As Britain’s trading goes green, the FX industry should lead the way

Why allow incompetent governments to ram their green agenda down our throats? They do not mean well, whereas the electronic trading industry does. It is time for the professionals and leaders to have their Tesla moment.

Having spoken at length to a number of senior executives in the institutional FX industry during the past few weeks, the consensus is that the green agenda is not only here to stay, but it is also actually the future of financial services.

Under the acronym ESG, environmentally friendly products – or at least products that appear to appeal to environmentally sustainable interests – are now well and truly in the frame for most governments, banks and large trading venues across the West.

The United Kingdom, being home to the world’s largest financial centre in London, is now establishing government-backed hubs in Leeds and London for the development of ESG financial services.

The country’s anti-business, lockdown obsessed government which has destroyed countless livelihoods and business sectors across the country whilst resembling a police state which actually pays people a ransom for calling the authorities to report a neighbour or colleague for committing such a heinous crime as inviting a family member to their own house, paid for with their own money, and having a social gathering on private property, is at odds with London’s absolute capitalism, and it is clear that once the public realizes they have been fleeced and will no longer tolerate the current lockdowns, Mr Johnson and his cronies will move onto climate-related propaganda and restrictions.

The government has already unveiled a massive green agenda which is set to impinge the life of ordinary working people, thus there is a difference between actually caring about the environment, and using it as a method of installing further draconian controls and financial ruin over the populace.

Thus, it is a great thing if the UK can take its part in developing a sustainable future for the environmental and ethical investment in tradable instruments, without the government getting its extremist methodology involved. In short, it is up to us, those who have committed their lives to the development of the electronic trading industry to foment the future.

The £10 million hubs will “provide world-class data and analytics to financial institutions and services such as banks, lenders, investors and insurers” to “better support their investment and business decisions by considering the impact on the environment and climate change”, according to the Department for Business, Energy and Industrial Strategy (BEIS).

It will be called the UK Centre for Greening Finance and Investment and will launch in April. Beis said the new centre could give financial institutions “the latest environmental and scientific intelligence” to guide their investment strategies.

The new centre comes after Rishi Sunak last year unveiled a swathe of green finance initiatives, including the launch of UK green bonds this year and a new regulation-making financial institutions report on their climate impact by 2025, as a part of the government’s net-zero by 2050 target.

City minister John Glen said: “We’ve set the ambition for net-zero – now we must ensure our financial sector has the tools and information to get behind the transition.

“We’re already improving the climate data available by mandating TCFD-aligned disclosures across the economy and implementing a green taxonomy.

“This new centre will advance the UK’s leadership in green finance and bring forward the day when firms can access environmental data and analytics for every place on Earth, past, present and future.”

If only this was a cross-company initiative and did not involve the government, who cannot be trusted as far as the gate at 10 Downing Street.

If financial services executives were given a remit to develop these efforts without the government interfering, we could be onto the equivalent Eureka moment as Elon Musk was when he unveiled the Tesla Model S in 2014. Effectively a scientific and data-driven method of achieving sustainability which would lead the way for the entire industry.

Already we have seen CME Group embrace green derivatives, and FX dealers are also going down the green route.

Users of deal contingent hedges may soon be able to link the derivatives to ethical targets, as banks consider launching trades with an environmental, social and governance (ESG) component.

“We should be doing them,” says Christopher Wall, global head of foreign exchange structuring at Deutsche Bank. “We will do them. When there’s client demand for a solution then banks will step up to the plate, so I’m already firing emails about it.”

Indeed, as are many interbank FX dealers as their management work tirelessly to try to appease the increasingly socialist policymakers in the Western world’s governments, including the US which is now about to embark on the same journey as parts of Western Europe, have done with their lockdown obsessed anti-business wreakers of havoc and their illiberal ideologies which are full of obstacles to the free market and littered with irrelevant and expensive pet projects full of greenwash.

“There is no doubt that sustainable finance and environmental, social and governance (ESG) products are becoming increasingly important to policy-makers and financial market participants all around the world” heralded the International Swaps and Derivatives Association last month.

In September, ISDA hosted a virtual conference on ESG and derivatives, which highlighted the very important role the derivatives market has to play in the transition to a sustainable economy. One can only guess that these individuals are a barrel of laughs at a dinner party.

Actually, you would be spared their presence, as dinner parties are too profligate and not ‘sustainable’ enough for this hemp-wearing, bicycle riding, bean-chomping vegetarians with a penchant for facial topiary.

The reality is that the financial markets business, and in particular the fast-moving electronic trading sector at Tier 1 interbank level and at centralized counterparty level (listed derivatives) is not about green agendas and appeasing left-wing governments in irrelevant parts of Europe.

It is about free-market capitalism, matching the best prices on major currencies whose moves are determined by the activities of a business in their host nations. It is about analyzing the news and capitalizing on corporate decisions in order to gain a higher price on company stock, and looking at the future value of derivatives in commodities, raw materials and predicting the performance of publicly listed corporations globally.

Nit-wits like lockdown-happy Boris Johnson and economic incompetents like Rishi Sunak whose inept government presides over the nation from which the vast majority of the world’s interbank dealing in the FX market takes place – Great Britain – are not the type of people who banks such as Deutsche Bank’s Canary Wharf-based electronic trading and prime brokerage division should be appeasing.

The ISDA says that so-called sustainable finance is set to be at the heart of the recovery from the destruction waged on Europe by lockdown obsessed governments with totalitarian aspirations. On September 16, European Commission president Ursula von der Leyen announced that 30% of the €750 billion recovery fund will be raised through green bonds.

The ISDA states that this will equate to a huge amount of new financing in this area, and both issuers and investors will be looking to the derivatives market to hedge their exposures. Product innovation is already developing rapidly to support the hedging needs of participants in this nascent market.

First and foremost, the derivatives market will be the means by which participants are able to hedge their exposure to these green assets, but its role extends further. Derivatives play an important role in facilitating price discovery and fostering greater market transparency. They contribute to the establishment of a market price and thereby enable better assessments of risk.

Alongside the development of ESG derivatives products, work will be needed to promote standardization across jurisdictions and market segments in order to ensure efficiency while reducing risk and cost and also supporting digitization. The ISDA admits that it has always been strong proponents of standardization in the documentation, market practices, operational processes, and wherever else it might make economic sense. This is just as important in a relatively new area like ESG as it is in more established markets.

Pandering to a green agenda at a time when many people in Europe are being prohibited from exercising their right to earn even a basic living appears a total folly, however, Deutsche Bank perhaps realizes that the governments, along with QANGOs like the ISDA, are hell-bent on these green projects, therefore will need to offer good quality hedging capability against exposure.

Certainly, these days in which the past participle of ‘to awaken’ is used ad nauseam in an incorrect context, it does not matter what colour you choose on an election day, you get an extreme combination of red and green.

With this in mind, perhaps the Tier 1 banks are simply evolving to ensure they maintain their market as the governments of the ‘woke’ countries ram these follies down our throats.

It is our duty and a massive opportunity to turn the ‘woke’ governments off and start this direction ourselves, and do it properly.

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