P&L Forex Network Chicago 2012

PROFIT & LOSS

EVENTS

2012

PROFIT & LOSS FOREX NETWORK

CHICAGO 2012

SEPTEMBER 27-28, 2012

PROFIT & LOSS

EVENTS

2012

CONFERENCE INFORMATION:

Profit & Loss Forex Network Chicago 2012

Date: September 27-28, 2012

Location: Swiss么tel Chicago, 323 East Wacker Drive

Event Organiser: P&L Services Ltd.

London Tel: +44 20 7377 6383

New York Tel: +1 646 290 5255

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Forex Network Chicago 2012 proved to be P&L’s biggest conference event to date as people gathered to discuss the pressing issues of the day.

Alice Attwood reports...

A

lmost 600 attendees flocked to the ‘Windy City’ for the 10th annual Forex Network Chicago conference to gain insight into the latest market developments and examine some of the key issues the foreign exchange market is facing.

Once again, discussions were dominated by the continuing uncertainty over incoming regulatory changes and the associated timeframes, the practicalities of what is involved and market readiness for such changes, on both a technological and practical basis.

The two-day event moved to a new, larger venue this year at the Swissotel Chicago and featured panel sessions, which included discussions between industry leaders from the buy side, service providers and banks on connectivity, the latest market enhancements and opportunities, the changing structure of FX and the potential fall-out of regulatory and

processing changes.

The conference began with a keynote address from Carol Clark, senior policy specialist for the Federal Reserve Bank of Chicago, focusing on ‘Market Vulnerability and High Speed Trading’. She talked participants through a series of recent events in financial markets, many of which involved high speed electronic trading, reinforcing the belief that greater risk controls are required. Clark stated that regulators must improve risk controls for the entire lifecycle of a trade, and that incidents such as outages, errant algorithms and other technical issues demonstrate this. She also called for more detail regarding inclusions and exemptions for the Dodd-Frank Act. Clark also suggested that there is a real concern over the ‘health’ of data being used by clearinghouses and that the data supplied by trading venues can cause concern. She

concluded with a plethora of suggestions for regulators, such as the need for greater market experience of policymakers, greater harmonisation between rule writers and the industry, the introduction of kill switches for rogue algorithms, the creation of specific penalties for non-compliance, and also warned that the recent proliferation of trading venues could continue to cause unintended consequences for participants.

The first panel of the day, “Market Making in an Electronic World”, was sponsored by LMAX Exchange and kicked off the discussion sessions with lively debate between Chris Concannon, partner at Virtu Financial, Peter Nabicht, executive vice president at Allston Trading, Christopher Purves, managing director and global head of FX e-trading at UBS, and Greg Wood, director of algorithmic execution, foreign exchange and listed derivatives at Deutsche Bank.

David Mercer CEO of LMAX introduced the session by

noting that the FX industry requires a level playing field if it is to survive impending regulatory changes, although he noted that a one-size-fits-all approach is not appropriate, and that this is also true for technology tailored to the market.

During the panel discussion that followed, Wood reiterated the point, saying that technological enhancements have resulted in new forms of interactions in FX, helping the market to continue to innovate. Concannon welcomed more regulation for the market, although noted that it is ‘nervewracking’ when political figures are coining the governing definitions. The panellists also discussed, amongst other topics, the increased correlation of markets, improved connectivity and the fine balance of interaction between companies and regulators.

The Profit & Loss Discussion was sponsored by MarkitServ and featured Nick Dyne, managing director of cohead of MarkitServ FX, and Nick Solinger, chief marketing officer at Traiana, in conversation with Colin Lambert, editor of Profit & Loss. They examined the pressures market participants are facing to ensure that they are prepared for regulation and compliance changes. They agreed that readiness for most is still some way away.

Solinger told attendees that the trade reporting side of the new rules is a huge aspect of the regulation and should therefore be concentrated on.

