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Foreign exchange market participants need to be aware of the potential limitations of the US Treasury exemption from certain Dodd-Frank requirements for FX swaps and forwards, as a wider universe of instruments could be subject to the rules than some expect, according to panellists at FX Invest North America in Boston on April 9.

The US Treasury announced its decision to exempt FX swaps and forwards from mandatory clearing and trading require-ments in November 2012, but the exemp-tion might only apply if the currencies are physically delivered, lawyers say.

That could potentially pull in certain trades that participants had assumed would be exempt – such as rolling spot transac-tions, where a net open position in the spot market is not physically delivered but is

continually rolled until it is offset.Regulators have not yet clarified whether

these kinds of transactions would be sub-ject to mandatory clearing and trading rules, but lawyers have urged caution.

“I don’t think we have a determination yet to answer that specific question,” said Ronald Filler, professor of law and director of the Center on Financial Services Law at the New York Law School, in response to a question from the audience on whether continually rolled FX transactions would be caught. “The way the Commodity Futures Trading Commission has been doing things over the past couple of months is that it waits until the day before the effective day and then issues a number of no-action interpretative letters.”

Another panellist was more direct. “Some

participants have the rolls as standing instructions in their agreements. That is dangerous territory. However, most have an agreement that looks like physical delivery is going to happen unless you decide not to take it. That is probably far safer,” said Nick Solinger, chief marketing officer at post-trade processing company Traiana.

Regulators might ultimately decide to be less inclusive – but participants shouldn’t hold their breath, panellists warned.

“Unfortunately, the regulators are in a position now where they are not really inclined to exempt things. We are in a regulatory environment where they are loath to give up any authority because they are still hurting from the financial crisis,” said Donna Parisi, a partner at law firm Shearman & Sterling. FX Nick Sawyer

Inside

Industry demands margin exemption for FX 2FX swaps and forwards should be excluded from new rules

Direct Aussie-yuan trading off to flying start 3Chinese currency takes further step towards globalisation

Central banks ‘getting away with murder’ 4Will find QE difficult to control once economies start to grow

Citi loses global head of e-FX trading 6Simon Jones takes time out from the industry

Spotlight on... 8Bo Sundström, Swedbank

FX WeekThe global business of foreign exchange April 15 2013 v.24 n.15fxweek.com

FXCM’s shock announcement on April 8 that it intends to purchase Gain Capital for $210.4 million marks a big move towards consolidation in the US retail foreign exchange market, which has struggled to cope with the effects of increased regulation in recent years, and has sparked debate over the value of such a transaction in the beleaguered sector.

FXCM intends to purchase 100% of Gain shares at $5.35 per share, 25% up on the company’s closing share price on April 8, and sell FXCM shares at 0.3996 of their value on the same date in a share exchange, the company said in a statement. The retail trading provider says it would also be prepared to offer $50 mil-lion of cash in lieu of stock. Gain’s share price on April 9 jumped to a high of $5.50 per share

after news of the deal emerged, up from $4.28 the day before.

In a deal of similar impact in institu-tional FX, Thomson Reuters bought FXall for $625 million in July last year (www.fxweek.com/2190402). Rupert Bull, partner at consultant Expand Research in London, says the deal provides a benchmark for platform takeovers in FX and, accordingly, FXCM might be paying too much.

“Comparing the two, this does seem an expensive bid, considering FXall was a growing business at the time, with roughly $100 billion of average daily volume, and Gain Capital’s business is markedly smaller. A key part of the value will lie in whether FXCM can successfully achieve its proposed cost savings,” he says.

Drew Niv, chief executive of FXCM in

Market questions FXCM’s $210m bid for Gain

Extent of FX exemption still unclear

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Drew Niv, FXCM


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The foreign exchange industry has pushed hard for FX swaps and forwards to be excluded from new margining rules on uncleared over-the-counter derivatives, claiming their inclusion would increase costs for end-users and reduce liquidity in the forex market.

The arguments were made in responses to a second consultation paper published on February 15 by the Working Group on Margining Requirements (WGMR) (www.fxweek.com/2244457) – a body led by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions (Iosco). The ‘near-final’ proposals on margin requirements for non-centrally-cleared derivatives sought comment on four issues – one of which was whether physically settled FX forwards and swaps should be exempt from initial mar-gin requirements.

The industry overwhelmingly thinks they should. By the time the consultation closed on March 15, the WGMR had received more than 80 comments – most of which strongly supported an FX carve-out. A key concern was the additional costs that would be placed on end-users – which some felt could encourage clients not to hedge.

“Requiring margins to be posted on short-dated FX derivatives would signifi-cantly discourage many end-users from using FX derivatives for risk management

purposes and would therefore increase the ultimate risk in the system, acting against the overarching Group of 20 (G-20) objec-tives,” said Insight Investments in its sub-mission, which was published on April 2.

Emerging markets would be particularly hard hit by the new margining regime, claimed Lenny Feder, group head of finan-cial markets at Standard Chartered, in the bank’s response to the consultation.

“In the emerging markets, FX is a matter of commercial reality. In many of the coun-tries in our footprint, there are no big blocks of trade where the use of FX is not prevalent (as might be the case in the Euro-pean Union), nor do those countries have a global reserve currency that allows them to worry less about FX risk,” he said.

A spokesperson for Iosco says the responses are now being considered by the WGMR and will help inform the final paper, expected to be published ahead of the G-20 meeting in September.

The WGMR was set up in 2011 with a brief to develop a margining regime for uncleared OTC derivatives, calibrated to ensure there is an incentive to clear wher-ever possible. The final rules were expected at the end of last year, but were held up after several key areas of disagreement emerged – one of which was whether to exempt FX swaps and forwards (www.fxweek.com/2240533).

