EuroMoney 2018 FX Survey…Go XTX!

EuroMoney 2018 FX survey results released this week show JPMorgan are for the first time #1 in FX, but the real story is the absolutely astonishing performance from XTX Markets, now ranked #3 in global FX.

XTX Markets are the definitive ‘non-bank market maker’ (NBMM), using sophisticated  models and the latest technology to finely calibrate and distribute pricing, enabling them to more effectively manage liquidity to multiple electronic platforms, trading venues and directly to banks, acting as liquidity providers to ‘the liquidity providers’. The picture below is the entrance to the new XTX Markets London offices, a far cry from an investment bank!

XTX Markets recently left London's upmarket Mayfair neighbourhood for a new home in King's Cross, an area fast becoming one of the UK capital's main technology hubs.<br> The market-maker was spun out of the quantitative hedge fund GSA Capital in 2015 and <a href="" target="_blank" class="icon none" >has been doing rather well since</a>. Initially focused on foreign exchange, XTX has been expanding into new asset classes, growing headcount and <a href="" target="_blank" class="icon none" >making its opinions known on the future shape of financial markets</a>.<br> After launch, the firm appointed the design specialists at Peldon Rose to kit out a 22,000 square foot office in King's Cross — a job that has now been completed.<br> <em>Financial News</em> got the tour of the Sci-Fi and mathematics-inspired workspace.

As banks continue to be challenged by higher regulatory capital requirements, lower risk appetites and reduced leverage ratios, firms such as XTX and other NBMM including Jump Trading, Citadel and Virtu Financial have been increasingly stepping in to fill the gap.

XTX is co-run by Zar Amrolia, who was until 2015 the Global Head of FICC at Deutsche bank. Which under his watch developed the Autobahn FX platform which powered Deutsche Bank to #1 in FX from 2005-2013, with peak market share of 21% in 2008, as shown in the chart below, whereas now they are #8 with share of 5.4%

I met Zar back in 2015 when he just joined XTX, and he told me then that his mission to make the firm a #3 FX liquidity provider….he took his time!

Here is a summary of the top 20 FX bank by market share.


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Major platforms see increases in Feb volumes

All the major FX platforms have now reported their Feb 18 vols, with SpotStream leading the way up 10% to a new all time record of $28.8bn/day, whilst HotSpot also recorded a new all time record of $44.2bn/day.

Reuters Spot FX volumes recorded a 5% increase, although overall Reuters recorded a new record of $463bn/day driven by increased flows through their MiFID compliant MTF platform for Fwds, Swaps and NDFs.

Leading FX platforms ADV for Feb 18

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Major platforms deliver strong Jan volumes

All the major FX platforms I track reported strong Jan 18 vols, lead by EBS up a whopping 58% to $93.2bn/day (up from $65.5bn/day in Dec). Both Hotspot (now owned by CBOE) and SpotStream hitting new all time high volumes.

Leading FX platforms ADV for Jan 18

Looking at the Year on Year (YoY) trends, we see that Hotspot and SpotStream have delivered the strongest performances, up 37% and 39% respectively, as can be seen in the chart below. Continue reading

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Results of Oct 17 Semi Annual FX Surveys

Latest semi-annual FX survey data from top central banks (FX Joint Standing Committees) show that in Oct 17 FX average daily vols (ADVs) for the top six FX centres was $4.28tn/day, an drop of –6.2% from Apr 17, although up +3.4% year on year from Oct 16.

Top six global FX trading centres Oct 17
(central bank semi-annual FX survey)

London remains top trading centre, with 54% share of top 6 ADV at $2.23tn/day in Oct 17

% share of top six FX centres (central bank semi-annual FX survey date)

Continue reading

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Global FX code ‘Last-Look’ (Principal 17) updated.

As mentioned previously, The Global Foreign Exchange Committee (GFXC), has updated their guidance around ‘trading in the last-look window’ – Principal 17 of the Global Code of Conduct, as a result of market feedback.

Global Foreign Exchange Committee (GFXC), GLobal Code of Conduct

The previous version of the code included the phrase is likely inconsistent’ as shown below:

 During the last look window, trading activity that utilises the information from the Client’s trade request, including any related hedging activity, is likely inconsistent with good market practice because it may signal to other Market Participants the Client’s trading intent, skewing market prices against the Client, which (1) is not likely to benefit the Client, and (2) in the event that the Market Participant rejects the Client’s request to trade, constitutes use of Confidential Information in a manner not specified by the Client.

