Tod, you have spent over 20 years working in the financial markets. Has most of your career been focused around FX and derivatives?
I started my financial career in corporate banking and import-export finance, consulting middle-market firms on credit and operational risk. Our treasurer at the time invited me to visit the dealing room one day, and I never left. I spent the next 19 years at several banks in Los Angeles and New York trading spot and options, and eventually became chief dealer. When I joined Bloomberg, I began as a market specialist for FX derivatives, later managing several specialist teams for the Americas. In 2010, I became the FX business manager for Bloomberg’s core product – the Bloomberg Professional service - and built the team responsible for our desktop and electronic trading solutions. I later added various product development responsibilities in economics, commodities and fixed income.
What do your main day to day responsibilities at Bloomberg involve?
My primary responsibilities involve defining business strategy, overseeing product development, managing the day-to-day business operation and collaborating with many other business groups who contribute to the success of Bloomberg’s FX product. This business is very much a team effort, and the growth we have engineered would not have been possible without the exceptional talents of my colleagues.
Our product is client driven, and given the tremendous changes occurring in the market, spending as much time as possible in front of clients is essential. That means a fair amount of travel, but it makes a world of difference to know your clients and develop meaningful relationships. This also includes consulting with central banks, regulatory authorities, industry groups and others, to gain first hand input and direct feedback to anticipate and develop for our clients’ evolving needs.
Bloomberg entered the FX market in 2000. How has the firm expanded its currency product set since then and what range of clients do you now provide FX services for?
Bloomberg’s FX product really began to gain momentum around 2006, when we were able to deliver many of the key fundamentals that FX professionals rely on – news, data, charting, analytics, execution and communication. The challenge has been providing innovative solutions across each of these areas, not just one, and for a diverse universe of users. As the product has continued to develop, our strategy has been to provide a complete end-to-end solution, from price discovery and pre-trade analytics, to execution, post-trade services, valuation and reporting.
Our target clients include global and regional banks, asset managers, corporate treasuries, hedge funds, analysts, strategists and government agencies. In fact, nearly a third of the users of our FX product, including FXGO, do not consider FX their primary asset class. This highlights the fundamental relationship between FX and all other asset classes, one of the big advantages that Bloomberg has across multiple markets, and a key benefit of our comprehensive desktop solution.
We have also focused on providing regional solutions in emerging markets, where we have seen considerable growth over the last several years. Bloomberg FX now has clients in more than 124 countries, and a team of supporting professionals that are on the ground, day in and day out, working to understand market conventions and provide carefully tailored solutions.
You and your team have been particularly instrumental in expanding the functionality of Bloomberg’s FX trading system, FXGO. Why do you think this platform has proved so popular?
Many factors have driven the rapid adoption of FXGO. It is the only execution venue that is seamlessly integrated with a comprehensive suite of FX solutions, including news, market and economic data, analytics and valuation. We also offer unrivalled depth and breadth in the products we support, with liquidity from over 500 firms pricing their clients via both API connections and manual FXGO screens.
We cover all major FX products: spot, swaps, NDFs, outrights, deposits and options, for regulated and unregulated markets. As a disclosed, bank-to-client solution we provided a distribution mechanism for banks that complements their relationship-based e-commerce strategies, while providing best execution and robust tools for buy-side clients. For many banks, we are their only e-commerce solution, and can provide several execution styles, from Instant Bloomberg Dealing (IBD), to Request-for-Quote/Stream (RFQ/RFS), streaming, auctions, batches, algorithmic trading and confirmations for voice trades.
Trading over FXGO is commission free for both banks and buy-side clients, providing a powerful venue for banks striving to reduce transaction costs while gaining exposure to more than 325,000 subscribers globally. Finally, Bloomberg is renowned for its client support, available by phone and chat, with a live person, seven days a week, 365 days a year and in 17 languages.
Beyond that there are many other features that add up to make FXGO a compelling solution, like free, customizable and seamless STP, access to over 15 algorithmic order providers, or the ability to stage hundreds of orders from your OMS or via Excel. You can trade a variety of option strategies on a RFQ basis either hedged or live, or trade a wide range of commodities including metals, energy and agriculture. There is always something new.
Bloomberg is seen as synonymous with news, data and analytics. How has demand from FX clients shaped the development of the news services you now provide for them?
The FX markets are highly dependent on news and information and while technology has facilitated a profound increase in content, the challenge now is how to process that information quickly.
That is why Bloomberg created First Word for FX, to provide global market participants with real-time news and insights into the events impacting the currency markets.