Market participants are adamant they should be exempt, and argue the main risk in the FX market is settlement risk, which is covered by CLS. “The mandatory initial margin regime would introduce new risks into a stable market and at the same time increase costs for corporates and asset managers that use FX for international trade and investing as a key element of their currency risk management,” says James Kemp, managing director of the Global Financial Markets Association’s global FX division.

Ultimately, these new collateral require-ments could prompt some end-users to ditch FX hedging completely or opt to stop using CLS to mitigate settlement risk, one participant speculates.

“The additional costs of the proposed requirement and the settling of payments relating to those swaps and forwards through the CLS system could exceed the currency risk mitigation benefit of entering into those transactions,” says David Puth, chief executive officer of CLS. “Given a choice between compliance with a manda-tory margin requirement to reduce replace-ment cost risk, and the reduction of settle-ment risk on a voluntary basis using the CLS system, it is conceivable this could have the unintended consequence of mar-ket participants choosing to reduce their use of the CLS system.” FX Kathy Alys

Industry calls for FX exemption from margin rules


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Direct Aussie-yuan trading kicks offMarket participants have welcomed direct trading between the Australian dollar and Chinese yuan, which launched in China’s onshore foreign exchange mar-ket on April 10, saying the initiative is an important step in the globalisation of the renminbi.

Australian prime minister Julia Gillard announced the new currency exchange programme in Shanghai last week, during an official visit to China. She described the agreement as a “huge advantage for Aus-tralia”. The initiative means central parity of the renminbi against the Australian dol-lar can now be calculated from the direct quotes offered by market-makers – previ-ously, it was derived from the cross rates between the central parity of renminbi against the US dollar and the exchange rate of the dollar against the Aussie. The People’s Bank of China (PBoC) says it will allow CNY/AUD to trade 3% above and below this rate.

“This is a positive development towards price discovery and transparency. Given corporates have contracts that are six or 12 months forward, the immediate effect on that from a client demand perspective is unlikely to be immediate, but as time progresses it will definitely be an impor-

tant move towards the globalisation of renminbi,” says Beng-Hong Lee, head of China fixed-income, currencies and com-modities trading and structuring, and head of product management for offshore renminbi at Deutsche Bank in Shanghai.

Direct trading between the two curren-cies will promote bilateral trade and investment between China and Australia, facilitate the use of the currencies in cross-border trade and investment settle-ment, and lower currency conversion costs, says the China Foreign Exchange Trade System, the PBoC unit covering domestic FX trade that is overseeing the initiative. It has appointed seven large Chinese banks, two Australian banks and three other foreign banks as founding market-makers for the venture.

Liquidity in CNY/AUD exceeded expectation on its first day of direct trad-ing, says Hugh Killen, Sydney-based glo-bal head of FX at Westpac, which, along-side fellow Australian bank ANZ, has been granted approval to provide direct CNY/AUD pricing. Westpac reports its volumes in the trade on April 10 were around A$12 million. Killen believes the initial benefits created by the direct trade might be for small and medium-sized

exporters, as they tap into a Chinese mar-ket that has been unwilling or unable to transact in foreign exchange until now.

“For importers, there may be some reluctance in the near term to be paying in yuan, but this should shift over time. Renminbi appreciation expectations are being scaled back, and we are likely to see more two-way risks in USD/CNY in com-ing years. For customers based in main-land China, the announcement signals the commencement of direct CNY/AUD cur-rency trading, which will help them to work seamlessly between geographies, protect against FX risk, more effectively negotiate with suppliers and shore up their cashflow,” he says.

Commonwealth Bank of Australia is also applying for a licence to be able to trade the two currencies directly, and hopes to make progress on the pair in the second half of this year, subject to regulatory approval, says Kieran Salter, the bank’s global head of FX, based in London.

“We are working closely with the author-ities with a view to gaining the relevant licence. It is very much a part of the CBA strategy, as we continue to build on our existing platform in China specifically, and Asia in general,” he says. FX Miriam Siers

New York, says the proposed merger, which he hopes to complete by the end of this year, could release $80–100 million in restricted cash, as combining the com-panies will release regulatory capital across jurisdictions. Also, transitioning portions of Gain’s portfolio to an agency-focused model could allow further reductions in capital requirements related to open posi-tions, he says.

“There is rapid inflation of cost inherent in operating this business. It is over-regu-lated, and the fact we have to support mul-tiple jurisdictions means it is very expen-sive both from an operating cost perspective and for capital – much of which is fixed just for being in business. That alone places a hurdle: to pay with enough business for all these new rules

and regulations. This new combination will allow us to do it better,” he said.

Gain reported an 83% fall in net profits for 2012 to $2.6 million (www.fxweek.com/2254893), but has been making strides in building out its institutional FX business – Gain GTX’s revenues were $15.6 million last year, up $11.2 million on 2011. This had led one US broker to believe FXCM’s offer for Gain is too low, as the company still has plenty of potential for growth.

“Gain was not the only retail firm hurt by last year’s markets. If you take a broad temperature of the FX markets, not many people enjoyed a great year. Despite a decline in revenue and trading volumes on the retail side from 2011, its institutional side continues to grow and will carry it for quite some time. GTX tripled its revenue

year-on-year in 2012, and this venture is only a few years’ old,” says Andrea Arnold, vice-president in institutional FX liquidity sales at Institutional Liquidity in Chicago.

