Ali Curi: [00:00:00] Markets Conversation is an ION podcast where we discuss topics of importance to capital market participants with product owners, subject matter experts, and industry leaders. 

Eugene Markman: There's a lot of conversations around AI, automation, but everybody's thinking about how could they use data and how could they use data to create new products, to automate more using automation to make algos and FX smarter.

Stephen Bruel: I sort of drilled into three recurring themes. I think the first theme was this macro trend. There's a lot of talk of politics, inflation, recession, global conflicts. And then the second one, workflow idea. There's a lot of discussion on how to optimize workflow. In some ways, the third theme was how do you achieve the second, which is in response to the first.

And I think the key words that you hear there are integration and interoperability.

Ali Curi: Hi everyone and welcome to Markets ConversatION, I'm [00:01:00] Ali Curi. On today's episode, Eugene Markman from ION Markets and our guest Stephen Bruel with Coalition Greenwich will share highlights of the recently held Trade Tech FX in Miami.

We'll get a quick overview of the Trade Tech event as well as dive into event highlights, key themes and topics, notable speakers and highlight the main insights and trends discussed. There's a lot to go over. So let's get started. 

Eugene Markman, welcome back to the podcast. 

Eugene Markman: Thanks, Ali. Great to be back.

Ali Curi: And joining us today is our guest, Steven Bruel, with Coalition Greenwich. Hi, Steven. Welcome. 

Stephen Bruel: Hi, thank you so much for having me. 

Ali Curi: We're glad that you're here. 

Eugene, you're a regular on the podcast, but for our new listeners, can you briefly share with us your background and your role at ION? 

Eugene Markman: Of course. My current role, I'm the COO for our FX products, working on integrating our numerous FX assets into a unified product. My background was I came to ION through the Market Factory acquisition in 2019, where I spent just shy of 10 years building out the Market [00:02:00] Factory products. And before that, I worked as a COO on the rates desk at Credit Suisse for also about a decade. 

Ali Curi: Great. Thanks, Eugene. Steven, can you share with us what Coalition Greenwich is and does, and what is your role there at CG?

Stephen Bruel: Sure, Coalition Greenwich is a research and advisory firm. We're focused solely on the financial services industry. I look after the derivatives and FX practice for the market structure and technology team.

I've been in financial services between 25 and 30 years working at institutions ranging from Citibank to State Street to Brown Brothers Harriman. 

Ali Curi: Great. Thank you for that, Stephen. Gentlemen, there's a lot to go over. Eugene, let's start with you and Stephen will get your take as well. Let's start with what is the Trade Tech FX USA event?

Who is the intended audience? And share with us a quick overview of themes, notable speakers that we can circle back to a little later. And Eugene, I know you were a presenter there as well. Tell us a little bit about that as well. 

Eugene Markman: Starting with background, Trade Tech FX is one of the [00:03:00] major FX conferences that we have in the industry.

They do a European event in the fall and in the spring, the U.S. event, so this was the U.S. event. It is truly buy side focused. So we do see a lot of asset managers, real money, hedge funds attending. Of course, the buy side is there as well. The sell side is looking for their clients and the vendors have a strong presence also. As far as themes for this year, I think what I saw was there's a lot of conversations around AI automation. Steven's panel, it was around trade automation, which is right on that theme. But everybody's thinking about, how could they use data and how could they use data to create new products, to automate more. People talked about automation for T+1 settlement, which we know is something that's, it's coming quite soon. Using automation to make algos and FX smarter. So a lot of panels were focused on that. Beyond that, I think there was some focus on non spot products. Something that I've been talking about for quite some time is, spreads in FX for spot really started to tighten.

A lot of the [00:04:00] dealers started focusing on non spot products by where spreads are a little bit wider. Same thing for the HFTs, and for real money to be able to generate more revenue. So usage of trading NDFs, trading forwards, trading options, a lot of that has increased as volumes have increased, obviously there's need for automation and it's become electronic. So we did see a few panels on those topics. 

