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Foreign Exchange

You don’t crucify people! Not on Good Friday!

Easter is for many a time of contemplation and a period of goodwill. I myself spent last weekend wondering whether or not to cut the grass, clean the car, go and visit my parents; in a real moment of charity, I even went to see my parents-in-law.

More worryingly, though, I also started to think about the heavy workload I’ve got this month for Euromoney. Next month’s issue is a bumper one as far as FX goes. It will have the poll results and I have to come up with a couple of proper articles to accompany it; I have a horrible feeling that I simply won’t be able to please all of my readers this time around – nothing new there then – and that in fact I might even upset some.

So I did consider taking a soft approach to this week’s FiX, in the spirit of Easter. Although this is appearing a week after Good Friday, I thought it might be apt to produce a column full of hope, minus the normal Mickey-taking and cynical analysis of the market. As Harold Shand, the protagonist in British gangster film The Long Good Friday uttered after finding one of his minions nailed to a warehouse floor: “You don’t crucify people! Not on Good Friday!” Anyway, a couple of hours in the Euromoney office soon changed that notion.

One of the pleasures of this job is the correspondence I get sent. It ranges from interesting and worthwhile, through to bizarre and stupid, threatening and sometimes pleading. Often it is just plain odd. Quite frankly, some of it is enough to give you brain damage, so I was intrigued by the following e-mail I received last month.  

“My name is Joe Butch and I’m with Our site is dedicated to informing the public about brain damage cases as well as providing the service of locating local attorneys and law firms for anyone in the United States.

We have recently come upon and we believe that your site’s audience will take advantage of the service we provide. That’s why we would like to inform you about our site and to propose submitting our link to your web page,” it went on. Now I know some of my readers are strange and at times I have wondered if they are indeed brain damaged. But can they really make use of this service?

“We would appreciate it if you could include a link to our site on your web page.* Thank you and all the folks at for your time and consideration,” the e-mail concluded. I’m glad I can be of service and I’m also considering sending the link on to some of my readers to add to their websites.

City Winkers

For the past  five years, I’ve taken part in a cycling event in France called L’Etape du Tour. This event gives amateurs the chance to ride the precise route of a normally mountainous stage of the Tour de France, the world’s biggest annual sporting event. As anyone who has ever done it knows, it can be a bit of an ordeal.

The event is too hard ever to become like one of the big city marathons. I’ve yet to see someone dressed as a clown doing it. That said, L’Etape is clearly something that appeals to a lot of clowns and most of these appear to be employed in the financial markets. L’Etape has become a bit like Verbier; it’s full of blokes from the City.

This year, me and the muckers, who are mainly employed in the world of FX options, decided to give the event a miss and do La Marmotte instead. This is a similarly arduous task, one that demands careful and thoughtful preparation. The first obstacle is to fill in the entry form and send it back with proof that you are healthy enough to do it. I can’t tell you how difficult this is proving for a few of the team. The problem seems to be that their PAs can’t visit their doctors for them and, no matter how much I nag them, they are still keeping me waiting. I have to come up with a team name. I suggested “City Winkers”. “Most of you work in the City and most of you are Winkers,” I told them. It’s really tough motivating people when you can’t fire them. Next week, I might have to name and shame.

Eat my dust, winkers! CFETS launches new platform with Reuters

The opening up of the Chinese FX market has continued with the unveiling of a new trading platform by the China Foreign Exchange Trade System (CFETS). The platform, which uses Reuters’ electronic trading technology, initially went live on March 12 for currencies other than the yuan.

This week, the service was expanded to allow CFETS member banks to trade the yuan against five other currencies. Reuters showed me the system a few weeks ago and I noticed it has a function that will no doubt be the envy of many central bankers. If CFETS, which is owned by the People’s Bank of China, decides that something is amiss in its market, it can hit a button that immediately stops all trading. Of course, it is unlikely ever to do so but it is something that the punters should perhaps be aware of.

