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
Continue reading

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