We have seen many crises in the past, but this one is in many ways unique and I cannot recall a similar set of circumstances in my 43 years in markets. Financial crises have been global before but have originated within the financial system. Natural disasters have been localised as has dislocation due to terrorism and wars. This pandemic is unique as it is the first time we have seen such dislocation in so many countries at the same time. All financial centres are going through unprecedented emergency implementation of disaster planning activation.
It is unprecedented in Financial Markets (at least in my memory!) to have so many people working from home globally. We have previously seen localised examples such as on Wall Street after the tragic event of 9/11, but nothing on this global scale. As firms dust off the business continuity plans, some are hitting problems such as systems not allowing remote trading. This requires a tweaking of rule books and system settings. For those deploying a unified, modular platform, the task is somewhat easier when suddenly so many core staff are working from home as any system changes can be made once, and once only.
Buried in the depths of the Communiqué from the G20 Finance Ministers & Central Bank Governors Meeting on the 23rd of February was a stark call to arms regarding LIBOR transition. Building on the comments from National Competent Authorities (NCA) came a clear G20 statement:
It would have been one thing pondering on how to deal with a misdirection of Cupid’s bow recently on St. Valentine’s Day. But, instead, how do your customers react, when attempting to book a deal on-line, when a quoted price is rejected? It can often lead to confusion and leave a negative feeling if not properly understood as to why it occurred.
We saw during 2019 increased interest in various projects for a Central Bank Digital Currency (CBDC) launch as a recurring theme. CBDC is a digitised sovereign currency, created and issued by, and a liability of, the country’s monetary authority. As such they are viewed as legal tender which is a core difference to cryptocurrencies and stablecoins. Those who made it up the Davos slopes to the World Economic Forum (WEF), were met with ideas and discussions taking place on how CBDC could be a potential solution to multiple challenges, including financial inclusion and efficiencies in the global payment systems.
As is traditional this time of year, our good intentions of New Year resolutions fade to what we might expect to be dominant themes in 2020, and it has to be said that if certain plans are not yet well advanced you might want to get to it!
As we settled down to the first full working week of 2020, ESMA published the latest and final set of papers on the Securities Financing Transactions Regulation (SFTR) with guidelines on reporting structures. This was accompanied by the amended SFTR validation rules and a statement on Legal Entity Identifiers (LEI). The good news is that it now clarifies a number of provisions pertaining to SFTR, alongside some practical guidance.
The festive season has taken over and it is reflected in the post UK election newsfeeds for financial markets. We are moving forward into the 2020s, and people are making predictions about the new decade. But, we should not expect the exuberance, irrational or otherwise, of the Roaring Twenties a century ago!
We have moved on from the conference season which highlighted AI, Machine Learning and Algo trading as core topics de jour. Interspersed in this were concerns over information security, predictions of a greater take-up of cloud computing and regulatory attention on cybersecurity. Now we have moved well into Advent and the festive season is getting into full swing. So what has been cropping up behind the doors of the Advent calendar this year?
In the UK, one demon that will not be roaming the streets is a hard Brexit following the extension. This has paved the way to a General Election in the festive season. One demon in the UK that has been stalking the European and USA markets will be in the financial news. The opposition party is resurrecting the alchemy of financial taxation, and this could blast an icy chill into the Christmas season if an upset at the polls occurs.
With the Rugby World Cup in full swing and moving to the decisive knock out stages, we have been treated to a feast of the oval ball game. Some great matches and a fairy tale unfolding as the ‘Brave Blossoms’ cause more than one upset. The host nation has won hearts and minds during their continuing progress. Elsewhere in the competition, and as usual, the scrum set pieces have garnered a certain amount of controversy!
I have always been a fan of the concept of a shared platform across banks. Looking at some of the big examples such as SWIFT and CLS, and the shared ownership/consortium concept such as EBS and FXall, you can see how the utility aspect can be put to good use. As the increased automation of FX trading evolves, customers now have a wide range of choices when it comes to execution of trades. Central Limit Order Books (CLOBs) such as Reuters Matching and EBS have spawned single dealer platforms (SDP) and multi-bank platforms (MBPs) alongside anonymous ECN’s, so a wide choice of platforms have become available, suiting all types of market participant’s preferred execution choices. Technology has allowed for aggregation in what remains a fragmented market place and algorithmic techniques are a growing component across a wide spectrum of the market.