P&L Forex Network Chicago 2012

PROFIT & LOSS EVENTS2012

SEPTEMBER 27-28, 2012

PROFIT & LOSS FOREX NETWORK

CHICAGO 2012

CONFERENCEINFORMATION:

Profit & Loss Forex Network Chicago 2012

Date:

September 27-28, 2012

Location:

Swissôtel Chicago, 323 East Wacker Drive

Event Organiser: P&L Services Ltd.

LondonTel: +44 20 7377 6383

New YorkTel: +1 646 290 5255

[email protected]

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Forex Network Chicago 2012 proved to beP&L’s biggest conference event to date as people gatheredto discuss the pressing issues of the day. Alice Attwood reports...

Almost 600 attendees flocked to the ‘Windy City’ forthe 10th annual Forex Network Chicago conferenceto gain insight into the latest market developments

and examine some of the key issues the foreign exchangemarket is facing.

Once again, discussions were dominated by the continuinguncertainty over incoming regulatory changes and the associ-ated timeframes, the practicalities of what is involved andmarket readiness for such changes, on both a technologicaland practical basis.

The two-day event moved to a new, larger venue this yearat the Swissotel Chicago and featured panel sessions, whichincluded discussions between industry leaders from the buyside, service providers and banks on connectivity, the latestmarket enhancements and opportunities, the changingstructure 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 Bankof Chicago, focusing on ‘Market Vulnerability and HighSpeed Trading’. She talked participants through a series ofrecent events in financial markets, many of which involvedhigh speed electronic trading, reinforcing the belief thatgreater risk controls are required. Clark stated that regulatorsmust improve risk controls for the entire lifecycle of a trade,and that incidents such as outages, errant algorithms andother technical issues demonstrate this. She also called formore detail regarding inclusions and exemptions for theDodd-Frank Act.

Clark also suggested that there is a real concern over the‘health’ of data being used by clearinghouses and that thedata supplied by trading venues can cause concern. She

Conference Moderator: Colin Lambert, Editor, Profit & Loss

concluded with a plethora of suggestions for regulators, suchas the need for greater market experience of policymakers,greater harmonisation between rule writers and the industry,the introduction of kill switches for rogue algorithms, thecreation of specific penalties for non-compliance, and alsowarned that the recent proliferation of trading venues couldcontinue to cause unintended consequences for participants.

The first panel of the day, “Market Making in an ElectronicWorld”, was sponsored by LMAX Exchange and kicked offthe discussion sessions with lively debate between ChrisConcannon, partner at Virtu Financial, Peter Nabicht,executive vice president at Allston Trading, ChristopherPurves, managing director and global head of FX e-trading atUBS, 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 itis to survive impending regulatory changes, although henoted that a one-size-fits-all approach is not appropriate, andthat this is also true for technology tailored to the market.

During the panel discussion that followed, Wood reiteratedthe point, saying that technological enhancements haveresulted in new forms of interactions in FX, helping themarket to continue to innovate. Concannon welcomed moreregulation for the market, although noted that it is ‘nerve-wracking’ when political figures are coining the governingdefinitions. The panellists also discussed, amongst othertopics, the increased correlation of markets, improvedconnectivity and the fine balance of interaction betweencompanies and regulators.

The Profit & Loss Discussion was sponsored byMarkitServ and featured Nick Dyne, managing director of co-

head of MarkitServ FX, and Nick Solinger, chiefmarketing officer at Traiana, in conversation withColin Lambert, editor of Profit & Loss. Theyexamined the pressures market participants arefacing to ensure that they are prepared forregulation and compliance changes. They agreedthat readiness for most is still some way away.Solinger told attendees that the trade reporting sideof the new rules is a huge aspect of the regulationand should therefore be concentrated on.

Solinger also brought the discussion to anentertaining end by challenging Dyne to a boxingmatch the next time they meet in a panel situation,much to the amusement of the audience, especiallyon production of two sets of boxing gloves. Watchthis space for Forex Network London 2013!

Panel two, “Who Owns the Code?”, saw JohnMulcahy, associate at Finnegan, and ThomasRayski, counsel at Dechert, examine the role ofintellectual property rights, copyright and patentsof technology offerings and knowledge in FX.Mulcahy explained the protection issues aroundtechnological tools, such as an algorithmic code,which are difficult to protect, as the algo itself isnot protectable but the software used to create it is,

and can be copyrighted. Rayski told attendees that employersand employees should consider knowledge gained at aparticular firm, when moving to a new organisation. “It is afine balance as the previous employer wants to protect itsintellectual property, while the new firm wants to benefitfrom the new employee’s skills.”

Then followed the inaugural P&L Interview, which sawLambert take the stage with Derek Sammann, seniormanaging director, interest rate and foreign exchangeproducts at CME Group, for “Is the World Coming toChicago?” see related article this issue.

