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Foreign Exchange

Fun at the Euromoney FX forum

I have just got back from an enjoyable trip to New York, which I visited to attend Euromoney’s third annual Forex Forum USA. It was a great chance to meet up with some old friends and make new ones. The only downsides were that the visit was so brief and the journey back to London so awful. The conference saw some pretty lively debate, which is good – it’s opinions that make markets.

My visit got off to an excellent start with a meeting at HSBC. When I was in my prime, I worked at Midland, one of HSBC’s constituents. I am also a shareholder, along with most of the UK population, and I will get a pension off the bank in a few years time. Despite all that, it’s fair to say that my relationship with HSBC could be better.

That said, I was really impressed with the team Ben Welsh, deputy head of global markets North America, has put together in New York. They seem confident, without being arrogant, and appear to have carved out a great franchise in the Americas. It was nice to have a meeting that was so open. I was also impressed with HSBC’s stand at the conference – more of which later.

On Monday evening, I went to dinner with an old colleague who is now a bit of a big cheese in the hedge fund world. I also saw him the next day at the conference, where he seemed to spend an inordinate amount of time buzzing around the HSBC stand – again, more later.

What struck me about the conference was the way the delegates seized it as a networking opportunity. FX is not the only market where communication between market participants has been seriously eroded by electronic dealing and automation.

Off the official conference agenda, the most popular topics seemed to be Merrill Lynch and its slash-and-burn approach to FX, as well as what hedge funds are up to and how they are coping in the low volatility environment. I mentioned a few weeks ago how I’d been caught short on the number of global heads Merrill has had over the last decade. I now find myself slightly long on the duration of the next team. I started off by showing a two-year bid, but that got smacked out of sight. I stopped quoting when I got whacked again in size by one of the hedge fund guys present at 18 months. Basically I’m limit up and if my wife, who always was a better trader than me, finds out, it will be my turn to feel the heat.

It always puzzles me how delegates, most of whom earn decent money, swarm around the booths, snatching up all the freebies on offer. Of the numerous pens available, HSBC’s were the best, narrowly pipping Hotspot FX’s. However, rumours reach me that the latter may prove more of a collector’s item in the long term. I must confess to pocketing more than one of HSBC’s pens, which I justified by pointing out that I’ve got two children. Pens with flashing lights never fail to impress them.

HSBC, unlike Bank of America, Goldman Sachs and Barclays, did not display its trading portal. Citi was also there, but I can’t remember if it was showing off its system. I spent ages talking to its staff, including the sartorially elegant Gavin Wells, the bank’s global head of spot FX. Gavin pointed out in one panel discussion that if you want a decent suit, you have to go to London, which caused a ripple of mirth in the audience. Before he entered FX, Gavin was an army officer in the Royal Artillery; it seems he is still more than willing to lob the odd shell about to get a reaction.

I do hear that HSBC is poised to unveil a seriously revamped platform imminently – presumably it isn’t quite ready yet, otherwise it would have been on display. Still, the delegates clearly didn’t mind – they seemed to be seduced by the HSBC sales staff on the stand, who were young and exceptionally bright. If I wasn’t so politically correct, I’d state categorically that, if I were a hedge fund dealer, I’d almost certainly give them all of my business.

My hedge fund mate, who I shall call “Billy Big Dog”, lingered around the stand long enough to persuade two of the more attractive HSBC staff to go for a glass of champagne when time reached beer o’clock. As he swaggered off, his jacket flipped open, revealing at least 10 of the flashing pens. Shameless really.

How to solve the low volatility conundrum

One of the topics debated at the forum was the continuing decline in implied vols and whether this was a long-term trend or a short-term phenomenon. There seems to be some belief that the level of liquidity in FX, which shows no sign of abating, makes it likely that vol is going to remain suppressed in the longer term. There is nearly always someone prepared to trade on the next pip; one view is that low volatility serves to increase liquidity as people assume bigger positions to try and make budget. As we’ve seen this year, events that in the past would have caused a real shake out, such as the Thai coup and serious political unrest in Hungary, barely cause a blip.