Solinger also brought the discussion to an entertaining end by challenging Dyne to a boxing match the next time they meet in a panel situation, much to the amusement of the audience, especially on production of two sets of boxing gloves. Watch this space for Forex Network London 2013!

Panel two, “Who Owns the Code?”, saw John Mulcahy, associate at Finnegan, and Thomas Rayski, counsel at Dechert, examine the role of intellectual property rights, copyright and patents of technology offerings and knowledge in FX. Mulcahy explained the protection issues around technological tools, such as an algorithmic code, which are difficult to protect, as the algo itself is not protectable but the software used to create it is,

Conference Moderator: Colin Lambert, Editor, Profit & Loss

and can be copyrighted. Rayski told attendees that employers and employees should consider knowledge gained at a particular firm, when moving to a new organisation. “It is a fine balance as the previous employer wants to protect its intellectual property, while the new firm wants to benefit from the new employee’s skills.”

Then followed the inaugural P&L Interview, which saw Lambert take the stage with Derek Sammann, senior managing director, interest rate and foreign exchange products at CME Group, for “Is the World Coming to Chicago?” see related article this issue.

The third panel of the day, “KYP: Keeping Your Customer”, featured panellists Harry Gozlan, chief executive officer of SmartTrade, Bryan Hunter, managing director for e-commerce at Fifth Third Bank, Jørn Sodborg (Luffe), chief dealer, spot FX at Jyske Bank, and Takis Spiropoulos, managing director and global head, e-commerce solutions at CIBC World Markets.

Up for discussion were topics including the difficulties of catering to multiple sectors, the varied opportunities with the industry for lower tier banks to attract and retain clients and the fact that the technological offerings available in the industry today play an important part in serving the business.

The panellists also agreed that, while a commoditised area, aggregation in FX remains important as multiple liquidity pools can provide elevated support.

The second of the P&L interviews was with Gil Mandelzis, chief executive officer of EBS and executive chairman of Traiana, entitled, “The Evolution of EBS” (see related story).

For panel four, the focus shifted to the FX market in Latin America for “Growth Markets: Opportunities in LatAm”, sponsored by CLS Group. Juan Gutierrez, head of currency at CLS, moderated the panel, which included: Paul Chappell, founder and chief investment officer of C-View, Dan Torrey, US sales head at EBS, Matt O’Hara, senior vice president and global head of business operations, Marketplaces at Thomson Reuters, Paul Millward, head of FX technology at GFI Group, and Bradley Seelig, head of FXPB for the Americas at Deutsche Bank.

O’Hara told attendees that technology will continue to play a key role in connecting to clients in the region and that there are real opportunities for growth in FX trading. Millward added that the transition from voice to screen in LatAm has been quick, and that further growth is expected throughout the LatAm region. Seelig added, “The technology is there but government preparedness differs country-by-country when it comes to allowing developments to progress.”

Panel five, and the final panel session of the first day, “Best Execution: Staying Ahead of the Pack”, saw panellists from various parts of the industry tackle the topic. The panellists were: Paul Buckley, director, AES FX at Credit Suisse, Mike Harris, director of trading at Campbell and Company, Greg Ingrassia, senior FX trader at Buttonwood Group Trading, Ray Kamrath, chairman and CEO, founding partner of Faros

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Trading, and Jonathan Wykes, head of eFX sales EMEA and global head if FX algo sales at Bank of America Merrill Lynch.

The panel was asked whether it is possible to measure best execution in such a fragmented market. It was noted by one that, “Best execution is more than just getting the best price, and inevitably leads to discussions on anonymity, visibility and what impact these have on the market.”

Another panellist noted that the notion of best execution is defined differently between organisations. The panel agreed that moves toward more stringent in-house due diligence and checks and balances is encouraging for the market as a whole, with self-regulation serving as a form of ensuring best practice from an organisation.

After a day of rousing debate, attendees made their way to the cocktail reception at the Park Grill, sponsored by CME Group, before heading to the EBS party at Vertigo at the Dana Hotel, which included casino tables and cocktails on the roof terrace overlooking the Chicago skyline.