Produced by a global team of financial market experts and journalists, First Word FX delivers 24-hour coverage of key economic, geopolitical, money flow and currency-specific news in a concise, digestible format. This design, based on input and collaboration from FX market participants globally, provides Bloomberg subscribers the real-time insights they need to make faster, better informed investment decisions in today’s volatile marketplace.
Bloomberg FX also leverages our global team of economists, who provide unbiased, real-time analysis on market-moving economic data and events, in addition to deeper insight and thematic outlooks on the drivers behind global foreign exchange markets.
Virtual currencies have become increasingly interesting for many investors. What are your own views on the future prospects for Cryptocurrencies and how is Bloomberg positioning itself to take advantage of future developments in this space?
The evolution of cryptocurrencies has fostered a highly innovative mix of finance and technology, with the potential to play a variety of roles in the future of financial markets, particularly regarding payments.
In the case of Bitcoin, we have seen it endure scandals and wild price swings. As obstacles subside and regulatory clarity emerges, the market has come together to explore the technology for its many potential uses, and there is definitely something to be said for technology that is faster, safer and cheaper than traditional payment systems.
Bloomberg recognized the need for better price transparency, and began displaying Bitcoin prices from various exchanges in April 2014.
We continue to track the development of the industry, both from an asset class as well as technology perspective, and remain intent on providing solutions that matter to our clients.
Some commentators have suggested that FX may be in cyclical decline as the market is currently experiencing reduced liquidity and unexpected volatility spikes. Do you agree with them or are we just going through a transitional period that’s related to the impact of regulatory reforms and a reduction in risk appetite by the big trading banks?
The markets are clearly undergoing significant challenges driven by a combination of the financial crisis, divergent economic growth, quantitative easing, and regulation. MIFID-2, changing capital requirements, and reduction in risk have all had a significant impact in many markets including fixed income and commodities, and naturally this will spill over into FX. We have already seen the demise of many proprietary desks, and a movement toward agency models.
However, I think there are several factors that will breathe life in to the FX markets, notably the internationalization of the Renminbi. Where the RMB was previously restricted from use in the settlement of cross border trade and instead billed in USD or EUR, removing these restrictions will directly impact circulation with China’s active trading partners. According to the BIS, about 17% of China’s global trade is settling in Renminbi, compare that with less than 1% in 2009. With total trade currently valued at USD 4.4 trillion annually, this number could double over the next decade, driving the RMB to become one of the top four or five global payment currencies. This will lead to greater volatility and resurgence in FX trading.
FX is still under close scrutiny and coming to terms with the exchange rate manipulation scandal. What steps can the industry take to repair the trust that may have been lost?
The fixing process has been flawed in many ways for a long time. The benchmark was originally conceived as reference rate for mark-to-market of various foreign-denominated securities, not as a transaction rate. In order to minimize the tracking error with benchmark indices, asset managers also began insisting on trading at the mid-rate, which is all the more difficult in a fragmented, OTC market. Furthermore, attempting to net buyers and sellers during a 60 second window, across more than a hundred currency pairs is no simple task and invariably results in order imbalances. Banks acting as market makers have had to assume price risk without any compensation.
In some cases, unfortunately, that process became corrupted, and while there is agreement that the process needs to change, there is still disagreement in how some of the objectives will be implemented. The Foreign Exchange Benchmark Group sought feedback from market participants, and their recommendations were subsequently approved by the FSB last year. Some of the items, like expanding the fixing window to five minutes, have already been implemented and many institutions are adopting an agency execution model and charging for the service.
However, while many firms are attempting build alternate fixing execution venues, none have gained any significant support from the buy side as of yet. Many firms have chosen to move away from the 4 pm fixing and instead use algorithmic orders to control slippage more effectively and improve best execution.
If market participants improve operational transparency, and enforce comprehensive and clearly defined codes of conduct, such as the ACI Model Code, I think the industry will take positive steps towards restoring confidence. If they don’t, the industry runs the risk of ever increasing regulatory scrutiny.
Bloomberg’s business model is built upon attracting subscribers rather than high-volume traders. Do you think the FX market is evolving in a way that will create more growth opportunities for the firm?
Our business model is clearly built around the Bloomberg Professional license and a comprehensive desktop solution, but that does not mean we can’t satisfy high volume flow. On the contrary, because we can provide such a wide range of solutions, we are a natural order staging and execution mechanism for some of the largest asset managers and corporations in the world.
