Talks under way about payment arrears; Agreement with holdouts also under consideration

Takes lead in increasing interest rates; Australian dollar strengthens

The State of California is suing State Street Corporation, alleging that the Boston-based bank overcharged two of its high-profile pension funds on securities-related FX transactions. While some are claiming that the allegations involving pension funds Calpers and Calsters are the biggest story in FX for some time, the really big issue is why it has taken what are supposedly professionally run funds so long – up to eight years, according to CNBC – to realize that they might not have been filled at a realistic FX rate.

HSBC, which has clearly stated its desire to be a top three player in FX, is now taking steps to update its ecommerce offering.

Economic conditions may appear to be easing, but the region’s biggest challenges still lie ahead.

Constantine de Naray joins ING Bank in London as its head of emerging market FX options London. He reports locally to Gary Prince, head of European emerging markets FX and rates, and ultimately to Vincent Weevers in Amsterdam, who is global head of developed market FX and global head of FX options.

I’m baffled why an increase in risk aversion has also boosted the strength of the USD’s mini-me, or sterling as it is better known.

It seems that my fear has spread to the US Securities and Exchange Commission.

First ever debit card service in Somalia launches.

Tops and bottoms can make you realise service levels are rotten. My old mucker Paolo has been on to me again (see Retail rip off). If he takes his complaint further, we could soon see the first punishment handed out for breaching Mifid, which came into force in November 2007 and should ensure best execution for investors.

The belief that OTC is more opaque and risky than trading on an exchange is, as we all know, tosh. CLS Bank has something to say on the issue: “The provision of trade data repositories that can ensure transparency of trading, achieve timely matching and confirmation, and provide full information on the size and structure of the market in one venue is attracting heightened regulatory interest. The need for such repositories is currently being prescribed for derivative markets.”

Standard Chartered is now quoting rates in Gulf Cooperation Council (GCC) currencies 24 hours a day from Monday to Friday on its proprietary platform as well as FXall.

We all know that monumental cock-ups are not the sole preserve of OTC markets. Just think of Nick Leeson or the Sumitomo copper scandal. In a timely article about some misplaced conceptions, consultant Larry Tabb warns: “Just because [the US] Congress mandates that OTC products trade on-exchange doesn’t mean that OTC derivatives won’t blow up.”

Anyone who has ever had the pleasure of talking to Richard Olsen will vouch that he possesses an evangelical zeal, even if they might not necessarily agree with all of his ideas. There is no doubt that he has played a huge role in shaping the FX market. If he were to have his way, he would change it still further.

Barclays Capital has apparently hired Heather Alger from Citi for an FX sales role in its San Francisco office.

RBS has organised its EMEA sales team into what an internal memo from Antonio Polverino describes as a “Product/Geography matrix model”. It all sounds very professional and apparently it will help the bank, “serve our priority institutional clients across the region.”

Bank of America/Merrill Lynch people moves

New issues of both the US Treasury and the private sector are moving to longer maturities. They will collide once quantitative easing is stopped, and steepen the yield curve.

Several sources contacted me asking what I thought about ‘the biggest story to hit FX since, well, the last one’.

I’ve been thinking mainly in clichés recently, prompted by the sharp reversal in GBP. I get sent a lot of excellent research that I should mention more often. Several analysts pointed out last week that while the trend may be your friend, speculative GBP shorts at the International Monetary Market were at all time record levels, suggesting the market was vulnerable to a sharp correction.

Talking of clichés, top marks to my old mucker Paul Day, chief market analyst at MIG Investments, for sending out some commentary entitled Brazil scores an own goal. The country’s decision to impose a 2% tax on foreign investments in equities and fixed instruments had the expected result and the BRL came under quite strong selling pressure.

State Street Corporation released its third-quarter 2009 earnings this week. Revenue came in at $2.24 billion compared with $2.77 billion in the same quarter of 2008. The bank says that revenue from trading services, which includes FX, brokerage and other fees, was $269 million, a drop of 26% on the same quarter in 2008. It adds: “A 41% decrease in foreign exchange revenue is due to lower volatility as well as lower volumes. Brokerage and other fees increased 11% due primarily to increases in electronic trading.” It will be interesting to see if other banks report similar numbers, but perhaps it should not have come as too much of a surprise (see Time to downgrade banks?).

I’m not infallible – I once insisted that the internet would never provide a suitable network to trade over – so I will be careful how I assess a company called Currensee, which claims to be “the first Forex trading social network”.

The CME has promoted Derek Sammann to managing director, financial products and services. Sammann, who reports to Rick Redding, will be responsible for leading the development, execution and management of the CME Group’s interest rate, equity and FX product lines. He was previously global head of FX products. “Derek’s addition to our management team will further strengthen the capabilities of our leadership team as we continue to successfully execute our global growth strategy,” says Craig Donohue, the CME’s chief executive.

Market sources say emerging market faces Dave Jasper and Garth Appelt have left their positions at Goldman Sachs to head off to Moore Capital. Normally I’d ask all concerned for verification, but didn’t bother this week. I couldn’t be bothered to wait for “No comment”.

Current improvement in corporate earnings and stock and credit markets depend on cheap money, lower wages and higher productivity. Can that last? Is it a way out from the impasse?

The interbank options market has changed the way option premia are calculated.

I was given an interesting thought this week by a contact. “Now that the Lehman debacle is more than one year behind us, those extreme days are rolling off most banks’ VaR calculations. In my case, I’ve seen a dramatic drop in VaR over the past two weeks. Most banks and macro funds use VaR or some variant that looks at the past year’s worth of data, and will now be encouraged, if only indirectly, to take on more risk,” he says, adding: “Many client credit systems work similarly, so clients will also be able to come to the party.”

Should I really be so bothered? Yes, and so should everyone who works in FX.

Somewhat cheekily, I thought, a press officer at HSBC sent me a link this week about a new product that has been jointly developed by Royal Philips Electronics and the Dialogues Incubator, an initiative by ABN AMRO. Called the ‘Rationalizer’, the product has two components - the EmoBracelet and the EmoBowl. The bracelet measures the arousal component of the user’s emotion through a galvanic skin response sensor. This arousal level is rendered as a dynamic light pattern on either the EmoBracelet itself or on the EmoBowl.