard Bank.

Banks continued to invest in what remains their number one channel for connecting with clients.

It is heartening to see so many banks outside the top 10 investing in their technology also – a single dealer platform will be vitally important for these institutions if they are to service their core client base going forward.”

This is a big achievement for Standard Bank, as the ‘winners circle’ is made up of Continue reading

FX Platforms – Mar 15 vol: Solid gains across the board

The major OTC FX platforms have now reported their March 15 volumes. All the platforms reported strong gains following weak February figures.

Looking in more detail we see the individual platform figures as follows:

EBS $114.5bn/day in Mar, up a healthy +21.7% on Feb, and up +29.5% compared to Mar 14 level of $88.4bn/day. Continue reading

Wholesale & Investment Banking Outlook 2015 – (Excellent Oliver Wyman/Morgan Stanley report)

According to an excellent new report from Oliver Wyman and Morgan Stanley (which is well worth reading), financial regulation and QE are at the heart of a huge shift in liquidity risk from banks to the buy-side, which is increasingly a concern for policy makers.

  • The shift is far from over, liquidity in sell-side markets set to deteriorate further, as regulation shrinks banks’ capacity another 10-15% over the next two years.
  • Regulatory risks are rising for asset managers, as policy makers worry about the risks to financial stability from US QE exit and market structure changes.
  • For the banks, diminishing returns on capital from market making demand even greater efficiency, dexterity and scale to achieve 10-12% returns.

Capital required to make a buck

Capital required to generate $1 of revenues greatly increased across FICC markets

Balance sheet shrinkage

 Balance sheet shrinkage across FICC

There is a liquidity conundrum in fixed income markets facing policy makers and investors: how it’s resolved will have long-term investment implications across banks, asset managers and infrastructure players.

  • Huge shift in liquidity risks to the buy-side as the twin forces of financial regulation and QE have played out.
    • Severe reduction in sell-side balance sheet and banks’ liquidity provision.
    • Balance sheets supporting traded markets have decreased by 40% in risk weighted assets (RWA) terms and 20% in total balance sheet since 2010.
  • Liquidity of secondary fixed income markets is likely to get materially worse.
    • Expect another 10-15% shrinkage of fixed income balance sheet from the largest banks in the next 2 years. As much as 15-25% could be taken out of flow rates
  • Credit markets are the biggest challenge. Unresolved conflict in regulator desires to reduce the disconnectedness between banks to ensure that asset managers have sufficient liquidity to deliver on promises to their investors, and to preserve companies’ flexibility to issue in a wide range of markets.
  • Electronic trading and new marketplaces will grow – but will not solve the fundamental issues. New initiatives to increase electronic trading, new data networks, new agency execution models new marketplaces. However heterogeneity of products will limit how far electronification will go in fixed income markets.
    • FI markets entering a period of accelerating market structure change. A confluence of forces is driving this:

Economic pressures on dealers
Client concerns around liquidity
A desire to manage conduct risks relating to sales and trading activities
Mandated electronic trading (SEFs – Dodd Frank, OTFs -MIFID/EMIR)
New pre- and post-trade reporting requirements
Advances in technology

Fixed Income electronificationPenetration of electronic trading by asset class

Impact on Banks

To hit target returns, banks will need to push further on restructuring the business. We see huge potential for change, with three key areas of focus:

Strategic selection: more tough decisions, focused on FICC businesses and the international footprint
Client service models: shifting from people-based push services to technology-based pull services and being more selective with balance sheet extension
Operating model: shifting from proprietary infrastructure to supply chain based infrastructure

Whole report available here

When liquidity disappeared – FXCM account of EURCHF liquidity in 40mins following SNB announcement

FXCM has published a very interesting account of what they saw in terms of pricing in EURCHF from their bank liquidity providers in the seconds and minutes following the SNB decision to remove the 1.2000 peg at 04:30 on January 15th.

January 15 Was A Market Flash Crash – The Institutional FX Market Failed And Did Not Function: The SNB’s surprise announcement caused a complete institutional FX market breakdown impacting liquidity, volatility, spreads, and execution. Unlike other recent major market events where FXCM’s liquidity providers continued quoting and providing consistent levels of liquidity, January 15 saw an extreme lack of liquidity and pricing

  • No Liquidity – There was almost no available liquidity for approximately 40 minutes
  • Dramatically Low Pricing – External ECN prices went as low as 0.2000 and 0.5000
  • Extreme Spreads – The average spreads of EUR/CHF were more than 2000-3000 pips
  • Extreme Range – The average range of EUR/CHF was 6000 pips

In the first 5 seconds after the EUR/CHF price Continue reading

Central Bank FX Semi annual surveys Oct 14: Record vols seen in 5 out of 6 top centres

The major central banks reported their latest semi-annual FX survey results for Oct 14 today.

Record high daily volumes were reported for London ($3.097bln/day +12.3%), NY ($1,096bln/day +35.1%), Singapore ($481bln/day +30.1%), Japan ($374bln/day +3%) and Canada ($67bln/day +8.5%) with only Australia showing a fall ($151bln/day -14%). London once again dominating the FX market, with volumes in London approaching 60% of global daily volumes.

Top 6 FX centres Apr-Oct 14


Top 6 Global FX centres

Top Global FX Centres (based on Central Bank FX Semi annual FX survey data for Oct 14)

A quick look at the trend in volumes by instrument shows that Continue reading


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