The second day kicked off with the now-traditional Bloody Mary Breakfast, sponsored by GFI Group, before the penultimate panel “Clearing: What you NEED to Know”, sponsored by ICE Futures US. Ray McKenzie, VP of ICE US marketing and sales at ICE Futures US, moderated the panel, which included industry experts Andrés Choussy, executive director for FX prime brokerage and clearing at JP Morgan, Thomas Hammond, president and chief operating officer at ICE Futures US, Peter Klein, global head of foreign exchange prime brokerage at Bank of America Merrill Lynch, and Edward Pla, managing director for FX prime brokerage and clearing at UBS. Attendees were treated to a lively discussion which highlighted some of the common misconceptinos of clearing and also highlighted how the model works for various participants from all market segments.

The 10th annual Chicago conference concluded with the “Profit & Loss Think Tank: Evolving the Platform Model”, sponsored by DealHub, with speakers from technology platforms in the industry. The expert panel was made up of Dmitri Galinov, CEO of FastMatch, Robert McKeon, senior vice president of markets and liquidity at FXDD, Patrick Philpott, president of DealHub US, Alan Schwarz, CEO of FXSpotStream, and Simon Wilson-Taylor, CEO and cofounder of Molten Markets.

Panellists were unanimous in their support of the fact that the end-to-end value proposition of a platform remains imperative in today’s FX landscape. The recent influx of new entrants offering FX platforms was a hot topic throughout the conference. During the panel the experts also agreed that companies must differentiate their offerings in order to survive. Galinov said, “Speed remains important as a quicker connection results in better price access.”

Wilson-Taylor added, “We will always see new entrants joining the market but success is not automatic.”

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Keynote Address: “Market Vulnerability and High Speed Trading�

Carol Clark, Senior Policy Specialist, the Federal Reserve Bank of Chicago

Carol Clark, senior policy specialist at the Federal Reserve Bank of Chicago, made the opening address at Profit & Loss Forex Network Chicago. In her speech, which focussed on Market Vulnerability and High Speed Trading, Clark noted that there is cause for concern because of the frequency of market mishaps that are occurring at seemingly reputable firms and focussed on where responsibility lies in setting controls at all levels of the trading lifecycle.

One area she highlighted in particular was that high frequency traders apply fewer pre-trade risk strategies in order to reduce latency, and that she hopes the new rules will address this practice.

Watch videos from Forex Network Chicago: http://www.profit-loss.com/?q=forex/videos

Panel 1: “Market Making in an Electronic World” – Sponsored by LMAX Exchange

L-R: Greg Wood, Director, Algorithmic Execution, Foreign Exchange and Listed Derivatives, Deutsche Bank Chris Concannon, Partner, Virtu Financial Christopher Purves, Managing Director – Global Head of FX E-Trading, UBS Investment Bank Peter Nabicht, Executive Vice President, Allston Trading

Introduction by: David Mercer, CEO, LMAX Exchange

Bank and non-bank marketing makers came together to discuss regulation, fragmentation and risk management at Profit & Loss Forex Network Chicago, which drew a crowd of nearly 600 to the Windy City in September.

Chris Concannon, partner at Virtu Financial; Peter Nabicht, executive vice president at Allston Trading; Chris Purves, MD and global head of FX e-trading at UBS Investment Bank; and Greg Wood, director, algorithmic execution, FX and listed derivatives at Deutsche Bank, started the session looking at the benefits of more regulation to the sector.

Fragmentation within the FX market led to discussions on IT risk management, with Purves suggesting that the industry would benefit by defining a common mechanism for connectivity and therefore avoiding the need to recode every time a platform adds a new feature.