Surprisingly in the past, there's been a lot of panels on regulation, global code, not as much in this one. I can't tell if people just got tired of listening to the same presentations and wanted to focus on things that were more exciting, like automation. But my panel, which we do in most conferences is about liquidity and we have representation from the sell side, the buy side, as well as vendors, right?

So obviously I was talking about it from a vendor perspective and they were talking about why relationships matter and how to manage your liquidity and how to manage the relationships with your LPs. How flexibility matters. And from my point of view, looking at it from a technology point of view, I was pointing out that you need scalability.

So anything that you're building, you have to think about how did you do it in a [00:05:00] way where it's easy to scale, where it's easy to onboard new LPs to try out new relationships. And this way, as you're managing those relationships, you have the flexibility to adapt as your business adapts. 'Cause as we know, the world isn't static, it's dynamic. It is always changing. So that was the panel that I participated on. 

Ali Curi: Great. I did check out the program and it is a packed agenda. We'll circle back to some of those points that you touched on. Steven, what are some overall key takeaways and trends that stood out to you?

And you were also on a panel. Tell us a little bit about that. 

Stephen Bruel: Yeah, so I think Eugene, hit the nail on the head in terms of the diversity of topics and how broad the themes were. But for me, I think I drilled into three recurring themes that we saw across a variety of different panels, regardless of what the panel was supposed to talk about.

I think the first theme was this macro trend. There's a lot of talk of politics, inflation, recession, global conflicts, and all of those macro trends are driving volatility, which in some ways is affecting, hedging [00:06:00] and risk management strategies, and is providing some of the impetus to trade FX, even maybe as alpha, whereas a lot of it is maybe not normally for alpha generating purposes, right? So I think the first thing is how all these macro drivers are affecting, the FX market. And then the second one, and Eugene talked about this one as well, is this workflow idea. There's a lot of discussion on how to optimize workflow. And by workflow, I'm not just talking about, an operational process, but really how you're linking your pre -trade and post-trade activities to optimize the performance of your FX desk.

And again, of course, given that volatility I just mentioned, you increase the need for real time data for improved decision making and of course, robust operations. And so that sort of led into my third theme, which is in some ways, the third theme was how do you achieve the second, which is in response to the first.

And I think the key words that you hear there are integration and interoperability, right? And that's [00:07:00] ensuring that you as a desk, have a robust technology infrastructure to accommodate volumes and the volatility in the market. Sometimes you need to react quickly. Sometimes you need to be able to hit multiple liquidity providers.

Are you able to do that in times of stress? And so that was the third theme. And the panels I was on, in some ways they covered a lot of that, right? One was very instrument specific about FX options. One was more about algo. But regardless of what we were talking about, there was this underlying idea of how do I optimize execution?

Even if I'm trading by voice, I can optimize that through maybe a different way of capturing data from all of the phone calls that I've made out to the street. And so how you build the data and the technology to measure that execution and ensure that it's being optimized, I think to me, that was in some ways, the main takeaway from the conference.

Eugene Markman: And Steve, let me ask you this. There was two panels there, one on the macroeconomic forecast, there was one on the U.S. elections, right? And they both talked about the 2024, [00:08:00] this year's outlook. What did you notice that was interesting for this year's outlook? 

Stephen Bruel: Uncertainty, which maybe isn't interesting. You can, you maybe want to call that scary and not interesting, but I think it was that uncertainty in terms of what is this all going to mean?

So for example, one of the macroeconomists talked a lot about the fact that people in the U.S. think we've achieved a soft landing, but that the U.S. market is underappreciating the impact of a recession in, say, Japan or Canada, the slowdown in China. So that, so there's a level of uncertainty in terms of that macroeconomic.

And then I think there's a level of uncertainty in the, U.S. political dynamic, as well as the geopolitical dynamic, which of course, I think is very difficult to predict. So I think overall, I think it's the uncertainty across all those macro trends that is keeping people up at night.

Ali Curi: Stephen, what do you think are some industry announcements or challenges that stood out for you? And how would either of these affect the FX market? 

