The Last Look…
Posted by Colin Lambert. Last updated: January 5, 2023
To the irritation of most of my regular readers (you’re a rough lot) I am determined to end the year on a positive note, by listing out what have I liked in 2022. They’re not awards, just trends or innovations that I think have moved the dial a little or have just been interesting.
Speaking of awards, I used to award (non)prizes at P&L throughout December, one of which was headline of the year. The Full FX itself could qualify for a win this year with our story from March 10, FTX Opens Crypto Advisory Service – fill in your own punchline…
Anyway, to my list of positivity and a brief note about 10 things that, for one reason or another, I liked this year. The 10 are in no particular order.
1: Platform transparency is getting (slightly) better and it was good to see the move to Code-only liquidity, led by Cboe FX. This is a good trend and while I still have issues (naturally), I will not let them dampen the mood of positivity in this column. Rome wasn’t built in a day as my Mother always tells me, and while I (we) want more, at least we have seen movement.
2: I sense there is a new-found respect for good liquidity providers. As someone who, I think, understands the value of good liquidity, this is a good thing, because it has been under-valued for too long. On a related note, it is good to see Deutsche Bank regather its strength as its credit rating comes back. The FX market needs as many strong LPs as possible and there has been consolidation in this area in recent years, so it is good that 2022, maybe, reversed that.
3: DLT is helping to refute the idea that blockchain (and its derivatives) is a solution looking for a problem. The BIS survey highlighted the growth of RMB trading in particular and we have to acknowledge that it takes a lot of time and effort to add a currency to CLS so the fact we can use the technology to provide a PvP solution now can only be a good thing.
4: Naturally, I have to mention the return of sustained volatility. This helps to highlight skillful traders and risk managers which is a great thing. Also, through 2020, the machines have been tested, and while some have had the odd issue when mean reversion stopped being a thing in FX markets, generally the tech has stood up well. Hedge fund launches were at their highest since 2017 as we entered the year, which shows the extent of the opportunity – and that opportunity permeates throughout the industry.
5: CBDCs do actually look as though they are going to be a thing. I am not sure yet what this means for the broader crypto industry, but the authorities do seem to have embraced the concept, even if they continue to couch their comments in cautious terms.
6: There has still been innovation in FX – off the top of my head I can think of the Goldman FX options structuring tool, the BASF quantum-based hedging (no don’t ask me for an explanation, I’m being positive), among others, It is also noticeable that people still see an opportunity in FX. It’s probably helped by the collapse in morale in crypto, admittedly, but firms are acquiring fintechs in this space and new initiatives like LoopFX are being announced. Success isn’t guaranteed (when is it ever?) but it all stems from people believing the structure can be tweaked, nuanced and improved.
7: The industry can still handle upheaval. Although there was a good run up over years, the start of the year still saw plenty of authoritative warnings over the impact of UMR. It happened, there was an impact, but the industry was ready for it and there are strong, robust services helping alleviate the capital pressures and processes associated with regulation.
8: The industry is still, at heart, a good place, and now firms are stepping up to the plate, or, in some cases, continuing their great efforts. This year saw initiatives like Sustainable Trading, and firms like XTX Markets committing to ESG and educational initiatives, which is great. Equally, among hundreds of great projects, we saw markets-related charitable efforts from Barclays, Citi, Goldman Sachs, TP Icap, BGC and others. Long may they continue.
9: A lot of good people left the industry, which is bitter sweet – and some passed away, a few much too young and others that, while still too soon, had a good innings as we like to say. There are also the retirements, and FX legends like Steve Flanagan and David Ogg deserve to enjoy their time on the beach or wherever they choose to go, so let’s make it a sweet moment! Bon voyage and thank you to everyone who retired from the FX industry in 2022.
10: Finally, $7.5 trillion per day in turnover. The FX market is still providing plenty of opportunity for those willing to commit and likely will continue to do so for some time to come.
Here’s to 2023.