12 glances in the rear view mirror: A look back at 2018

From January to December, 2018 was a fast-paced year of massive change, requiring concentration and commitment from all. Here is a look at some of the points that stood out. Happy New Year to you all!

What was that? It was the flash of an entire year passing with such inertia that the end of another decade is now imminent.

2018 was a year which delivered yet more sea changes in the continually evolving FX and electronic trading business worldwide, and keeping abreast of such changes and in some cases challenges is testimony to the skill, dedication and commercial acumen of the professionals that build, operate and innovate the most leading edge and technologically advanced sector of the financial services industry.

As 2019 rushes in, the penultimate year of the twenty-tens now marks out a maturity of what began as a fledgling, that being the off-the-shelf trading retail platform MetaTrader 4 which will enter its third decade this time next year, its ubiquity now as evident as the array of knowledgeable traders that it nurtured.

For the establishment, a fourth decade commences, the late 1980s and very early 1990s being the development ground for the proprietary trading infrastructure which has propelled the large London and New York-based retail electronic trading firms to publicly listed prominence, and I begin my 28th year in this industry.

Let’s look back at the most important events of 2018 according to you, our esteemed and committed audience.

January 2018: MetaTrader 4’s sharp and sudden blow creates furore

Mid-January signaled the end of the road for newly issued licenses for the MetaTrader 4 platform as MetaQuotes, the software development company that created an easy path of access to all-comers, suddenly announced that the sun will set on the longstanding platform, and no retrospective support will be provided, as a possible attempt to force all brokerages onto MetaTrader 5 infrastructure.

It is remarkable that a technology-led business like electronic financial markets would be so dependent on a legacy platform that dates back to 2004 in any case. Imagine VMWare systems architects arriving at an enterprise server farm and finding that the mainboards were non-ATX and that the network connectivity was reliant on bayonet connectors from 1992 yet entire corporations are still fully dependent on it. I can hear the chortling from here.

Just a couple of weeks before this, in a private symposium organized by Saxo Bank in Hong Kong, the company’s CEO for the APAC region, Adam Reynolds, explained to FinanceFeeds that Saxo Bank’s biggest driver of growth over the past twelve to eighteen months has been Prime Brokerage with regard to credit intermediary and clearing.

Overall, with the absolute maturity that the OTC derivatives sector has now achieved, at that meeting in Hong Kong there was very much a focus on the institutional range of services and technology products that Saxo Bank make as proprietary systems for institutional trading and powering brokerage infrastructure.


At the meeting, sophisticated traders using SaxoTraderGo were present, and over 54% of attendees were in Fund and Wealth Management business, whilst only 11% were FX brokers, and 23% FinTech sector.

In terms of what solutions they were looking for, Mr Reynolds explained that API and Liquidity services customers accounted for 23% of the attendees, whilst Digital Wealth and Robo Advisory stood at 32% and Open API and Platforms amounted to 47%. There were absolutely no delegates who were under the age of 45, (makes me feel young for once!) and each had a pedigree career spanning at least two decades in institutional wealth management or senior derivatives positions within large institutions.

Similarly, there were no MetaTrader 4 white label owners, and no warehouse dealing desk retail brokers. 85% of attendees at the meeting said that technology has been an enabler of their business and unlike small brokers with warehouse/MetaTrader 4 setups, 59% of today’s delegates explained that they were optimistic about what 2017 holds for their business, difficulties with prime brokerage agreements and regulatory stick-poking not being a concern of theirs at all.

The way forward at that time appeared to be diversity of both product and technology, and to not only emulate the existing institutional world, but better it and push the boundaries. This line of thinking has now proven to be correct – just look at the rapid increase in customers in the UK that new firms such as Revolute and Robin Hood have attracted since then.

On that note, trading platforms such as MetaTrader 4 may pose an issue given that the ubiquitous trading platform acts both as a key facet with which to onboard clients and as a retention problem, becoming one of the main criteria when choosing a broker to open an account with, which also means those brokers risk being easily substituted following a minor incident or an aggressive marketing campaign by a competitor.

Given the high CPA costs that exist today, many brokers cannot afford the risk of converting clients only to see them leaving in a heartbeat, as such low client lifetime value can push smaller brokers out of business.

