Virtu’s biggest source of revenue is FX; Central banks trade mostly in the market, and there are just one remaining - General

thenews 2015.05.23 21:07 #391

Behind The Scenes In FX Trading: What Is Really Going On

Earlier this month we got confirmation of something we postulated back in April: that the primary source of revenue for Virtu (which, as a reminder, has had only one losing trading day in six years) is no longer equities but FX. Here’s what we said:

Today, Virtu released its first public financials since going public, and our speculation has been proven correct: FX is now the largest revenue generator for VIRT, amounting to 28.4% of revenues in the quarter ended March 31, at $42.2 million, well above the $29.1 million generated from trading America Equities and the $34.7 million from global commodities.

In fact, as the chart below shows, on an LTM basis, FX is now not only the biggest revenue item for the world's dominant HFT firm at $131.1 million, but is also the fastest growing source of profit, rising 103% on a year over year basis!

Why the shift? Simple:

...with retail now forever done with rigged, manipulated capital markets (at least they get a free drink losing money in a casino) and even banks scrambling to find any volume be it in flow or prop, there is just one remaining "whale" source of dumb money to be front run: central banks. And as everyone knows, central banks trade mostly in the FX arena.

What are the implications? Again, simple:

...with Virtu, whose business model is geared to frontrunning whale orders in any market, irrelevant of their nature, now solely focused on clipping pennies ahead of central bank FX orders,it means that there is no longer any space for retail investors in yet one more market, where market wide stop hunts, squeezes and momentum ignition have become the norm, as the only "traders" left are a few central banks and every single algo that hasn't cannibalized itself yet.

And so, with the machines having firmly entrenched themselves in FX, and with the world’s central banks engaged in an epic global currency war in an increasingly futile and self-defeating attempt to create demand by printing fiat money, we can expect a wild ride in currency markets going forward or, as we put it more than a year ago, “the next time you feel like the USDJPY is trading as if it is in need of a software update, you will be right.”

Sure enough, we’re now seeing the same dearth of liquidity in FX that we would expect from a market that’s been cornered by central banks and manipulating algos, as liquidity dries up, bid-asks blow out, and volatility spikes. Here’s JP Morgan with more:

What about FX market liquidity?We can also construct a HH ratio for FX markets using FX futures. With the caveat that much of the volume in FX markets goes through OTC spot and forward markets, where volumes and turnover are less transparent, we construct a HH ratio for DM markets as a DXY-weighted ratio of FX futures for the euro, yen, sterling, Canadian dollar, Swiss franc and Swedish krona vs. US dollar, shown in Figure 10.

By "HH", JP Morgan means a Hui and Heubel Liquidity ratio which, put simply, tries to measure how much trading is going on behind observable price moves. Unsurprisingly given everything we've said above, liquidity as measured by JPM's FX HH ratio is declining fast:

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thenews 2015.05.27 14:14 #392

Need To Manipulate Markets? Just Email The Bank Of England At hammer@bankofengland.co

Meet Martin "The Hammer" Mallett, chief currencies dealer at the Bank of England in 2007, and, as WSJ reports, recipient of emails that were part of an alleged campaign to rig benchmark interest rates, according to evidence presented in a London trial Wednesday. Remarkably, as we have detailed extensively, the emails were sent out with daily suggestions for where a variety of banks should set Libor. Mallett was later fired for what the central bank described as "serious misconduct," although the bank said his departure wasn’t directly related to the currencies-rigging investigation.

As The Wall Street Journal reports, Martin Mallett, who at the time was the chief currencies dealer at the Bank of England, was among a couple dozen recipients of emails sent in 2007 by brokers allegedly working at the behest of former bank trader Tom Hayes. The recipients were blind carbon-copied on the messages...

