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November 2011
9 November 2011
As this issue of the magazine went to press Eurozone leaders had just announced a package of measures aimed at resolving the sovereign debt crisis. Initial market reaction was positive but it remains to be seen whether the measures will work. Clearly this is the biggest story in the financial world at the moment, and one where it will be the role played by Germany which is likely to determine how the crisis ultimately plays out. We’ve taken the opportunity to look at the future of the euro from a German perspective in this month’s “FX in the Spotlight” feature.Our cover interview is with Jiro Okochi, CEO of Reval, a global provider of a Software-as-a-Service solution for enterprise treasury and risk management. Okochi believes that the financial services industry is in for something of a shock when the full ramifications of future legislative changes start to take effect. His insights are well worth reading.In the Regional Focus we take an in-depth look at the Nordic and Baltic region in conjunction with SEB and Swedbank, two of the region’s leading banks. Their insights into the unique operating environment in this part of the world are very informative and should provide food for thought for portfolio managers.
9 November 2011
Saxo Bank introduce the key features of their platforms and tell us about some of the enhancements which will be coming in 2012.Saxo Bank was one of the first financial institutions to develop an internet-based trading platform and bring professional online trading to the private space. Having started with this approach in 2001, Saxo Bank today is as committed and as focused as ever on technology development and understanding the needs of traders. Currently over 40% of Saxo Bank’s staff are dedicated to the maintenance and development of the technology that supports the platform.Saxo Bank is constantly developing its offering in the online space and is investing heavily in the expansion of the product across the multitude of new mobile devices that are coming to market. Another area with significant investment is the charting capabilities. Technical analysis is one of the largest trade idea generators in the forex retail market and Saxo Bank is working on extending its capabilities in this area to the benefit of its clients.
9 November 2011
In April 2008 the Swiss authorities introduced new regulations governing the activities of forex dealers operating in the country. Sebastien Micotti and Gianluca Flammia of the Swiss banking group, Dukascopy, take a look at the impact of these regulations.Over the last three years regulatory oversight in most parts of the world, not to mention the global financial melt - down, has changed the landscape of what it takes to be a competitive forex broker/dealer (referred to hereinafter as “forex dealers”). Indeed, the forex dealer market is consolidating in regulated countries such as the US, Switzerland, Japan and many others.In Switzerland, the authorities have not examined whether or not forex trading shall be deemed trading on a financial product or not. However, the approach taken by the Swiss regulator and government has drastically strengthened the regulatory framework for all forex dealers located in Switzerland since 2008.
9 November 2011
In the financial services industry “Cloud Computing” has so far made inroads mainly into noncritical areas of the business. Rebecca Brace talks to industry experts about why this is the case and considers how the model is likely to evolve in the future.Cloud computing has emerged as a buzzword for the latest breed of hosted technology offerings – but the implica - tions of this type of technology for the financial services industry are still taking shape. Does cloud technology represent a significant moment for the industry, a natural progression of some older trends – or no real change at all?First it is important to ask what is actually meant by the term ‘cloud computing’. The term has been in widespread use since around 2009 and is often grouped together with the older terms Application Service Provider (ASP) and Software as a Service (SaaS). Kevin Grant, CEO of treasury management system provider IT2, sees these as different points on the same spectrum: “Cloud computing is a new name for something that’s already established – it seems to have superseded SaaS, which superseded ASP.”
9 November 2011
Jiro Okochi co-founded Reval in 1999 to bring an internet technology solution to the underserved market of corporate derivative end-users – treasury organisations that use these instruments to hedge business risk, and he has campaigned on their behalf ever since. Frances Maguire talks to him about the emerging regulatory environment.Jiro Okochi, CEO and co-founder of Reval, a global provider of a Software-as-a- Service solution for enterprise treasury and risk management, is not a pessimistic man, in fact he is quite a visionary, but he does believe that the financial services industry is in for a bit of a shock when the full ramifications of the legislative changes start to take effect. And while everyone expects the cost of OTC products to go up, he says, the surprise will be by just how much they will increase in cost. The entire derivatives market will be restructured, and any corporates operating under the assumption that they are largely not impacted by the pending reforms will be in for a big surprise.
9 November 2011
FX-MM columnist Dean Peters-Wright takes his monthly look at currencies and the underlying economic issues which are affecting sentiment in global markets.The global economic recovery seems to have ground to a halt. Policymakers disagree on the best way forward and the large economies in the West simply cannot gain the necessary traction to get going again due to persistent high unemployment and weak performance in key sectors. Just as the root causes of the problems are somewhat different in each economy so, it seems, are the approaches for producing viable solutions. The number of economic summits and meetings of political leaders to find solutions to these economic woes seems to be endless but we don’t seem to be getting too many answers at the moment. The financial markets have been in turmoil in recent months and almost every news headline coming out of the Eurozone takes them in a new and unanticipated direction. Traders in all asset classes are finding the markets tough. As Kathleen Brooks, Research Director at forex.com explains, “although asset classes are correlated they are not moving in a trend. Instead they are all stuck in ranges, which can make for some frustrating trading conditions. Europe is still the dominant theme in the markets and until the crisis is solved one way or the other – either satisfactorily or not – then it is hard to see stock indices breaking out.”