With that in mind, FX industry executives have been taking different strategic paths, some more leaning toward the development of a proprietary platform structure and others towards a differentiated MT4 experience, with special features developed in-house or via partnerships with integration technology companies, while also looking to diversify the technological risks on a single platform. Protrader, Ninjatrader and cTrader, among others, continue to compete for a market share, but the MetaTrader 4 platform accounts for approximately 45% among global (excluding Japan) retail forex and CFD firms and whilst c-Trader has made tremendous strides in market penetration and can even make a customized platform on a per-brokerage basis, Ninjatrader and Protrader are pretty much names that are never heard.

White label MetaTrader 4 solutions are regarded as the cheapest and quickest way to enter the retail market, with firms paying subscriptions to a third party provider instead of acquiring a full license from MetaQuotes, but it also comes with the downside of less (or no) control over strategic decisions such as spread and products offered, potential conflict of interests as the provider is usually a competitor, and difficulty to scale the operation.

Andrew in Chicago with Brian Mehta, CMO, Trading Technologies on reinventing the ethos of platforms

Looking at the brokers which are able to move their products and services forward, all of them have invested tremendous amounts in R&D and continual in house development of platform technology. At the time of MetaQuotes making this decision, one particular angered software developer that I have known for many years quite rightly told me “he primary reasons brokers have resited moving to MT5 is not because they do not like the new platform, but because they have been burned by MetaQuotes in the past for how they’ve made decisions (Mobile Terminal support being one example). So, whether they realize it or not, the most counter intuitive thing they could’ve done to help continue to bolster support for MT5 is make an impulsive, dramatic end to MT4.”

This action is not what you’d expect of a major industry-supporting software company. Microsoft announced the end of sales for Windows XP 2 years in advance, and Vista was regarded as generally inferior in every way, whereas Windows 7 corrected many of the criticisms. Microsoft did not force the issue until adoption of 7 reached critical mass, so the company stopped selling in 2010 and stopped supporting Support for Windows XP Service Pack 3 will continue through April 2014.

So to make the similarity, the entirety of global business was dependent on Windows NT 3.51 when Microsoft began to offer proper server-based enterprise infrastructure which many bank trading desks and connectivity and hosting firms adopted to replace legacy IBM middleware systems that were as big as a house and very ineffective, then subsequently Windows NT4, Windows 2000 and Windows XP.

Withdrawing the last of that line (XP) was a major cause of ramifications for many firms so Microsoft did it slowly and with massive support.

Yes, you reap what you sow by not having your own infrastructure and by having a short term mindset, but a software provider that is this integral to the industry’s fabric – and in MetaQuotes case this can be considered absolutely integral on a monopolistic scale – pulling the plug in this fashion should be a sharp and harsh lesson to all of us in any capacity of the industry.

February 2018: The litigation generation

In the bleak aftermath of the fraught implementation of MiFID II by European authorities, consultancies and corporate governance experts began to envisage a more concerning issue than the potential need to seek clients outside an increasingly business unfriendly European Union, that being the litigious framework that the new data protection and market infrastructure rules had created.

“When we consider locations to run a forex brokerage from or a number of other financial services businesses, we know that there are several reasons why Cyprus is the destination of choice and in the main it comes down to the barrier to entry, as in the barrier to entry is a lower here as CySec takes a comparatively reasonable approach to licensing. Being CySec regulated does however still provide the opportunity to passport into other European countries” said Paul Foley, CIO at TCG Europe in February last year.

“There is of course one universal truth about the financial services industry, irrespective of location we know that some areas of the industry have a cloudy reputation (which in the main is not deserved) and that this reputation is an active obstacle to the marketing and sales efforts of all companies operating in a given area” he said.

“I think it’s fair to say that everyone in the industry understands that there is more kudos attributed to being with the FCA then being with CySec (which is not to say that CySec aren’t doing a good job) but likewise we all know that bad behaviour (or perceived bad behaviour) in one city is interpreted by the general public as being an industry problem rather than a geographic issue” said Mr Foley.

Whilst considering that the GDPR rules which were due to be implemented in May 2018 were at the time imminent, many industry commentators considered that the new rules woild allow our industry to address a number of issues, including our culture, in order to ensure that we have a more acceptable image and a reputation for transparency and decency. It is however also an opportunity to embrace exactly the same reputational damage that the banks suffered.