The revised code (here) replaces that with much stronger wording, clearly stating Continue reading

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Credit Suisse fined $135m for FX abuse

The New York State Department of Financial Services (DFS), has fined Credit Suisse $135m for ‘Unsafe, Unsound and Improper Conduct’.

The transcript of the order makes for depressing reading, when we see the extent of the improper conduct and abuse of information that went on. However it does show that the regulators are getting better at joining the dots and pull together a compelling case which sends another strong message to the market. Moving forward I am therefore encouraged that with the global code of conduct, increased monitoring and surveillance, the senior managers regime with risk of huge fines and imprisonment that we are likely to see less abuse of this type in the FX markets, at least at the business wide level.

The consent order published this week states that:

Between 2008 to 2015, Credit Suisse consistently engaged in improper, unsafe, and unsound conduct, in violation of New York laws and regulations, by failing to implement effective controls over its FX business.

Although Credit Suisse internal policies state that:

“Confidential or Proprietary Information: Employees should assume that all information about customer orders and transactions is confidential and or proprietary.”


“Employees are prohibited from front-running (trading ahead of customer or Firm transactions).”

Nonetheless, the order includes the following improper conduct: Continue reading

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GFXC to change Principal 17 (Trading in last-look window) after market feedback

In last week’s post, we looked at the feedback received from the market by the Global Foreign Exchange Committee (GFXC) to Principal 17 of the FX Global Code of Conduct, which discusses ‘trading in the last-look window’.

In light of the feedback, the GFXC has today issued a press release stating:

GFXC has concluded that Principle 17 should indicate that market participants should not undertake trading activity that utilises the information from the client’s trade request during the last look window.

At the same time, the GFXC also agreed that Principle 17 should clarify the conditions under which certain trading arrangements, often referred to as “cover and deal”, may be distinguished from the last look guidance.

The release went on further to state that: Continue reading

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Major FX platforms report weak Oct volumes

All the major FX platforms I track reported weak Oct volumes, with EBS leading the way down -17% drop in ADV to $80.6bn/day ($97.4bn/day in Sept).

Leading FX platforms ADV for Oct 17

The drops come after strong Sept figures, but still leaves most platforms with small increases on the year as shown in the chart below, with the exception of EBS which shows -14% fall YTD in ADV. Continue reading

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RIP….Last-look? Depends who you ask

Back in 2015, just before the publication of the Fair and Effective Markets Review (FEMR) report, that led to the FX Global Code of Conduct, I wrote that it was time to Say goodbye to last look.

A few months later, the NY Department of Financial Services (NYDFS), handed Barclays an $150m penalty for abuse of last-look, with NYDFS stating:

Barclays Used “Last Look” System to Automatically Reject Client Orders that Would Be Unprofitable Because of Subsequent Price Swings during Milliseconds-long Latency (“Hold”) Periods.

Roll forward to Continue reading

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How the network effect is solving challenges in bond liquidity

The fixed income landscape is very fragmented, at last count there were around 137 fixed income venues (according to John Greenan’s blog post).

Reduced balance sheets due to Basel III, and lower leverage ratios have resulted in sell-side firms losing their ability and appetite to warehouse bond inventory, as a result liquidity has diffused and fragmented.

This is particularly the case in corporate bonds where it is often heard that:

“Liquidity is a mile wide and an inch deep”

As can be seen in the chart below, the inventory held by sell-side firms has dramatically fallen since the credit crisis, with buy-side investors how holding as much as 90%+ of bond inventory.Bond inventoryChart showing Net Bond inventory held by primary dealers (McKinsey/Greenwich)

The traditional way of sourcing and aggregating of liquidity from across fragmented liquidity pools doesn’t always work, especially in illiquid bond markets.

That’s where liquidity discovery networks such as Continue reading

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Market-Making under MiFID II SI regime, no more Matched Principal Trading

What’s going to happen to market-makers that operate a mix of ‘principal’ and ‘risk-less matched principal’ after new Systematic Internaliser (SI) regime comes into effect next year under MiFID II?

