March 2012

Sentiment improves in Europe

9 March 2012
Since the start of 2012 the mood across the Eurozone has improved. Stock markets have risen, agreement has recently been reached on a bailout package for Greece and there is a sense that Eurozone politicians have at last discovered the political will to chart a path towards economic recovery. All the signs are, however, that this path will be a long and difficult one. The eurozone economy is shrinking, the situation in Greece remains precarious and there are still major concerns about Portugal, not to mention Italy and Spain. While the current optimism is welcome we should be prepared for more market volatility in the months ahead. This issue of FX-MM has something of a Middle East focus: in the cover interview we talk to Philippe Ghanem, MD of ADS Securities, a newish but fastgrowing trading and brokerage house in Abu Dhabi, and the subject of our Country Focus is Qatar. This includes an interview with Steve Troop, CEO of Barwa Bank, one of Qatar’s rapidly developing Islamic financial institutions. Despite events connected with the Arab Spring both the UAE and Qatar are doing very nicely at the moment and in business terms are very much lands of opportunity, certainly compared with Europe.

Basel 2.5: The interim solution

9 March 2012
While many bankers across Europe were nursing sore heads from New Year’s Eve festivities, they were also greeted with the next in a series of regulatory head scratchers, that of the interim solution of Basel 2.5. David Sherriff, CEO of Microgen, takes a look at what its impact is likely to be for European banks. The arrival of Basel 2.5 comes amid a plethora of regulations already being implemented post financial crisis, with figures published in a report by Thomson Reuters suggesting that in 2011 alone banks faced approximately 60 regulatory changes per day. However, while it could be perceived as being yet another in a wave of regulations, its impact in the lead up to its hefty cousin Basel III will remain considerable. As Europe is affected by the new regulation from 2012, Switzerland has already implemented Basel 2.5 a year early and present results offer some indication as to the kind of impact it may have. Prompted by the global financial crisis Basel 2.5 provides an intermediary measure that subjects banks to new trading book capital rules. This new set of international rules will charge banks higher capital for the risks they run in their trading books.

European OTC derivatives reform

9 March 2012
Gerrard Mahony, Business Development Manager, EMEA, at riskart SpA, looks at the strategic choices for the buy-side’s back office. As is patently clear by now, the international OTC derivatives markets are about to undergo a huge transformation that will require all market participants to make strategic choices, possibly change business models and invest in the processes and technology that will help them meet the new market challenges. In the USA this transformation is being driven by the Dodd Frank Act and the rigorous rule-making process being followed by the CFTC and SEC with the first practical imple - mentations of these rules expected for mid-2012. In Europe, matters are moving a little more slowly due to the more complex political and decision-making structures within the EU. Progress is however being steadily made on EMIR (European Market Infra - structure Regulation) even if it is widely believed that the original G-20 Pittsburgh commitment for all standardised OTC derivatives to be centrally cleared by the end of 2012 is unlikely to be met.

Will the London Olympics impact financial trading?

9 March 2012
London will be hosting one of the world’s biggest sporting events in 2012 – the Olympic and Paralympic Games. The Games will benefit businesses, with billions of pounds of contracts in supply, but undoubtedly will also bring some challenges for businesses operating in and around central London. Allan Graham, Director Business Continuity Products, Equinix, looks at the business continuity challenges that the Games will pose. Transport will be a particular issue during the Games. Currently, there are 3.5 million journeys a day on the London Underground and with an extra 800,000 people expected to use public transport to travel to the Games at its busiest times it will create an additional 20 million trips during the 2012 Games. As a trading participant or financial services firm you might not see how external forces such as this directly impact your business or primary trade operations, but consider it in the context of the following scenario…

ADS Securities: Making Waves

9 March 2012
Despite having only been open for business since March 2011 Abu Dhabibased ADS Securities (ADS) have already made quite an impact in the market. According to their Managing Director, Philippe Ghanem, this is the result of their obsessive focus on providing top quality customer service and their strong capital position. Steve Shaw talks to him about these and other aspects of ADS’ business. Geneva-born Ghanem has more than a dozen years’ experience in trading financial instruments. He also has a background in asset management and fund management. Before moving to Abu Dhabi he founded and launched Squared Financial Services Ltd., a Dublin-based forex brokerage, and he remains the Chairman of this business. Urbane and relaxed, Ghanem speaks French, Arabic and impeccable English. Fluency in Arabic is an important skill to have if you want to develop business in the UAE and the wider Gulf region. Back in 2008 Ghanem hooked up with Mahmood Ebraheem Al Mahmood and out of their discussions and collaboration ADS was born.