It’s getting bigger all the time

The CME reported that it had a bumper month across most of its product lines in March, including FX. Its average daily currency turnover was 658,642 contracts, equivalent to a notional value of $80.4 billion a day, a rise of 42% on the same period in 2006. The vast majority of this – $78.2 billion – was in futures, which I don’t have to tell you are used by many players as a proxy for spot. And, as we all know, spot accounts for around a third of turnover in FX.

Clearly, the CME is a big player in FX, so I’m always amazed to see it still often reported that it is a niche participant. A typical comment would be that it only accounts for a tiny percentage of the vast FX market, where daily turnover could now easily be around $3 trillion. At times, it seems to me that even the CME plays down its success, especially now that FXMarketSpace, its 50/50 joint venture with Reuters, is up and running.

But as I’ve said it before and no doubt will say again, the CME’s rapid capture of market share means that it is probably the second biggest “broker” in the spot market. I say probably, because Reuters doesn’t publish its volumes. CME accounts for an estimated 7.8% of total daily spot turnover. 

Just a few years ago, the exchange was happy to proclaim itself as the largest multibank platform, one that was competing against the likes of Currenex and FXall. Its rise might be proof that the FX market would be better served by an open access and centrally cleared platform but I have to say that I’m still slightly confused by what appears to be the possible cannibalization of its business with FXMarketSpace. But perhaps time will show that there is room for an orthodox exchange and a hybrid OTC platform with a genuine and neutral central counterparty.

EBS’s volumes are also rising and it appears to be maintaining its share of the market. But its slower growth rate raises the question of whether this could ultimately result in the erosion of its dominant position at the market’s hub. No doubt it would welcome a possible splitting of liquidity between Reuters, CME and FXMarketSpace. This is one of the themes I’m hoping market players will shed some light on for me in the feature currently being prepared for next month’s issue of Euromoney.

Daily Average (billions) 1989 1992 1995 1998 2001 2004 Now
Spot 317 394 494 568 387 621 1,000*
Change   +24% +25% +14% -31% +60% +61%
CME (notional) 7 8 6 7 6 17 78.2
CME Market Share 2% 2% 1.2% 1.2% 1.5% 2.7% 7.8%*
Change   +14% -25% +17% -14% +183% +460%
EBS     25 90 75 115 189
Change       +260% -17% +53% +64%*
EBS Market Share     5% 15.6% 19% 18% 19%

Table compiled from the BIS Triennial Central Bank Survey, 2004, EBS and CME. Figures are in billions of US dollars.

*Euromoney estimate, compiled from growth rates reported by various FX committees.

Mare of the Month Contender

Another Susie from the wonderful world of PR is leading the race for the next Mare of the Month award.

“Please could you email me the synopsis for the feature you are doing in your May issue on ‘Foreign Exchanges’. Any further information you could provide would be great.

Thanks, Susie”, she wrote.

This is what we sent back.  “Lee Oliver looks at the value of sending school children for a week’s stay in other countries. Do they learn the language? Do they come back as better cooks, or do they just import a load of dodgy flick knives, porn and fireworks?”

Once a dealer, always a dealer

I got a phone call this week from a mucker I used to work with at Midland Bank. He was passing through City Airport when he saw a photo of our old boss, Tom Lockett, being used to promote Chi-X. This is the new equity trading platform that may prove a very real challenge to Europe’s incumbent exchanges.

I think it’s a little bit unfair of Chi-X to imply that Tom was old-fashioned. Of course, I’m totally biased; Tom was always pretty good to me. We did use to call him the headmaster, but that was a term of endearment and he did a good job at keeping Midland Bank’s profile high at a time when the institution was fast disappearing down the plughole.

He wasn’t perfect, but Tom was always a trader at heart and supported most of his dealers through thick and thin. He wasn’t scared of risk and he was quite innovative. He gave me a job when the bank supposedly had a graduate-only recruitment policy. I reckon Midi was one of the few clearers that gave the aggressive punters around at that time a run for their money. On second thoughts, maybe that’s why Chi-X chose to use Tom. I hear it’s a very good platform and will do what its advert claims. Oh, and there’s absolutely no truth that HSBC are still using the same systems as portrayed in the advert.

People moves

What's going on at Saxobank, BoA, Morgan Stanley, JPMorgan and BarCap:

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