Systematic Internalisers (SIs) must operate as a bi-lateral principal based business. Typically SIs will be market-making desks at banks and non-bank liquidity providers, that operate on a ‘frequent & substantial’ basis in the particular instrument for which they are being designated as an SI. An SI cannot connect to either an OTF, or MTF (see below for definition).

The key point about an SI, is that the trading entity must be the risk taking principal and counterparty to every trade. That means the SI must quote their client a risk transfer price, taking the clients position onto their books, and then look at risk managing the resulting position – which means they must fill and cover.

However, there are still plenty of market-making desks out there that operate as a mix of… Continue reading

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FinTech, innovation in Cap Markets – research by Opimas

An interesting research report caught my eye this week, although it was published in Aug by Opimas entitled FinTech Spending and Innovation in Capital Markets. The report splits FinTech players into three categories:

Capital markets players are indeed bullish on the near- and longer-term promise of FinTech, as indicated by their willingness to invest in IT. In total, we expect spending on IT across all market participants in the capital markets to amount to over US$127 billion in 2017
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Outlook for Wholesale Banks & Asset Managers – Oliver Wyman research

Another excellent research report from Oliver Wyman called Wholesale Banks & Asset Managers, subtitled The World Turned Upside Down

Oliver Wyman see a reversal of fortunes for Wholesale Banks and Asset Managers. The effects of Quantitative Easing (QE) and bank regulation drove a more than $100BN divergence in revenues since 2011, with Asset Managers up $65BN and Wholesale Banks down $45BN. This now looks set to go into reverse.

Asset Managers face growing fee pressures whereas Wholesale Banks will benefit from shifts in policy, technology, and operating leverage. But the gulf between winning and losing firms will widen in both Asset Management and Wholesale Banking.

Changes in fortunes of Asset managers and Wholesale Banks 2010-19

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Major FX platforms report strong Sept volumes

The major FX OTC platforms have now all reported their Sept volumes.

After a slow summer, all the major platforms have reported strong rises in Sept, as shown in the table below.

FastMatch lead the way with an impressive 28% increase to $20.8bn/day, whilst FX SpotStream posted a new all time high monthly ADV of $23.9bn/day. Although not a record in terms of monthly ADV, Reuters had a record day on September 27, with $619bn traded across the venue (which includes spot as well as FWD and Swaps on their SEF).

Major FX platforms ADV for Sept ranked by % change on month

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Global FX vols up driven by UK

Latest semi-annual FX survey data from top central banks (FX Joint Standing Committees) show that in Apr 17 FX average daily vols (ADVs) for the top six FX centres was $4.56tn/day, an increase of +5.5% from Oct 16 and +7.5% compared to Apr 16, and now at the highest level since Oct 14.

Global FX volumes

Top six global FX trading centres (central bank semi-annual FX survey)

London led the way with a Continue reading

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EuroMoney 2017 FX ranking some interesting trends

The latest 2017 EuroMoney FX survey ranking has been published. The market has moved on from ‘flow monsters’ seeking market share at all costs. Today with balance sheet constraints, reduced risk appetite and tougher leverage ratios, quality and profitability of flow is more important than quantity.

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FX Global Code of Conduct

It’s finally been released, the 76 page FX Global Code of Conduct, developed by the Bank of International Settlements (BIS), in conjunction market participants and working groups, to provide a common set of guidelines to promote the integrity and effective functioning of the wholesale FX Markets.

It is not legally binding, but designed to supplement local rules, regulations. It is intended to promote a robust, fair, liquid, open, and appropriately transparent market in which a diverse set of Market Participants, supported by resilient infrastructure, are able to confidently and effectively transact at competitive prices that reflect available market information and in a manner that conforms to acceptable standards of behaviour.

Covering a set of six standards and leading principles: Ethics, Governance, Execution, Information Sharing, Risk Management and Compliance, Confirmation and Settlement Processes.

Below I expand to show the key principals within each leading principle, and at end of coverage, a link to full code.

