We have seen some interesting developments during the summer break, keeping the momentum and volatility in the markets: Emerging currencies are falling and there have been some concessions on clearing rules. Whilst the industry was waiting for the BIS 2013 Triennial Survey, latest reports show a delay of FTT in Europe, however Italy has introduced a tax on high-speed trading and equity derivatives.
The past few weeks have seen some remarkable developments in the financial markets. A Supreme Court in Iceland has ruled on an FX settlement claim; EU 11 (FTT) are defining their own way for taxation, whilst some countries are preparing for a currency war. All these issues need enhanced cooperation amongst politicians, amongst financial institutions and above all among each other.
Market stories may still be dominated at concerns over Europes debt crisis, Greeces negotiations for aid, the US debt problems or the fiscal cliff and possible effects of a clumsy economy. But for us the hot spot remains regulation.
Last time I drew your attention to ACIs update of The Model Code formulating a new benchmark of FX Best Practices. At its Executive Board meeting on September 4th in Paris, the Committee for Professionalism published the final version of the International Code of Conduct and Practice for the Financial Markets. This version will now become merchandised and distributed to relevant authorities to recall the associations initiatives in the OTC markets for decades.
Increasing regulatory initiatives strive to capture, to master but also to govern most of the financial markets. One of them, the Foreign Exchange market, is still a mainly OTC (over-the-counter) one, which has been overcoming the ongoing economic and sovereign turbulences remarkably well.
The financial markets have never before seen so many reviews looking at fresh ways to regulate. Although Regulation and Taxation may no longer be real news to us, the frequency and attention given to the topic in public discussion is increasing.
'Sovereign downgrade could hit eurozone lenders' was a headline in the Financial Times which I recently read on my flight back from a Bucharest meeting with local traders and representatives from the BNR the National Bank of Romania. Standard & Poor had warned in this edition that it was looking to downgrade fifteen Eurozone countrys sovereign debt! Having just re-rated 37 global banks a week ago, whereby seventeen of them subsequently became downgraded, this outlook was the next shock to the financial markets in particular to the Eurozone. Such announcements are certainly nurturing volatility in all market segments, including Foreign Exchange. But is there any reason or pattern behind them?
The power of the free market and in particular its ability to speculate responsibly, has heightened the awareness of Western and Eastern politicians in both developed and lesser-developed countries causing them to ask, What is wrong with the entire system, Why were years of accumulated sovereign debts discovered so late? And Where were the rating agencies and accountable authorities during those years? On the other side of the spectrum but adding to the instability of the global financial market, were hoarded foreign exchange reserves. This instability has spread to the next asset class of commodities, causing, a never before seen, run on gold. It has also revealed that trust that has been placed in other financial safe-havens such as the Swiss currency is misleading.
The recently announced proposed determination by the US Treasury Department to exempt foreign exchange forwards and swaps from sweeping new derivatives rules, specified under the Dodd-Frank Act was welcomed by both financial and non-financial groups, alike. ACI regards this development as fundamental for the sustainability and effective function of stable and liquid (cash) markets.
During the weekend of February 26th to 28th 2011, the Italian traders of ASSIOM FOREX met in Verona for their yearly meeting. More than a thousand participants listened to the speech of Mr. Draghi, Governor, Banca dItalia, when he presented his views on economic policies, the planned international financial rules and controls, the Italian banks and the Bank of Italys supervisory action and market growth. Besides interest from the audience regarding Axel Webers drawback from the ECB candidateship, the participants very carefully weighed up every word spoken regarding the latest regulatory developments.
Markets remain more interesting than ever. With so many evolving issues and more often than not all happening simultaneously, it is hard to keep count and to follow each developments. Yet the landscape, in which we operate and from which we make a living is changing fast. And as Darwins saying goes, those most adaptable to change will survive (and thrive).
On September 1st, the BIS (Bank for International Settlements) published the preliminary results from their triennial report on International Foreign Exchange Markets. This survey confirms that the worlds largest financial market experienced further expansion, albeit at a lesser percentage than before. Nevertheless, it also confirms that the FX market was not affected by the financial crisis.
That lawmakers and financial firms are at loggerheads over the forthcoming financial regulations is well known. What may be surprising is that upcoming regulations on OTC derivatives will also cover currency derivatives.
The crisis came and the crisis went and FX kept on functioning well. Even at the peak of a once in a century crisis, it carried on performing. More astonishing, it shows increased resilience and keeps on attracting new market players.