Supply chain finance goes mainstream

9 March 2012
Having made the leap from niche to mainstream, supply chain finance is continuing to evolve, both geographically and technologically. Rebecca Brace talks to a number of industry experts about this evolution and considers the future direction of supply chain finance. Boosted by companies’ focus on liquidity and working capital since 2008, supply chain finance (SCF) continues to gain ground among global corporations. In 2010 supply chain finance was used for 8% of global trade, according to a report by Celent published last year – and by 2015, that figure is predicted to grow to 15%. According to the Celent report, that growth will be driven in no small part by the growing popularity of supply chain finance in Asia (see Figure 1). “We certainly believe that Asia and particularly South East Asian countries represent the biggest opportunities for SCF programmes growth in 2012,” comments Axel Pierron, SVP, Celent. “This is for two main reasons: first, these countries are integrated into a regional logistic/production chain. Secondly, it is the region where SMEs have the most difficulty in accessing financing, despite strong economic growth.”

Strategic spending

9 March 2012
In hard financial times, the threat to business survival is worsened by a scarcity of cash – making it more important than ever to have efficient working capital management practices. Dominic Broom, Head of Treasury Services EMEA, BNY Mellon, explains how working capital optimisation can ensure that corporate funds are at the right place, at the right time. Insufficient working capital renders a corporate inoperative. As a result, making sure a corporate has enough cash to function – and ensuring that it is used effectively – is every treasurer’s primary concern. Also, working capital management has expanded to focus on improving the bottom line. Accordingly, the corporate treasurer’s role has evolved to become more strategic, with greater emphasis being placed on how working capital is best spent to ensure business sustainability. Furthermore, poor working capital management is not just damaging to the corporate in question, but to the entire supply chain, with the widespread use of just-in-time practices meaning the failure of one element can result in a disastrous domino effect.

Rethinking risk

9 March 2012
The management of foreign exchange risk is driving a need for multi-asset trading and positionkeeping risk management platforms to eliminate as much post-trade operational risk as possible. Frances Maguire looks at the solutions that are helping firms manage FX risk. Increased volatility in the FX markets, particularly in the Eurozone, has been driving both brokers and the buy-side alike to find smarter ways to manage the impact of FX risk across all asset classes. Several differing strategies are emerging as a result of this. This is leading to increased automation to eliminate operational risk, post-trade, as well as the increased use of FX options and the inclusion of FX trading in multiasset class trading platforms. These trends also include the move to more centralised treasury technology to gain better visibility of positions in order to manage risk, streamlining corporate-to-bank connectivity, which may include managed SWIFT connectivity and eBAM, as well as using hosted private cloud environments to remove the burden of IT maintenance and enable treasury departments to focus on liquidity management.

Gold-i turns MetaTrader into a multi asset trading platform

9 March 2012
MetaTrader, the world’s most popular trading platform for FX, can now be used as a multi-asset trading platform, thanks to the latest innovation from Gold-i, the global market leader in trading systems integration. FX-MM talked to Gold-i’s CEO, Tom Higgins about what this means for banks and brokers, and about the other products Gold-i plans to launch in the near future. FX-MM: How will banks and brokers benefit from using the Gold-i Gate Bridge product to grow their businesses? Tom Higgins (TH): The Gold-i Gate Bridge is already recognised as the leading super low latency smart routing product available anywhere within the market place today. Up until now, banks and brokers have used it as the most effective and cost efficient means of connecting MetaTrader, the most popular FX trading platform, to external or internal liquidity providers.

Contract options

9 March 2012
Ole Sloth Hansen, Senior Commodity Manager of Saxo Bank looks at some situations where contract options might be an appropriate product to use in order to manage timing issues or to generate extra income, and provides some practical examples of how they work. For more than three years now global financial markets have experienced a series of shocks to the system, beginning with the US mortgage crisis and the collapse of Lehman in 2008, followed by the Arab Spring uprisings and not least the European sovereign debt crisis which continues to rumble on. These events, and others, have all had a profound impact on the markets and for various reasons have helped push trading in the direction of exchange traded products, such as futures and contract options. Furthermore, the ongoing shift to and the constant development of electronic market trading have helped drive the phenomenal growth in futures and options volumes. Over a period of just six years total volumes of contracts traded rose from 8.86 billion in 2004 to 22.3 billion in 2010.