The P&L Discussion: “Connectivity in a Fragmented World” – Sponsored by MarkitSERV

Nick Solinger, Chief Marketing Officer, Traiana

Nick Dyne, Managing Director and Co-Head, MarkitSERV FX

In a discussion between Nick Dyne, MD and co-head of MarkitSERV FX, and Nick Solinger, chief marketing officer at Traiana, at Profit & Loss Forex Network Chicago, the pair discussed a range of Dodd-Frank issues, including that pertaining to NDFS. According to Dyne, it is a great pity the regulators decided to pick on NDFSs as something to be the vanguard of the changes, because thereʼs no money in it, thereʼs not enough volume, and not very much liquidity. It has all the wrong characteristics to find itself being the instrument type thatʼs the first to do the change, he added. The real risk, he said, is that unless they do the mandating soon, people are going to lose interest in the problem, because thereʼs no way they are going to make money in it, because it just becomes a chore.

Solinger Challenges Dyne to Sparring Match At the close of the P&L Discussion, Solinger challenged Dyne to a sparring match at the next Profit & Loss event in 2013. Solingerʼs tactic, he said, would be to run around the ring in an attempt to run down the time, to which Dyne agreed might actually work, since he doesnʼt actually run.

Watch videos from Forex Network Chicago: http://www.profit-loss.com/?q=forex/videos

Panel 2: “\algblockdefx[<block>]{<start>}{<end>}: Who Owns the Code?”

Thomas Rayski, Counsel, Dechert LLP

John Mulcahy, Associate, Finnegan

Patents vs Trade Secrets John Mulcahy, associate at Finnegan, discussed the differences between patents and trade secrets at Septemberʼs Profit & Loss Forex Network Chicago. Mulcahy said the question between the two comes down whether the invention in question is patentable and wither it can be kept a secret. He also discussed key differences between European and US laws on when you file for a patent.

The P&L Interview: “Is the World Coming to Chicago?

Derek Sammann, Senior Managing Director, Interest Rate and Foreign Exchange Products, CME Group

In a one-on-one interview between Profit & Lossʼs editor Colin Lambert and Derek Sammann, senior managing director of interest rate and FX products at CME Group, at Profit & Loss Forex Network Chicago, Lambert asked whether there is a sense for optimism, despite the changes facing the industry. Sammann replied that the trends CME is seeing does indeed give him a sense of optimism in terms of how people are pre-positioning themselves ahead of regulations. However, as more risk than ever before is coming into the CME, Sammann cautioned that “[regulations] are changing a market structure that has been in place and worked very well for a good many years in FX”.

Watch videos from Forex Network Chicago: http://www.profit-loss.com/?q=forex/videos

Panel 3: “KYC: Keeping Your Customer”

L-R: Jørn Sodborg (Luffe), Chief Dealer, Spot FX, Jyske Bank Takis Spiropoulos, Managing Director and Global Head, e-Commerce Solutions, CIBC World Markets Inc. Harry Gozlan, CEO, smartTrade Bryan Hunter, Managing Director, eCommerce, Fifth Third Bank

Bryan Hunter

Harry Gozlan

In a panel looking at the role of the second tier bank, speakers at Profit & Loss Forex Network Chicago looked at the role aggregation has to play in the life of the lower tier bank operator. Aggregation is very important, said Takis Spiropoulos, managing director and global head, e-Commerce Solutions at CIBC World Markets, but argued against co-mingling of different liquidity pools. In discussing the role of the single dealer platform, Jorn Sodborg (Luffe), chief dealer, spot FX, at Jyske Bank in Copenhagen noted that while it formed an important part of a bankʼs offering in the early days of e-FX, he was unsure about the benefit going forward in light of increasing regulatory and compliance requirements.

The P&L Interview with Gil Mandelzis, CEO, EBS

Gil Mandelzis, CEO, EBS and Executive Chairman of Traiana

The Evolution of EBS In an interview with Gil Mandelzis, CEO of EBS and executive chairman of Traiana, Colin Lambert, editor of Profit & Loss, discussed Mandelzisʼ plans for the industryʼs largest spot matching platform. “It is time for us to start thinking about different microstructures,” he said, noting that EBS will be making announcements to this effect during the remainder of this year and next that reflect this philosophy.