The litigious difficulty was considered to arise from how data is stored, however. Data retention and storage is perhaps a more interesting point. The new rules state that data must be held in an approved or safe location (approved is pronounced ‘Europe’ unless a specific permission is requested and allowed).

The interesting point here is that data processors (the people you outsource certain functions to) also need to adhere to this – so if you use a processor to provide KYC information via China (as a terrible example) then this would not comply with GDPR requirements and you (as the controller) would be held accountable – unless the data was stored only in Europe or you had permission to store data in China.

In terms of retention the general guideline is that you shouldn’t be keeping data for longer than you need it – it should be noted that the phrase “Because we wanted it!” is not currently envisaged to be a safe comment to use with an auditor or judge.

This brings us neatly to data usage. When an individual deposits data with your company you will need to state what the data is being used for AND obtain their consent to use it for those purposes.

GDPR rulings went ahead and most of these matters have been quelled, but the interest in potential pitfalls demonstrates exactly how valuable customer data is to FX firms – it is effectively their lifeblood and therefore must be protected well.

March 2018: IG Group takes on ESMA over CFD leverage

The restrictive and aggressive tack taken by the European authorities lately has been more than a moot point within London’s highly respected and long established retail CFD and FX firms.

There are literally no clients in the UK who are anything less than loyal and satisfied with their long term custom with British companies, yet ESMA decided it was time to attack a perfectly well organized business and in doing so create a lack of choice for its analytical and sophisticated client base.

Hello Goliath, Meet David.

IG Group was one company that fought back. In March, IG Group publicly warned that the leverage restrictions “will unduly restrict consumer choice, and risk pushing retail clients to providers based outside of the EU or to use other products which allow the leverage clients seek. This may result in poor client outcomes”.

The broker refers to its announcement from December 18, 2017, when it stated that it believed that any reduction in historic annual revenue from the implementation of the measures being considered by ESMA, taking into account the actions being taken by the business to mitigate the impact, would have been less than 10% including the impact from lower binary revenue. Applying the same logic to the revenue in the first nine months of FY18, IG believes that the impact of the measures that ESMA will now implement would have been a reduction of approximately 10%.

The rulings, introduced on March 27, mandated that leverage for CFDs would be capped at levels from 2x to 30x, depending on the underlying asset with the largest restriction (leverage of 2:1) applying to CFDs on cryptocurrencies, with binary options being banned altogether.

Meanwhile, ASIC, Australia’s very well respected regulator which actually understands our industry well and is technologically aligned with it, allows 500:1 leverage and Australia’s combination of that flexibility and a very high quality commercial aptitude within the FX industry has led it to absolutely dominate during 2018 with brokerages like Pepperstone and IC Markets running away with enormous revenues and extremely satisfied clients across the APAC region as Europe flounders and the authorities kick the wrong people in the teeth. I am totally with IG Group on this one.

April 2018: We were right about AFX Group

In April, FinanceFeeds research from over a year earlier was validated as AFX Group’s profit sharing antics resulted in Gallant’s trustee suing them in New York.

The demise of Galant Capital Markets opened up a massive question with regard to how retail brokerages should assess the execution model and liquidity relationships held by the prime of prime that serves them, with FinanceFeeds absolutely maintaining that retail FX firms should not work with a prime of prime unless they are certain that it is an actual prime of prime and operates according to correct liquidity management principles.

Prime of prime brokerage is a term that has become increasingly used at the very forefront of the non-bank electronic derivatives business over recent years.

This is what the whole situation looks like

It is quite possibly the most central and integral part of the retail FX and multi-asset trading ecosystem, bearing in mind that no other method of facilitating live, real time and completely liquid access to global markets where any asset whatsoever can be traded, priced immediately with millimetric precision and offered to a retail audience at a very low price, exists.

In May 2017 when Gallant Capital Markets went belly up, FinanceFeeds became aware of an entry on the bankruptcy court filings in the name of AFX Group to the tune of $2.4 million, demonstrating that the firm had been lodging the capital deposited by its broker clients with Gallant Capital Markets on a profit sharing arrangement instead of holding it in a custodian account and transferring trades to live liquidity via bank relationships.

As a result of some detailed research in North America, FinanceFeeds can now conclude quite categorically that the trustee of the bankruptcy case surrounding Gallant Capital Markets has now instigated a lawsuit against AFX Capital Markets LTD., AFX Capital U.S. Corp. and STO SUPER TRADING ONLINE, in the form of an adversary proceeding which is being brought to recover sums due the debtors by defendants or to avoid and recover transfers made by Gallant to Defendants or funds improperly withheld by Defendants and which is due to Gallant.