In our case, workflow leads to volume, and the result is that we have become the leading multi-dealer platform on the street. The absence of fees or commissions also makes our platform attractive to liquidity providers, and allows us to service both buy and sell side as a natural extension of their distribution networks. The firms that provide liquidity over FXGO are almost exclusively banks who are eager to provide liquidity to this pure, fully disclosed, full-amount platform. Our end-to-end solution, from idea generation through execution and settlement, is a very powerful proposition.
It is also worth noting that many firms are under considerable cost constraints, and as technology costs increase, there is clearly an opportunity to help clients consolidate their technology stack while increasing efficiency. As markets become more intertwined, our ability to provide multi-asset information and execution from the same application, using the same network and connectivity is also very attractive.
Do you have your sights set at present on any specific regions of the world where you will be focusing efforts to increase Bloomberg’s FX footprint?
The emerging markets have been a formal part of our strategic planning for several years, and that investment has paid dividends, particularly in the Middle East and ASEAN regions. We have always felt that one size does not fit all, and tried diligently to provide local solutions that meet the needs of the local community.
No amount of data or fancy analytics will convince traders or portfolio managers to use your solution if it does not support their workflow and their market characteristics.
On the other hand, with more than 325,000 subscribers globally, we are able to connect various emerging market participants with investors and liquidity providers in the developed markets. This maximises the value of our specialized market data, analytics and execution services.
We will continue to work with local regulators and central banks to ensure we understand how their markets operate and provide solutions appropriate to their needs. One such example is where Bloomberg won the mandate in the Philippines for the onshore peso swap market. FXGO is used for execution and reporting of USDPHP swap trades, provides real time transparency for the central bank and local market participants, and then uses the data to calculate daily reference rates.
Looking ahead, what issues are likely to have most influence over your global FX business strategy in the next few years and what do you see as the most significant challenges to maintaining Bloomberg’s position as one of the world’s leading FX providers?
The proliferation of regulatory reform across financial markets is already having a dramatic impact on the FX industry and will continue to shape the sector for years to come. While a significant portion of FX products, including FX spot, remain outside of the regulatory remit for trade execution and reporting, there are still many changes that require workflow and technical solutions.
Since the majority of FX users are engaged in trading activities across the entire spectrum of FX instruments, it is critically important for market participants to have access to a unified environment where regulated and non-regulated FX products can be seamlessly managed from trade execution and post-trade processing perspectives.
Bloomberg FXGO has created an integrated platform to support trading of regulated and unregulated instruments with a seamless user experience and common technology for both liquidity takers and liquidity providers. By taking the lead in providing solutions for these market developments, we hope clients will see first-hand our commitment to innovation and value.
The Bloomberg SEF was the first Swap Execution Facility provisionally approved by the CFTC, and it has grown continuously across multiple asset classes to facilitate Required Transactions in IRS and CDS, and Permitted Transactions (without mandatory clearing), for NDFs and FX Options.
While we are still waiting for signs of an NDF clearing mandate, Bloomberg does offer NDF clearing services with several major clearing houses for clients who want to have their clearing connectivity ready well before the move toward a central counterparty. Bloomberg has also introduced services for FX derivative reporting requirements for EMIR (in 2014) and we have just extended our reporting framework to include new rules under the Monetary Authority of Singapore (MAS) and the Australian Securities and Investment Commission (ASIC), allowing our clients to fully rely on Bloomberg as their regulatory infrastructure backbone.
This regulated environment also highlights the increasing demand for process automation and the need for a centralized, advanced and comprehensive FX trading platform. To complement our suite of advanced execution tools, we brought to market our new Confirmation and Settlement Service, which provides fully electronic and automated confirmation, matching and settlement. The introduction of electronic post-trade communications between counterparties is designed to mitigate operational risks, improve cost efficiency and align with best practices for post-trade processing, including regulatory requirement for timely trade confirmations.
Going forward, we are fully committed to continuing our investment in regulated trading, reporting and clearing solutions across the globe, being both an infrastructure provider and thought leader.
What new FX products and services do you have in the pipeline that we can expect to see launched over the coming months?
We generally do not discuss our development projects until they are ready for release, but anyone familiar with Bloomberg knows we are never standing still. The foreign exchange markets are continually evolving, and we work closely with our clients to provide them with the innovative solutions they require on both the global stage and in local markets.
One example is the recent launch of LiquiMatch, a flexible, all-to-all, anonymous pool that discretely matches buyers and sellers with no leakage of rates or amounts. Developed with Ogg Trading, LiquiMatch is a premium service that provides a variety of order types, and is designed to work in concert with existing FXGO features. We also remain very focused on regulated trading and reporting requirements, improving liquidity management, and bringing transparency and automation to less liquid segments of the market. The best is definitely yet to come.