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Relative price paid for FX ECNs

Pan European Exchange EuroNext, is paying $153m to buy 90% of FX ECN Fastmatch full details here

According to the press release the rationalise for the purchase is given as:

The transaction to strengthen Euronext’s product and geographic diversification and accelerate growth:

  • Enabling further growth through development in Europe, market data, and derivative products
  • Combining FastMatch’s leading-edge technology, entrepreneurial spirit and talent with Euronext’s network, brand, neutrality and industry positioning
  • Consistent with Euronext’s “Agility for Growth” strategy: capturing opportunity arising from the environment, accelerating growth through bolt-on acquisitions, enhancing agility and strengthening core offering of servicing the real economy

Buying FX platforms that have Continue reading

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Regional banks upping their game in FX

Since almost forever, the global top tier banks have dominated the FX markets. One only needs to review the EuroMoney FX bank rankings to see the global elite ‘flow monster’ top ten are pretty much the same group today as they were a decade ago.

EuroMoney top ten FX banks 2015 compared to 2008EuroMoney Top Ten FX banks 2008 & 2015

When looking at market share of banks, we see from the chart below, that whilst the top banks still have the Continue reading

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Top tier FX Platforms Mar 16: Reported weak results, EBS volumes sharply lower -18.4%

In terms of Spot FX, all the major platforms delivered lower results in Mar  16.

  • EBS -18.4% to $83.7bn/day ($102.6bn/day in Feb 16), down -26.9% compared to Mar 15 level of $114.5bn/day
  • Reuters spot -6.3% to $104bn/day ($111bn/day in Feb 16), down -21.2% compared to Mar 15 of $132bn/day
  • The CME -4.2% to $114bn/day ($119bn/day in Feb 16), down -16.1% compared to Mar 15 level of $136bn/day

In terms of other products, Reuters showed a rise of +5.3% in other product volumes, including NDFs and swaps (on their SEF) to $258bn/day.

1st tier platform vols Mar16

Table showing Top Tier platforms: Reuters, EBS and CME Futures vols for Mar 2016

Looking at Continue reading

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FX platform vols for March 16

Second tier FX volumes reported weak volumes figures in Mar 16, with Hotspot  showing a -19% fall to $26.4bn/day, whilst FastMatch reported a smaller decline of -9% to $10.1bn/day.

2nd tier platform vols Mar 16

Table showing Second Tier platforms: Hotspot, Fastmatch vols for Mar 16

Meanwhile the only top-tier platform to report is The CME group, which showed Mar 16 volumes for The CME of $114bn/day, down -4.2%. Full analysis of the top-tier platforms next week, by which time Reuters and EBS will also report their volumes as well.

The charts below show the volumes comparisons between Continue reading

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The Capital Markets’ Industrial Revolution

Interesting comparison from GreySpark in their latest research report. Comparing the digital transformation of investment banking to the automation of manufacturing processes in industries such as motor and aircraft manufacturers.

Their report draws analogies, between investment banking, and the motor and aircraft industries, which also experienced heavy regulatory burden, regular government interference, ever evolving demand patterns, regular bouts of over-capacity and a critical requirement to pool resources in order to innovate.

In their opinion, banks will reinvent their operating models on three pillars: Continue reading

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FX platforms reported drop in Feb 16 vols, led by Reuters spot down -10%

In terms of Spot FX, all the major platforms delivered lower results in Feb 16.

  • EBS -1.2% to $102.6bn/day ($103.8bn/day in Jan 16), up +9% compared to Feb 15 level at $94.1bn/day
  • Reuters spot -9.8% to $111bn/day ($123bn/day in Jan 16), -2.6% compared to Feb 15 at $114bn/day
  • The CME -1.7% to $119bn/day ($121bn/day in Jan 16), up +26.1% compared to Feb 15 level of $94bn/day

In terms of other products, Reuters showed a smaller -3.5% fall in other product volumes, including NDFs and swaps (on their SEF) to $245bn/day.

1st tier platform vols Feb 16

Table showing Top Tier platforms: Reuters, EBS and CME Futures vols for Feb 2016

Looking at Continue reading

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Deloitte 2016 Global FX survey

An interesting FX survey from Deloitte provides insight into the challenges corporations encounter when managing currency risk and possible causes (and solutions) for these challenges, as well as FX risk management structures, strategies, and processes adopted by companies across the globe.

FX Hedging strategies

Source: Deloitte FX 2016 Global Foreign Exchange survey

Key findings are summarised below Continue reading

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Electronic trading in fixed income markets: report by BIS – worth reading!