Stephen Bruel: One of the ways that I think about this is, Eugene talked a [00:09:00] little bit about how there's a lot of buy side that's represented there. And of course, a lot of the trends that affect the sell side end up being affecting the buy side as well. And so one challenge that is recurring is this idea of capital and how regulations, the Basel III End Game, SACCR, UMR, pick the regulation that you think is most impactful and how it affects how organizations, sell side firms in particular, have to pay, have to charge for the use of the capital that they're allocating for their trading activity.

And what does that mean for you as a buy side? Does it mean you're going to be compelled to clear more instruments? Potentially. Will spreads widen? Potentially. Will some of your dealers pull back a little bit? Potentially. And so to me, one of the challenges, again, this is maybe, you can put this more in my macro categorization earlier, is the idea of regulation.

And what regulation specifically? The capital regulations and how that affects sort of the economics of the business for a dealer, and then there are [00:10:00] knock on effects down to the buy side. 

Ali Curi: Eugene, any thoughts on the industry announcements or any challenges? 

Eugene Markman: I wouldn't call it an announcement, because I guess it's something that we've known and talked about for some time and that's T+1, the move to T+1.

It came up in a number of panels in various contexts and there, to me the theme is automation. Is how do you automate? How do you get from the current workflows of T+2 and go down to T+1? So people spoke about it from different perspectives. You have those that have been investing in crypto technology and they're looking at it as T+1 is really a laggard.

We really should be an instant settlement. Others echoed it in a certain sense saying, okay T+1 is just that's the first stop on our way to T+0. So if we're starting to automate and if we believe the technology accelerates as it develops, so what I mean by that is the difference in technology over last year is bigger than the difference in technology from two years prior and the two years prior is probably the [00:11:00] greater change in technology from the 10 years before that.

So as the rate of change in technology accelerates, the move from T+1 to T+0 should be faster than T+2 to T+1. So using the new technology, right? But to me, it's really an automation problem. It's a workflow automation problem. It's how do you settle faster? How do you clear faster?

How do you reconcile trades faster in between counterparties? What do you do with netting in between all those trades? Even in instant settlement, right? How do you, net? Do you net at the end of the day? Do you net on a trade by trade basis? So these are the challenges that people are now thinking about and thinking about how does it solve.

And you have DTCC for example, I mean they're a huge proponent of moving to T+0. Not everybody is. I mean I think some people are actually quite scared and because they're not going to be able to settle on day one at a T+1. Not even talking about T+0, but just a T+1, they're not going to be able to settle on time.

And it's going to take them some time, different by firm, but to be compliant. So I think it is something that everybody's now thinking about. And that's the topic that I had come up the most. 

Stephen Bruel: Yeah, it's interesting you mention that, Eugene, because I hear a [00:12:00] lot about that, and there are a lot of responses that a firm can take that could outsource, a lot of their middle and back office, but one of the things I noticed as well, CLS is a, it's like an FX settlement platform, for lack of a better phrase, and they can potentially change their settlement timelines, but it won't be in synchronization with the dates that we're going to see the U.S. equity in the Canadian equity markets moved to T+1.

So while there are potential industry solutions out there for the T1 question, not the T0 question that Eugene was bringing up, but there's a little bit of a lack of synchronization there. So there are going to be pockets of difficulties in terms of being able to fund your trades, if you're not gonna be able to settle them in time.

So we're definitely going to see some operational challenges that emerge. And so I think T+1 is another very good theme that the FX market is still going to be working quite diligently on. 

Eugene Markman: Around the T+1 conversations, what people didn't really discuss, I would have been interested to hear, is solutions like pre-funding, right?

The idea of, if you pre-fund your trade, you should be able to settle much faster, right? Because you don't have to fund it later. Credit is taken out [00:13:00] of the equation. And nobody really talked about that. I think for T+0, those things are going to be on the table, but I would have liked to hear more of that.

Stephen Bruel: I think there's a lot of discussion about what the problems are, because that's easy. That's easier to talk about than how to actually solve it. I'd agree with you on that one.

ION Ad: This episode is brought to you by ION. At ION, our award-winning foreign exchange software solutions can help you automate and simplify Forex Trading processes, along with other daily operations and risk management.

