At Wise Trading, we like to share articles of interest from the many we see. We hope this is helpful to you in keeping up with issues and thinking on currency hedging.
US Investigating FX Trading at Wells Fargo (FoxBusiness.com)
Switzerland’s Old Money Problem (wsj.com)
Have a great November, we’ll keep our eyes and ears open for news of interest. Please check out our twitter feed @wise_risk for more market intelligence.
Is your Corporate Treasury protected from currency fluctuation? Asset pools, such as defined contribution plans and corporate treasuries, that have not traditionally been known for their currency hedging strategies. The increasing volatility in the currency markets is changing this. What’s more, there is no one way that corporate treasurers track their ‘fx footprint.’ That means there is an opportunity to create some standardization in an industry where even decisions on how to apply the accounting rules related to foreign holdings can be unclear at times.
What’s Hedged, What’s Not
Historically, it’s been common for pensions and other investment funds to administer a currency hedging strategy to guard against currency fluctuations. However, as of late, maintaining these strategies has become increasingly complex and critical. Portfolio Managers of global assets and corporate treasurers, in particular, are struggling with currency hedging and risk management because of a lack of automation in their antiquated processes.
It should come as no surprise that projects are being initiated to evaluate off-the-shelf financial technology solutions to centralize and automate the processes and tasks related to currency risk management. Given the choice to build versus buy, firms are choosing to buy. Firms are recognizing the need to focus on their core competency of producing positive returns on managed assets. The intrinsic and extrinsic costs of building and maintaining proprietary systems outweigh the nebulous expected ROI of an internal build.
An Increase in Proactive Currency Management?
In the face of this increased complexity and globalization, we expect to see a demand for currency hedging on the part of small and midsize institutional investors in their operational due diligence. Since the crash of 2008, investor demands transparency have continued to increase. Investor tolerance for spreadsheets and ad hoc homegrown solutions has been largely eliminated. Any identified inefficiencies are viewed by investors as drags on returns. And for the past decade, there has been awareness amongst managers and their investors regarding FX trading and execution.
This is more than a story about currency becoming an asset class in its own right. Recent news has raised the awareness amongst managers and their investors regarding the accepted and questionable practices in FX trading and execution. With a plethora of managers to choose from, investors are demanding more in all facets of their manager’s operations. When it comes to FX management, there is an opportunity to be leveraged by the manager who can demonstrate automation and efficiencies. Too many managers are still relying on too much manual intervention and processes that investors realize are inefficient and error-prone.
If More Automation is Preferred in FX Management, WiseRisk Can Help
WiseRisk was created for any manager that wants more precise insight into their currency exposure and risk with the ancillary benefit of diminishing costs associated with outsourcing the trading to the Street. The proliferation of SaaS tools and platforms has empowered managers to take more control in the areas of portfolio optimization and trade execution. WiseRisk offers these same advantages for managing currency risk and exposure.
Please send us a note at firstname.lastname@example.org us demonstrate how WiseRisk address your current needs in FX management.
Another Case of Rigging Foreign Currency Trades Plays Out in Court
In a case that started about a week ago, the most recent in a string of lawsuits related to sell-side management of currency hedging is playing out. The rigging of another foreign currency trade may make another banker a felon. These lawsuits, many large, public and successful, continue because of inherent problems in the market structure where buy-side banks depend on sell-side banks for sourcing their currency requirements. This might not happen so often were it not for the limited options asset managers have to manage currency risk.
In July of 2016, HSBC’s head of global foreign exchange (FX) cash trading, Mark Johnson, was arrested at Kennedy Airport on charges of wire fraud tied to a $3.5bn FX transaction in 2011. According to the DOJ, the traders put their own and company interests ahead of the trust and confidentiality owed to their client, and in doing so, defrauded their client of millions of dollars. When questioned by their (not named) client about the higher price paid for their significant transaction, the defendants attempted to conceal the truth and divert attention away from their fraudulent trades.
And a Not So Happy New Year…
While these cases have been playing out in the last 5 years, what distinguishes this case is the degree of egregiousness and the overall attitude of the trader involved. According to reporting on the subject,
“Johnson himself said the order was like “f***ing Christmas” in internal communications.”
Johnson has also used as his primary excuse that the behavior he exhibited is rampant in the industry.
Buy Side Banks Need Options, and WiseRisk Delivers
While asset managers can take consolation in the success of the lawsuits, wouldn’t it be better if currency risks were addressed in a way that did not depend on the better nature of sell-side traders? Our CEO addresses these exact issues in our recent webinar, Masters Series: Rohanna Wise on her book, Hedging Wisely. She created WiseRisk in order to offer just such an option.
We built cost-effective technology that enables customers to focus on their core value proposition without becoming or hiring currency experts, nor compromising on the quality of their currency exposure management, either by managing risk with lesser tools or outsourcing to the sell side.
We wish you happier holidays this year.
We are going to have a webinar with Rohanna Wise, founder of WiseRisk, as the second episode of our Masters Series.
We will be mainly talking about Rohanna’s new book, Hedging Wisely. The webinar is on September 28th, 12pm EST. so save the date and sign up here.
