“Mind The Gap!” – The life and times of a man on the move Episode 10

Raw health near your office, the right way to go multi-asset, August in Tower Hamlets, FCA’s double standards, and a big happy birthday (with donuts!) to Michael!

In this weekly series, I look back on what stood out, what was bemusing, amusing and interesting during my weekly travels, interesting findings within the FX industry and interaction with an ever-shrinking big wide world. This is purely observational and for your enjoyment.

Monday: Turning Japanese

Leopards rarely change their spots, and my long term enjoyment of all things culinary, whether via my own very regular and long stints in the kitchen or at the invitation of like minded appreciators of all things epicurean, has led to a degree of portliness that has required drastic action.

The necessity to make very necessary changes to my diet was at first somewhat daunting, however I reached a decision that enjoyment can be combined with my first ever attempt at weight loss, hence I decided to spend the next month eating only Japanese food. In particular, American Japanese cuisine largely based on fresh, raw salmon obtained direct from local fishermen, accompanied by ramen and miso soups.

A sushi-making course ensued, led by professional chef Shay Zemler, owner of two Japanese restaurants, and a week of uncooked fish and vegetables has now been completed, with 3 kg having dropped from the burden of the electric scales.

Aside from the weight loss which is inevitable and my aim is to reduce my physical presence by 10kg, having researched the benefits of a Japanese diet, it is clear that sufficient qualities exist in fresh fish to enhance the efficiency of neurons, and thus refine the coordination between brain and central nervous system, resulting in a potential revitalization that can reduce fatigue and increase effectiveness.

This very amateur, home-researched study resulted in my consideration that the benefits of this would be significant within specific aspects of our industry, as the electronic trading business is one which requires continual concentration and very fast reactions to circumstances, market conditions and industry trends.

Sushi, it seems, is one of the world’s most popular foods these days, which can only be a good thing, so I decided that I would consider how many high quality sushi bars are within easy walking distance of head offices of large FX firms, and I don’t mean the preservative-laden, pre-packaged affront to cuisine that is Pret-a-Manger or Marks & Spencer.

The answer is, most of them are catered for quite copiously. Last week, IG Group, one of the world’s largest and longest established retail FX and CFD companies, made forty new hires, demonstrating continued growth. Some will work in the London office, some in Sydney, Australia.

Within a five minute walk of IG Group’s Dowgate Hill head office in London there are 9 high quality sushi restaurants, all of which offer take away service for that quick lunch, and Sydney Australia, home to some of the best Asian cuisine in the world, well, that goes without saying.

Imagine what the staff canteens are like at Japanese retail giants DMM Securities and GMO Click!

I wish all forty of those who joined IG Group this week great success in their new positions, and for those partial to some fresh fish, make use of the fantastic options – it is well worth it!

Let’s see if, by the time the FinanceFeeds Sydney Cup FX Industry Networking Event takes place on November 22 this year, any of the attendees are able to notice the effects of my diet. It will be a long slog, but I do hope so.

Tuesday: Leasing an MT5 server? Go the Prime of Prime route

On Tuesday afternoon, a long term friend of mine whose daily remit is to run the operational division of one of Chicago’s well known listed derivatives exchanges called to ask if I knew of any brokerages with a MetaTrader 5 server available for sub-leasing on an introducing brokerage basis.

My immediate reaction was to approach a prime of prime brokerage and allow the relationship to be conducted between said derivatives exchange and a prime of prime brokerage, for many reasons.

Two particular caveats stand out – the first being that when a retail brokerage licenses a MetaTrader server, it does so in order to generate revenue based on either a profit/loss basis, which is much less common these days, or to turn over client volume on a direct basis, fueled by either digital marketing or affiliate networks.

Of course, brokerages with their own proprietary trading systems operate differently, but the nature of many medium sized brokerages with third party servers view the entire business exercise as a lead buying ROI enterprise, something that FinanceFeeds has researched in detail many times.

