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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