We provide an end-to-end solution across the front, middle, and back office. Allowing you to scale not just for FX, but for capital markets and beyond. To learn more, visit us today at iongroup.com/markets, or email us at markets@iongroup.com. 

Ali Curi: Now, gentlemen, I know that you're attending some sessions or participating in others, so you can't go to all of them.

Steven, were there any sessions that stood out for you?

Stephen Bruel: And so this is something that Eugene mentioned [00:14:00] earlier, right? Like the FX market needs to be talked about not at the FX level, but at the instrument level. FX options, non deliverable forwards, FX swaps, spot, et cetera, et cetera. They're all a little bit different, right?

And NDFs, FX options and FX swaps are in some ways more operationally complex. And so there were different deep dive sessions on each of those other instrument types that I found interesting. What the panels drove home was that there are unique market structure challenges that for right now are slowing the adoption of electronification and electronic tools on the buy side.

And just to give some examples on an FX Options panel, one of the panelists stated that 90 percent of their trades were by voice. And on a different panel, someone else said 100 percent of their FX options trades were by voice. Now we've looked at this and our research indicates that there was roughly two thirds being voice.

But whatever the number is, two thirds, 90%, that's pretty high regardless. And so clearly there are gaps in process and infrastructure [00:15:00] and technology. And so what we're seeing is a lot more investment in trying to improve execution, not just on the G10 side, which I think a lot of people have solved a lot of those problems.

So again, there's always room for improvement, but across these more operationally complex instruments, because we need to get those executed, settled, reconciled, potentially collateralized all in a timely manner. And I do feel there are a lot of struggles once you go down to those instrument types.

Eugene Markman: I think the reason people are looking at it and looking how to automate is there's more volume, right?

When there was less volume, where there was less transactions, it was easier to do things manual. As volume increases, and as volume increases, obviously liquidity increases. So the amount of transactions increase. You create operational risk every time you do anything manually. So first solution is always how do we automate as much as possible.

Eliminate some of that manual, operational risk, streamline, scale easier. So as Steven pointed out, each one of the tradable products is a separate discussion instead of a separate product within itself. But so are algos. [00:16:00] And in a way, algos have become another dimension in which we could look at products.

And now that algos are also, applicable to each individual tradable product. So you'll have your spot algos. Now you have NDF algos. Then you'll have swap algos. And then eventually we're not there yet, potentially at least short dated options. Your vanilla options might have some sort of algo product associated with them.

We're going to see the same conversations taking shape, slightly different because each product is different. You have to account for the differences, but that's the direction where I think we're going. 

Stephen Bruel: I think what we try to stress or what we hear a lot in our conversations is you obviously want to ensure that you've automated as much as possible and that when appropriate you're electronifying, even the execution depending upon the instrument type.

But we need to think about the benefits other than the execution of that one transaction itself, which is your ability to more easily gather and analyze data. If you make 10 phone calls to 10 different brokers, are you able to analyze that data easily? If you have electronic [00:17:00] RFQs, it does become easier because you can capture that data there are audit trails. And we need to think about this, not just at the trade and individual trade, but as an environment that you're building for your trading desk. And what are you doing to improve the future performance of the trading desk? And obviously capturing as much data as you can so that you can know what algo is best under what circumstance. You use a particular algo at 9 am when you're trading Yen versus 4 pm, which broker is better at executing a certain pair at a certain time of day?

Can you answer those questions if you haven't electronified that data. It's going to be a lot more difficult to. So we think that the second order benefits of that electronification are significant. And that's why I think to Eugene's point, we are seeing a lot of investment in this automation for not just the immediate benefit, but for the data capture that comes off the back end of that.

Eugene Markman: Data is an interesting one. I think maybe we'll save that for another podcast. Cause I think we could go pretty deep in the data discussion. 

Ali Curi: Now, during conferences, panels are informative, they're great, but I think one-on-one interviews and [00:18:00] fireside chats are really the ones who deliver some in depth content like industry issues and trends to watch.

Stephen, let's continue with you for a minute. Were there one or two interviews, conversations, or a keynote that really stood out for you? Anything that's really noteworthy? 

