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December 2011 / January 2012
5 January 2012
As we sent this issue of FX-MM off to the printers we did so with a sense of fore - boding. The Eurozone sovereign debt crisis appears to be heading ever closer to a dénouement. Another EU leaders summit is imminent and by the time you read this perhaps Germany and France’s grand plan for fiscal union will already have been hatched. Our own suspicions are that there is still a great deal to be done by politicians, and by the ECB, before the markets are finally convinced that this crisis is over. The threat by the ratings agency, S & P, to downgrade most Eurozone countries hangs over the markets like the Sword of Damocles.Our aim at FX-MM is always to cover topics that we believe are of interest and relevance to our readers. This issue is certainly rich in variety. In this month’s cover interview we talk to Oren Cohanoff of SuperDerivatives. Oren shares some interesting perspectives on corporate risk management.
5 January 2012
In northern Riyadh, near the intersection of the King Fahd Highway and the Northern Ring Road, the new King Abdullah Financial District (KAFD) is rapidly taking shape. This is a new financial centre, conceived from scratch, but on a very grand scale indeed. The target date for the first districts of the KAFD to become operational is 2013 but as the entire site covers around 400 acres and will eventually have over 3 million square metres of real estate it is likely to be several years after that before all elements of the project have been completed.The Kingdom of Saudi Arabia is by far the largest economy in the region but it currently punches below its weight in terms of the influence it wields in the regional financial markets. The ultimate objective of the Saudi authorities is for the KAFD to become the pre-eminent financial centre in the region. Depending on who you talk to this is a position currently held either by Dubai or Bahrain.
5 January 2012
Wayne Pestone, Chief Regulatory Officer, FXall, provides his thoughts on the regulatory developments that we have seen in 2011 and on some of the major regulatory challenges which lie ahead.In 2008, the G20 emphasised principles to restore global growth and improve the safety of the world’s financial systems. These principles include promoting integrity in the financial markets, strengthening transparency and enhancing sound regulation. In 2012, we are heading towards the deadline for the implementation of the G20’s action plan that is intended to achieve these principles.Despite numerous delays and attention being diverted to pressing issues such as the Eurozone crisis and the U.S. debt downgrade, momentum towards regulatory reform of the financial markets infrastructure did grow in 2011. Namely, regulatory proposals for EMIR and MiFID II/MiFIR were developed by the European Commission and, with respect to the Dodd-Frank Act, numerous rules were proposed by the CFTC and the SEC. While market participants now have a clearer understanding of the intended final rules, there are still many unsettled issues, and questions remain over how, when and what effects the rules will have on the financial markets.
5 January 2012
In the current restricted funding environment, working capital management is high up the corporate priority list. Rebecca Brace looks at what companies are doing to reduce their need for external finance.There are a number of ways in which companies can improve their working capital management: they can increase days payables outstanding (DPO), reduce days sales outstanding (DSO) and/or reduce days inventory outstanding (DIO). “Out of the three working capital components (inventory, payables, receivables), receivables probably has the highest overall value of working capital,” observes Karsten Becker, Senior Product Manager Europe for Corporate Payables & Receivables, Deutsche Bank. “Thus, efficient receivables management is extremely important. It contributes to a company’s solvency and profitability.”Nevertheless, until very recently receivables management was often a neglected area. While the process of getting paid on time and managing customer credit is of perennial importance, companies looking to manage working capital more effectively tended to focus their efforts on other areas
5 January 2012
SuperDerivatives is setting about transforming the world of derivatives by introducing transparency to all major traded derivative classes and is rapidly proving to be a benchmark for independent derivatives pricing, front office productivity tools and revaluation. Oren Cohanoff has come over the fence, morphing from user to preacher. He talks to Frances Maguire about his new role as Head of Corporate Solutions to lead the growth of the company’s corporate risk management system, CorporeX.Oren Cohanoff joins SuperDerivatives (SD) from Teva, the world’s largest generic pharmaceutical corporation, where he was Deputy Treasurer and Global Head of Financial Risk Management responsible for hedging policy, execution and compliance in the treasury group for all the subsidiaries. In his eight years at Teva he relied on SuperDerivatives’ multi asset front office systems for its accurate pricing and position management in addition to using CorporeX itself after the product was launched. Prior to joining Teva, Cohanoff was a trader for vanilla and exotic derivatives in FX and rates for Bank Leumi.
