Yesterday the Barracuda FX Sales Team went to FX Week Europe, held in London. As usual it was very well attended, with lots of interesting topics on FX Liquidity, the Global FX Code of Conduct and MiFID II.
The key themes were –
The FX Global Code was mentioned in every panel
The FX Global Code of Conduct is an important milestone, but whether it goes far enough is still to be decided. Significant steps have been made by the FX industry, and the code has raised awareness across the world, but it needs to continue to evolve. It was agreed that some people will try to bypass the code, but it must be regularly updated to close loopholes.
Clients want more transparency (as do the Regulators)
Transparency of markets and execution is a positive step, with Liquidity Providers and ECNs pressured to provide detailed information on execution and internalisation of flow. The buy-side needs to ask more questions to make an informed decision about where they trade – questioning their LPs and ensure ECN practices are transparent, on a semi disclosed basis. These questions are already being asked by some of the buy-side as they assess how their flow is being managed.
Cost of MiFID II
Discussed by panellists and delegates throughout the day, everyone has seen a slowdown in business with financial institutions preoccupied in the run up to 3rd January 2018.
Data is the new gold. Access to data and analytics is fundamental, alongside being equipped to analyse data which you mine.
Key pieces of data:
– Fill Rates
– Response time
– Hold time
– Cost of rejects
– Price variance (+ve / -ve slippage)
– Market impact
This is one of the key topics discussed throughout the day, with the impact of Brexit, the flattening of the US Yield Curve and uncertainty about structural reform in Europe. This ambiguity has continued to drive the market with positioning remaining underweight US and overweight Europe.
Cryptocurrencies are here to stay
Maybe this is because Bitcoin hit USD11,000 yesterday, maybe because it’s a bubble, or maybe because it has significant ramifications for the finance industry. Bitcoin is generally believed to be a risky bet, but the cryptocurrency market does have a future and regulation of the market will not be far off.
It was generally agreed that we need a tape, but we have a long way to go. The challenge is to include all client trades. If these are missing the Tape has limited value.
Technology is Key
Increased transparency, more price updates, reduced hold times, increased fragmentation of the market and recycling of liquidity is leading to more data points. All market participants face a major challenge of whether their technology can manage the volume of market data. Are we returning to the technology arms race? Did it ever go away?