Thus, it can be read that the litigator is insinuating that AFX Group’s debt had a material effect on the demise of Gallant Capital Markets. Before analyzing the gravity and detail of this case, it is important that a few surrounding matters are explained.

In May 2017 when FinanceFeeds began investigating this matter, we were inundated with a series of telephone calls from somewhat unrelated parties, urging us not to probe the matter, those being completely unrelated companies in Cyprus, including one marketing and events company and another being a binary options technology firm.

At the same time, a very stern and aggressive telephone call was received by FinanceFeeds from AFX Group, threatening to take action should we publish any adverse information about the company.

FinanceFeeds response was to ask to sign a non-disclosure document and visit the offices of AFX Group and look at the books, to be certain that the alleged withdrawal issues experienced by brokers and the alleged profit sharing and debt to Gallant were rumors and then publish accordingly, however upon arrival at AFX Group’s London offices, we were met by a heavily tattooed junior member of staff who told us verbally the company’s side of the story and did not show us any official documents to support their claims that the money was not outstanding and that there were no issues with brokers withdrawing.

If this is the sort of guff being fed to those investigating, who knows what customers (retail brokers) are on the receiving end of. Thus, at the beginning of April 2018, litigation has commenced against AFX Group in the United States Bankruptcy Court of the Eastern District of New York, led by Esther Duval, who is Chapter 11 Trustee of the estate of Gallant Capital Markets Ltd, determining that FinanceFeeds original research was indeed correct.

On or about November 13, 2014, Gallant and AFX Capital Markets entered into a client account agreement entitled “Terms and Conditions for Eligible Counterparties and Professional Clients”, clearly demonstrating a profit sharing arrangement rather than a method of transferring broker trades to market.

On March 20, 2015, AFX Capital Markets and Gallant amended the Client Agreement under the terms of the AFX capital risk share agreement (referred to by the court as the “Capital Risk Share Agreement”), in which the parties agreed to enter into a revenue sharing arrangement.

Under the Capital Risk Share Agreement, Capital Revenue is determined by analyzing the amount of realized profit/loss during each calendar month in Gallant trading account(s) owed to Gallant by AFX.

AFX Capital Markets and Gallant agreed that payment of AFX Revenue would be conducted on a monthly basis, with payment, if any, being made no later than 30 calendar days following the last day of the month.

We listed the full extent of the transaction history that led to this, and since then, AFX and its associated parties have gone so quiet that the tumbleweed can almost be heard blowing across the ground between Milan, Cyprus and London.

May 2018: GAIN Capital gets out of institutional, Deutsche Boerse gets further into retail – all in one transaction!

It has become absolutely apparent that the large derivatives exchanges in Europe and North America have a massive inclination toward acquiring OTC FX firms in order to regain the enormous retail trading client base that they have lost to the retail FX OTC business over the last 30 years due to the greater efficiency and substantially lower cost of working with retail-focused, highly advanced OTC brokerages rather than expensive, membership-orientated and latent exchanges.

Some indicators in this direction recently have been CME Group’s prototype project involving a rolling spot contract which is a direct competitor to OTC derivatives firms, the acquisition by Deutsche Boerse in July 2015 of FX trading platform 360T for $796 million, Hotspot FX’s acquisition by BATS Global Markets for $795 million, Deutsche Boerse taking a minority stake in British FX technology solutions provider Digital Vega which was a technology vendor to buyside and sellside firms in the OTC derivatives sector.

One transaction meets two objectives


More recently, FastMatch, one of the most profitable and efficient non-bank market makers, was sold to Euronext.

Evidently it is a clear direction, and in May 2018 another step was taken, once again by Deutsche Boerse which in helping retail-focused GAIN Capital to get out of their GTX institutional business, got itself further into the diversified nature of the OTC world by buying it for $100 million.

On May 30, GAIN Capital reached a definitive agreement to sell its GTX ECN business, an institutional platform for trading foreign exchange, to Deutsche Börse Group via its FX unit, 360T,with GAIN Capital’s rationale being a desire to focus on its core retail business.

