CLS Moves Into Data Provision

Shanny Basar

CLS Group, the bank-owned foreign exchange settlement platform, has moved into providing FX data for non-members as the market faces increased electronification and regulatory scrutiny.

Alan Marquard, chief corporate strategy and development officer at CLS, told Markets Media: “There is not a wealth of traded data across platforms from the FX market. The Bank for International Settlements survey is every three years and some other platforms provide data but we wanted to provide a more regular snapshot than a month-end report, which we publish every month.”

CLS and Quandl, the Canadian data platform for economic and financial data, have made standardized and aggregated FX trade reports available via subscription. Quandl was funded by two hedge fund veterans and brings together financial and economic datasets from hundreds of data publishers onto a single platform so they can be made available in a variety of formats such as via an API, libraries for Excel, R, Python, Matlab and other tools, or instantly downloaded in any format.

Marquard said CLS is open to exploring the possibility of providing additional data to customers. “However, this will ultimately be driven by the needs and requirements of FX market participants,” he added. “Offering our FX data through Quandl enables us to gauge market interest and engage with a wider group of stakeholders to determine interest and demand.”

Quandl said on its website that it has more than 100,00 users including analysts from the top hedge funds, asset managers and investment banks.

Tammer Kamel, founder and chief executive of Quandl, said in a statement: “These datasets address a large gap for quantitative and technical FX traders, who have never had access to such a comprehensive picture of trading volume for the global FX market. With the volume and coverage from CLS now available via Quandl’s API and platform, we are delivering a dataset that changes the game in the quantitative analysis of an entire asset class.”

Marquard suggested the new data could be useful for general research, trading models, analysing liquidity trends and transaction cost analysis. The data will be made available for subscription and initially show activity by hour, day or month. The reports will contain trade volume in terms of both the number of trades and the total value in US dollars. The data will be aggregated by trade instrument (spot, swap and outright forward) and currency pair.

GreySpark Partners, the capital markets consultancy, said in a report that many buyside firms are asking banks to provide pre-trade and post-trade best execution analytics on spot FX trades despite the lack of a regulatory mandate.

The largest global FX banks launched CLS in 2002 to reduce settlement risk by directly linking to the real-time gross settlement systems of the currencies it settles.

“CLS settles 18 of the world’s most actively traded currencies, which equates to an average of almost $5 (€4.5) trillion submitted to our settlement service every day. We are confident that the data will be the best representative sample of FX market activity,” said Marquard.

The BIS started surveying almost 1,300 banks in 53 countries for its latest triennial FX survey in April this year. Consultancy Aite Group said in a report in May: “The average daily turnover for 2016 will likely be $5.5 trillion, 1% below our full-year 2013 estimate and 5.5% below the activity heights experienced in 2014.”

The consultancy said electronic trading in the FX market continues to grow, despite the decline in global trading volume, thanks to increasing use from voice-driven, real money managers and corporations. As a result, Aite Group expects to see increasing adoption of electronic trading across all major FX instruments, reaching about 64% by 2019.

Last month CLS said the average daily input volume submitted to the settlement and aggregation services, was 1,163,083, up 20% from the previous month, The average daily input value submitted to was $5.19 trillion up 12.6% from $4.61 trillion in the month before.

Aite Group said in its report that the FX industry is likely to experience greater disruption, higher costs, and a fair amount of confusion for both the buyside and sellside due to increasing regulation.

“As the global FX industry awaits pending clarification on existing laws, implementation timelines for new regulations have been extended, and new global codes of conduct are about to be released,” added Aite. “All of these changes will impact FX industry operations for years to come.”

In May the Bank for International Settlements introduced the first part of a global code of conduct for the foreign exchange market. The code covers conduct for the sellside, the buyside, non-bank participants, technology vendors and e-trading platforms and the first part of the code covers market ethics, information sharing, execution costs, trade confirmation, and settlement.

The BIS began pushing for a harmonised global code of conduct for the FX market in 2015 following regulators imposing fines for price rigging which led to banks including Barclays, Royal Bank of Scotland, Citigroup and JP Morgan paying more than £6.3bn in penalties and dozens of traders being suspended or fired. This week two HSBC traders were arrested after allegations from the US Department of Justice that they used inside information in the FX market.

The second part of the code will be released next year and include governance, risk management, and compliance as well as back office processes and electronic trading.

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