“Mind The Gap!” – The life and times of a man on the move Episode 71

OANDA Corporation finally invests in the most important asset – its people. There are significant moves forward in Tier 1 market making perhaps leading to hope for smaller brokers, a strange telephone call, and I prepare to meet you all here in London, Sydney and Johannesburg in 5 events in 5 weeks

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.

Onwards and upwards at the top

This week may well be the first week of genuinely wintery weather, but the shorter evenings and dark sky has done absolutely nothing to impede the progress of several FX industry executives who have made significant moves forward in their already advanced careers.

One such move is quite an interesting one, and also I would say quite important.

I spoke this week to Lucian Lauerman, who had spent a total of almost 9 years at Saxo Bank, his final position having been Global Head of Electronic Distribution, who has left Saxo Bank, a company which has continued its evolution since Chinese giant Geely bought into the firm, and has joined Canadian electronic trading stalwart OANDA Corporation.

There certainly seems to be something interesting happening at OANDA Corporation. Finally, after years of headless leadership and boardroom ineptitude, the firm has got to grips with the much needed stability at the top and hired some top quality professionals.

Lucian Lauerman represents a very distinguished hire by OANDA, with far superior credentials than those who have actually sat in the Chief Executive’s seat over the past 10 years.

Lucian Lauerman (center) speaks to institutional hedge fund managers at private event in Hong Kong, 2016

A two year stint at Lloyds Banking Group as Head of eProduct Management punctuated the two tenures at Saxo Bank, so he brings that level of institutional expertise to OANDA Corporation, a much needed talent acquisition as their sophisticated software and trading topography has until recently not been maximized by comprehensive knowledge at leadership level.

I spoke a while back to Lucian about the contraction of the prime brokerage market within banks. He had been very keen to point out “the liquidity and collateral issues are arising from the use of prime or prime providers or brokers at the same time.”

“The rationale for using two prime of primes makes sense as a contingency, when one of those is a primary provider and the other one is a secondary provider. However, the reason for using a single prime broker at any given time is to consolidate positions in one place for more efficient use of collateral” said Lucian.

Lucian explained that he is now heading to Toronto for three weeks as his new position begins, however he will be based here in London, which itself is interesting, because for the first time ever, London is the home of OANDA Corporation’s newly appointed CEO Gavin Bambury who took the reins in August having left Integral Development Corporation.

OANDA Corporation’s Chairman of the Board, Tim Howkins, who is another longstanding industry executive who spent many years at IG Group as CFO before retiring, coming back out of retirement to join the board of OANDA commented, “We are extremely pleased to welcome Gavin to OANDA. A seasoned professional, he combines a deep-seated knowledge of financial technology with an unparalleled understanding of the trading sector, which will be invaluable as we continue to execute the firm’s strategic vision in the years to come.”

Far superior in credentials to any of OANDA’s anodyne leaders that preceded him, Mr Bambury had been ION Trading CEO and COO, and prior to that was Citigroup’s CTO in fixed income and currency sales and trading and spent almost 15 years at the company during the time at which Citigroup was the unfaltering market share leader in interbank FX here in London. He then joined Deutsche Bank for four years before ending up at ION Trading in 2011.

It is a positive development to see the appointment of a seasoned FX industry professional to this position, and hopefully a move which will resolve the several years of headless leadership at the firm.

Outgoing CEO Vatsa Narasimha, who was only in his position for two years, resorted to using FXCM’s at the time very grave situation as a PR exercise, a practice that FinanceFeeds frowned upon greatly.

Mr Narasimha, just weeks into his position at the time, launched a PR entitled “OANDA supports CFTC’s move to protect the interests of traders, the diatribe was preceded by a message from the public relations firm stating “By now, I am sure you have seen that the CFTC has levied a huge fine against FXCM for engaging in false and misleading solicitations forcing its withdrawal from the US market.”

“OANDA’s new CEO, Vatsa Narasimha, supports the CFTC’s move to protect the interests of traders. He has some strong views on how the retail trading industry needs to shape up to become more transparent, fair and supportive of investors and traders. He believes a broker should be held accountable for making questionable statements or falsely disclosing their interests” continued the public relations officer.

Our approach to OANDA at the time was to ask why this was necessary in a nation with the world’s highest level of loyal customers and highest assets under management per customer and only two FX firms. Surely it is better PR to remain discreet and simply onboard clients who would have nowhere else to go and would appreciate OANDA’s very highly sophisticated technology.

Well done OANDA Corporation, this was a necessary move. People matter, and OANDA needed good people. Now it has two in positions that matter.