“We are very pleased to have built GTX into a successful, high-demand institutional business over the past eight years,” said Glenn Stevens, Chief Executive Officer of GAIN Capital. “We have taken this strategic step in order to focus our attention and resources on our core retail business and on using available levers to unlock shareholder value. Proceeds from the sale of GTX provide us with additional financial flexibility to invest in organic growth and M&A opportunities, while providing increased liquidity to accelerate return on capital, which may include increasing the scale of our stock repurchase program and reducing our debt.”

June 2018: IG Group veteran Mark Chesterman joins Stater Global Markets and shows us his vision

Stater Global Markets, led by senior FX industry professional Ramy Soliman of IG Group, Citigroup and Integral Development Corporation heritage, has most certainly made tremendous strides this year, notable by its ability to attract longstanding and highly experienced leadership to its corporate fold.

In June, Mark Chesterman, who spent 10 years at IG Group at senior level, joined Stater Global Markets as Chief Operating Officer, meeting with FinanceFeeds that day to go into great detail about his vision for prime of prime brokerage.

At IG Group, Mr Chesterman spent the first three years of his executive tenure as Chief FX Dealer, before becoming Head of Futures and FX in August 2011, which led to his appointment as Global Business Development Officer in 2015.

Mark Chesterman

In July 2017, Mr Chesterman became Chief Operating Officer of IG Group’s Institutional division before joining London based prime of prime brokerage Stater Global Markets as Chief Operating Officer.

We spoke in detail to Mr Chesterman at the time of his appointment and what his considerations are for prime of prime brokerage going forward.

“Having run IG’s liquidity from both the buy- and sell-side, I understand that the primary requirement for a retail brokerage is to have stable access to the underlying market. Risk management is critical in all financial services, and a brokerage that cannot offset their risks at any and every point in time is playing roulette with the future of their business. At Stater the platform has been built to ensure stability, but we also have fantastic agility that enables us to react to new challenges, be they regulatory or otherwise, that our clients may have. I look forward to working with the great team Stater have to further develop the platform, allowing clients to deal multi-asset with a true Prime of Prime, enabling them to take advantage across the board of a broker invested in the client’s trading success, rather than the broker’s” he explained to FinanceFeeds.

FinanceFeeds view is that genuine prime of prime brokerage relationships are vital in the non-bank sector, yet relatively rare as there are only a few prime of prime brokerages which have Tier 1 bank pricing and liquidity to offer to the retail sector. We therefore asked Mr Chesterman if he envisaged a consolidation of the non-bank sector, and if so, how brokerages can be encouraged not to go down the route of order internalization via non-prime of prime liquidity partners who do not have access to bank matching engines.

Mr Chesterman told us “I suspect that consolidation in the retail brokerage industry in Europe is very likely, as the costs associated with running a retail brokerage are set to grow significantly with new regulation. However, this regulation also gives brokers an opportunity to re-visit their business model.”

“Internal matching and the capital costs (both working capital and regulatory capital) associated with this are increasingly unnecessary, and with a good Prime of Prime a retail broker can offset market risk cheaply, leaving them to focus on marketing to and servicing clients. This removes the inherent conflict of interest between a retail brokerage that market makes and their clients, which is a move regulators will no doubt applaud” – Mark Chesterman, COO, Stater Global Markets

“You use the term “genuine prime of prime brokerage”, which is increasingly apt. It’s important for retail brokerages to be aware of their broker’s business model – are they simply enabling market access, or are they tying you to their liquidity? Up-front costs are important, but hidden costs are also critical. With a genuine prime of prime broker, you can be sure that your broker is working as hard as you are to ensure the spreads are tight, the liquidity is good, the rejection rate is low / zero, and your access to the true market is unfettered” he said.

We asserted that London’s publicly listed retail FX firms are widely renowned as the most established and reputable in the world. An interesting consideration is whether their model can be emulated by smaller to medium sized brokerages if they are able to move away from the affiliate model and embrace custom platforms and choose proper liquidity partners, therefore elevating their customer base to a higher and more sustainable level.

Mr Chesterman said “Their success can absolutely be emulated by smaller brokerages looking to grow, but a smaller brokerage will need to consider whether the business model should be emulated. The London listed brokers spend many millions a year on advertising to entice clients, which a smaller broker simply cannot afford. However, the basic element for success of any brokerage can be followed – treat your clients well and the rest will follow.”