Thus, in the quest for refining their own profit margins and concerning themselves with acquisition, retention and withdrawal costs, many retail brokers with third party platforms and no institutional division are not equipped to connect introducers of multi-asset business to their trading environment, nor are do they have a particular commercial interest in working with clearing members of exchanges.

Connecting a multi-asset futures exchange to MT5? Ask us, we have the network (400 listed derivatives executives in Chicago with FinanceFeeds, 2016)

There are a few prime of prime brokerages which do have their own trading infrastructure, which includes hosting at the major Equinix venues in Tokyo, New York and London – well, Slough! – and those are the firms to connect to as they have the expertise and the flexibility to provide a MetaTrader 5 solution to multi-asset providers, including those who are exchange clearing members.

This has been verified by many conversations that I have had over the years with institutional FX senior executives. A couple of years ago, Swissquote senior executive Ryan Nettles explained to me

In recent years, we have observed institutions making the switch from sourcing liquidity from single dealer to multi-dealer platforms. For this reason, we have been investing in our technology and infrastructure to improve our distribution capabilities and have selected various trading venues to distribute our liquidity in order to meet the needs of institutional traders” – Ryan Nettles, Director, Head of FX Trading & Market Strategy, Swissquote

It is worth of note that at the time during which Deutsche Boerse bought 360T and Hotspot was acquired by BATS Global Markets, ICE in Chicago was preparing its offer to buy FastMatch for between $150 million and $250 million, as further testimony to the will of the giant exchanges to mop up the minnows of the OTC world.

FinanceFeeds spoke recently to Euronext’s CEO and CFO with regard to the finer points involved in its acquisition of FastMatch, which also highlighted a synergy in this direction.

Two years ago, I met with Adam Reynolds, CEO for the Asia Pacific region at Saxo Bank during a private seminar in Hong Kong, who explained “We ask ourselves these days, what our clients demand. What is their learned behavior in digital and client space?”

“Customers want algorithmic capabilities and charts that interact with platforms, and to be able to clearly see what their holdings are. A true multi-asset strategy is a must these days, and from the point of view of a client, they’re looking at asset allocation” said Mr. Reynolds.

“Even with retail trading in today’s environment, the idea of having one platform for FX, another for shares, and another for exchange-traded futures is not a great user experience. That is the challenge that a lot of institutions have today. The history of banking has always kept a silo mentality, therefore today’s requirements are a new challenge for long established institutions” observed Mr. Reynolds.

“I spent 12 years at Merrill Lynch, during which time the bank spent an inordinate amount of money developing its own single dealer platform, which probably to this day many people have never heard of because it is not as good as Velocity, Autobahn or BARX, even though it cost a fortune. It was only designed for ISDA (International Swaps and Derivatives Association) and and CSA (Credit Support Annex) and due to this type of dynamic existing, trying to adapt that type of system alone to end users has been difficult for banks to do” – Adam Reynolds, CEO for Asia Pacific, Saxo Bank

Whilst the multi-asset overlap is going in both directions – the exchanges wanting retail OTC business, and the need for OTC firms to go multi-asset, looking toward an institutional provider which is aligned with the distribution of genuine liquidity, the need for genuine expertise of connecting venue to venue and subsequently venue to customer via proper infrastructure is right.

The dealing desk is quite simply not enough.

Wednesday: Kudos to Tower Hamlets

This week, final preparations for the school year took place across the world, and for those with a frenetic career in the FX industry, the end of August represents the time at which professionals from the boardrooms to the sales desks brace themselves for September’s need to increase revenues after the summer lull.

I have seen so many LinkedIn and Reddit posts over the past month relating to the difficulties in balancing a very demanding August during professional hours and the simultaneous need for the entertainment of children during such a long school vacation period.

Apparently, the long summer break has its origins in pre-industrial revolution farming, however there are not many fields going fallow in downtown Manhattan, State Street Chicago or Canary Wharf, London, hence if this is the case, it is well and truly obsolete.