Stephen Bruel: Yeah, I mentioned this before, but maybe it bears repeating. The interview that I thought was most, and I don't know, I would definitely not use the word inspiring, but I think eye opening was again, this reality check of volatility and the fact that the industry writ large in the United States, and by that I mean sort of the media industry and a lot of people are underestimating the likelihood of a recession.

I know I talked about that earlier in the podcast, but that one was something I hadn't heard a lot of. And the person admitted that they were in the minority by saying that they were thinking there's recessions more likely than most others. So they were in the minority and they admit that, but they made a compelling case.

And if we are under appreciating that there might be a recession, what does that mean for rates going forward? What does that [00:19:00] mean for all the hedging activity that we have? So I think that was something that I hadn't considered as much. Let's go back to the case that there might be a recession in the U.S. in 2024 and think about and war game that scenario instead of just assuming that we're going to get the soft landing that feels like consensus has come to again. And at a much different level, one of the panelists had just been in Korea and they said that the Korean Finance Minister stated that they wanted to shift from a non-deliverable to a deliverable model.

Now that was just one anecdote from one panelist relaying a conversation from weeks prior, so maybe take that with a grain of salt, but nonetheless, I found that idea interesting that the Korean Finance Minister was talking about a shift from a non-deliverable to deliverable. So those were two different, interesting takeaways that I gleaned, though again, totally different, totally different levels.

Ali Curi: Eugene, any keynote or conversation, interview, one-on-one that really stood out for you that you'd like to share with us? 

Eugene Markman: Actually, the same panel as what Stephen was talking [00:20:00] about, but for me, the takeaway was slightly different. And looking at it from a volatility point of view, that it almost didn't matter.

Whether we are going to have a soft landing or a bit of recession, I think in either direction that we go, what is obvious is that the volatility that we've seen in the FX market over the last couple of years, really starting from COVID and then continuing through the various geopolitical events that have occurred over the last few years is going to continue.

And what that means for the market is that the volumes are going to continue to stay high. Which for the buy and the sell side is actually fairly positive. For the brokers, for the dealers, they do, they do thrive in an environment where there's more volatility and the higher volumes.

For us, it's great, we want our clients to perform better. So it's going to be interesting as to what they decide to invest in over the next couple of years, and that's what I'll be watching in this period of high volatility and high volumes. 

Ali Curi: Speaking of investments, technology drives a lot of the infrastructure of FinTech and FX, especially, let's talk about cool tech.[00:21:00] 

Steven, were there any new or innovative technologies that were showcased that maybe you want to share with our audience? 

Stephen Bruel: Yeah, I know we talked about AI earlier, but it was the push and pull, of AI was certainly a topic. And it seemed like there were mixed views on which use cases for AI were most appropriate, but there absolutely is a lot of interest.

And one of the areas that was discussed a few times was embedding AIs into algos. And there's definitely concern around this idea of, can you go to a regulator and explain to a very certain degree why an algo acted in a certain way if it was AI generated or AI enabled? There's concern about the regulator's reaction if you're embedding AI too deeply into the algos, but at the same time, there's definitely a lot of interest in how one can incorporate AI.

And so in some other research we've done, we've seen a lot of talk about AI and things like market research and those areas, we've even seen a little bit of [00:22:00] AI in the operations. Like one of the things Eugene and I keep talking about is, you need to be more scalable, you need to be more automated, you can't have your high value traders working on low value trades. You need to have the low value trades, executed in a very easy electronic manner so that your traders can focus on what's important and what's going to move the needle for your desk. And so I think how you incorporate AI into that pre -trade, post-trade infrastructure that we've been talking about during this podcast.

I think that sort of, that was definitely a hot topic. And again, a little bit hesitancy on the algo side, even though I do think some people are really excited to do it. There's definitely a little bit of pause about how to actually make that happen. 

Ali Curi: Eugene, anything to add in the cool tech department?

Anything that really stood out for you in terms of technology, software, hardware?

Eugene Markman: There wasn't a lot of tech shown, just tech ideas discussed. And like I said, the AI and automation was definitely the hot topic this year. I do have a problem with the term AI. I don't think a lot of these things are AI. I don't think there's [00:23:00] intelligence behind them.