Gain Capital did not respond to requests for comment for this article, but did announce shortly after receiving the offer that it had adopted a stockholder rights plan, otherwise known as a ‘poison pill’, which will entitle stockholders to buy one 100th of a share of new preferred stock at $17 a share if “a person or group acquires beneficial ownership of 15% or more of the company’s common stock, or commences a tender or exchange offer that, upon con-summation, would result in a person or group owning 15% or more of the com-pany’s common stock, subject to certain exceptions”. FX Robert Mackenzie Smith

Market questions FXCM’s $210m bid for Gain1


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FX Invest North America

Central banks ‘getting away with murder’

Platform proliferation creates buy-side headache

Central banks are pursuing the wrong policies by trying to stimulate their econo-mies through quantitative easing, and will find it difficult to know when to stop, according to Axel Merk, president and chief investment officer of Merk Investments.

Speaking at the FX Invest North Amer-ica conference in Boston on April 9, Merk said some policy-makers were trying to fight market forces by printing money, but would find it difficult to control once economies start to grow.

“The biggest threat we are facing is eco-nomic growth, because if and when you have economic growth, then you’ll have that money starting to stick. Our policy-makers think they can control this and they can have a smooth exit. We are cur-rently paying an average of 2% on US gov-ernment debt, for example. In 2001, we paid 6%. If we were to move interest rates even up to 4%, US government debt would be unsustainable,” he said.

“Right now, central banks are getting away with murder because the money doesn’t stick. Let that money stick and it is going to be extremely difficult for folks to mop it up. We haven’t had this reaction because we have had a credit bust.”

Merk was particularly critical of the US Federal Reserve Board, arguing that it was essentially unable to use its normal eco-nomic indicators to determine when to halt its quantitative easing programme.

“The biggest criticism we have about the Federal Reserve policy is that the Fed has no clue what it is doing. I mean that quite seriously because, historically, the Federal Reserve looks at the yield curve to decide on the health of the economy. By manag-ing the yield curve rather aggressively, it is taking away its own gauges and it is just flying blind. It won’t know when it is time to mop up the liquidity, and so it is just a bunch of experts – human beings like you or me,” he said.

One consequence of this policy is that investors are increasingly aware the US is “deteriorating its balance sheet at a faster pace than the rest of the world”, and so are directing less and less money back into the US each time the markets become more risk averse, he said. Another is that central banks are keen to diversify away from the US dollar as a reserve currency – although this is a slow process, he added.

“One of the things that has been in the news a lot is whether the dollar will remain a reserve currency. I’m not going to answer that question here – it is going to be an open debate, but it is quite apparent to me that the dollar is the reserve currency of choice for liquidity reasons rather than quality reasons, and central banks around the world are desperate to diversify. They do so rather slowly and gradually, simply due to liquidity reasons. But that trend is ongoing,” he said. FX Nick Sawyer

As competition in the electronic trading space increases, some foreign exchange trading platforms will inevitably fail, but it is too early to predict the winners and los-ers – and this creates problems for buy-side firms that do not have the resources to con-nect to every venue, according to panellists at FX Invest North America.

A variety of new trading platforms have launched in the FX market over the past year, to some extent encouraged by regula-tory changes that will force certain instru-ments to trade on exchanges or electronic trading venues – called swap execution facil-ities (Sefs) – under the US Dodd-Frank Act.This creates problems for buy-side firms that want access to liquidity but don’t have the resources to connect to every platform, according to speakers.

“There are so many platforms out there, and not all of them are going to be around in the same form three or five years from now. That means either connecting to them all or picking winners, and no-one wants to try to guess who the winners will be,” said Michael O’Brien, vice-president and head

of global trading at Eaton Vance, a Boston-based hedge fund. “At the same time, con-necting to everyone is costly – both in terms of the explicit costs, and the time and resources, so neither option is ideal.”

The issue is made more difficult because the Commodity Futures Trading Com-mission has yet to finalise its Sef rules, the final version of which was expected at the end of 2012. However, the release date has been continually pushed back amid ongo-ing debate over several key topics – for instance, whether to keep an initial pro-posal for any request for quote to be sent to a minimum of five dealers, known as RFQ5. The rules are now expected to be published this month.

“Technology providers have spent mil-lions of dollars in the past few years build-ing a Sef. But no-one knows what a Sef will look like. It is like a unicorn: we have all seen pictures of it, but no-one has ever seen one live. So people have spent a tremendous amount trying to roll out this unicorn – and at the end of the day, it is probably going to look like all the platforms that

exist today,” said Steve Reich, executive director of FX products at CME Group.

Ultimately, end-users will want to connect to those platforms that have the best liquid-ity – but that is difficult to predict, said Eaton Vance’s O’Brien. “Every platform is going to have its own edge in terms of tech-nology. What really matters is the liquidity, but you can’t just decide in a vacuum where liquidity is going to be on a Sef,” he said.

Nonetheless, Vikas Srivastava, managing director, business development, at Califor-nia-based Integral Development – which plans to operate a Sef – says end-users can glean some clues by looking at current market structure.

“People should differentiate between an order book, which has to build liquidity from scratch, and a platform that will bring liquidity from the same sources it comes from now. So, if I know which six banks offer the best prices in dollar/Colombian peso non-deliverable forwards (NDFs), then any venue that has the con-nectivity to those six banks right now will have liquidity.” FX Nick Sawyer

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Ex-Barclays sales director Tonia Steck is to join TD Securities as head of foreign exchange hedge fund sales for the US.

Based in New York, she will start in her new role on June 27, reporting to Glenn Juhlin, TD Securities’ head of institutional FX sales for the US.

Steck has worked in FX for almost 20 years. Most recently, she was an institutional FX sales director at Bar-clays, where she had worked for more

than four years. Before that, she held roles at Lehman Brothers and Merrill Lynch.