A hive of activity for all ages: Tower Hamlets

Once the United Kingdom’s poorest local authority area, the London Borough of Tower Hamlets is now home to Canary Wharf, the epicenter of the world’s financial markets economy, with the largest Tier 1 banks conducting 64% of all electronic interbank markets activity internationally from the former tobacco warehousing area of the Isle of Dogs, has implemented an absolutely fantastic initiative.

For residents of the London Borough of Tower Hamlets, children aged 5 to 18 now have access to completely free summer activities, ranging from film making to canoeing, to summer camp-style trips, and from educational and classical theater societies to music clubs. You name it, Tower Hamlets Council has thought of it – and it costs nothing.

On Wednesday this week, I was alerted to it by a discussion between two Merrill Lynch analysts working at Canary Wharf with a friend of mine, a senior commercial litigation specialist at Clifford Chance, also in Canary Wharf.

Thus, during the summer at least, Tower Hamlets appears to be the absolutely practical place to reside for those in the interbank FX sector. You can walk to work, find good quality careers at every possible institution from Citibank and Barclays to Thomson Reuters, and not be riddled with guilt or stress during that long summer period knowing that something constructive exists every day.

Well done Tower Hamlets for creating this environment, long may it prosper.

Thursday: One rule for some……

Come on FCA, do the right thing.

For several years, it has been considered completely unacceptable (and of course it is completely unacceptable) for retail electronic trading firms, especially those operating a warehouse execution model or offering immoral products such as binary options, to tout their business to an unsuspecting audience who are being manipulated by clever marketing to believe that they are investing in something worthwhile.

The US authorities are currently deeply embroiled in attempting to bring binary options fraudsters to justice, and the certain law enforcement departments in the United Kingdom are deeply disparaging, a particular example being the City of London Police’s retort two years ago that this is the biggest internet scam they have ever seen, sending in officers to tackle the crime.

Whilst that prevails, and rightly so, the European regulators along with the FCA, which does not have law enforcement powers but does set out the stringent regulatory structure by which all financial products can be offered to retail customers from car finance and mortgages to CFD trading, are continually making the business environment harder for FX and CFD firms, when for the most part, the established FX and CFD firms in quality jurisdictions are committed to continually improving and refining their trading environments.

Indeed, it could well be proffered that the electronic trading business has such avantgarde R&D that it leads the entire financial markets ecosystem and is responsible for inventing the financial services world of the future.

Somehow this is legal

Yet whilst the regulators bash the good quality firms, the very same regulators allow blatant nonsense to be hawked via high street shops and high profile prime time television advertisements by sharks which extort the financially vulnerable.

Not only do the FCA allow it, but endorse it.

I am not an avid watcher of television, however in the rare occasion that I may stumble on a break between television shows on British TV, I have noticed advertisements for dreadful ‘services’ such as payday loans – those being cash advances based on a single paycheck with few questions asked and extortionate interest rates of – take a deep breath – up to 1400% APR (!!!) and unthinkable consequences if a default occurs, to sub-prime longer term loans offered on similarly questionable terms.

On Thursday, in the shadow of the inevitable demise of vast payday lender with its appropriately corny name, Wonga, a loan shark finally met his match in the form of a contretemps with the law.

This particular specimen, Amigo, which was founded by James Benamor in 2005, said revenues in the three months to June 30 were 47 per cent up on the same period last year, at £62.9 million. The number of customers jumped by 39 per cent to 194,000. But Amigo, which joined the stock market in June with a value of £1.3 billion, has said many are struggling to pay the money back.

Yes, you read correctly. The stock market! Mr Benamor, along with his beard was allowed to list this on a public exchange in London! Imagine the due diligence gray suits at Accenture or PriceWaterhouse Coopers. “Yes, that is a good idea, let’s list an extortionist on London’s main market”.

Such a dichotomy of hypocrisy. FX and CFD firms constantly being pilloried, even though they invest hundreds of thousands and sometimes millions into R&D – see CMC Markets’ state of the art new Next Generation trading system, which cost over $100 million to develop – and tell me that this is not the leading edge of technology – because it absolutely is. FCA are you listening?

