EuroMoney 2011 FX Poll – some thoughts

SDP volumes continue to outstrip MDP volumes:

An interesting comment caught my eye in the EuroMoney 2011 FX poll that customers preferences are changing, and that whilst single dealer platform (SDP) volumes still exceeds multi dealer platform (MDP) volume, the gap is closing, and clients are starting to migrate to MDPs.

Still seems a decent gap to me! Continue reading

EuroMoney 2011 FX Poll results out!

EuroMoney 2011 FX polls results released.

Site very busy at moment, and may not respond.

Analysis to follow later, but here are the key headlines: Continue reading

Will NDFs be required to trade on SEFs under Dodd Frank?

What will happen with NDFs?

As I mentioned in my last post, non-deliverable forwards (NDFs) will be subject to Dodd Frank regulations here. This means, they will be subject to central clearing, and trade reporting. But, that being the case, the question is:

Will NDFs also be required to trade on SEFs? Continue reading

FX Swaps & Fwds EXEMPT from Dodd Frank – OFFICIAL!

At last!

US Treasury Secretary has finally determined that FX Swaps and FX Forwards should be exempt from the definition of Swaps under Dodd Frank. (full details here or here)

SEF Trading & Central Clearing (Exempt): FX Swaps and FX Fwds will NOT be required to trade on SEFs, or be centrally cleared.

Trade Reporting (Required): FX Swaps and FX Fwds will remain subject to reporting requirements according to the CFTC (see earlier post here)

Other FX derivatives subject to Clearing & Exchange Requirements: FX Options, Currency Swaps and Non Deliverable Forwards (NDFs) are not exempt from Dodd Frank, as they do not satisfy the statutory definition of an FX Swap of FX Forward.

As usual, the Streetwise Professor has a good analysis of the determination, worth reading here

Other coverage includes:

WSJ here

FT here

SEC & CFTC clarify Swap Definitions, but FX still fuzzy!

The SEC yesterday released full definitions of Swaps here.

The CFTC also released a summary Q&A paper to clarify the SEC definitions for SWAPS which is available here. For the avoidance of doubt, the CFTC goes out of its way in the paper to clarify that amongst others, the following transactions are Swaps:

Foreign Exchange Swaps and Forwards, Foreign currency Options (not exchange traded), Non-Deliverable Forwards in FX (NDF), Commodity options, Cross -Currency Swaps, Forward Rate Agreements, Contracts for Difference, Swaptions, Forward Swaps.

The US Treasury Secretary still has until July to make a determination to exempt FX Swaps from Dodd Frank (see determination of Foreign Exchange swaps and forwards). If exempted, FX Swaps will not be required to trade on a SEF, although they may be required to clear via a recognised Central Clearing Counterparty (CCP), and will still be subject to the CFTC reporting rules as below.

Reporting Swaps in: However, the CFTC makes it clear that even if FX Swaps and FX fwds were exempt, they would still be subject to Swaps reporting requirements (to a swap data repository, or to the CFTC), and swaps dealers and major swaps participants would be subject to business conduct standards.

Plus all other FX products that meet the Swap definition, remain subject to the Commodity Exchange Act (CEA), even if FX Swaps and Fwds are exempt, this would include Foreign Currency Options (other than traded on exchange) and Non-Deliverable Forwards.

Is Deutsche Bank calling the top on Retail FX?

Deutsche Bank is exiting the Retail FX space by selling its hugely successful FX platform dbFX to Gain Capital, in order to focus on its core institutional FX business. The business was started in 2006, using technology provided by FXCM. However, this was no ordinary retail FX business, this was Deutsche Bank retail client FX flow. As such, the average account size of dbFX clients at $100k was some 40 times the average account size for in the retail FX business. Yet for the mighty Deutsche Bank, this is seen as a distraction to their core institutional FX business (full story here).