Barclays has seen several departures from its sales team worldwide recently, losing Warun Chadha, vice-president in FX sales for northern European institutions and banks in London, and Tim Moloney, who worked in real-money FX sales for Asia based in Singa-pore (www.fxweek.com/2259425). FX

Robert Mackenzie Smith

Lloyds hires global head of corporate FX solutions Lloyds Banking Group has appointed Alex Pereira as head of global corporates foreign exchange markets solutions in London, effective from April 29. Pereira was previously head of FX options sales for northern European corporates at Barclays in London. At Lloyds, he will report to Jeremy Adam, head of FX markets solutions, and will be responsible for developing FX asset and liability risk analysis and bespoke solutions for clients. Pereira will also be responsible for global corporate clients, offering FX expertise and engaging in key relationships to help clients manage FX risk. Pereira has spent more than 20 years in FX risk management analysis and solutions. He was at Barclays for 10 years, and before that was at ABN Amro for 10 years, working in roles across FX options sales and trading

New Sydney heads for Invast SecuritiesJapanese online FX broker Invast Securities has appointed Brendan Gunn as chief executive and Andrew Taylor as chief operating officer in Sydney. The two will set up the company’s new subsidiary, Invast Australia, which aims to be operational by the third quarter. They will report to Takeshi Kawaji, chief executive of Invast Japan. Gunn will be responsible for growing the business locally, as well as pushing out into other markets. He previously worked at GFT Markets in Sydney as director, global client services. Taylor also joins from GFT Markets, where he has been a market strategist since April 2008. He will be responsible for managing staff recruitment, IT, compliance, dealing and product development.

Jakobsen joins Fair Trading TechnologySaxo Bank’s Finn Jakobsen has joined Fair Trading Technology (FTT), a trading technology provider to foreign exchange brokers, as chief operating officer (COO) in London. Jakobsen previously worked in business development for Saxo Bank’s global institutional business, focusing on white-label agreements and co-ordination of Saxo Direct FX liquidity to institutional clients, brokers and hedge funds. He replaces former COO Robert Bloom, who will take up a newly created position as the company’s chief innovation officer, focusing on developing new partnerships, markets and strategies for the business.

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Meinnel departs State Street

Barclays’ Steck joins TD Securities

Citi loses head of e-FX trading

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Loic Meinnel, senior managing direc-tor in foreign exchange trading at State Street Global Markets in London, has left the bank.

Meinnel joined State Street early in 2011 in a newly-created position as head of global markets FX options for Europe, the Middle East and Africa (www.fxweek.com/2025630), reporting to Even Berntsen, the bank’s then head of global fixed income.

Meinnel has worked in FX for more

than 20 years, and has previously held senior roles at BNP Paribas and Bear Stearns. He was head of FX and co-head of emerging markets at Bear Stearns and, before that, global head of foreign exchange at BNP Paribas. He joined Paribas in 1995, before its merger with Banque Nationale de Paris, and stayed with the bank for more than 10 years.

Meinnel’s last day was March 31. His plans are not known. FX Miriam Siers

Simon Jones, global head of foreign exchange elec-tronic trading at Citi in London, has left the bank to take time out from the industry.

Jones reported principally to Jeff Feig, global head of G-10 FX at Citi in New York, but also had reporting lines to James Bindler, the bank’s global head of FX options and head of FX for central and eastern Europe, the Mid-dle East and Africa in London, and José Luis Yepez, head trader for emerg-ing markets in New York.

Jones joined Citi as a spot trader in 1998, after a summer internship with the US bank, later relocating from London to New York in that role. In

2006, he was promoted to global head of G-10 spot trading in New York, and two years later was pro-moted again to lead the bank’s FX e-trading busi-ness, in addition to his spot-trading responsibilities.

In January 2012, Jones returned to London to head FX e-trading across G-10 and emerging markets (www.fxweek.com/2135178).

He was responsible for the bank’s elec-tronic platform Velocity, which was relaunched last year (www.fxweek.com/2140075), and for its corporate cli-ent offering, CitiFX Pulse.

A Citi spokesperson said the bank will announce a replacement in due course. FX Miriam Siers and Robert Mackenzie Smith

Simon Jones, Citi

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Royal Bank of Scotland (RBS) is car-rying out a restructure of its foreign exchange team that will see Tim Car-rington, global head of currencies and emerging markets, and Fabian Shey, global head of prime services and client execution, become global co-heads of currencies and emerging markets in May.

The reshuffle coincides with the departure of Mark Barnes, the bank’s global head of macro client trading and global head of FX options in London.

London-based Carrington will be responsible for the FX trading busi-ness, reporting to Michael Lyublin-sky, global head of trading. New York-based Shey will report to Brian Reid, global head of sales.

Barnes’s plans are not known. He joined RBS from Merrill Lynch in 2002 as a senior FX options trader and was promoted to global head of FX in 2009, but took a sabbatical one year later and was replaced by Carrington,

who joined the bank from Canadian Imperial Bank of Commerce.

When Barnes returned in October 2011, he took up the role of global head of client macro trading, report-ing to Carrington, and subsequently assumed responsibility for FX options following Richard Fawcett’s decision to take leave from the bank in January this year (www.fxweek.com/2101504 and 2235531).

RBS declined to comment on the changes or on Barnes’s departure. FX


RBS reshuffles FX management

Volatility will be back Volatility is low across nearly all major asset classes. But companies should not be complacent because it will return.

Find out what we think. Read the full article at rbs.com/insight

David Simmonds, Head of Currency and Emerging Markets at RBS, highlights potential triggers.

The Royal Bank of Scotland plc. Registered in Scotland No. 90312. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB. The Royal Bank of Scotland plc is authorised and regulated by the Financial Services Authority. The Royal Bank of Scotland N.V. is incorporated in the Netherlands. The Royal Bank of Scotland plc and The Royal Bank of Scotland N.V. are authorised agents of each other in certain jurisdictions.

