By Bob Santella, CEO, IPC.
As many countries begin to ease their Covid-19 lockdown restrictions, financial institutions, their service providers and regulators are starting to look ahead to the future of the trading world. What awaits us in this uncertain new world? How has the market landscape changed as a result of Covid-19? Will our new working practices become a permanent fixture, and if so, how will technology and regulation adapt to better support them? How are decisions makers planning their “back to work” and future IT trading investment strategy: virtual, hybrid, on premises?
Turning constraints into strengths
Unlike many other industries, financial services has been a latecomer to the paradigm shift towards flexible working structures and working from home. This has been driven by two constraints: technological limitations – the resources required to support turrets, trading systems and multiple screens, and the regulatory compliance requirements in terms of control, oversight and data capture (including voice communications capture). The global pandemic has shown that, with IPC as a reliable partner, these constraints are not insurmountable, when sufficient will and flexibility is dedicated to solving them. Reports suggest that for some dealers, up to 95% of their workforce are now working remotely, and by all accounts, markets are functioning as effectively as can be expected under the circumstances.
To a large extent, this is a testament to the regulatory changes implemented following the global financial crisis aimed at ensuring that financial institutions are able to continue operating with resilience in stressed market conditions, without falling prey to systemic and liquidity risks. Stable and functioning markets have also been enabled by the enormous strides made in technology during the past decade. One of the lessons learnt for the Covid-19 sequence is that cloud-based services now allow firms to easily and cost-effectively scale up and down as required in a timely manner. Solutions deployed in the cloud are also accessible from multiple sites, enabling a swift transition to off-site trading. The trend towards decentralization of networks has also created more resilience for participants, as well as the ability to discover new market data sources and quickly connect to them for execution.
Remote doesn’t mean electronic
Regardless of whether or not it is desirable for firms, regulators and traders themselves, the reality is that remote trading has become a fact of life for the foreseeable future. It remains to be seen how technology infrastructure will adapt to support this “new norm”. For example, will we see more investments in high-speed fiber connectivity to traders’ homes, and greater use of soft turrets and cloud delivered solutions? Alternatively, will financial institutions spread their staff and functions across multiple office premises, investing more in “Team A / Team B” models whereby staff are on-site, but physically separated?
During times of high volatility, market participants traditionally turn to voice execution with their trusted counterparties. This a pattern we have seen repeated across multiple asset classes over the past couple of months. With respect to rates and cash credit, markets witnessed a significant shift towards voice trading as risk transfer and trade sizes increased. Even FX, often the fastest-moving and highest-volume asset class, as well as a highly electronic market, experienced a slight shift towards voice for larger trade sizes as well as for the trading of exotic pairs.
Technology, connectivity and communities
Under these conditions, participation in a large, diverse community can give firms an opportunity to shine and to demonstrate real differentiation from competitors. A successful community network offers its participants connectivity to a readymade, diverse and global financial ecosystem – one that includes a wide variety of counterparties for price discovery, liquidity and execution, such as broker/dealers, inter-dealer brokers, exchanges, dark pools, hedge funds, asset managers, institutional investors, trade lifecycle services and market data providers. In other words, the information that firms need to find liquidity, and the ability to access it.
How IPC can power the reshaped trading world
IPC has a range of highly robust solutions that support financial services firms in their business continuity, fully empowering traders to work remotely during these challenging times. These include:
- Disaster Recovery as a Service (DRaaS): A SaaS service recently launched with our strategic partner, Cloud9 Technologies, that allows traders to have ubiquitous access to a custom-designed virtual trading desk from any global location during an emergency.
- IQ/MAX® Omni: A remote soft turret solution that provides access to a client’s IPC Unigy® system through an intuitive interface.
- EVS as a Service: A SIP-based cloud service that enables firms to have multiple alternative trading locations while maintaining continuity across their private wire ecosystem.
- Remote Devices: Enabling a firm’s traders to extend their best-of-breed IPC physical devices to any remote location via the firm’s internal VPN capabilities.
We expect that many firms will reprioritize their IT budgets, having seen the extreme conditions that are possible, as they will need to brace themselves for any eventuality. This refocus on spend will manifest itself in greater investment for cloud migrations, and in ensuring that legacy trading infrastructure is able to support the headroom required to cope with surges in volatility and volumes under exceptional market conditions. With greater emphasis on voice trading, firms will also be keen to invest in the infrastructure to support more seamless client and sales experiences across Voice and Chat channels, through the use of AI / ML-driven technologies. Given the cost constraints facing many IT departments, some projects and types of spending will need to be deprioritised in order to support this initiative.
Dollar gains on reflation trade, Aussie recovers
By Karen Brettell
NEW YORK (Reuters) – The dollar index rose to a three-week high on Monday as investors bet on faster growth and inflation in the United States, while the Australian dollar gained after Australia’s central bank bought more bonds than expected in a bid to stem rapidly rising yields.
The dollar has gained in the past few sessions along with U.S. government bond yields on expectations that growth and inflation will increase as the administration prepares new fiscal stimulus, and as vaccinations against COVID-19 become more widespread.
Benchmark 10-year Treasury yields rose to 1.432% on Monday, but are holding below the one-year high of 1.614% reached on Thursday.
The dollar is benefiting “on the yield differential, on the growth expectation differentials,” compared with other countries, said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.
Still, Richmond Federal Reserve President Thomas Barkin on Monday warned against investors getting ahead of the Fed in anticipating monetary tightening as the economy improves.
Investors evaluating Fed policy should focus on the central bank’s “explicit” guidance on its plans and the relevant economic outcomes, not on second-guessing far ahead of time when interest rates or the pace of monthly asset purchases might change, he said.