To receive information about future webinars, join the WiseRisk Community here.
From time to time, we like to share articles of interests from the many we see. We hope this is helpful to you in finding recent standout issues and thinking on currency hedging.
Have a great September, we’ll keep our eyes and ears open for news of interest. Please check our twitter feed @wise_risk for more market intel and thinking.
From time to time, we like to share articles of interest from the many we see. We hope this is helpful to you in finding recent standout issues and thinking on currency hedging.
Have a great August, we’ll keep our eyes and ears open for news of interest. Please check our twitter feed @wise_risk for more market intel and thinking.
At Wise Trading Technologies, we want asset managers to be able to implement their own effective currency hedging strategy; all those involved in investment will be able to participate in global markets regardless of their level of currency expertise.
When investors participate in global markets, they take on exposure to currency markets. When an investor has investments and clients in multiple currencies, maintaining an accurate hedge can be extremely difficult with much to juggle. Hedging Wisely: A Non-Expert’s Guide to Expertly Hedging Currency Risk serves as a guide to how to choose, implement, and maintain a hedging strategy. Hedging Wisely examines issues such as an increasing interest in the impact of currency, the effect of currency on investors’ portfolios, the consequences of devaluation in China, negative interest rates, and interest in emerging markets.
Wise Trading Technologies CEO and Author Rohanna Wise has been working in trading technology and automation for the last 20 years, and is the founder and CEO of Wise Trading Technologies. Rohanna will present hedging strategies which the reader can easily use to protect themselves from risk when investing in global currency markets.
No one can predict with certainty what will happen in the currency markets but there are some clear indications that foreign exchange markets will continue to evolve through regulatory changes, shifts in liquidity providers, and technology innovations. While we mentioned about the political uncertainties in our previous blogs that jolted the foreign exchange markets around the world, uncertainty around a stronger U.S. dollar and higher interest rates could drive more volatility in near future. Ivy Schmerken, in her blog talks about the trends in the currency markets.
- Ivy states that regulations such as Basel II and Dodd Frank’s Volcker Rule have made it difficult for banks to warehouse risk and have reduced capacity of the banks to compete. And because of the macro events like when the Swiss National Bank unpegged Swiss Franc, sending shockwaves through the prime brokerage community, Prime brokers raised fees on the hedge funds and dropped clients, which in turn may have contributed to the downsizing of the global FX volumes – Between 2013 and 2016, FX spot trading activity reduced from $580 billion to $390 billion according to Bank for International Statements.
- Speed-based trading strategies may become less important to currency markets. Certain algorithmic strategies primarily based on speed have reached a saturation point and as these trends evolve we could see a shift from aggressive latency-driven strategies to more passive strategies based on electronic market making.
- Blockchain is believed to have a big impact on delivering real time clearance and settlement in currencies. This could help to speed up transactions, assess risks quicker, and cut costs as well as replace legacy infrastructure.
- Finally, the technologies such as big data analytics, algorithms, and machine learning can potentially be integrate to make trading decisions. For now, the buy-side firms are looking for technologies that will help reduce workflow of asset managers on routine areas. And hence, enabling them to focus on more complex trades.
Enabling asset managers to focus on the important trade is the philosophy that we live by at Wise Trading Technologies and you can witness the same through our products. And our first product, WiseRisk is a low cost, turnkey solution that plugs into your existing investment application ecosystem to automate and optimize currency risk management. Our advanced system integration platform means implementation takes days, not months. Features include real-time reporting of currency exposure, automated fund/hedge and close/roll, scheduled rebalancing, monitoring of market conditions for early detection of extreme events, and optimized netting to internalize as much of your FX flow as possible.
We had a terrific and informative webinar with our advisor and ‘Master of Trading’ John Dacosta.
To receive information about future webinars, join the WiseRisk Community here.
Been to the Museum of American Finance? Read a biography of a financial services CEO? Curious how Boston became a center of asset management? This webinar is for you.
Calling all financial services enthusiasts – if capital markets get you going in the morning, come hear exciting stories and experiences that made our trading systems what they are today.
What: Fireside Chat and Q&A with Master of Trading, John DaCosta
Where: Webinar location will be emailed when you sign up here
When: May 11th, 1pm EST
What You Will Learn
Once upon a time at Wellington, it was early days and technology looked nothing like it does today. Come listen to the fascinating story of how trading systems have evolved to how we know them today.
It’s critical to understand the past in order to plan for the future.
About John DaCosta
John recently retired from his position as Senior Managing Director of Global Fixed Income Trading for the Wellington Management Company. At Wellington, John oversaw the firm’s interest rate, currency and emerging markets trading both in Boston and London. His responsibilities included workflow design, trading implementation, creating and implementing compliance and regulatory protocols. John was the visionary behind the currency and derivatives infrastructure at Wellington, one of the largest asset managers in the world. His knowledge and expertise allowed Wellington to efficiently trade trillions of dollars of currency and derivatives on a yearly basis. He sat on many committees at the firm, including the Dodd-Frank implementation group and the Counter-party Review Group. He has over 25 years of trading experience.