“Although the MT4 platform has its detractors, it has become the most popular trading platform in the world for a reason” he said. “It is difficult for a small brokerage to ignore it. However, it is still possible to find a niche – know which clients you are targeting and how to attract them, then treat them well so they want to stay. One key way of ensuring as a retail broker that your clients know you are on their side is to make sure there is no conflict of interest on a trade – if your client does well, they will stay trading longer. These are the clients a retail broker should encourage as they are much stickier, so as a retail broker I would be working as hard as I can to service these clients well.”

On institutional partnerships, Mr Chesterman said “There will be a lot of disruption in the market, which is a great opportunity for a company like Stater that has been built to help clients by simplifying their market risk and allowing them to focus on servicing their clients.”

July 2018: We show that South Africa is the next important area for IBs and B2B partnerships in all asset classes

August 2018: It looks like a CFD, but is it a CFD?? Ask the FCA!

As if ESMA’s rulings on CFDs and their distribution and marketing were not restrictive enough, Britain’s Financial Conduct Authority (FCA) decided that it would cave in to European lobbying in August 2018 by voicing concerns over products resembling CFDs at the time of the implementation of ESMA’s new rules.

On August 1, the UK regulator said it fully supported ESMA’s measures, which are aimed at protecting retail investors, yet the FCA said it was aware that other products can create the same kinds of risks to consumers as CFDs, particularly where they expose the investor to significant leverage.

This was prompted by a view held within the FCA that some firms may actually try to get around the new restrictions by offering investment products that resemble CFDs.

Is it a CFD or a turbo certificate?

With regard to what regulators consider to be similar products to CFDs such as turbo certificates which do not fall under the new ESMA rulings and are typically listed and traded on a regulated market or MTF, which includes additional transparency requirements, the FCA stated “We will work with ESMA and other European regulators to monitor and assess the sale of these alternative, speculative products to retail clients. If we have evidence that these products are causing similar harms, we will work with ESMA and will, if necessary, support further action to extend the scope of its intervention”.

Interestingly, since the rulings on CFDs were implemented, no client nor brokerage has made a mass diversion toward products such as turbo certificates and CFDs are still well and truly ensconced within British and Australian trading as a mainstay and core business activity.

September 2018: A 24 year career-long legacy – Peter Hetherington waves goodbye to IG Group

Perhaps it was the never ending tug of war between the exchange lobbyists and the retail FX giants of the Square Mile, however a very well run company saw the end of the tenure of its highly accomplished CEO in September this year as Peter Hetherington handed the baton over after 24 years in the industry.

Unusually, Mr Hetherington had made an entire quarter-century career at just one company, joining the firm as his first and only employer in the commercial world after 6 years in the Royal Navy as an Officer, preceded by his MBA at London Business School.

Joining IG Group in 1994, Mr Hetherington rose through the ranks and became CEO, leading the company in a most exemplary manner.

Peter Hetherington

The Company has been considering as part of its normal succession planning process the leadership characteristics it needs for the next stage of its development. The Board then began focusing on finding a CEO with wide global experience of the broader financial sector who can develop the business using its industry-leading technology platform, geographic presence and product innovation as a base, subsequently appointing June Felix, who has senior appointments at Citigroup and IBM on her resume.

On his departure, Mr Hetherington said ” “When I joined IG in 1994 the Company employed fewer than 25 people and had revenues of £16 million and profits before tax of £0.8 million. There are today over 1,700 people working in 15 countries with revenues of over £550 million and profits before tax of over £280 million.”

Peter, you have a lot to be proud of!

October 2018: TIBCO and GAIN Capital’s software overdeployment tug of war ends, GAIN wins

October brought some more twists and turns in the software overdeployment lawsuit brought by TIBCO Software against GAIN Capital. The developments that took place in October concern an order issued by Magistrate Judge Viginia K. Demarchi of the California Northern District Court who had stepped in to resolve an evidence dispute between GAIN and TIBCO Software over what information must be provided by KPMG in relation to the lawsuit involving GAIN and TIBCO.

In this lawsuit, TIBCO alleged that it licensed certain software to GAIN during a limited term, but that GAIN deployed the TIBCO software outside that term in violation of its license agreements with TIBCO. TIBCO sues GAIN for breach of contract, breach of the covenant of good faith and fair dealing, and copyright infringement. TIBCO’s allegations of over-deployment and unauthorized use of the software by GAIN are based in large part on an audit conducted in 2016 at TIBCO’s request by KPMG.