Have European politicians done the trick?

9 March 2012
FX-MM’s monthly look at the issues affecting sentiment in global markets and the implications of these for the major currencies. As we move through the first quarter of 2012, the focus is still very much on the fragility of the global economic recovery. There are both positive and negative signs coming from many of the major economies around the world. There have been some more encouraging economic figures posted by the U.S., the UK and Japan, amongst others, and the eurozone seems to be inching ever closer towards getting the necessary agreements in place which could eventually see its sovereign debt crisis successfully resolved. Much depends on the larger Western economies and Japan returning to sustained economic growth, but the levels of growth being seen at the moment do not seem to be sufficient for a speedy recovery. The U.S., which is usually the major driver of the world economy, may not bounce back to pre-crisis growth levels for several years, especially when one considers the big spending cuts that will be required if the country is to reduce its deficit.

Managing hoarded cash

9 March 2012
BNY Mellon’s Dominic Broom, Head of Treasury Services EMEA and Gerry Barber, Managing Director, Strategic Development and Investment Management Group, discuss with FX-MM how effective cash and liquidity management solutions can help companies handle their cash securely and successfully amid financial turmoil. FX-MM: The current economic climate has called into question the security of banks. What affect has this uncertainty had on yield and liquidity? Gerry Barber (GB): Aware of the increasing inability to access funds, corporates and financial institutions are shifting their priority away from yield and into liquidity risk management. While this change is prudent, it has become too extreme. Many corporates are reluctant to invest surplus cash, which has led to an excess – rather than a shortage – of liquidity.

A major event for the European payments community

9 March 2012
FX-MM previews the International Payments Summit 2012 which will take place at The Lancaster Hotel in London from 13th-15th March. Now in its 20th year, IPS is one of the leading payments events in Europe. It attracts over 400 senior executives from banks, corporations, technology and infrastructure providers, regulators and service providers from around the globe. The conference programme itself is driven by extensive research with the payments community and this ensures that all the topics which are of importance to the industry are covered. The stream formatting enables attendees to create their own personalised agenda over the three day event. On Monday 12th March, the day before the main event starts, there is also an opportunity for delegates to attend either a “Payments Regulations Boot Camp” or a “Future of Money Summit’’.

A country with a vision

8 March 2012
Despite its size and small population of only 1.7 million this Gulf state has shot to prominence in recent years as a result of the rapid development of its significant oil and natural gas reserves. The wealth that this has generated has made Qatar the fastest growing economy in the Middle East every year since 2006. Steve Shaw takes a look at Qatar today and talks to a Doha-based bank CEO about the country’s future economic prospects. Doha, Qatar’s capital, is a city on the move. Today over a million people live there – its population has doubled in the last ten years and, with 80% of the nation's population residing in Doha or in its surrounding suburbs it is very much the economic centre of the country. The scale of recent development has been such that the city is barely recognisable from the early 1990s when much of the business in the lower Gulf region passed it by and was done in Dubai and Bahrain. Qatar’s economic transformation began in earnest in 1995 when the current Emir, Sheikh Hamad bin Khalifa al-Thani, succeeded his father and began to take his country in a new direction by signing large scale exploration JV contracts with some of the world’s major oil and gas multinationals.

60 Second Interview: Mark Emmerson

8 March 2012
FX-MM talks to Mark Emmerson, Head of Trade and Supply Chain – Europe, at HSBC, to find out his views on the impact of the Eurozone sovereign debt crisis, the current regulatory environment in Europe and the factors which are likely to shape the medium-term future of the financial markets. Which piece of market regulation is the most challenging for HSBC and its clients right now and why? The Basel III regulations may present a challenge for trade finance as the proposals raise banks’ capital requirements and set standards for overall leverage and liquidity which raise the costs. Basel III is not specifically anti-trade finance but the risk is that as banks adhere to Basel III there will be less trade finance available, pricing will go up and there could be an impact on trade and economic growth. With the emphasis firmly on global trade as the key driver for economic growth it has never been more important to support European businesses trading internationally.