Even before the market went garrity in mid-August, several muckers had predicted that trouble was brewing. Some of this was based on useful knowledge that they’d gleamed from their contacts in the credit market combined with a realistic appraisal of the problems that were about to come home to roost. “You can’t polish a turd,” one of them warned me about the CDO market.
In early July, one of my contacts had suggested that I should write an article on what he described as the asymmetric relationship between banks and hedge funds. This, he argued, gave the funds access to greater liquidity than the liquidity providers themselves had access to – and it was being abused. When I mentioned that I was going to write the piece, he made another request. “Could you title it ‘Arbing ‘kin’ b*st*rds’?”
In the September issue of Euromoney, I take a look at the possibility that the surge in volumes seen in spot may well be disguising the fact that there are several faultlines running through the broader FX market, many of which centre round the relations between the sell and buy side.
The world of FX is full of contradictions and even though last month saw several platforms recording record days, it was also not uncommon to hear that liquidity had dried up. Rumours have been doing the rounds for sometime suggesting volumes have declined on Hotspot FX. Although I have admittedly only asked a small sample of Hotspot users, I have found no evidence of this; but the whispers grew so loud that the normally reticent company took the unusual step of publishing the fact that it had posted a new record day on August 16, when $50 billion changed hands. Clearly there’s been some dark spinning going on.
My view is that is almost inevitable for liquidity to pool at times of stress; from what I can tell, this happened. This will have made it more likely for prices to gap on the smaller platforms. Icap seems to have been the major beneficiary of the market turmoil, although most platforms should have been able to report record levels. If they couldn’t, they may as well shut up shop now.
Anyway, EBS saw an almost unbelievable $456 billion trade on August 16. This smashed the previous record of $311 billion, set on July 27, by almost 50%.
I have said it before and I have to say it again: EBS was a bargain for Icap.