It’s the same story across the pond

A few years ago, it would have been inconceivable that non-bank market makers which are specific to the OTC derivatives business would lead the market share tables for worldwide execution of Tier 1 interbank FX business, beating the banks who have a love/hate relationship with counterparty credit agreements for institutional FX liquidity takers.

In the days when Citigroup was the unrivaled leader of the top tier in terms of FX dealing, anyone suggesting that XTX Markets or Citadel Securities would usurp them would be at the very least the subject of derision.

Justin Gilmore

It is, however, not funny anymore, as Citigroup’s report in 2015 which frightened the risk managers from Canary Wharf to Wall Street by stating that the company expects as much as 56% of all counterparty credit agreements with OTC derivatives firms to end in default has been backtracking and, along with the other Tier 1 banks who were equally frightened by the Citigroup report, and is now looking to re-establish its pole position.

Time has moved on, however, and XTX Markets now dominates, and Jump and Citadel Securities are also in the top ten. It is more than a case of “you snooze, you lose” for the banks, and more a case of the OTC liquidity takers – ie Prime of Prime brokerages – wanting a better standard of execution, no last look/trade rejections whilst at the same time being treated as a proper customer with a contract that is worth honoring.

Justin Gilmore is an FX industry senior figure who has witnessed this direction first hand. He joined Citadel Securities in March 2015 at Director level, responsible for business development, sales and distribution of Citadel Securities’ FX Market Making product and services globally.

Justin spoke to me this week, as he makes his way to London for the coming few days. “I am in a new role now, at a quantitative credit intermediation fund that’s active across FX, CFDs, futures, and other products” he said.

“We are getting good traction with retail brokers, and have an offering for the smaller/mid-sized guys, many of whom I suspect will be at your event on November 14” he explained.

This is something very necessary and I am very glad to hear that there are companies, run by people who comprehensively understand the requirements of smaller brokerages, that can offer good quality execution facilities.

The question is, are we seeing the voluntary loss of popularity of semi-obsolete Single Dealer Platforms such as BARX which has been around as long as the hills have, and whose operators not only keep patching modifications to legacy systems but are out of touch with what brokerages need these days.

I live in hope that there is more to life than the two methods of execution among smaller brokers, those being A: the dreaded B-book, or B: the continued tug of war between small brokers and the inflexible bank dealing desks.

Odd behavior

When a dubious brokerage bites the dust, strange behavior often follows it.

I have had a few very bizarre telephone calls this week from an individual who will not divulge his name, or email address, and had come to me with some very far fetched ideology that the creditors meeting that was held in Manchester this week relating to the whole sordid affair surrounding the odious retail profit-sharing delinquents at AFX Group.

We were right about AFX Group’s activities and were the only entity representing the FX industry to stand up and expose the damage that can be caused by trying to fleece brokers into believing that they are operating with a real prime of prime, when actually there was no such thing in place and AFX was profit sharing, causing the demise of one relatively large brokerage, and a massive amount of missing funds from client and brokerage accounts.

Due to our accurate coverage of the AFX situation, some odd calls from stakeholders have taken place, but this one was from what turned out to be a client. He claimed that he was supported by MI5 secret agents who are investigating the situation, and wanted to explore the possibility of buying AFX from its potential administrators should it be made bankrupt, in order to maintain its business and stop the likes of the Big Four auditing firm taking 70p in the pound.

It is always interesting how many people who allow themselves to get duped by poor quality second rate companies like AFX Group whose trail of destruction goes far beyond just the AFX business – its owners had other ill-fated interests too – have parallel universe-orientated ideas.

The reality is that nobody is going to be able to convince a consortium of clients to buy the remains of AFX from its receivers, as there is literally no intellectual property to buy. It has a jaded client base who, even if the firm was re-instated under different owners, would withdraw all their money and leave quickly, as the trust is long gone.

All anyone buying in would be doing is helping clients withdraw and run for the hills.

Yes, there is a responsibility of firms to behave correctly and describe their services properly, something that AFX did not do, but there is also a responsibility to be a sensible investor. People who believe in secret agents, hush-hush incognito investigations and anonymity often, unfortunately, go hand in hand with being caught out.

That said, following the meeting in Manchester this week where the proposals were accepted, it is high time the whole AFX business was put away and the dark shadow that it and its leaders cast over the industry was quashed once and for all. It is simply not welcome.

Let’s go global!

This week is the beginning of a five week period in which FinanceFeeds will be producing five events. One per week, in different parts of the world, beginning here in London, with others in South Africa and Australia.

Meeting important executives, whether they are brokers, hedge funds, algo trading companies, technology providers and institutional traders, is imperative for the longevity and refinement of our industry.

I look forward to seeing you all and if you’re heading to London this week, do remember to Mind the Gap!

Meanwhile, I wish you all a super week ahead!

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