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Tim Carrington (left) and Fabian Shey, RBS

Credit Suisse loses global currencies trader in LondonNeilan Govender, a senior global currencies trader at Credit Suisse in London, has left the bank to join Brevan Howard as a portfolio manager. Govender reported locally to David Tait, head of foreign exchange trading within the bank’s global currencies and emerging markets group. He had been at the Swiss bank for nine months, having joined from Barclays, where he was head of emerging market FX cash and options trading. Before joining Barclays in 2008, Govender was head of FX for Europe, the Middle East and Africa at Deutsche Bank for six years. He has also had a short stint at Citi as an interest rate swaps trader. The news follows the departure of two members of Credit Suisse’s FX team in March. Daniel Katzive, director in the FX strategy team in New York, left to join BNP Paribas (www.fxweek.com/2254943), while James Lanzilotti, head of global currency trading for the US in New York, departed after less than a year in his role (www.fxweek.com/2252053). Credit Suisse declined to comment and Brevan Howard did not respond to queries before FX Week went to press.

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Spotlight on...

Bo Sundström is approaching retirement from Swedbank after almost 40 years as an FX spot trader in Stockholm. He talks to Miriam Siers about his experiences

Bo Sundström, Swedbank

Bo Sundström began trading in 1969. Since then, with the market becoming increasingly electronic, the introduction of the euro, dramatic changes to monetary policy and world shocks such as the Sep-tember 11 attacks, the G-10 spot trader has had anything but a bland career.

Sundström has worked at Swedbank and its predecessor, agricultural bank Föreningsbanken, since 1980, initially building its foreign exchange operations from scratch. He led the spot FX team for 17 years until Föreningsbanken merged with Sparbanken Sverige in 1997 to form the entity that later became Swedbank. After the merger, Sundström held the role of chief dealer for three more years before stepping back down to focus on what he loves most – spot trading.

FX Week: What was it like to work in FX in the 1970s?Bo Sundström (BS): Forex transactions were not computerised in Swedish banks at that time and every deal had to be manu-ally booked. Every dealer kept a record of his dealings and positions. You wrote every deal down on a piece of paper and passed it on to the back office. In the back office people typed confirmations, made pay-ments, made summaries and kept records. All that required a lot of staff, as we could, on a hectic day, do more than 600 deals.

FX Week: How has technology changed the way FX spot is traded?BS: When I started we had no screens, you got Reuters news from Telex machines and to get fresh rates you called banks locally in London, Frankfurt and Paris. In Stockholm, we knew everyone in the mar-

ket at that time and there were so many prime characters out there. Today, it is more anonymous – it’s easier to hit a machine than to call someone. Machines don’t reveal secrets like a panicked voice on the other end of the telephone.

FX Week: The euro was introduced in 2002, and Sweden held a referendum in 2003 on whether or not to join the monetary union. How did that affect your role as a spot trader at Swedbank at the time?BS: Swedish banks were cutting down on staff to get ready for this, because man-agement was getting ready for the euro. It was difficult to imagine how this new cur-rency would work and how you should trade it. What was proper value for it? After the introduction, there were less currencies to trade, so activity in the Swedish krona and Norwegian krone increased. Today, the Swedish krona is among the seven or eight most traded cur-rencies in the world. In my view, the euro is currently overvalued. Millions have lost their jobs in southern Europe because the currency was too strong. We will see what happens – it may survive another decade or it may be gone by tomorrow.

FX Week: Looking back over your career of almost 40 years, what are your proudest achievements?BS: I am proud that I managed to create a functioning FX operation at Förenings-banken and it was rewarding to be appointed chief dealer again at Swedbank. What has also been rewarding is working with younger people. They learn new tech-niques that I wouldn’t have had a chance

to understand without their help. Simi-larly, I have been a part of helping them understand the market.

FX Week: What are your most vivid trading memories?BS: When the krona was allowed to float in September 1992, every Swedish bank trading FX lost foreign currencies over a long period, as the Swedish central bank had to defend the krona from devalua-tion. The outflow of currencies amounted to between 500 and 700 billion krona. The government had made a promise that we would never again devalue the krona and we believed that – until a week before the float, when even we realised it wouldn’t be possible to continue to defend it. The krona only lost a few per cent in value immediately afterwards, but in the following months and years we saw a constant deterioration of SEK value and bad liquidity. But nothing beats the hor-ror of September 11. That’s something you never forget. We had TV monitors all over the room and it felt like a movie – it wasn’t reality. We closed down spot trad-ing. Our customers realised this was not the time to do business and everybody was in shock.

FX Week: What are the downsides to being a foreign exchange spot trader?BS: Long working hours, sitting throughout the day and never leaving the room. And you take the job home with you, because you’re constantly updated through technology now. I’m not so eager to be watching prices now, but I know younger colleagues who just can’t let it be. FX


or distribution

Reserve managers wary of Bric currenciesThe depreciation of leading reserve cur-rencies is prompting central banks to diver-sify portfolios into less traditional markets, but they are still shy of investing in emerg-ing markets, particularly the Bric curren-cies – the Brazilian real, Russian ruble, Indian rupee and Chinese yuan – accord-ing to an annual survey published by Cen-tral Banking Publications last week.

The survey, carried out in February, is the ninth in a series of annual reviews of reserve management, and draws on responses made in the first quarter from 60 global reserve managers, collectively responsible for reserves worth $6.7 trillion.