9 November 2011
In the wake of the latest high profile unauthorised trading case, which involved a $2.3 billion trading loss at UBS, Frances Maguire asks what can be done to prevent rogue trading, or at least limit the scale of the losses.Once again the banking industry has stopped to ask itself if the measures in place are strong enough and whether a bank can ever stop rogue trading. Also, how can rogue traders be identified early on and weeded out, and if all else fails what damage limitation techniques can banks employ and finally, whether measures to prevent rogue trading be mandatory. While there is no specific regulation that states that banks must protect themselves against rogue trading, it is obviously taken as a given that they should try to do so. This is well covered in the liquidity risk requirements in place – banks should know their cash and positions at least at the close of business, if not intra-day.What has come out of the UBS case is that there were a number of faked forward-settling transactions, which covered genuine transactions to make it look as though the trader had very residual risk from his transactions, thus hiding the true size of his positions.
9 November 2011
Algorithmic trading has its origins in the equities world and it is only in the last few years that this type of trading has started to be adopted in FX. Rebecca Brace talks to industry experts to seek their views on the future direction for algorithmic FX trading and considers whether forthcoming regulatory developments in both the US and Europe could change the landscape.A study published in September 2011 by the research and advisory firm Aite Group, entitled “Algorithmic Trading in FX: Ready for Takeoff?” suggests that algorithmic trading – ie the practice of using computer programmes to execute trades on an automated basis – is set to grow rapidly in this asset class in the coming years.“In FX we have a lower level of algorithmic trading adoption than in equities – but it’s growing at a faster rate, mostly on the OTC side,” comments Javier Paz, Senior Analyst, Aite Group. “High frequency trading in FX has risen from around 5% of trade in 2003 to about 35% today.”
9 November 2011
The past two years have been a tumultuous time for the Eurozone. Three Eurozone countries, Greece, Portugal and Ireland, have been forced to seek aid from a combination of the IMF, the European Union and bilateral aid from individual countries. Italy and Spain depend upon the intervention of the ECB to prevent their borrowing rates from going through the roof. Certain companies prefer to use the ECB itself rather than commercial banks to deposit funds. Unemployment ranges from 7% in some parts of the union to over 20% in others. Put simply, Europe isn’t working.Yet the euro works for Germany…The introduction of the euro in 1999 in combination with far reaching structural reforms undertaken by the Schroeder government gave the German economy the platform to achieve strong export-led economic growth. The reforms included the deregulation of German trade and crafts code, a 25% increase in education spending in tandem with significant reform of the labour market. The result is that German unit labour costs are amongst the most competitive in Europe.
9 November 2011
Despite the economic downturn, transaction banking volumes are still growing, but with a new focus on cost, risk and liquidity, how will payments evolve in this new regulatory regime, and what will be the winning technologies used? Frances Maguire asks Peter Jameson (Bank of America Merrill Lynch), Michael Burkie (BNY Mellon) and George Ravich (Fundtech) for their views.Transaction banking is in a state of flux. While the three main components to the transaction banking industry – trade finance, cash management and asset servicing – continue to thrive through flow business, the twin pressures of risk and regulation are among the factors driving transaction banks to look for economies of scale, through outsourcing and collaboration, and make investments in more innovative IT solutions to drive business.
9 November 2011
This month we take a look at how countries in the Nordic/Baltic Region are coping with the impact of the global economic crisis. We talk to FX professionals in the region to get their views on current market issues and ask them to give their outlook for 2012.Economic Overview – the Nordic RegionThe economies of the Nordic countries have much in common. They are all small, industrialised, open economies in which foreign trade has great economic importance. Intraregional economic activity is also significant – historical, cultural and linguistic proximity have all played a part in this. The Nordic economies are today among the most competitive in the world and the “Nordic model” is much admired by policymakers in other countries.The Nordic countries are characterised by large public sectors, extensive welfare services provision and high taxation. The public sector and welfare services have helped these countries to develop highly skilled workforces and to sustain a high level of employment. Other important elements of their success have been the strong democratic tradition and stable civil society, combined with an effective regulatory framework.
9 November 2011
FX-MM talks to Dr. A. Rahman Saif, Assistant General Manager, Treasury and Investment at BBK – Bahrain (formerly known as Bank of Bahrain and Kuwait) to find out his views on the impact of the financial crisis, the regulatory environment and the issues that are likely to impact the markets in the future.Which piece of market regulation do you feel is the most challenging now and why?The dilemma for regulators is striking the right balance between introducing new regulations and supporting the banking system. In the current environment achieving this balance is not easy and the timing of any new regulation is crucial. In principle it is best to introduce new or revised regulations in good time in order to facilitate their implementation by banks. The most challenging regulations are those relating to capital, liquidity, disclosure and investments.
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