It's what, one programs? It is an algo. What you have is artificial labor. So you have artificial labor, but not necessarily intelligence, right? It's not learning and advancing on its own as an intelligent mind might, but it still has the ability to do a lot of cool things. And Steve talked about the algo side of it.

The other side of it that's interesting is the data analysis side, right? For the ability to go through a tremendous amount of data, and pull out what is interesting. So to give insight on clients, client performance, dealer performance, dealer markouts, profitability by client to see who's toxic faster and easier and why.

Start identifying, is somebody always toxic or are they toxic in certain scenarios and other scenarios maybe this client is not toxic, right? And how to monetize that client for a dealer. And I think that level of insight could really change how dealers really interact with their clients.

Stephen Bruel: I think the general trend is the need to increase the sophistication of these tools.

And so I think, if you're talking about a more advanced, TCA type of thing, we also have [00:24:00] to recognize that there are some folks out there, maybe on the corporate side. That aren't even doing that basic analysis yet. So I think for a lot of firms, they have to start to create these programs because it is necessary to do.

We talked in the beginning a little bit about the FX Global Code, I know they're gonna be looking at they've talked a lot about algo standardization and TCA and how those two things may, fit together. And so to me, you need to be at a phase in the journey of this ability to scrutinize and measure the performance of your counterparties and the liquidity venues that you're accessing. And so I think what Eugene's talking about is absolutely a key part of it. But then we also talk to folks that may be not even there yet and have to start a program, maybe more from scratch.

We see a lot of opportunities in the markets to help some of the smaller players start to build these platforms that they can at least have more intelligent conversations with their counterparties. 

Ali Curi: Stephen, let's continue with you for a minute. I have a two part question. What are some topics you wish you had heard more of?

What do you feel might have been left out or should have been [00:25:00] included? And just your overall thoughts on the event? 

Stephen Bruel: Overall thoughts, like the event was very good. I enjoyed the content. It's always good to see people in the industry, friends, industry colleagues. And we've been talking now for 20 25 minutes, and I don't know that we've really scratched the surface of what we could have talked about. Over a day and a half, two and a half days, there was a lot of content delivered and a lot of opinions and a lot of analysis shared with a broad group of people. So all of that was very positive. I sometimes think about, what are the newer types of platforms that are emerging, trading platforms? For example, feels to me like we've been talking about peer-to-peer in equities and fixed income for quite some time, and now there's discussion of peer-to-peer within the FX market, but we didn't get a lot into the weeds of the, of how that could work and what it really looks like.

And what are the advantages of going peer-to-peer? Who's it right for? Who's it not as applicable to, and those sorts of things. So I think one area that maybe I would have liked to hear a bit more about [00:26:00] was peer-to-peer. 

Ali Curi: And Eugene, your closing thoughts on the event, just your overall take, topics maybe that you wish you had heard more of or something you'd like to see included in future events?

Eugene Markman: The event was quite good. It was definitely well attended. It's great to actually see the attendance come back up to, pre-COVID levels. There was a few years around COVID where attendance really dropped off and there was some uncertainty whether the events will come back. And they have, because it is a great opportunity for everybody in the industry to gather in the same place, to spend time together, catch up with friends or old colleagues, and discuss similar problems that we all see on a daily basis.

What I would like to see in general is panels forward looking. Talking about innovation. Where there's opportunity for innovation, what are banks, funds, focus on where they would like to see innovation to help vendors provide those kind of products for them. So I think we do a lot of discussions on panels looking backwards, but I'd like to see more looking forward.

Ali Curi: Gentlemen, thank you for a wonderful wrap up and Eugene [00:27:00] Markman, always a pleasure to see you. Thank you for dropping by and Stephen Bruel. Thank you for joining us and for your insight. I hope you visit us again. 

Stephen Bruel: Oh, thank you for having me. Quite enjoyable conversation. 

Ali Curi: And that's our episode for today.

You can follow ION Markets on X and on LinkedIn. Thank you for joining us. I'm Ali Curi. Until next time.