Conference Dailys TRADETech FX Daily 2018 Wrap-up | Page 9

THETRADETECHFX DA I LY
both speculation and hedging, and we’ve seen
a lot of that taking place. Another factor has
been monetary policy, which has caused a
directional drive in currency trading, with
the clearest example being the persistent
strengthening of the US dollar throughout the
year. I think these two factors have contrib-
uted to organic volume growth in CLSSet-
tlement - traded volume is up 19% this year
compared to the same period last year. With
our focus on the buy-side, we also see a wider
segment of the market settling in CLSSet-
tlement, which has added to the increase in
organic volume. I would say these two factors
are the basis for the really good progress CLS
has seen so far this year.
How have your clients and the wider FX indus-
try coped with MiFID II since it came into force
on 3 January?
AM: I think FX market participants have
coped with MiFID II to varying degrees. The
results of the implementation of MiFID II
will continue to be felt for a while, notwith-
standing that it was introduced at the begin-
ning of the year. And that’s across a range of
aspects of the regulation, from best execution
to research requirements alike.
Conversations with our clients have fo-
cused on where we can help, and the area of
MiFID II most relevant for us has been data
and reporting requirements for FX market
participants. We used our unique position
at the centre of the FX marketplace to look
at how we could help market participants
meet their new reporting requirements. This
led to us launching CLSReporting - a service
providing an end-of-day FX matched in-
structions report with a much more detailed
view of overall FX trading activity across a
number of fields. We’ve seen a really good
uptake and will look to develop the service
further.
Would you describe the implementation of the
FX Global Code of Conduct as a turning point
for the FX industry? Is there more to be done
in terms of development of the Global Code?
AM: I believe it was a turning point for the
industry, a very timely one. It has given the
FX industry an opportunity to effectively
regulate itself and come up with appropriate
standards and best practices. The FX Global
Code was created with full input, debate
and discussion from a broad range of mar-
ket participants, with a consensus-driven
approach, to find the right standards for the
FX market. It’s also principles-based, which
is preferable to the industry simply waiting
for regulation to be implemented. The FX
industry embracing that opportunity was, in
my opinion, exactly the right thing to do.
At the same time, there is more to do.
The work of the Global Foreign Exchange
Committee continues because it wasn’t a
interview
delivery and then shut-down type of project.
I think the Committee will continue to look
at embedding and integrating the Code into
the fabric of the FX market. There are more
specific subjects and issues that will be
addressed, but I don’t think any of them are
as important as ensuring that the Code will
be adhered to. It’s like any piece of regula-
tion or standard; it’s about how seriously the
market takes it and that’s why the adherence
“It is important to
emphasise that building
a DLT use case is a
relatively straight
forward task compared
to the lengthy process of
establishing an enterprise-
ready network.”
process is so important. To reflect this, we
have created a public register for FX Global
Code Statements of Commitment. Over
100 organizations (including banks, central
banks, asset managers, and service provid-
ers) have registered with CLS. We feel that
adherence is as important as writing the
Code.
Has the Code worked and will it change
the FX market for the better? That’s a wait-
and-see answer, but I’m very positive about
it. Buy-side adoption of the Code has report-
edly been slightly slower, however this has
varied depending on the size of the organi-
sation and its capabilities in terms of certain
aspects such as risk management. On the
other hand, the sell-side has vast resources
when it comes to regulatory compliance,
and is much more homogenous compared
to the buy-side. That said, it’s important to
remember that the buy-side was absolutely
represented in the Code process, stating
strong opinions to ensure their views were
taken into account. The Committee is look-
ing to establish a working group specifically
for buy-side outreach, to ensure their views
can continue to be represented.
CLS has been very active in the blockchain
technology space so far this year. What
are some of the developments with those
projects?
AM: By far, our biggest focus on the distrib-
uted ledger technology (DLT) front has been
the launch of CLSNet, a bilateral netting
service that has been built on blockchain
technology, in partnership with IBM. The
launch of CLSNet is expected in the next
few weeks, which is very exciting for us,
particularly as it is considered to be one of
the largest wholesale market applications of
a post-trade service on DLT.
I believe that building a service on a DLT
platform, taking it into production and then
launching it in the financial market is a pi-
oneering development. We have learnt a lot
through the process of developing CLSNet.
Working with new technology and running
a proof-of-concept is all very well but taking
the steps to actually test and run a service
that will be used in live production in the
market takes a huge amount of rigour and
work. We are very happy with the progress
we have made with this initiative.
The other project we have been working
on with IBM is a proof-of-concept called
LedgerConnect, which is a platform for
deploying third-party applications between
vendors and users in the market. That has
gone well and we are encouraged by the
promising feedback we have received from
the industry. However, it is important to
emphasise that building a DLT use case is
a relatively straight forward task compared
to the lengthy process of establishing an
enterprise-ready network that can provide
standardised solutions to market partici-
pants. We expect it to take time before we
decide whether to move to the next phase
of this project. The priority for us is to take
CLSNet forward and launch that into the
marketplace. Finally, CLS recently made
a strategic investment in the blockchain
consortium R3. At the same time I became a
member of the R3 Board, which has enabled
CLS to take part in discussions around how
DLT can be applied to a broad range of busi-
ness use cases.
As part of these discussions we have stated
that we do not believe DLT should be a ‘one
network universe’ because the industry will
not benefit from that kind of concentra-
tion. Nobody wants to turn this into a race
between two or three implementations with
only one survivor. Certainly, the projects we
are working on are at the top of the enter-
prise-level ladder for implementations of
blockchain.
CLS’s investment in R3 is complementa-
ry to the services we already provide our
clients. Further, our involvement will allow
us to leverage our role as a trusted market
infrastructure provider as we deliver further
efficiencies and risk mitigation to a diverse
range of firms operating in the FX market.
We believe that R3 is a powerful consortium
focused on the application of DLT to solve
different business process problems, many
of which are particularly relevant to CLS.
We’re very much looking forward to con-
tinuing the discussions.
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