5 January 2012
FX-MM’s monthly look at currencies and the underlying economic issues which are affecting sentiment in global markets.The Eurozone debt crisis has continued to intensify as a result of the steady trickle of bad economic news and it’s still not clear whether European leaders have both the ability and the political will to engineer a lasting solution. As Ken Dickson, Investment Director, Currency and Foreign Exchange at Standard Life Investments puts it: “the Eurozone debt crisis is now in the hands of politicians and it appears to be unsolvable until Europe finds a way of improving economic growth.”Any solution has to come from the leaders of the two most powerful economies in the single currency, Germany’s Angela Merkel and France’s Nicholas Sarkozy. The problem is that the two leaders do not appear to hold entirely the same view of what this solution will look like. The signs are however that the German approach to resolution of the crisis, fiscal union, will ultimately prevail. This will require the imposition of tight controls over spending in each Eurozone member state, something which requires a rewrite of the EU’s governing rules.
5 January 2012
While 2011 will go down as the year that FX forwards and swaps were exempted from the Dodd- Frank Act, it has been a long year of waiting for the regulators to detail the new era of clearing and collateralisation, finds Frances Maguire.In April 2011, the US Department of the Treasury issued a long-awaited determination to exempt foreign exchange swaps and forwards from the mandatory central clearing requirements of the US Dodd-Frank Act, ending months of uncertainty since the law was passed in July 2010. FX options, currency swaps, cross-currency swaps and non-deliverable forwards will not be exempt. Nor are other OTC swaps that corporates use, such as interest rate and credit default swaps. Furthermore, although FX swaps and forwards will be exempt from mandatory central clearing, the US Treasury stressed they will still be subject to rigorous new reporting requirements and strengthened business conduct standards, notably, the creation of a global foreign exchange trade repository, which will dramatically expand reporting to regulators and to the market more broadly.
5 January 2012
This month’s FX in the Spotlight feature delves into the world of retail FX trading. Steve Shaw talks to Johnathan (Yoni) Assia, CEO of eToro, about his business and the rise of social FX trading.FX-MM: How does social FX trading work?Yoni Assia: Social trading works by tapping into the wisdom of the crowd. It implies aggregation of a very large user base of traders from all walks of life and from every corner of the world, who are ready to share their experience and present their results to the entire trading community. In exchange for a single trader/investor’s openness the entire collective benefits.A social community is a living organism that can instantly adapt to external influences, in this case market conditions, and by rapid communication spreads information quickly to all its connected members to form a better-informed network. The key challenge for a social trading platform is how to present a vast amount of real time data in a visually appealing, easily comprehensible manner so that every member can tap into this knowledge base and benefit from the information.
5 January 2012
By Takis Spiropoulos, Managing Director and Head, e-Commerce Solutions Group, CIBC World Markets Inc.As our clients grow from small to mid-market commercial companies, to larger corp - orations with international business needs, electronic solutions are tailored to meet their business requirements. Typically, the first port of call is a dedicated electronic FX payments solution linked to the client’s business banking account. Single sign on with the bank’s cash management system provides flexibility and added value in terms of receiving real time FX prices and executing as necessary to hedge present and future cash flows. Clients value the flexibility of being able to conduct secure foreign exchange transactions by accessing the web while being in another country, and time is of the essence. Also important to them is a foreign exchange online payments platform that is an easy to use and secure solution that puts clients in control of their foreign exchange cash management requirements.
5 January 2012
Having introduced its popular Mirror Trader platform to the world of retail Forex, Tradency continues to enhance its offering with new solutions, features and traded instruments.Tradency is well known in the retail Forex market for being the creator of Mirror Trading technology. This is a trading method which enables traders to view, analyse and evaluate signals from worldwide strategy developers and execute these signals in their brokerage accounts. Mirror Trader provides traders with access to a database of trading strategies developed by experienced Forex traders. A Mirror Trader user can create a portfolio of selected trading strategies and let the strategies trade for him automatically. Once a strategy is selected to the portfolio, every trade it opens is automatically “mirrored” to the user’s trading account.In July 2011 Tradency launched a new version of Mirror Trader, which provides insight on manual trading knowledge and adds new functionality to the platform. This was a major upgrade to Mirror Trader which up until then had been mainly known as an excellent platform for automatic trading.
5 January 2012
Steve Shaw talks to Ben Collins, Director of Sales and Marketing for Morningstar Real-Time Data about his business.FX-MM: Can you briefly explain how Morningstar Real- Time Data fits into the larger Morningstar organisation?Ben Collins: The Morningstar Real–Time Data business’ core function is to collect, process, and then distribute multi-asset class pricing data through a wide range of APIs, flat files, and desktop terminal products in a variety of time intervals ranging from real time to end of day. Through the acquisition of Tenfore Systems in 2008, Morningstar now offers this data from global equity, derivatives, commodities, FX, and money markets to supplement and complement its existing data sets. Bringing our two companies together expanded Morningstar’s offerings to clients, by significantly broadening the scope, depth, and timeliness of Morningstar’s investment data. In the three years since the acquisition, the pricing data is fully integrated into Morningstar’s products; we have also launched new web-based fully hosted components and expanded our content set.
