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

Last month’s publication by The Fair and Effective Markets Review FEMR, set out 21 recommendations to help restore trust in the wholesale Fixed Income, Currency and Commodity (FICC) markets.

Recommendation 4b stated:

….”As part of that work, improve the controls and transparency around FX market practices, including ‘last look’, ‘time stamping’ and ‘internalisation’

the report suggested that the Bank of International Settlements (BIS), and national central banks including the Bank of England lead that effort, fully covered in section 4.3.3 of the report.

I thought it would be worth briefly looking at these three practices and then gathering some very unscientific feedback from readers in the form of quick poll, and so below I have set up a poll, asking the same question to both buyside and sellside readers, with probably too simplistic a question, which is: “Which of the following practices are most open to abuse, resulting in sub-optimal client execution?”. Continue reading

Internalisation of FX flows

Earlier this week I looked at how the adoption of eFX was accelerating and commented on the huge increase in the e-FX ratios at RBS in particular, which has risen from 8% of flows being electronic in 2010 to some 53% in 2013. A whopping 511% increase in their e-FX ratios.

So, it’s interesting to see in today’s FX week an article talking about how RBS is now ‘internalising’ upwards of Continue reading

Deutsche releases Next Gen FX Pricing API

The ‘mighty’ Deutsche Bank, has released their ‘next gen’ FX pricing API called “Rapid” (Revolutionary API Design). The next stage in the ongoing ‘FX arms race’ amongst top-tier banks?

Although Deutsche has been the undisputed Global #1 in FX since forever, they have steadily seen their global market share eroded as the chart below shows, and more fully discussed in this post Continue reading

Does MiFID really understand bilateral execution? (worth a read)

Are the EU and US regulators converging, or diverging? Are definitions of SEFs (under Dodd-Frank) and OTFs (under MiFID) equivalent? And, do regulators get the differences between multilateral and bilateral execution?

Confused? Definitely.

Continue reading

Single-dealer platforms in a Cleared World: A Caplin Sponsored Breakfast panel at Profit & Loss Forex London

This morning Caplin kicked off Profit & Loss Forex London at the Glazier’s Hall with our early start breakfast panel based on the theme of Paul Caplin’s latest white paper “Single-dealer platforms in a Cleared World“. 

Audience members received an exclusive copy of the white paper which will be made publicly available next week. Click here to view our other white papers.

The Panel

Clearly both global banks and smaller banks are investing heavily in their e-Commerce infrastructure and front-ends. The panel examined the future of single-dealer platforms and tried to identify what it is that those who are investing in this space have seen, that others may not have.

The panel was moderated by P&L editor Colin Lambert and included:

  • David Bullen, Independent Consultant, Fixed Income
  • Paul Caplin, CEO Caplin Systems
  • David Holcombe, Trading and Markets Principal, Rule Financial
  • James Taylor, Global Head of FX e-Commerce Distribution, J.P. Morgan

A bright future for single-dealer platforms Continue reading

ISDA calls for MiFID II (re-think)

ISDA has just released a white paper MiFID/MiFIR and Transparency for OTC Derivatives, which looks at the micro-structure (and liquidity formation ) process of OTC Derivatives markets.

The paper makes the case that Continue reading

Single-dealer platforms and TCA

While the notion of Transaction Cost Analysis has been broadly adopted by the equity markets, it doesn’t have similar adoption in the OTC world. Why is this so? I will attempt to explain the various factors that are driving this extremely important topic.

TCA adoption in the equities world

As the equity markets became more fragmented (chiefly as a desire from the politicians/regulators to encourage more competition amongst exchanges), investment managers (IM) demanded more information from the execution brokers as to how & where the brokers chose to execute trades done on behalf of the IM.

Provision of a metric or series of metrics allowed the IMs to calculate their broker’s execution performance. Originally this was via factors such as VWAP or implementation shortfall.

As execution algorithms became widely adopted, other factors were added to measure the algo performance across lit, dark & internal execution venues. In addition, the regulatory focus on best execution meant that TCA could provide an important measure of best ex. You cannot control a cost unless you can measure it.


In the meantime, the FI & FX markets were developing their own transaction models such as ESP, RFS & RFQ.

Continue reading

Why are people building single-dealer platforms anyway?

We are seeing plenty of new comments, and blog posts regarding who is building single-dealer platforms (SDPs), although there don’t seem to be many posts that take things back to basics and explain the actual reasons SDP’s are being built. For those of you looking for a brief, straightforward explanation, here you go:

When built by an experienced team, single-dealer platforms are a fast, low cost and low risk way to service highly differentiated client segments, delivering unique relationship pricing in commoditised vanilla flow products, and adding stickiness through enhanced compelling and more complex services.

There are no restrictions on what can be built on top of a single-dealer platform. Top players tend to build their platforms in-house, leveraging their huge internal core competences for strategic competitive advantage.

Other benefits to banks include:

  • Improved margins, through delivering unique per using relationship pricing
  • Better customer retention, through delivering highly segmented workflow solutions
  • Reduced transaction costs, by providing low touch, low cost price discovery and execution, with full STP
  • Cross-selling capabilities
  • Escape from commoditization, by offering customised solutions, and aditional value added services such as research, analytics, and other client focused services
  • Internalisation of flow

FX Liquidity Mirage

Interesting comment in today’s FX week (sorry password required) about the problems with some banks FX feeds… “Banks must improve their foreign exchange pricing and trading infrastructure or risk losing order flow, according to currency traders….”

My take on the article, is that some banks are still streaming the illusion of ‘robust’ deep liquidity to clients, when in reality, the liquidity is not deep, and will disappear after the first client ‘hits them’, additional clients are then unlikely to be filled, and due to slippage (the price has now moved) the trade is rejected – this does not make for a happy client!

Continue reading