GAIN denied TIBCO’s allegations, and counterclaimed against TIBCO for fraud in the inducement, negligent misrepresentation, unfair competition, rescission based on unilateral mistake, and rescission based on mutual mistake. According to GAIN, KPMG did not perform the audit correctly, and TIBCO intentionally gave KPMG incorrect instructions on how to conduct the audit so that KPMG was certain to conclude that GAIN had exceeded the permissible scope of its licenses for TIBCO software.

Off you go……

In her Order, Magistrate Judge Demarchi found that GAIN is correct in its request for some discovery from KPMG as the information would be relevant to its defenses and counterclaims in this case, particularly as it relates to the methodology used by KPMG to conduct the audit and the instructions provided by TIBCO to KPMG. For instance, whether KPMG used a different methodology to audit GAIN’s deployment of TIBCO software than it used to audit other customers’ use of the same software is relevant to GAIN’s claim that TIBCO deliberately instructed KPMG to use a methodology that would incorrectly yield findings of unauthorized use by GAIN.

TIBCO argued that Judge Demarchi’s ruling was “clear error and directly contrary to the law, and asks this court to revisit the issue”. In addition, TIBCO said that the Magistrate committed clear error by ordering discovery into the confidential business dealings of TIBCO’s third party customers. TIBCO estimates that dozens of its customers would be impacted by such discovery and calls GAIN’s access to such data “an invasion of their confidential information”.

According to TIBCO, GAIN seeks discovery encompassing hundreds of thousands of pages of documents that have nothing to do with GAIN, or the substance of TIBCO’s claims in this case.

Apparently, TIBCO’s arguments were unconvincing to the Court. As per the latest Court filings, seen by FinanceFeeds, TIBCO’s motion is denied. Judge Edward J. Davila explained that a district judge may only reconsider the pretrial order of a magistrate judge “where it has been shown that . . . order is clearly erroneous or contrary to law”.

November 2018: Two big institutional deals

November 2018 heralded two large acquisitions within the institutional trading sector, one involving electronic derivatives giant CME Group, and the other involving large interdealer broker ICAP.

TP ICAP’s acquisition involved the purchase of Houston-based energy and commodities brokerage firm Axiom.

The company, which also has an office in Chicago, has 22 brokers and specializes in crude oil, refined oil products, ethanol and physical grains. It is being sold by its founding partners and senior management. They will all remain with the business after the sale and continue to build it.

Prime of prime relationships and the future

Axiom will become part of TP ICAP’s Energy & Commodities division which provides high value services, including pre-trade information, market intelligence and brokerage services to clients. The acquisition continues the expansion of the Energy & Commodities division’s product range and execution expertise, and reinforces TP ICAP’s presence in Houston, Texas.

The initial consideration for the acquisition was $15.1 million in cash. In addition, deferred non-contingent consideration of $3.1 million will be paid over three years and a further $10.9 million of deferred contingent consideration may be payable dependent upon the performance of the business over the same timeframe. These subsequent payments will be satisfied through cash payments.

Also in November, TP ICAP received FCA approval to appoint senior executive Nicolas Breteau as Executive Director (CF1) at Tullet Prebon (Securities) Limited, ICAP Securities Limited and iSwap Euro Limited.

At CME Group, mergers and acquisitions have been an equally high priority, and on November 2, the completion of the deal in which the firm acquired NEX Group PLC came to fruition.

CME Group said it will retire the NEX name and brand but will continue to operate its individual Markets and Optimisation businesses as sub-brands including BrokerTec, EBS, Traiana and TriOptima. Corporate headquarters will remain in Chicago, with London continuing to serve as CME Group’s European headquarters.

CME Group plans to use its technology, futures trading and product development expertise to strengthen and scale NEX businesses, while preserving their existing market structures. The combined company’s leading electronic FX and fixed income platforms will deliver new trading opportunities and simplify access by reducing the number of touchpoints to trade across platforms. In addition, the combined company’s post-trade services expertise will strengthen its compression, reconciliation and processing businesses.

December 2018: Interbank movements in Europe could end monetary union?