5 January 2012
The sheer volume of anticipated regulatory developments in the financial sector over the next five years is daunting, not least because of the potential for regulators on both sides of the Atlantic to arrive at different solutions for dealing with the same problems. Dr. Anthony W. Kirby of Ernst & Young compares and contrasts the EU and US approaches to regulatory development.The global securities industry is in the midst of a tsunami of change. The drivers include macro-/micro-economics, G20/political developments, and the sunrise of new technologies such as cloud computing. Given the turbulence in some Euro-zone countries and in the commodities markets in 2011, it is little surprise that governments, central banks and regulators are on constant alert, and this could be a semi-permanent feature of the investment landscape in the near-term. Regulation has a gross impact across the business and operating models of players on the buy- and sellsides, as well as asset servicers and market infrastructure providers.Regulation impacts the supporting data structures, boosts the need for quality management information, increases the need for timely reporting and disclosure, forces changes in systems and controls, challenges firms to amend policies and procedures, challenges firms to review their appetites for risk and above all, encourages firms to ensure that their governance arrangements are fit for purpose (‘tone from the top’).
5 January 2012
In conjunction with Standard Bank, Steve Shaw takes a look at the economic prospects and financial markets in South Africa, Nigeria, Angola, Kenya and Ghana, sub-Saharan Africa’s five largest economies.The Big PictureWhile much of North Africa struggles to come to terms with the impact of uprisings and political change fostered by the “Arab Spring,” the big economies of sub-Saharan Africa are motoring along quite nicely, particularly those which are oil-producers. That said, a prolonged slump in the global economy and fiscal austerity programmes in Europe, Africa’s biggest trading partner, could threaten the region’s exporters, as well as aid and capital flows, thereby hampering the overall growth outlook.Foremost among sub-Saharan African economies is South Africa, the continent’s largest economy by some distance, though with 49 million inhabitants it is far from being the continent’s most populous country. It has abundant natural resources and a well-diversified economy, with a sophisticated financial sector and the world’s 17th largest stock exchange. It particularly benefits from its modern infrastructure, which allows goods to be distributed efficiently to major population centres throughout the country.
5 January 2012
With a population of 78 million, a diverse industrial and agricultural base, a vibrant tourism sector and a well-educated, skilled labour force Turkey is today the world’s 16th largest economy. While many of Turkey's neighbours in the Middle East and Europe are struggling with political turmoil or economic stagnation, or both, Turkey’s economy is powering ahead. According to the OECD, Turkey will be the fastest-growing OECD economy between 2011 and 2017, with an average annual growth rate of 6.7 percent. Steve Shaw takes a look at what is driving this growth.
A Remarkable TransformationWith its fast-growing economy, military strength and location at the crossroads of Europe and Asia, Turkey is a major regional power and is a country of considerable strategic importance. While its location and military might have long meant that Turkey has been a key regional power it hasn’t, until recently, been a country known for its industrial power. Over the last 20 years the country has had something of a roller-coaster ride economically. The 1990s were a tough decade for Turkey, characterised by high inflation, large public debt and structural problems in many sectors of the economy. In 1994, and again in 2000-2001, the country endured periods of severe economic crisis, so bad that they had to call in the IMF. Having been the recipient of IMF aid to the tune of $20.4 billion between 1999 and 2003, the Turkish government came under considerable pressure to implement structural reforms to the economy.
5 January 2012
FX-MM talks to Andy Nicholson, President of Global Banking & Financial Markets, BT Global Services, to find out his views on the impact of the financial crisis, the current regulatory environment and the issues which are likely to impact the financial markets in the future.
Which piece of market regulation is the most challenging for BT Global Banking & Financial Markets and its financial sector clients right now and why?Since the financial crisis, our clients have faced a raft of new risk focused regulations. As such, we feel that the challenge cannot be pin pointed to one particular regulation, but instead, relates to the collective impact of all of the current initiatives, and how firms adjust their business processes to adhere to the new requirements.Tackling new legislation poses a challenge every time a regulation is rolled out - and of course creates extra cost of compliance. This creates a clear driver for change since technology solutions can provide operational efficiencies which help to offset these compliance costs.
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