The global financial crisis has revived the discussion on a financial transaction tax as a means of discouraging international currency speculation, help shrink 'a swollen financial sector' and perhaps simply to raise funds as an international (or national) source of revenue.
Some economies are showing signs of recovery. Will it be sustainable? Will the financial markets industry find a way back to 'normality'? What will be the consequences for the FX markets? The financial crisis has highlighted just how little is known about the structure of banks' international balance sheets and other issues of interconnectedness. Nowadays we are all waiting for what the regulatory environment comes up with next....
Manfred Wiebogen looks at how the economic impact of globalisation together with the current financial crisis may demand some reorganisation in the world currency structure.
The foreign exchange market is arguably the most exciting market of all. Daily average turnover has increased by 210% during the period 2001and 2007 according to the latest BIS Annual Report. More importantly, Foreign Exchange has become a respected asset class in its own merits and given that it is typically non-correlated to other assets it provides good diversification.
The global financial system has been in a crisis for almost 18 months now. The EUROFI, the European think tank (advising the ECOFIN Council) dedicated to accelerating the integration and efficiency of financial services in Europe recently identified some key causes behind the crisis: long period of excess liquidity, low interest rates for too long, excessive appetite for poorly measured risks, misuse of securitization.
Foreign Exchange (FX) is the most powerful market in the world. But this is no news. According to the BIS survey one may conclude that the total turnover in global foreign exchange markets is more than 6 times larger than trading in U.S. Treasury bonds and 30 times greater than trading on the New York Stock Exchange (take a look into my last report within e-FOREX 6/2008). Just as a reminder to new readers of this column, the estimated daily traded FX volume is some US$ 3,500 bn a day (6/2008).
During the last few months, when speaking and commenting on behalf of ACI, The Financial Markets Association, I often started with the slogan: "NO news is GOOD news. We are rather tempted not to open the newspaper in the morning as we might be at risk of misconstruing the superlatives being applied to the financial markets..."
Manfred Wiebogen looks at why the current increase of volatility in the FX market is the result of uncertain and obscure economical developments.
Manfred Wiebogen looks at how the FX industry is undergoing further expansion and the importance of having friends in the markets.
Manfred Wiebogen discusses the likely impact of the MiFID directive which come into operation in November 2007.
We live in a world of fundamental changes. Foreign currency reserves skyrocket, FX turnovers reach 3.000 bln USD per day (expressed in more detailed figures, e.g. 3 Mio transactions, each transaction worth of USD 1 Mio !), turnovers in compound structures such as certificates of the 3rd generation add enormous liquidity to the markets – business is great!
Godfried De Vidts looks back over the last 3 years since he took up the chair of the ACI.
Godfried De Vidts looks at the advantages that the FX market offers retail investors.
Godfried De Vidts looks at why e-trading volumes will continue to grow in the FX market.
Godfried De Vidts looks at the impact that the Hedge Fund industry is having on the FX market.
Godfried De Vidts looks at the prospect of machines taking over some of the basic trading functions.
Godfried De Vidts looks at the lessons learned from the recent Refco case.
Godfried De Vidts looks at the risks posed to the FX market by attacks such as the recent London bombings.
Godfried De Vidts, President of the ACI, looks at why 2005 is an important year for the ACI as it celebrates its 50th anniversary.
Godfried De Vidts, President of the ACI, looks for the reasons behind the improved market turnover highlighted in the recent BIS 2004 results.
The electronic challenge for ACI The Financial Markets Association
With his term as ACI President now over, Heering Ligthart sets out his views on what issues and problems cyber trading is likely to be facing over the next few years
Heering Ligthart discusses how recent FX trading scandals can be divided into fraudulent actions and illegal or unauthorised trading.
Heering Ligthart examines the implications surrounding the recent FX trading scandal in New York.
Heering Ligthart examines recent currency crises around the world and assesses what role cyber trading has played in them.
Heering Ligthart argues that regulators should focus on the quality of traders and introduce an official accreditation for wholesale market particpants as in equity and bondmarkets.
Heering Ligthart discusses the likely impact of terrorist and other attacks on electronic markets and the role the ACI could play in solving market problems resulting from these disruptions.
Customers sometimes complain that FX markets lack real Liquidity. Whatever the reasons for this, Heering Ligthart believes that eTrading should increase Liquidity in the market by making it more accessible.
Heering Ligthart ponders whether the events of September 11 last year have acted as a catalyst for existing trends in the foreign exchange markets.
Heering Ligthart argues that a truly global market such as foreign exchange probably cannot be regulated, but individual market participants can and should be.