The fractious inter-member relations between European countries and their single monetary unit’s issuer became even more clearly defined in December 2018, creating a possibility that if a bank run occurs in Italy, the intra-EU wrangling could cause an interbank FX issue or an exodus from the Eurozone. We looked at current analysis and at a good way to tackle this market at a time of potential Euro liquidity issues.

potential undercurrent that has sparked the interest of financial analysts that is going unnoticed elsewhere, that being the intra-European movement of capital which is becoming an issue for central banks and could well have an effect on the Euro as a currency.

Back in 2013, when New Zealander and London resident Jon Vollemaere, a veteran FX industry executive, launched R5FX which focuses on currency pairs from emerging market economies.

Europe’s future of capital freedom?

At that time, it may well have been perceived as an unusual direction, Mr Vollemaere took his expertise at the leading edge of the world’s Tier 1 financial marekts which included executing the first trades of Reuters D22 and the launch team of Currenex which was then acquired by State Street for $564 milion, to developing retail FX trading in Europe for FXCM and Barclays, and began to focus on five currencies from emerging markets, those being the Real, the Rand, the Rupee, the Rouble and the Renminbi.

Looking at this direction now appears a lot less banal and as we have seen China grow its economic forces outside its strictly controlled borders and invest in entire nations, develop the new Silk Road under the leadership of astute businessmen and Chinese president Xi Jinping, South Africa become a new and very high quality destination for FX brokerages and Russia become a nation of young technology geniuses who conduct R&D for large FX technology projects from co-working spaces in trendy Moscow streets.

Meanwhile the Euro, which is an unfaltering major, faces some serious challenges on home turf this week.

The Italian government is defying the European Commission’s request that it revise its draft budget for 2019 to reduce the deficit. Bond yield spreads are widening and Italian banks are under pressure. Should a bank run ensue, some British economists are looking at the possibility that this could be one catalyst that could end the monetary union.

After German reunification, interest rates rose to over 9 per cent in the early 1990s. Other countries that pegged their interest rates to the Deutsche mark through the exchange rate mechanism of the European Monetary System (EMS) could not keep pace.

Currency speculators forced devaluations and, finally, a far-reaching decoupling of the currencies participating in the system. This experience motivated many European politicians to press for the rapid introduction of a single European currency. No country should be forced to crash out of a monetary union by sheer market forces but of course the Euro spans across several nations that have no economic, cultural or commercial alignment with each other.

In Italy, banks have begun to feel the stress and some Italian bank customers have started to move deposits out of the country. Suppose many of these customers were to lose confidence in the security of their bank deposits and relocate them to Germany. Instead of granting their Italian partners interbank loans, German banks would probably require them to transfer valuable claims in the form of central bank money to cover the new liabilities.

As a counterpart, the BdI would have corresponding liabilities in the Target2 interbank payment system and the Bundesbank the associated claims. In purely theoretical terms, therefore, the euro could not be cracked by a “bank run”.

In practice, however, Italian banks will not be able to acquire the central bank money they need to finance the outflow of their deposits under these circumstances. The Governing Council of the ECB can, by a simple majority, end the full allotment of central bank money and by a majority of two-thirds of its members, end the issuance of central bank money by the Banco di Italia.

One of the only ways to stem this would be for Italy to introduce capital controls, but in a unified Europe in which the European Central Bank is the issuer of reserve currencies rather than the national reserve bank of each country, that would be impossible to implement and the only way to do so would be for the country wishing to implement such a measure to leave the Euro currency and adopt its own national currency.

Italy does not have a place in the world’s financial markets economy and is in serious fiscal ruin, with rampant corruption plaguing its national policy, and is surrounded by other Southern European countries which have been experiencing youth unemployment levels of 57%.

Instead of embracing electronic trading as a means of empowering the young people of Southern Europe and allowing them to have their own independent income stream, the government has railed against it and regulated and taxed it out of the market.

When confidence is low, the elite moves its capital and Italy’s elite would need to move it outside of Europe in order to be free from any potential capital controls or EU inititives to stop banks in other EU jurisdictions allowing bank runs in one country to flood the banks in another, as this would create an interbank FX dealing mess.

It is an area to keep an eye on, and for retail FX brokers with an EU license, could be one to capitalize on.

… And we could go on, and on So detailed and varied were the events of 2018 that this is a pure snapshot of the year in just a few examples. 2019 is likely to be equally eventful, fast-paced and interesting.

Wishing you all a happy, prosperous and enjoyable new year!


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