The third panel of the day, “KYP: Keeping YourCustomer”, featured panellists Harry Gozlan, chief executiveofficer of SmartTrade, Bryan Hunter, managing director fore-commerce at Fifth Third Bank, Jørn Sodborg (Luffe), chiefdealer, spot FX at Jyske Bank, and Takis Spiropoulos,managing director and global head, e-commerce solutions atCIBC World Markets.

Up for discussion were topics including the difficulties ofcatering to multiple sectors, the varied opportunities with theindustry for lower tier banks to attract and retain clients andthe fact that the technological offerings available in theindustry 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 liquiditypools can provide elevated support.

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

For panel four, the focus shifted to the FX market in LatinAmerica for “Growth Markets: Opportunities in LatAm”,sponsored by CLS Group. Juan Gutierrez, head of currency atCLS, 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 andglobal head of business operations, Marketplaces at ThomsonReuters, Paul Millward, head of FX technology at GFIGroup, and Bradley Seelig, head of FXPB for the Americas atDeutsche Bank.

O’Hara told attendees that technology will continue to playa key role in connecting to clients in the region and that thereare real opportunities for growth in FX trading. Millwardadded that the transition from voice to screen in LatAm hasbeen quick, and that further growth is expected throughoutthe LatAm region. Seelig added, “The technology is there butgovernment preparedness differs country-by-country when itcomes to allowing developments to progress.”

Panel five, and the final panel session of the first day, “BestExecution: Staying Ahead of the Pack”, saw panellists fromvarious parts of the industry tackle the topic. The panellistswere: Paul Buckley, director, AES FX at Credit Suisse, MikeHarris, director of trading at Campbell and Company, GregIngrassia, senior FX trader at Buttonwood Group Trading,Ray Kamrath, chairman and CEO, founding partner of Faros

Trading, and Jonathan Wykes, head of eFX sales EMEA andglobal head if FX algo sales at Bank of America MerrillLynch.

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

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

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

The second day kicked off with the now-traditional BloodyMary Breakfast, sponsored by GFI Group, before thepenultimate panel “Clearing: What you NEED to Know”,sponsored by ICE Futures US. Ray McKenzie, VP of ICE USmarketing and sales at ICE Futures US, moderated the panel,which included industry experts Andrés Choussy, executivedirector for FX prime brokerage and clearing at JP Morgan,Thomas Hammond, president and chief operating officer atICE Futures US, Peter Klein, global head of foreign exchangeprime brokerage at Bank of America Merrill Lynch, andEdward Pla, managing director for FX prime brokerage andclearing at UBS.

Attendees were treated to a lively discussion whichhighlighted some of the common misconceptinos of clearingand also highlighted how the model works for variousparticipants 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 technologyplatforms in the industry. The expert panel was made up ofDmitri Galinov, CEO of FastMatch, Robert McKeon, seniorvice president of markets and liquidity at FXDD, PatrickPhilpott, president of DealHub US, Alan Schwarz, CEO ofFXSpotStream, and Simon Wilson-Taylor, CEO and co-founder of Molten Markets.

Panellists were unanimous in their support of the fact thatthe end-to-end value proposition of a platform remainsimperative in today’s FX landscape. The recent influx of newentrants offering FX platforms was a hot topic throughout theconference. During the panel the experts also agreed thatcompanies must differentiate their offerings in order tosurvive. Galinov said, “Speed remains important as a quickerconnection results in better price access.”

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


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 theFederal Reserve Bank of Chicago, made theopening address at Profit & Loss Forex NetworkChicago. In her speech, which focussed onMarket Vulnerability and High Speed Trading,Clark noted that there is cause for concernbecause of the frequency of market mishapsthat are occurring at seemingly reputable firmsand focussed on where responsibility lies insetting controls at all levels of the tradinglifecycle.One area she highlighted in particular was thathigh frequency traders apply fewer pre-traderisk strategies in order to reduce latency, andthat she hopes the new rules will address thispractice.

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

Introduction by: David Mercer, CEO, LMAX Exchange

L-R:Greg Wood, Director, Algorithmic Execution, ForeignExchange and Listed Derivatives, Deutsche BankChris Concannon, Partner, Virtu FinancialChristopher Purves, Managing Director – GlobalHead of FX E-Trading, UBS Investment BankPeter Nabicht, Executive Vice President, AllstonTrading

Bank and non-bank marketing makers came together to discuss regulation, fragmentation and risk management at Profit & Loss Forex Net-work 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 ofFX e-trading at UBS Investment Bank; and Greg Wood, director, algorithmic execution, FX and listed derivatives at Deutsche Bank, started thesession 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 bydefining 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 Dyne, Managing Director and Co-Head, MarkitSERV FX