Mandelzis suggested that the massive fragmentation in the market will soon be a thing of the past, and went so far as to say that despite the lower FX volumes seen recently, next year or the year following will see growth again in global trade. “And when the market does come back, FX will be a great market to be in,” he said, concluding with a prediction that in the next five to 10 years, we are going to see $6 trillion/day in daily FX turnover.

Watch videos from Forex Network Chicago: http://www.profit-loss.com/?q=forex/videos

Panel 4: “Growth Markets: Opportunities in LatAm” – Sponsored by CLS Group

Dan Torrey

L-R: Bradley Seelig, Head of FX PB, Americas, Deutsche Bank Dan Torrey, US Sales Head, EBS Paul Millward, Head of FX Technology, GFI Group Matt OʼHara, SVP, Global Head of Business Operations, Marketplaces, Thomson Reuters Paul Chappell, Founder and Chief Investment Officer, C-View Ltd Moderator: Juan Gutierrez, Head of Currency, CLS Group

Juan Gutierrez

Bradley Seelig

Growth Markets: Opportunities in Latin America: The NDF market will be the one to watch in Latin America, as regulations trickle down to markets outside the US, agreed panellists at Forex Network Chicago. Matt OʼHara (centre), SVP and global head of business operations, Marketplaces, at Thomson Reuters, noted that the Latin American NDF market is uniquely different from elsewhere, such as Asia. With the push towards regulation, he said, it will be interesting to see how local market participants operate in the offshore market in order to gain access to that liquidity, noting that arbitrage opportunities will exist, particularly in Brazil.

Panel 5: “Best Execution: Staying Ahead of the Pack”

L-R: Mike Harris, Director of Trading, Campbell & Company, Inc. Paul Buckley, Director, AES FX, Credit Suisse Jonathan Wykes, Head of eFX Sales EMEA and Global Head of FX Algo Sales, Bank of America Merrill Lynch Greg Ingrassia, Senior FX Trader, Buttonwood Group Trading LLC Ray Kamrath, Chairman & CEO, Founding Partner, Faros Trading LLC

Ray Kamrath

Paul Buckley

Profit & Loss editor Colin Lambert opened a session at Forex Network Chicago on best execution by asking whether there are best practices for best execution. Ray Kamrath (far right), chairman and CEO of Faros Trading, noted that TCA is definitely a growing segment in FX, so measurement is an important factor in defining best execution. When that develops in FX, perhaps to the level it is in equities, then price will matter more in FX, he said.

Greg Ingrassia, senior FX trader at Buttonwood Group Trading, added that FX historically has not been a fee-based business, but that now, bid/offer spreads are being looked at as a real cost.

Lambert asked Mike Harris, director of trading at Campbell & Company, whether he thought the market has moved away from the agency versus principal argument. Harris noted there is an active debate in the algo space around three choices – the pure agency model with no internalisation; or one in which you can turn on internalisation (the FX equivalent of a dark pool, in which you have limited market impact and youʼre not paying a fee); and the third being the bank only principal model, “but even if I wanted to use it, thatʼs the one I canʼt get it past my best execution committee”.

Watch videos from Forex Network Chicago: http://www.profit-loss.com/?q=forex/videos

Panel 6: “Clearing: What you NEED to Know” – Sponsored by ICE Futures U.S.

Edward Pla

Ray McKenzie L-R: Moderator: Ray McKenzie, VP ICE US Marketing and Sales, ICE Futures US; Thomas Hammond, President & COO, ICE Futures U.S.; Peter Klein, Global Head of Foreign Exchange Prime Brokerage, Bank of America Merrill Lynch; Andrés Choussy, Executive Director FX Prime Brokerage and Clearing, J.P. Morgan; Edward Pla, Managing Director, FX Prime Brokerage and Clearing, UBS Investment Bank

Andrés Choussy

Ray McKenzie, VP at Ice US marketing and sales, Ice Futures US, moderated a session at Forex Network Chicago looking at the role clearing will play in the future of FX trading. In answer to a question posed by McKenzie about differentiating between financially and physically settled products, Ed Pla (far right), MD, FX prime brokerage and clearing at UBS Investment Bank, noted that products have to co-exist. But, he added, Dodd-Frank is going to require just a small subset of FX to be cleared, so as soon as options are cleared, what do people do with their hedge?

