CLS FX Settlement: Value of transactions up modest 3.9% in Sept 15 (launches new FX fwds compression service)


The CLS FX settlement system has reported a modest +3.9% rise in the average daily value of FX trades settled through their platform in Sept 15, taking volumes back up to $4.8trillion/day (up from $4.6trillion/day in Aug 15), and the highest level since Jun 15, although still way below the high of the year of $5.3trillion/day in Jan 15.

The slight monthly rise, is slightly out of line with the modest falls in spot volumes reported by the major FX platforms earlier this month, which saw falls ranging from -8.4% for Reuters to -10.9% for EBS.

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

ICE exchange to buy IDC for $5.2bn (regulatory play around quality reference/market data?)


Interesting to see The ICE exchange is to buy IDC for $5.2bln.

According to ICE Chairman and CEO Jeffrey Sprecher, the acquisition:

“builds on ICE’s global market data growth strategy by expanding the markets served, adding technology platforms and increasing new data and valuation services

…. with IDC as the cornerstone in the next phase of extending our services, we will build on our track record of solid execution on integration and innovation by focusing on the needs of our customers in the evolving data services marketplace.”

IDC’s clients include banks and buyside firms such as Municipal funds, asset managers, hedge funds.

ICE’s data business covers Continue reading

LMAX FX report: Restoring trust in global FX markets (well worth reading)


Just finished reading a new report and survey from exchange operator LMAX, called “Restoring trust in global FX markets – Striking a balance between transparency and efficiency”.

It’s detailed, with lots of charts and tables and expert opinions, and covers much ground, including topics explored in recent posts around transparency, the FEMR report, and the issue of last look and more.

David Mercer, CEO of LMAX starts by stating:

Liquidity providers (LPs) and market makers need to be rewarded for the risks they take, and in order to enjoy the benefits of transparent price discovery and firm liquidity, customers must meet the costs of the service provided. Fair execution must come at a fair price, and transparency cannot come at the cost of destroying liquidity provision.

Customers have benefited from new technology, with spread compression and lower commissions. However, traditional LPs have had to invest heavily in technology to support globally distributed client base, whilst facing ever more sophisticated buy-side customers and smaller, more naturally agile competitors in the realm of liquidity provision (ie: non-bank market makers).

Mercer, adds that there is much that LPs can learn from these new entrants, including:

elements of exchange-style trading that create a fairer trading environment.

Proposals currently being considered to enhance transparency in the FX market risk disadvantaging Continue reading

Barclays discloses ‘Last Look’ guidelines (but can’t find any from other banks)


Back in June 15, the Bank of England’s Fair and Effective Markets Review (FEMR), published its final report, setting out 21 recommendations to help restore trust in the wholesale Fixed Income, Currency and Commodity (FICC) markets. Among them was the need to ‘improve the controls and transparency’ around FX market practices, including ‘last look’,

The report stated that the new global code should address the practice of ‘last look’, which gives market makers a final opportunity to reject an order after a client commits to trade at a quoted price. As set out in Section 2.4.1, this practice developed out of the need to protect market makers against unanticipated market movements and predatory trading practices.

“the global code should also set out clearer standards on the use of last look, including whether it should remain an acceptable market practice”.

However, Continue reading

Mapping of Bond platforms in Europe (ICMA study)


An interesting report from The international Capital Markets Association (ICMA ), has mapped the features and coverage of European Bond Trading Platforms.

According to the report, the European bond market trading has become increasingly electronic due to a natural evolution of trading, and more recently, as a by-product of regulation. Market participants have a regulatory obligation to evidence best execution and meet transparency obligations, but more importantly need to source and optimise liquidity.

The fixed income landscape is currently very fragmented. The reduction in balance sheet due to Basel III combined with investors’ reluctance to trade has led to a diffusion of liquidity across platforms. This is particularly the case in corporate bonds where it is often heard that liquidity is “a mile wide and an inch deep”.

Here is a chart from a previous post which shows the lack of inventory being held by dealers, making it harder for investors to find the liquidity they require.

Bond inventoryChart showing Net Bond inventory held by primary dealers (McKinsey/Greenwich)

Sourcing and aggregating liquidity is paramount for sell-side and buy-side traders. Technology is the only way to enable these participants to uncover the liquidity available. Understanding the contrasts and capabilities of new and more traditional platforms, is the first step to choosing the best execution venue or information network available in the market.

ICMA has undertaken a Continue reading

EBS buys institutional platform Molten Markets


Interesting to see the announcement from EBSBrokerTec, that they are buying Molten Markets, the three-year old FX technology platform for asset managers and pension funds.

According to the PR, the acquisition of Molten Markets will enable EBS BrokerTec to provide asset managers with a sophisticated execution management system and innovative trade cost analysis. Leveraging Molten Markets’ assets and technology, as well as EBS BrokerTec’s extensive distribution network and liquidity provider (LP) relationships, will enable EBS BrokerTec to offer a unique range of solutions to the asset management industry, while at the same time enhancing its offering to its LP customers.

Molten Markets current product suite include: Continue reading

EBSDirect adds FX Options to complete FX product coverage


EBS BrokertecInteresting to see EBS BrokerTec, adding an FX Options capability to their relationship based liquidity solution EBSDirect, through a licensing agreement with FX Bridge Technologies.

The agreement will allow EBS to develop an FX Options capability to round out the OTC coverage for the platform, providing relationship based disclosed FX liquidity across spot, Fwds, Swaps, NDFs and FX Options.

As part of the agreement, 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

Incentives for Central Clearing – paper by BIS


The Bank of International Settlements (BIS) has released an interesting research paper which looks at the incentives for various market participants to centrally clear bilateral OTC derivative trades.

Following the financial crisis, G20 leaders agreed that standardised over-the-counter (OTC) derivatives contracts were to be cleared through central counterparties (CCPs). A number of regulatory reforms have been introduced that affect the incentives for central clearing of these contracts. These reforms include requirements to exchange initial and variation margin for non-centrally cleared derivatives exposures, standards relating to the measurement of counterparty credit risk for derivatives contracts, and capital requirements for bank exposures to CCPs.

The paper found that:

Clearing member banks (ie those institutions that clear directly with CCPs) have incentives to clear centrally.

Whilst central clearing incentives for market participants that clear indirectly (ie that are not directly clearing members of a CCP but clear through an intermediary that is a clearing member of a CCP) are less obvious and could not be comprehensively analysed on the basis of the data received in the quantitative analysis.

However, given that clearing members account for the bulk of derivatives trading, the conclusion of the analysis – there are incentives for them to clear centrally – indicates that the G20 objective on OTC derivatives reforms has, for the most part, been achieved.

Continue reading

European Market Liquidity Conference – thoughts and comments


Last week I attended the Association for Financial Markets in Europe (AFME) 9th annual European Market Liquidity Conference.

As always with AFME, there had some thoughtful speakers and topical panel discussions, as well as providing good forum for networking opportunities (including providing for the conference iPad’s pre-loaded with delegate names allowing you to reach out to them and make contact).

This year’s agenda focused on the new emerging market structures

  • Liquidity in the new regulated market – the changing market structure
  • Keynote address -Verena Ross, Exec Dir, ESMA
  • Foreign Exchange:
    The renminbi and other Asian currencies
    Impact of regulation on development of the FX market place
  • Fixed Income:
    Development of exchange capabilities
    Liquidity issue, what liquidity issue?
  • Funding European economic growth: the obstacles and opportunities

Below are my notes and some comments from the sessions that I attended: Continue reading