Amigo preys on borrowers with a bad credit history, and charges interest rates of 49.9 per cent, meaning £4,000 borrowed for three years would cost £7,026. It relies on customers having a guarantor, such as a family member or friend, who will pay back the debt if they default.

What’s the difference between that and calling gambling addicts and forcing binary options down their throats before stealing their money?

Amigo said that 25 per cent of its loans are impaired, meaning customers are failing to make payments on time, if at all. This is a jump from 14 per cent in difficulty a year earlier, although Amigo blamed changes to accounting rules for the rise and said performance was better than expected. Critics have accused Benamor of preying on the vulnerable. What was done about this? Nothing.

Labour MP Stella Creasy said: ‘Amigo encourages people to use their friends to guarantee a loan, giving the company two people to chase for immediate payment. Amigo is anything but your mate.’ Whilst I despise Ms Creasy’s socialist political opinion, she is right about this.

Vulgar, legalized and publicly listed. One rule for one, and another for the good guys

Advertising heavily on TV, the firm seeks to present itself as a caring alternative to the banks, despite charging far higher interest rates. Its website includes videos in which customers say the firm has changed their lives for the better.

In one, a driving instructor called Ray says Amigo helped him stay solvent while recovering from operations. Ray adds: ‘I couldn’t have asked for a better company to deal with.’

But MPs and campaigners believe it is little more than a legal loan shark. Consumer champion Martin Lewis has said Amigo’s adverts leave him feeling slightly sick.

Quite right too.

Whilst Mr Benamor laughs at his victims, lists his stock on a public exchange and simply gets away with interest rates that would have been totally unacceptable in England under any normal circumstances, harking back to the Shakesperean references to illicit moneylenders of the pre-industrial period, we take constant restrictions from the FCA.

Loan sharks must not be allowed to prosper. Genuine advancers of financial technology should. It really is that simple.

Friday: Happy Birthday Michael!

For Michael Hewson, the end of last week was not just any ordinary day in the office – not that many days are the same for one of the FX industry’s most renowned market analysts.

On Friday this week, Michael Hewson’s desk was adorned with a very tempting (and potentially diet-breaking!) box of Krispy Creme donuts, as his kind colleagues at CMC Markets’ Houndsditch head office in London joined in the celebration of his birthday.

Michael has over 25 years of experience in trading the electronic financial markets, and is a regular commentator, often appearing regularly on BBC News, Bloomberg, CNBC, CNN, Fox Business and several other outlets in the UK, North America and the Middle East.

Don’t tempt me! I’m on a diet!

In 2015, I joined Michael and his team on the river Solent to celebrate its participation in the Americas Cup. This included some two and a half hours on the Solent course aboard an authorized rigid inflatable boat (RIB) with CMC Markets senior executives in order to observe the six contenders do battle on a wet Friday from arguably the best possible vantage point. It is hard to imagine a better place to have such exhilarating fun in the pouring rain!

Just as his commercial composure has mapped out his longstanding career, Michael withstood the conditions during volatility of a very different type of liquidity during that wet Portsmouth day with aplomb and humor.

At the end of that day, Michael told me “It’s fantastic to witness some of the world’s best sportsmen and innovative sailing technology. It’s obviously very different to trading but there are some similarities when it comes to the discipline, agility and skill that’s required. All in all, we’re proud to be part of this historic attempt to bring the cup home where it belongs.”

Whilst in the contrasting serenity of the CMC Markets office, his primary focus is on providing technical and fundamental analysis on the daily movements in financial markets, as well as research articles focused on topical financial and economic issues. Michael also participates in regular trading webinars for clients, and delivers seminars across the country, catering for varying levels of experience.

With his background in FX trading, Michael spent six years trading currencies, with a particular emphasis on charting and technical analysis. Before joining CMC Markets, he spent over 12 years delivering technical analysis education and support to experienced traders, private investors, corporate and retail clients, for a market data company.

Happy birthday Michael! Keep up the good work.

Wishing you all a great week ahead.


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