Tom Hammond, president and COO of Ice Futures US, suggested that this concept of trying to take the best of both as a product offering is very interesting and appealing and hopefully provides some of the appropriate structure that will avoid the concerns we all have in our markets.

McKenzie enquired what the greatest value to your customers in offering a centrally cleared solution? Pla answered with two words: crisis management. In normal market conditions, 99.9% of the time, youʼre just concerned with keeping the market going, he said, but the regulators are mandating for those very, very few instances that it has to work – basically a risk transfer system.

Panel 7: “The Profit & Loss Think Tank: Evolving the Platform Model” – Sponsored by DealHub

Dmitri Galinov

Alan Schwarz

Simon Wilson-Taylor

L-R: Dmitri Galinov, CEO, FastMatch Robert McKeon, SVP Markets & Liquidity, FXDD Patrick Philpott, President, DealHub US Simon Wilson-Taylor, CEO & Co-Founder, Molten Markets, Inc Alan Schwarz, CEO, FXSpotstream LLC

In the midst of a myriad of new platform announcements, the closing think-tank panel at Forex Network Chicago looked at the future prospects for a number of new entrants to the market. Colin Lambert, editor of Profit & Loss, asked where promises of new liquidity would come from.

Simon Wilson-Taylor (second from right), CEO and co-founder of Molten Markets, said it depends on where the source of demand for trading is in the first place: whereʼs the customer? how does he want to interact with the market? what kind of trading? and which tools does he need?

Liquidity will come out the other end of that, he said.

Lambert noted that many are sceptical about the new participantsʼ chances for success, but Wilson-Taylor pointed out that as marketplace demands for new execution tools give rise to an evolutionary process that naturally leads to new providers and to new platforms.

Watch videos from Forex Network Chicago: http://www.profit-loss.com/?q=forex/videos

Exhibition

Chicago Exhibitors: smartTrade Technologies Hotspot/Knight CME Group RBS Speakerbus Inc. Deutsche Bank First Derivatives PLC Traiana, Inc Molten Markets ADS Securities LLC Société Générale Transaction Network Services TwoFour Financial Software Systems GTX DealHub MarketFactory

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Advanced Markets Currenex/FXConnect FXecosystem FXall Thomson Reuters GFI Group LCH. Clearnet Credit Suisse Bank of America Merrill Lynch UBS MarkitSERV FX SunGard Barclays Portware, LLC Dion Global Solutions Savvis 360T ICE Futures U.S.

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PROFIT & LOSS

EVENTS

2012

SINGAPORE

BOGOTA

MEXICO CITY

LONDON

NEW YORK

CHICAGO

SANTIAGO

SAO PAOLO

TORONTO

PROFIT & LOSS FOREX NETWORK CONFERENCES 2012 Join Profit & Loss at our series of global Forex Network Conferences and events; Enjoy interactive panel discussions and networking opportunities with leading international and local industry leaders; Visit our world class FX technology trade shows.

Forex Network Asia 2012 Forex Network Colombia 2012 Forex Network Mexico 2012 Forex Network London 2012 Forex Network New York 2012 Forex Network Chicago 2012 Forex Network Chile 2012 Forex Network Brazil 2012 Forex Network Canada 2012

in association with ACI Singapore

(with P&L Digital FX Awards Dinner) (with P&L Readers始 Choice Digital Markets Awards Dinner)

in association with FMAC

Singapore, February 16 Bogota, March 27 Mexico City, March 29 London, April 18 New York, May 31 Chicago, September 27-28 Santiago, October 23 Sao Paolo, October 25 Toronto, November 15

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