The survey found that, while central banks are investing in or seriously consider-ing investment in a broad range of ‘non-traditional’ reserve currencies, less than 15% of managers include the Bric currencies in their investment strategy, and more than half said they had no interest in investing in the currencies of Brazil, China or India. According to one Asian reserve manager that is invested in all currencies except the real, rupee and ruble, this is partly due to the technical difficulties of dealing with complexities in the local legal systems. “We would like exposure in the Indian currency to benefit from the potential growth,” he says. “But the complexity and number of regulations take a lot of time to learn and adjust our system to comply with.”

However, more than 26% say they would consider investing in one of the Bric cur-rencies in the next five to 10 years. “Since renminbi is becoming increasingly con-vertible and our country’s trade basket could be influenced by renminbi trades, there is a possibility we could hold it in the future,” says one reserve manager in the Asia-Pacific.

Portfolio diversification was a trend iden-tified in Central Banking Publications’ previous survey in 2012, when managers were forced to seek new avenues for invest-ment as they reduced their euro reserves in response to the crisis in the eurozone (www.fxweek.com/2168031). However, this year’s results show a greater appetite for risk, driven by a dissatisfaction with the low-yield market created by the monetary policies of the European Central Bank (ECB) and the US Federal Reserve, and reserve managers are now investing in mar-kets and currencies they would previously not have considered.

“The monetary policies of the ECB and the Fed have resulted in historically low interest rates across a variety of developed economies, and low yields on the sover-eign debt instruments of the respective countries,” says one Americas reserve manager. A European manager adds: “It may drive currency diversification of for-eign reserves to higher-yielding or new

safe-haven currencies such as the Cana-dian and Australian dollars, the Norwe-gian krone and the Swedish krona.”

Currencies benefiting from this increased appetite include the Australian and Cana-dian dollar, which more than half of respondents say they are investing in. Some managers report they would be influenced by the fact the International Monetary Fund is considering adding the two cur-rencies to its Currency Composition of Official FX Reserves (Cofer) data.

“If they were included in Cofer, issuers and reserve managers would most likely consider these currency markets, thereby contributing to the depth and liquidity of these currencies,” says one reserve man-ager in Asia.

Meanwhile, 93% of respondents say an increase in the number of reserve curren-cies would not increase risk in the inter-national monetary system, and instead could act as a stabilising factor, reducing volatility and providing stability in a broader sense.

“Diversification across currencies is likely to add an element of stability to the international monetary system. However, given the links among all countries in the present global economic system, the ben-efits of such diversification may not be as large today as 10 to 15 years ago,” says one manager. FX Robert Mackenzie Smith

Post-trade processing company Traiana has announced the launch of Harmony TR Connect, its swaps data repository service for over-the-counter derivatives.

Harmony TR Connect offers a single point of connection for post-trade reporting of foreign exchange, interest rate and credit default swap trades, helping clients meet trade reporting requirements under the US Dodd-Frank Act and the EU’s European Market Infrastructure Regulation.

The Depository Trust & Clearing Corpo-ration (DTCC) began loading banks’ open FX portfolios onto its systems early in Feb-ruary, ahead of a February 28 deadline set

by the Commodity Futures Trading Com-mission for dealers to report FX trades to a swap data repository (www.fxweek.com/2243325). Traiana says it has devel-oped Harmony TR Connect to help a broader audience report to the DTCC and other trade repositories.

“Traiana continues to work with market participants to understand and deliver the solutions required to meet the global regu-lations. We are excited to be working with the DTCC to deliver standardised and con-sistent trade reporting on behalf of a broad range of financial institutions operating in global OTC derivatives markets,” says

Andrew Coyne, chief executive of Traiana.As well as connecting to the DTCC’s US

multi-asset-class swaps data repository – and, through the DTCC, to regional trade repositories as required – Harmony TR Connect provides a messaging hub for market participants and trade repositories, supporting the workflow, routing and management associated with reporting.

“Working with Traiana’s team to imple-ment Harmony TR Connect helped us navigate the impact of US Dodd-Frank reg-ulations on an Australian bank,” says Kieran Salter, global head of foreign exchange at Commonwealth Bank. FX Kathy Alys

Traiana launches swap data repository reporting hub

fxweek.com 9

News


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SEB has topped this week’s one-month currency forecast rankings by going against market consensus on the yen, predicting that the Bank of Japan’s (BoJ) policy announcements this month would find favour with investors and weaken the currency further.

On March 8, when USD/JPY was trad-ing at 95.63, the consensus view was that the pair would strengthen over the follow-ing month to 91.25. SEB forecast the opposite, predicting the yen would weaken against the dollar to 97. This proved accu-rate, as the yen hit a new low of 98.62 on April 8, after the BoJ surprised the market

with an aggressive stimulus plan aiming to double the supply of the currency in the market and increase efforts to hit a 2% inflation target. The pair later broke through 100 on April 10, before rebound-ing slightly.

“The USD/JPY forecast was based on the two upcoming monetary decisions from the BoJ and, to be frank, we antici-pated the second of the two to be more dovish than the first. We thought we were aggressive when we moved up the forecasts for USD/JPY, but that is clearly justified now. And it was likely the pair would continue through 100 shortly afterwards,” says Carl Hammer, chief currency strategist and head of foreign exchange research at SEB in Stockholm.

SEB was also accurate in its one-month predictions for cable, forecasting that the pair would strengthen from 1.50 to 1.53 in a month’s time. Hammer says the UK budget announcement on March 20 was far less negative on sterling than much of the market expected.

“There has been a strong consensus

trade for weaker sterling and we still believe that to be the case in the medium to long term. The view a month ago was that there was room for correction higher in cable. Although nothing hugely posi-tive has come out of the UK in recent months, the market was still caught short-positioned,” he says.

