Heaven, is this Heaven where we are?
Where is the halo that should glow ‘round your face?
And where are the wings that should grow from your shoulder blades?
Show them to me

The cliché of a swan gliding serenely over the water is well used as a metaphor for endeavours in which smooth motion is apparent while the effort driving the motion is hidden. At last week’s Profit and Loss Forex Network event the view of the same phenomenon from under the water’s surface would have been more apt: furious paddling was evident but we saw no gliding swan.

The event is an annual institution and always attracts a useful crowd; this year the WSJ was discreetly present in the morning sessions for topical market colour, and I can think of nowhere better to find it. Colin Lambert deserves a lifetime achievement award for running this year after year and single-handedly making it what it is.


Predictably, the one topic that largely dominated every single session was Regulation. If the regulators themselves had been present – and I don’t think they were – they would have been appalled. The common and unchallenged wisdom that emerged from all of the discussions can be summarised in three points: (1) regulation imposes huge costs on all market participants in large part arising from the inability of regulators to coordinate across jurisdictions or even to draft rules competently; (2) it’s ineffective, little will really change as a result of it and any consequent changes that do occur will confer no material benefit to anyone; (3) in FX at least, the wrong-doing that has motivated the new regulation is dramatically over-stated and the industry is misunderstood rather than bad. A session focusing on Corporates featuring Treasury heads from Intel and SAP was revealing. They are, they said, happy with their FX spreads and the service they get, the new regulations are an unwelcome overhead and they have little interest in inquiring personally into alleged dealer malpractice such as collusion or price-rigging so long as their Compliance people approve their bank counterparties.

In a later discussion the recent scandals were blamed on the large size of “the FX barrel”: with a barrel of such a size, it was argued, the occasional bad apple is inevitable. This is denialism and it shouldn’t go unchallenged. On a human level, senior managers at dealers should feel as accountable for their trading staff as they are in law. This isn’t out of some noble ideal of taking responsibility on the chin but because they have all the tools they need to be accountable in personal, practical terms. Things aren’t helped by a routine lack of understanding of core topics such as last look, reference price formation, algos, dark pools and the management of orders – all of which were discussed erroneously by market practitioners. My remedy for this, as I’ve written before, is two-fold: first, automate as much as possible (which is happening anyway), and second, make the automation technologies fully transparent (which isn’t).

While all the panel and hall talk expressed a Chamberlainesque optimism that all will be well once the current kerfuffle has passed by, the repressed undercurrent found its release later in quieter whisperings over champagne. Then, an old friend of mine (feel free to claim credit through the comments) passed on a couple of less sanguine thoughts that are making the rounds. The first is that hedge fund performance is down because traders will no longer relay insider information. The second (spot the connection) is that traders are terrified of going to prison – not just for anything they may have done in the past but for things they may yet do that come to be judged illegal.


In an odd echo of the talk around regulation, when pressed by Colin most of the speakers who opined on technology disclosed that they didn’t see any real change on the horizon. Barclays’ head of FICC etrading and Thomson Reuters’ head of FX Options agreed with each other that FX Options trading would stubbornly remain a human-to-human business; given their two platforms, it was hard not to suspect them of arguing a position mainly to give the Digital Vega guy a hard time. Only Richard Elliott from UBS was balanced and non-polemical. Tim Cartledge did concede that Barclays was introducing more automation to their Options trading stack but maintained that this wouldn’t progress to more ECN or exchange liquidity. One very interesting thought he had was that the industry needs a new intra-dealer venue for Options; I have a lot of sympathy with this sentiment, although it’s regressive, if not yet actually illegal.

Similarly, a panel on market structure appeared to find occasional grounds for disagreement but also in fact converged on the opinion that FX markets are in jolly healthy shape, don’t need to change, and actually won’t change. So again we heard that we’re in the best of all possible worlds, and no one contested it.

The most optimistic vision for technology came from Citi’s head of platform (Velocity) trading, who sat on the same panel as me. He spoke inspiringly about explorations into trading from our watches and our glasses and the utilisation of smart fabrics. Several people talked as if we are already or soon will be Socially Networking with each other about the markets. I hope this all comes to pass but now it’s my turn to be the change-denier. Citi is the bank of the moment, FX-wise, and it will be great if they channel some of their exceptional profits to innovation. If they do they’ll be the outlier: most of the industry is doing everything it can to cut all discretionary costs outside of regulatory conformance. The associated trauma does not inspire new trading tools. Besides, most banks’ “lab” work comes to nothing, largely because of the industry’s historical inability to mutualise technology and develop standards. And as for social networking, if bank staff were to start actively commenting on this column, for example, rather than just emailing me, it would soon be automatically flagged and the site locked out. That’s where our industry stands on Social.