An interesting report (well worth reading), published in January by The BIS (Bank of international settlements), looks at the impact of ‘electronification’ of the fixed income markets. The report was based on structured interviews with market participants,  and a survey of electronic trading platforms.

Fixed INcome structureChanging fixed income market structure

It argues that Continue reading

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Mandatory Swaps Trading on SEFs increases liquidity and lowers costs – BofE reseach!

Some interesting findings from a paper from the Bank of England, which looked at the impact of mandatory trading on swap execution facilities (SEF), for interest rate swaps (IRS) as required under Dodd Frank Act.

The paper looked at transactional data from the USD and EUR segments of the plain vanilla IRS market. The findings showed that as a result of SEF trading:

  • Activity increases
  • Liquidity improves across the swap market
  • Improvement being largest for USD mandated contracts which are most affected by the mandate
  • The reduction in execution costs is economically significant
  • Execution costs in USD mandated contracts, drop for market end-users alone, by $3 million–$4 million daily relative to EUR mandated contracts and in total by about $7 million–$13 million daily
  • Inter-dealer activity drops concurrently with the improvement in liquidity suggesting that execution costs may have fallen because dealer intermediation chains became shorter

Overall, the results suggest that:

“The improvements in transparency brought about by the Dodd-Frank trading mandate have substantially improved interest rate swap market liquidity.

Finally, the report finds that the Dodd-Frank mandate caused the activity of the EUR segment of the market to geographically fragment. However, this does not appear to have compromised liquidity.

Full report here

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The continual rise of non-bank market-makers

Looking at the rise of alternative, or non-bank market makers, armed with market leading technology, talented etrading techies from sell-side firms and teams of razor-sharp quants, these firms are now providing deep consistent liquidity to the market in a capacity previously the preserve of the top-tier ‘flow’ monster’ banks.

The perception of non-bank market makers has traditionally been that they are high frequency traders, engaged in latency arbitrage, holding large positions for milliseconds and trading mainly on exchanges and anonymous ECNs.

However, the new bread of non-bank market-makers are coming out of the dark pools, and just like the banks, they are interested in building relationships with the liquidity takers, who in this case, are the banks themselves. They are not engaged in latency arb, but are market making and taking risk positions onto their books, with average hold times for G10 currencies around 10mins whilst for Emerging market currencies as long as 24mins.

XTX Markets


As Zar Amrolia Co-CEO of XTX Markets said in a recent interview with Risk.Net;

“Non-banks have traditionally supplied liquidity to banks via anonymous order books, which has fostered suspicion and accusations of predatory behaviour. XTX, however, has established direct streaming relationships with some of the world’s biggest banks, without the need for a broker or platform to sit in the middle.

He goes on further to say:

“You build a relationship with direct connectivity and interesting things start to happen. You can develop a relationship where you understand the nature of the flow and the nature of the end-user client base much better, enabling you to tailor your pricing accordingly.

With regard to the ongoing debate over last-look, he adds that:

“Some clients will want a full amount stream with no ‘last look’, and we can do that. Others are more sensitive to emerging market spreads and are happy with ‘last look’, and we do that, too. We also provide full post-trade transparency, so counterparties can evaluate XTX on its fill-ratios and market impact”.

It’s a win-win for both sides,” Amrolia says.

As I said before, it’s a changing of the guard, as we see the continual rise of the non-bank market-maker. Bank’s will continue to reduce their risk appetite and focus on servicing their client’s, whilst firms like XTX will step forward and become to quote a recent EuroMoney article ‘liquidity providers to the liquidity providers‘.

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Say goodbye to ‘last-look’ in FX?

It’s about time, that the practice in FX of liquidity providers having a ‘last look’ before accepting a trade – a legacy from the old days of phone quoting, when the dealer took one ‘last look’ at pricing before accepting a trade – may at last be on its way out.

In the electronic platform era, last look, was a way to encourage banks to increase their liquidity provision and provide request for quote (RFQ) and executable streaming prices (ESP) where they may not know who was asking for the price, or who might hit their streaming prices.

In order to protect themselves from what some call toxic flows , Liquidity Providers (LPs) were offered some degree of protection when quoting pricing by being given one ‘last look’ when someone attempts to deal on their quote, before deciding whether or not to accept the trade – ie they can decide if they like the trade before accepting it. Continue reading

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