Dealing with God
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Foreign Exchange

Dealing with God

The reasons behind the initiation of an FX position are almost as diverse as the participants in the market itself. Some believe that technical analysis is the only true way to trade FX; others believe that yield alone drives rates. Over the years, I’ve come across other beliefs. One dealer used to take cable positions on the basis of which way a crane he could see out of the window was pointing. We had a period when we traded on whether the tide was in or out. It should come as no surprise to hear of a company that bases its trading decisions on what it says is contained in the Bible.

When is a net not a net?

Word reaches me that a new netting system aimed initially at foreign exchange prime brokers (PBs) is about to be unveiled by EBS and Traiana.

The service has the working name of NetLink and has apparently been developed in response to customer demand. It is no secret that many in the industry are moaning about the cost of processing tickets through CLS even though – as I reported a couple of weeks ago – the settlement utility has taken steps to lower its charges. Pre-netting trades is seen as an obvious way of reducing costs.

There is a certain amount of irony in EBS’s involvement, given that its successful FXNet business was effectively destroyed by the advent of CLS, which – as readers of this column will be fully awareonly accepts trades on a gross basis. EBS’s move could perhaps be seen as a protective measure should FXMarketSpace, the Reuters and CME joint venture, ever get the go-ahead to pre-net trades through CME clearing. In other words, it would ensure that the virtual clearinghouse made up by PBs mimics a true exchange-like central counterparty even more closely.

I’m led to believe that CLS has indicated that it has no objection to NetLink. This strikes me as odd and, perhaps, even unfair towards FXMarketSpace. Because of time, I haven’t been able to check with CLS what its view is, but I will do so and report further. But what I hear is that the service will initially focus on the flotsam – or small ticket trades – that clog up banks’ back offices and that supposedly aren’t settled through CLS anyway. Apparently there is a view that netting them down may even result in greater volume ending up with CLS and not affect its existing business. 

NetLink will work by netting trades done on EBS Prime at pre-defined times throughout the day. The netted deals will be published to the PB’s back office either as a single ticket or as payment records. More on this can be found in the January edition of Euromoney.

Dealing with God

The reasons behind the initiation of an FX position are almost as diverse as the numerous participants in the market itself. Some believe that technical analysis is the only true way to trade FX; others believe a macro economic view is king, while some will swear that it is yield, and yield alone, that drives rates.

Over the years, I’ve come across other, more esoteric beliefs. Some time ago, a dealer at Barclays nicknamed Beagle apparently used to take cable positions on the basis of which way a crane he could see out of the window was pointing. At Midland, we did have a period when we traded on whether the Thames’ tide was in or out. In short, there is something for everyone, so it should come as no surprise to hear of a company, Market Speculators, that bases its trading decisions on what it says is contained in the Bible.

In its detailed and open disclosure document, Market Speculators outlines its views: “The managing members of Market Speculators LLC have believed that biblical principles referenced in the King James Version of the Bible are the correct basis for trading system development.”

Now I must confess that I’m pretty ignorant about matters theological. Sure, most of us know the story of how Jesus kicked the money changers out of the temple. To me, this suggests two things. Trading money is, perhaps, the second oldest profession in the world and it is not something that the devout are necessarily inclined to indulge in.

But according to Peter Apfelbacher, one of the company’s founders, my interpretation is wrong. “Regarding the biblical story of the moneychangers’ tables being overthrown, there was more to it than most people have likely been aware of. In the Old Testament, people were to bring sin offerings to the priest and the priest would then offer the sacrifice up to the Lord. Since all people have sin, if we were all serving the Lord, we would have a lot of sin offerings to offer up regularly. The moneychangers took advantage of this by making a profit off that fact by selling sin offerings. This displeased Jesus Christ because the moneychangers promoted sin for the cause of making a profit. Therefore, the biblical definition of a moneychanger is not someone who exchanges money for money but rather sold animals to be offered up for sacrifice,” he explained to me.

Market Speculators says it has capacity to manage $750 million. At the moment, its fund has assets of around $2,000, which suggests that it is going to have to turn a lot of water into wine, if you will forgive such a lame attempt at humour. I do wish them luck, as markets are made richer by a greater diversity of participants. But investors will no doubt be wary that funds can go down as well as up in value. Or to put it another way, the Lord giveth, but he also taketh away.

Lies, damned lies and corporate communications

Over the last week, I have thrown my toys out of the pram three times as a result of having to deal with corporate communication departments. No one appreciates being given the run around. My policy is to check stories out by calling the institution or individual concerned and asking them to comment. As I have mentioned, if they decline that privilege, I consult my editor and then we make a decision whether or not to publish.

I’ve mentioned before that I was thinking about having a new award for the worst PR or corp comms individual. My editor, who is a bit of a cricket fan, has suggested that we call this the “Ashley Giles Award for Worst Spinner”, after one of England’s hapless bowlers. At the moment, a certain institution is way out in front for trying to pull the wool over our eyes. This company is about to rebrand its FX offering. No doubt it will start inundating me with loads of puff pieces over the next few months. I have been prohibited from telling it what it can do with them.

Rawlins says goodbye to cycling as he takes a new option

Earlier this year, Frank Rawlins left JPMorgan for what he stated publicly was a sabbatical, but what those who knew him believed was retirement. After 18 years in the market, Frank decided that he wanted to spend time with his young family and get some quality time in on his bike.

Frank is one of our motley bunch that has headed down to France for the past five summers to take part in L’Etape du Tour. This is a day when amateurs get to ride one of the more arduous stages of the Tour de France.

Frank starred this year in what was considered one of the most brutal L’Etapes ever held. Not only was he the first of our group, he also finished in the top 500 of the 8,500 strong field. However, he has been lured back to the market by Bank of America, where he starts on Wednesday (December 13) as managing director and global head of foreign exchange options.

I wish him luck and think BoA has got a top-notch guy in place to “continue to grow” its options franchise as the bank puts it or, as I would say, turn it around. As for Frank’s cycling, one of the gang says cruelly: “Yeah. Normal service will be resumed, with him bringing up the rear in next year’s L’Etape no doubt.”

Hedge trimming

Rumours continue to reach me that several high-profile hedge funds have had what the market would term an absolute “mare” this year. I will continue digging around and hopefully come up with some firm news over the coming weeks. If anyone has got any buzz, you know where to send it.

It’s all for chariddee

Icap held its annual charity day yesterday (Thursday) and various celebrities made visits to the company’s offices around the world. A few were even allowed on the boards, including Lord Attenborough and Prince William. Last year Icap raised £5.2 million for the various charities it supports. The company is hoping to beat that sum this year, and with EBS contributing for the first time it is likely to. EBS’s share is earmarked for the Laureus Sport for Good Foundation, which funds and promotes initiatives that use sport to tackle pressing social issues.

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