Closer to home, Hammer believes the Swedish central bank’s decision to leave interest rates unchanged has led to greater interest in the krona, although renewed troubles in the eurozone have caused EUR/SEK to weaken since the beginning of March.

“The latest Riksbank decision to leave interest rates untouched was a trigger for a move lower, and the view among interna-tional clients is still that Sweden should have a weak currency and a dovish central bank, given our export dependence. But the move down from 8.50 to 8.30 was partly due to the European crisis as well as an unwinding of previous long positions in NOK /SEK,” says Hammer. FX


SEB tops table with contrarian yen view

FX Week’s top 30 forecasters

Twelve-month rankingsBased on forecasts submitted Apr 5, 20121 Bank of Montreal 4.3592 Commonwealth Bank of Australia 6.1813 Rabobank 6.2424 Crédit Agricole CIB 6.2765 Informa Global Markets 6.6956 Bank of America Merrill Lynch 6.7217 TD Securities 6.9358 SEB 7.7469 National Australia Bank 7.75210 Nomura 8.24911 Gain Capital 8.25712 Danske Bank 8.45813 CMC Markets 8.62514 Bank of China 8.74315 Thomson Reuters – IFR Markets 8.91216 Royal Bank of Scotland 9.02217 TMS Brokers 9.06918 Scotiabank 9.43519 Wells Fargo 9.61720 CIBC 9.74421 BNP Paribas 9.86422 Barclays 9.96823 GFT 10.53124 UniCredit MIB 10.64525 Standard Chartered 11.09726 Westpac 11.36227 Lloyds Banking Group 12.39628 UBS 13.23829 Saxo Bank 13.35130 Morgan Stanley 13.953

Three-month rankingsBased on forecasts submitted Jan 111 Bank of China 4.1342 TMS Brokers 4.2333 Gain Capital 4.6194 Barclays 4.9555 CMC Markets 4.9596 Bank of Montreal 5.5107 SEB 5.5658 UBS 5.6499 Crédit Agricole CIB 5.74110 CIBC 6.01511 Scotiabank 6.36712 Royal Bank of Scotland 6.79213 Informa Global Markets 6.92014 Wells Fargo 6.97115 Standard Chartered 7.16116 Commonwealth Bank of Australia 7.23117 Danske Bank 7.36918 Rabobank 7.65719 Thomson Reuters – IFR Markets 8.07520 UniCredit MIB 8.08721 HSBC 8.455

22 Westpac 8.61723 TD Securities 8.66424 Nomura 8.70225 RBC Capital Markets 9.45026 FXCM 9.49927 Lloyds Banking Group 9.50428 Bank of America Merrill Lynch 9.71229 National Australia Bank 10.58930 Saxo Bank 10.752

One-month rankingsBased on forecasts submitted Mar 81 SEB 0.7582 Bank of Montreal 1.6613 Wells Fargo 2.1164 Crédit Agricole CIB 2.2655 Informa Global Markets 2.4066 Commonwealth Bank of Australia 2.5117 UniCredit MIB 2.7338 CIBC 2.7519 Standard Chartered 2.75310 RBC Capital Markets 2.84611 Morgan Stanley 2.89512 UBS 2.94413 TMS Brokers 2.97314 Bank of China 3.07615 Rabobank 3.12516 Scotiabank 3.24117 Thomson Reuters – IFR Markets 3.31718 GFT 3.37719 FXCM 3.39220 Danske Bank 3.39721 Westpac 3.48922 Barclays 3.64023 Gain Capital 3.69824 Royal Bank of Scotland 3.88425 National Australia Bank 3.99026 Bank of America Merrill Lynch 4.11527 CMC Markets 4.29128 Lloyds Banking Group 4.34729 TD Securities 4.48830 Saxo Bank 4.680


SEB has topped this week’s one-month currency forecast rankings. On March 8, the bank’s forecast was:

One-month forecast

April 8 spot rate

EUR/USD 1.31 1.30USD/JPY 97 98.62EUR/JPY 127 128.22GBP/USD 1.53 1.53USD/CHF 0.94 0.93


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95

100

105

110

115

120

125

130

05/04/11 05/10/11 05/04/12 05/10/12 05/04/13 75

80

85

90

95

100

05/04/11 05/10/11 05/04/12 05/10/12 05/04/13

1.20

1.25

1.30

1.35

1.40

1.45

1.50

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€/$ consensus forecast vs spot $/¥ consensus forecast vs spot €/¥ consensus forecast vs spot

1.45

1.5

1.55

1.6

1.65

1.7

05/04/11 05/10/11 05/04/12 05/10/12 05/04/13 0.75

0.80

0.85

0.90

0.95

1.00

1.05

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£/$ consensus forecast vs spot $/Sfr consensus forecast vs spot

To read previous currency forecasts, visit:www.fxweek.com/type/forecast

fxweek.com

Currency forecasts

Key Spot rate Consensus 1m forecasts Consensus 3m forecasts Consensus 12m forecasts

fxweek.com 11

LATEST FORECASTS submitted April 12, with €/$ trading at 1.3055, $/¥ at 99.16, €/¥ at 129.43, £/$ at 1.5362, $/Sfr at 0.9323Euro/dollar Dollar/yen Euro/yen Sterling/dollar Dollar/Swiss

1m 3m 12m 1m 3m 12m 1m 3m 12m 1m 3m 12m 1m 3m 12m

4Cast 1.28 1.27 1.15 99 101 105 126 128 121 1.51 1.50 1.40 0.95 0.96 1.06

ANZ 1.29 1.29 1.31 78 78 78 101 101 102 1.63 1.63 1.62 1.00 1.01 1.07

Bank of America Merrill Lynch 1.28 1.28 1.24 94 94 95 119 118 118 1.49 1.50 1.51 1.25 0.13 1.28