Nick Solinger, Chief Marketing Officer, Traiana

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


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

John Mulcahy, Associate, Finnegan

Thomas Rayski, Counsel, Dechert LLP

Patents vs Trade Secrets

John Mulcahy, associate at Finnegan, discussed the differences between patents and trade secrets at Septemberʼs Profit & Loss Forex Net-work Chicago. Mulcahy said the question between the two comes down whether the invention in question is patentable and wither it can bekept 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 rateand FX products at CME Group, at Profit & Loss Forex Network Chicago, Lambert asked whether there is a sense for optimism, de-spite the changes facing the industry. Sammann replied that the trends CME is seeing does indeed give him a sense of optimism interms of how people are pre-positioning themselves ahead of regulations. However, as more risk than ever before is coming into theCME, Sammann cautioned that “[regulations] are changing a market structure that has been in place and worked very well for a goodmany years in FX”.


Panel 3: “KYC: Keeping Your Customer”

L-R: Jørn Sodborg (Luffe), Chief Dealer, Spot FX, Jyske BankTakis Spiropoulos, Managing Director and Global Head, e-Commerce Solutions, CIBC World Markets Inc. Harry Gozlan, CEO, smartTradeBryan 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 toplay in the life of the lower tier bank operator. Aggregation is very important, said Takis Spiropoulos, managing director and global head, e-Com-merce Solutions at CIBC World Markets, but argued against co-mingling of different liquidity pools. In discussing the role of the single dealerplatform, Jorn Sodborg (Luffe), chief dealer, spot FX, at Jyske Bank in Copenhagen noted that while it formed an important part of a bankʼs offer-ing 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 Man-delzisʼ plans for the industryʼs largest spot matching platform. “It is time for us to start thinking about different microstructures,” he said, notingthat 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 thelower 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 indaily FX turnover.


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

L-R:Bradley Seelig, Head of FX PB, Americas, DeutscheBankDan Torrey, US Sales Head, EBSPaul Millward, Head of FX Technology, GFI GroupMatt OʼHara, SVP, Global Head of BusinessOperations, Marketplaces, Thomson ReutersPaul Chappell, Founder and Chief InvestmentOfficer, C-View LtdModerator: Juan Gutierrez, Head of Currency, CLSGroupDan Torrey

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 mar-kets outside the US, agreed panellists at Forex Network Chicago. Matt OʼHara (centre), SVP and global head of business operations, Market-places, at Thomson Reuters, noted that the Latin American NDF market is uniquely different from elsewhere, such as Asia. With the pushtowards regulation, he said, it will be interesting to see how local market participants operate in the offshore market in order to gain access tothat 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 SuisseJonathan Wykes, Head of eFX Sales EMEA and Global Head of FX Algo Sales, Bank of America Merrill LynchGreg Ingrassia, Senior FX Trader, Buttonwood Group Trading LLCRay 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 practicesfor best execution. Ray Kamrath (far right), chairman and CEO of Faros Trading, noted that TCA is definitely a growing segment in FX, someasurement is an important factor in defining best execution. When that develops in FX, perhaps to the level it is in equities, then price willmatter 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 versusprincipal argument. Harris noted there is an active debate in the algo space around three choices – the pure agency model with no internalisation; orone 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”.


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

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

Ray McKenzie

Edward Pla

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 clearingwill play in the future of FX trading. In answer to a question posed by McKenzie about differentiating between financially and physically settledproducts, 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 veryinteresting 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: crisismanagement. In normal market conditions, 99.9% of the time, youʼre just concerned with keeping the market going, he said, but the regulatorsare 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

L-R:Dmitri Galinov, CEO, FastMatchRobert McKeon, SVP Markets & Liquidity, FXDDPatrick Philpott, President, DealHub USSimon Wilson-Taylor, CEO & Co-Founder, MoltenMarkets, IncAlan Schwarz, CEO, FXSpotstream LLC

Dmitri Galinov

Alan Schwarz

Simon Wilson-Taylor

In the midst of a myriad of new platform announcements, the closing think-tank panel at Forex Network Chicago looked at the future prospectsfor 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 tradingis 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 de-mands for new execution tools give rise to an evolutionary process that naturally leads to new providers and to new platforms.


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

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.


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

Forex Network Asia 2012 in association with ACI Singapore Singapore, February 16Forex Network Colombia 2012 Bogota, March 27Forex Network Mexico 2012 Mexico City, March 29Forex Network London 2012 (with P&L Digital FX Awards Dinner) London, April 18 Forex Network New York 2012 (with P&L Readersʼ Choice Digital Markets Awards Dinner) New York, May 31Forex Network Chicago 2012 Chicago, September 27-28Forex Network Chile 2012 Santiago, October 23Forex Network Brazil 2012 Sao Paolo, October 25Forex Network Canada 2012 in association with FMAC Toronto, November 15

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