In the emails, the brokers sent out daily suggestions for where a variety of banks should set the London interbank offered rate, or Libor. Mukul Chawla, the prosecutor trying Mr. Hayes, said those emails were used in an attempt to skew interest rates for the benefit of Mr. Hayes, at the time a trader in Tokyo at UBS AG.

Mr. Mallett, nicknamed “The Hammer,” was sent the emails at his hammer@bankofengland.co.uk address.

Mr. Mallett left the Bank of England amid an investigation into attempted manipulation of foreign-exchange markets. He was fired for what the central bank described as “serious misconduct,” although the bank said his departure wasn’t directly related to the currencies-rigging investigation. Mr. Mallett, who couldn’t immediately be reached Wednesday, hasn’t previously commented.

A Bank of England spokesman had no immediate comment.

It is unclear why Mr. Mallett was receiving the emails. There is no indication that Mr. Mallett was involved in the alleged Libor manipulation by Mr. Hayes and his brokers.

Mr. Chawla said Wednesday that Mr. Hayes’s employer, UBS, arranged special payments—or “kickbacks”—to the brokers for their assistance.

UBS pleaded guilty to Libor manipulation in 2012.

Mr. Hayes pleaded not guilty to the criminal charges, but hasn’t had the chance to present his defense to the jury. He previously told The Wall Street Journal that “this goes much, much higher than me.”

News organizations covering Mr. Hayes’s trial aren’t currently allowed to report on the identities of the brokers or their employers.

* * *

But just keep believing that markets are efficient and there's no rigging... so we leave you with one rather notable comment from the emails and chatrooms of this rigging scandal...

"if you aint cheating, you aint trying.”

That seems to sum up our new normal perfectly.

source

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techmac 2015.05.27 15:09 #393

Fantastic

BOE organizing the whole scam

name 2015.05.28 11:08 #394

techmac:
Fantastic BOE organizing the whole scam

Nagh

They were just taking their cut

chris evan 2015.05.30 12:21 #395

Forex firms like to make the claim that the over the counter foreign exchange market trades more than one trillion Dollars in volume per day, but most people don't realize is that in most cases you just traded against your broker's dealing desk rather than the true interbank market. ECN brokers are really your best choice, as it is much easier to make money using a broker that offers this type of trading setup. Because they have no vested interest in seeing you lose money and instead only care about providing a network where they can match your orders with other traders. my ECN account equipped with competitive transaction cost, USD 3.80 per USD 100k traded (round-turn).With quotes flowing in from numerous institutional sources, spreads on the bid and ask can get extremely tight and can even reach zero.

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thenews 2015.06.07 19:50 #396

Deutsche Bank bosses resign following Libor manipulation scandal

The two joint chief executives of Deutsche Bank are to step down, in an unexpected move shortly after the investment bank was fined for its role in Libor manipulation and criticised for its conduct.

After an unscheduled meeting held by the bank’s supervisory board on Sunday, the German lender said that Anshu Jain would leave at the end of this month, with Jürgen Fitschen staying on until the bank’s annual meeting in 2016. Jain will continue to advise the bank as a consultant until January.

Paul Achleitner, chairman of the supervisory board, said: “I would like to express our gratitude and respect for the contributions that Jürgen and Anshu have made to our bank. Due to their decades of commitment, Deutsche Bank attained its leadership position. Their decision to step down early demonstrates impressively their attitude of putting the bank’s interests ahead of their own”.

The surprise move came just over a month after Deutsche was fined a record $2.5bn (£1.7bn) for rigging Libor, ordered to fire seven employees and was accused of being obstructive towards regulators in their investigations into the global manipulation of the benchmark rate.

Georgina Philippou, the acting director of enforcement and market oversight at the Financial Conduct Authority, said at the time: “Deutsche Bank’s failings were compounded by them repeatedly misleading us. The bank took far too long to produce vital documents and it moved far too slowly to fix relevant systems and controls”.

Deutsche Bank hit by record $2.5bn Libor-rigging fine

Is forex market controlled by someone? - page 40