The dollar index rose 0.28% to 91.024, after earlier reaching 91.139, the highest level since Feb. 8.
The euro fell 0.21% against the greenback to $1.2045.
The euro is lagging as the region falls behind in growth expectations.
“Everyoneâ€™s waiting for Europeans to catch up, both on the vaccination front and then on the stimulus front. When they do, that becomes the final piece of the puzzle that really propels global growth forward,” Schlossberg said.
Meanwhile, the European Central Bank will prevent a premature increase in borrowing costs for firms and households struggling to cope with a pandemic-induced recession, ECB President Christine Lagarde said on Monday.
The Australian dollar rebounded from Friday’s three-week lows after the Reserve Bank of Australia (RBA) increased its bond purchases to A$4 billion, raising expectations that other central banks could also buy more bonds if yields continue to surge.
The move “says that the central banks have more control of the market than the speculators do, and that they can soothe and calm the risk aversion fears,” Schlossberg said.
The Aussie was last at $0.7773, after dropping to $0.7693 on Friday.
The RBA will hold its monthly policy meeting on Tuesday, and markets expect it to reinforce its forward guidance for three more years of near-zero rates.
The safe haven yen reached 106.88 against the dollar, its weakest level since Aug. 28.
In cryptocurrency markets, bitcoin rose 7.55% to $48,699 but was off a record high of $58,354.14 hit on Feb. 21.
(Reporting by Karen Brettell; Editing by Kevin Liffey and Jonathan Oatis)
Exclusive: Goldman Sachs restarts cryptocurrency desk amid bitcoin boom
By Anna Irrera, Iain Withers and Lawrence White
LONDON (Reuters) – Goldman Sachs Group Inc has restarted its cryptocurrency trading desk and will begin dealing bitcoin futures and non-deliverable forwards for clients from next week, a person familiar with the matter said.
The team will sit within the U.S. bank’s Global Markets division, the person said.
The desk is part of Goldman’s activities within the fast-growing digital assets sector, which also includes projects involving blockchain technology and central bank digital currencies, the person said.
As part of this work, the bank is also exploring the potential for a bitcoin exchange traded fund and has issued a request for information to explore digital asset custody, the source said.
The trading desk reboot comes amid growing interest by institutions in bitcoin, which has soared more than 470% over the past year. The largest cryptocurrency is seen by investors and some companies as a hedge against inflation as governments and central banks turn on the stimulus taps.
While its price has risen significantly over the past year, bitcoin remains highly volatile. The virtual currency smashed through $58,000 on February 21 then fell back by as much as 25% but has recovered some lost ground.
This makes the coin and related derivatives attractive for investors willing to take riskier long or short positions as they hunt for yield in a record-low interest rate environment.
Non-deliverable forwards are a type of derivative that allows investors to take a view on bitcoin’s future price.
Goldman first set up a cryptocurrency desk in 2018, just as bitcoin’s price was falling from record highs, muting investor interest in digital coins.
Since then, market infrastructure for bitcoin and other large cryptocurrencies has significantly matured, with many established financial institutions offering products and services, including CME Group Inc, Intercontinental Exchange Inc and Fidelity.
The developments have helped to attract more mainstream companies to the sector, ranging from those offering crypto services to retail or institutional investors, to companies opting to hold bitcoin on their balance sheets
Last month, electric car manufacturer Tesla Inc said it had bought $1.5 billion worth of bitcoin, while Bank of New York Mellon Corp said it had formed a new unit to help clients hold and transfer digital assets.
(Reporting by Anna Irrera, Iain Withers and Lawrence White in London. Editing by Rachel Armstrong and Jane Merriman)
Sterling rises supported by Britain’s swift vaccine roll-out
By Joice Alves
LONDON (Reuters) – Sterling edged higher against both the euro and the dollar on Monday as a swift coronavirus vaccine roll-out supported the pound and fuelled hopes of economic recovery.
After retreating from a three-year high on Friday to fall below $1.39 amid a rout in global bond markets and concerns of inflation risks, sterling rose as traders expect Britainâ€™s speedy inoculation programme to help the economy rebound from its biggest contraction in 300 years.
Britain reported on Sunday that more than 20 million people have received a first dose of a COVID-19 vaccine, while cases last week were down 21.2% compared with the previous seven-day period, and deaths were down 33.5%.
British finance minister Rishi Sunak is set to announce an extra 1.65 billion pounds to fund the country’s vaccination roll-out as part of his annual budget statement on Wednesday.
“Developments have yet again looked positive for sterling, with 20 million of the UK population having now received their first vaccine at a minimum and reports that fiscal stimulus will remain supportive in Wednesday’s budget,” said Simon Harvey, senior FX Market Analyst at Monex Europe.
Sunak will also announce 5 billion pounds of additional grants to help businesses hit hard by pandemic lockdowns such as shops, bars, clubs, hotels, restaurants, gyms and hair salons, the government said on Saturday.
Versus the dollar, sterling rose 0.1% to $1.3937 by 1602 GMT. It was 0.2% higher against a weakening euro, to 86.50 pence, after falling to 87.30 on Friday.
Speculators added to their net long position for the fourth week running in the week to Feb. 23, CFTC positioning data showed. The market is at its most bullish in one year.
ING strategists said sterling positioning has moved in line with the poundâ€™s “very strong performance” in the spot market.
“The build-up of GBP longs may have further to run in our view,” they added.
Shaun Osborne, Chief FX Strategist at Scotiabank said in a note to client that he expects cable to climb back above $1.40 this week.
(Editing by Ed Osmond and Gareth Jones)
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