Bank of China 1.31 1.33 1.30 98 100 95 125 127 120 1.52 1.49 1.42 0.93 0.94 0.95

Bank of Montreal 1.28 1.25 1.27 98 100 107 125 125 136 1.51 1.49 1.47 0.96 0.98 1.00

Barclays 1.29 1.28 1.23 103 103 98 133 132 121 1.52 1.50 1.47 0.95 0.97 1.03

BNP Paribas 1.33 1.35 1.33 101 102 106 134 138 141 1.53 1.53 1.62 0.93 0.93 0.99

Crédit Agricole CIB 1.30 1.30 1.23 99 100 106 129 130 130 1.53 1.53 1.56 0.94 0.96 1.03

CIBC 1.29 1.26 1.23 100 100 101 129 126 124 1.51 1.48 1.50 0.94 0.95 0.98

CMC Markets 1.30 1.25 1.20 97 105 105 126 131 126 1.52 1.48 1.45 0.94 0.97 1.02

Commonwealth Bank of Australia 1.29 1.31 1.35 96 98 105 124 128 142 1.50 1.48 1.55 0.95 0.93 0.91

Danske Bank 1.31 1.33 1.27 98 98 108 128 130 137 1.52 1.51 1.44 0.94 0.92 0.98

FXCM 1.32 1.34 1.20 92 91 100 121 120 120 1.52 1.51 1.30 0.92 0.91 1.13

Gain Capital 1.31 1.29 1.25 91 95 99 120 125 129 1.50 1.48 1.42 0.93 0.95 0.99

GFT 1.30 1.34 1.20 90 100 82 120 115 98 1.53 1.53 1.48 0.92 0.94 1.00

HSBC 1.31 1.32 1.37 95 95 85 124 125 116 1.48 1.48 1.46 0.92 0.91 0.88

Informa Global Markets 1.29 1.29 1.23 96 96 101 124 124 124 1.48 1.48 1.48 0.93 0.96 1.01

Lloyds Banking Group 1.27 1.25 1.22 95 100 102 121 125 122 1.51 1.47 1.44 0.96 0.98 1.05

Morgan Stanley 1.31 1.34 1.24 96 100 106 125 134 131 1.51 1.48 1.42 0.94 0.93 0.97

National Australia Bank 1.32 1.33 1.33 93 93 95 123 124 126 1.47 1.49 1.52 0.93 0.93 0.95

Nomura 1.29 1.27 1.23 98 100 102 126 127 125 1.56 1.57 1.58 0.99 1.01 0.99

Rabobank 1.28 1.28 1.40 96 94 97 123 120 135 1.51 1.51 1.58 0.95 0.95 0.91

RBC Capital Markets 1.29 1.27 1.24 93 91 80 120 116 99 1.55 1.60 1.62 0.95 0.98 1.01

Royal Bank of Scotland 1.28 1.23 1.21 100 102 112 128 125 136 1.52 1.46 1.51 0.95 0.98 1.01

Saxo Bank 1.27 1.23 1.15 94 96 102 119 118 117 1.50 1.45 1.38 0.96 1.04 1.15

Scotiabank 1.30 1.29 1.26 92 93 95 120 120 120 1.51 1.49 1.45 0.95 0.94 0.98

SEB 1.29 1.26 1.22 100 102 110 129 129 134 1.52 1.46 1.40 0.95 0.98 1.01

Standard Chartered 1.29 1.27 1.35 98 102 93 126 130 126 1.50 1.46 1.53 0.95 0.98 0.95

Thomson Reuters – IFR Markets 1.32 1.28 1.25 101 105 110 133 134 138 1.55 1.51 1.47 0.92 0.96 0.96

TMS Brokers 1.27 1.25 1.23 99 102 105 127 128 130 1.51 1.52 1.51 0.96 0.99 1.02

TD Securities 1.30 1.33 1.35 94 88 86 122 117 116 1.54 1.60 1.61 0.94 0.98 0.99

UBS 1.30 1.28 1.20 95 95 110 124 122 120 1.49 1.47 1.41 0.95 0.95 1.00

UniCredit MIB 1.34 1.36 1.40 93 95 97 125 129 136 1.54 1.53 1.47 0.92 0.93 0.92

Wells Fargo 1.31 1.30 1.24 100 101 105 131 131 130 1.53 1.53 1.48 0.93 0.94 0.99

Westpac 1.32 1.30 1.25 100 98 95 132 127 119 1.55 1.54 1.48 0.93 0.93 0.97

CONSENSUS VIEW 1.2977 1.2913 1.2608 96.044 97.530 99.376 124.62 125.13 124.72 1.5191 1.5068 1.4861 0.9523 0.9343 1.0038

STANDARD DEVIATION 0.0173 0.0344 0.0635 4.4299 5.2690 8.6489 5.8259 6.8462 10.522 0.0278 0.0408 0.0735 0.0540 0.1416 0.0720

BULL/BEAR VALUE –0.3452 –0.3172 –0.5384 –0.0071 –0.0031 0.0003 –0.0064 –0.0049 –0.0035 –0.4021 –0.4689 –0.4442 0.3972 0.0153 1.0656

* Bull/bear value represents a measure of the direction and consensus of forecasts calculated in relation to the spot rate and standard deviation.

Methodology: FX Week currency forecasts are contributed on a weekly basis across five major currency pairs. The rankings opposite are calculated through an accuracy rating based on the average percentage divergence of each contributor’s aggregated EUR/USD, USD/JPY, EUR/JPY, GBP/USD and USD/CHF forecasts from spot rates on the Monday prior to publication. Indexes calculated from weekly accuracy over one, three and 12 months. For more information on the forecasts, contact [email protected]

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