I, however, think I may have a solution. Traders, particularly in London, do not go to lunch any more to source an altogether different type of liquidity. Given the size of some dealing rooms, this may be because if they came back sozzled they’d never be able to find their desks again. But a bit of drunken dealing, when hopelessly wrong positions get built up, would almost certainly cause at least a brief tick up in vols. It must be worth considering.

Virgin on the ridiculous

The journey back to the UK almost ruined my trip. Quite frankly, I have never had a seat on any aeroplane like the pathetic example Virgin Atlantic gave me. Naturally, I have sent in an official complaint, and Virgin have replied saying they will consider it. An edited copy of my rant is set out below.

From: Lee Oliver

Sent: 08 November 2006 12:41

To: 'Customer.relations@fly.virgin.com'; 'Polly.Hardiman@fly.virgin.com'; 'Katie.Francis@fly.virgin.com'

Cc: chorwood@euromoneyplc.com

Subject: Your literal definition of leg room

Importance: High

I have just returned from New York on Virgin Flight VS0046 and I was amazed to discover that you have adopted a completely literal definition of leg room. I was given a seat, 57D, which really was only suitable for a one-legged person because the seat in front had a huge great metal box bolted underneath it. In other words, it had its 32-inches of leg room, but really I wanted one with 32-inches of legs room, as I am fortunate enough still to have two (legs).

Naturally I complained. When the stewardess had retreated from her initial assertion – “All the seats have them” – the rest of the staff did actually handle my potential explosive rant extremely well. I was moved to another seat, which did have legs room and I managed to get a reasonable amount of sleep.

I was told that apparently Virgin customers want state-of-the-art entertainment and are prepared to give up a leg for it. I’m not one of them. I’d rather have legs room and at least a chance of getting some sleep. If you do insist on providing seats with just leg room, rather than legs room, shouldn’t they be cheaper and shouldn’t passengers be warned that if they’ve got two legs, they might want to consider booking elsewhere?

Many years ago, in a different life, I always travelled business class. In my latest incarnation of journalist, I have to travel jub class. I was looking for some material for this week’s column and I guess one small consolation is that this story will no doubt amuse my affluent readers, who will be further able to take the mickey out of me for travelling with hoi polloi. Would you care to comment?

Admittedly, I did get a bit legless at dinner on Monday, but I was horribly sober last night. In summary, the seat was a disgrace.

Regards,

Lee Oliver

Gary Munday

Word reaches me that veteran broker Gary Munday has left Icap to go and trade spot cable for WestLB. As one headhunter commented: “A career switch at 47? Age discrimination legislation means we’re all in with a chance now.”

Personally, I’ve got nothing against career switches. I do it myself around every five years, although my record is when I joined First Interstate Bank of California, now part of Standard Chartered I believe, from Midland, now part of HSBC, back in 1986 after falling out with my line manager over trivial things such as the size of my positions and my risk appetite, which at times was larger than his.

I soon realised I’d made a mistake. I went back with my tail between my legs after nine days for £500 a year less than I’d left for and with broken service, which will reduce my pension. But that was when I was young. Incidentally, Gary’s first wife was a position keeper at Midland and I seem to remember once some vague threat of her suing the bank, because the bank’s car park barrier came down on her head as she walked beneath it, almost braining her. I haven’t firmed up yet whether Gary will be based in London or with WestLB’s spot team in Dusseldorf. I haven’t seen him for years, but he was a good bloke, for a broker (!), and I wish him luck.

Lifes not always a beach

There's been a lot of attention focused on BlueCrest after it closed its Newport Beach office, an event it described as some minor house keeping. Sources say that the office was really only opened because it was the location of choice of Yunho Song, who no longer works for the company. The slant in the media has been to suggest that the hedge fund is retrenching after a brief foray overseas from its London base. However, word reaches me that the fund is still in expansive mood and is currently looking at offices in various locations, including New York, Hong Kong and Chicago. Note that these all appear to be in more recognized business centres than Newport Beach, which may help staff focus more on the markets they are dealing in.

The Weekly FiX: What's going on in the world of FX this week? Get your FiX to find out.       

  Lee's biography   

  Lee Oliver can be contacted at fx@euromoney.com.           


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