According to Bank of International Settlements Data (BIS), retail FX has been growing strongly, and has accounted for over 10% of global FX volumes (see here). Yet, not everyone is making money from retail FX. Goldman Sachs who bought a 10pct stake in CMC only three years ago, last year wrote down their $140mln investment to nearly zero (story here)

Personal View: Too early to tell whether Deutsche Bank is calling the top for Retail FX, and whether we will see other banks begin to exit this space, or (as I suspect) this is more a sign of the focus of the top global FX banks on their core institutional client business, and that even a profitable platform such as dbFX is seen as a distraction for Deutsche Bank to it’s core client franchise!

Also, the consolidation in retail trading platforms continues with the above deal, and also in the US, with trading platform TradeStation for Active Traders being sold for $411mln to the large Japanese Brokerage MONEX: story here

Guide to regulatory effects on FX (from ClientKnowledge)

ClientKnowledge (in conjunction with WallStreet Systems) has published the following white paper: Regulatory Effects on FX Cash Markets: How the Banks are Preparing.

The paper highlights the degree of uncertainty amongst many banks interviewed, with regard to the interpretation and potential implement of much of the proposed regulatory changes (assuming of course that FX (swaps and fwds) are included in the new regulation – which is still not clear – see previous post on this point here).

The paper explores:

  • Impact of regulation on FX market
  • Gaps in current workflow – and possibly solutions
  • How banks are preparing

It’s free, but you need to register here

FX, better safe than SEF!

If confirmed, this will be a big win for FX Markets, and good news for FX Single Dealer Platforms, and will enable banks to continue to service clients with highly differentiated and innovative offerings.

It’s looking like FX markets have been successful in lobbying the US Treasury to exempt FX Swaps and Forwards from Dodd Frank legislation, according to a story carried in today’s FT (here).

FX Derivatives (Swaps, Options and perhaps long dated Fwds) fall under Dodd Frank Act (DFA), unless specifically exempted by the US Treasury (here)


Exempt FX: Global FX trade bodies have argued that FX derivatives are very different from other OTC derivatives, and that counterparty risk which DFA seeks to eliminate is not a major issue in FX, and the more important settlement risk, is already fully managed by the CLS Bank settlement system. I have covered this in an earlier blog here.

Include FX: The CTFC (tasked with implementing DFA), has been seeking to have FX included under DFA. Also, a Washington based think tank was lobbying for FX to be included (here)

Last week’s (AFME) European Market Liquidity Conference

Last week I attended the excellent “European Market Liquidity” Conference, organised by AFME (the industry voice for FX & Fixed Income).

The theme was summed up by the oft repeated phase from various speakers that

“A tsunami of regulation is headed your way”.

A few thoughts from the conference:

Engage with regulators: Whilst many proposed rule changes still lack detail, and in some cases timescales for implementations are ‘worryingly’ short, there is no doubt that the impact of Dodd Frank, MiFID II and Basel will have an enormous impact on many existing business models. In order to minimise the ‘unintended consequences’ of poorly drafted regulations undermining the efficient functioning of the market, it’s clear that the industry, and it’s various trade bodies must continue to lobby and ‘fully’ engage with regulators, to make sure that effective legislation is created.

Here are a few examples where the proposed introduction of regulation creates more problems than it seeks to solve:

Continue reading

Conclusions from the Profit & Loss Conference in Singapore

Last week I attended the Profit & Loss Conference in Singapore. No matter how frequent my visits, there always are new buildings in the downtown area. The latest BIS survey shows that Singapore has grown to be the fourth biggest FX trading centre globally and my guess is it will become even bigger.

The agenda had a few sessions on the forthcoming regulation changes in the US & Europe, so no surprise there. The keynote address on the first day from the Chairman of the Singapore FX Market Committee was interesting, not least because of his comment that whilst aware of the changes happening elsewhere, the local authorities would ensure that any regulatory changes here would be for the benefit of Singapore as a financial centre. I wonder whether this implies that the goals of Dodd Frank & MiFID II will be muted when applied to the local markets, in spite of the original G20 recommendations.

Also had a pleasant time discussing the role of social media in FX with Jon Vollemaere. I think “growing” is the verb to use. Continue reading