The Future of FX Markets – Update October 2019

The Future of FX Markets – Update October 2019

 

This is the biggest financial market trading currencies worth USD 6.6 trillion every day

There are two segments of the FX market

  • Spot Trading
  • FX Swaps, Options, and Derivatives Market

Spot trading market is OTC.

FX Swaps, Options, and Derivatives market is changing rapidly.

There two main features of these changes.

  • Mergers and Acquisitions in Trading platforms
  • Move of OTC FX trading to exchanges

I have tried to highlight many of these changes below.

Mergers and Acquisitions  in Trading Platforms

  • 2012 Reuters acquires FX ALL
  • 2014 ICAP combines EBS and BrokerTec
  • 2015 BATS global matkets acquires Hotspot FX
  • 2015 360T was bought by Deutsche Börse
  • 2017 CBOE Global Matkets acquires Bats Global Markets
  • 2018 CME Group acquires NEX
  • 2018 360t acquires Gain GTX

 

Leading electronic FX players:

  • CME,
  • EBS,
  • Reuters,
  • FXall,
  • FX Connext/Currenex,
  • Hotspot FXi,
  • LavaFX,
  • 360T
  • MilanFX, and
  • FXMarketSpace.

 

https://www.fnlondon.com/articles/best-foreign-exchange-trading-platform-the-nominees-20170329

Best Foreign Exchange Trading Platform: The Nominees

The 2017 winners will be announced at a gala event on May 25 in London at the V&A Museum

By Joel Clark

Updated: April 3, 2017 4:14 p.m. GMT

The 2017 winners will be announced at a gala event on May 25 in London at the V&A Museum.

Here are the nominees for: Best Foreign Exchange Trading Platform

360T
360T has been a reliable FX platform for institutional asset managers and corporates since inception in 2000, but its acquisition by Deutsche Börse in 2015 has given it increased firepower. With offices in Frankfurt, New York, Singapore, India and Dubai, the platform has 1,600 users globally and sources liquidity from 200 providers. The business is managed by long-time chief executive Carlo Kölzer, now also Deutsche Börse’s head of FX. It made several senior hires in 2016 to strengthen its sales effort in the US and Nordics. Most recently, industry veteran Simon Jones joined as chief growth officer and board member.

EBS BrokerTec
Part of Michael Spencer’s NEX Group, EBS’s average daily volume in 2016 was $85.8 billion, down nearly 10% year-on-year, but it bounced to $93.2 billion in January 2017. The pace of change may have slowed after chief executive Gil Mandelzis left in 2016, but EBS remains the market’s primary trading platform for major currencies. Under new CEO Seth Johnson, it introduced EBS Live Ultra, a faster data feed that updates price at intervals of either 100 milliseconds or 20 milliseconds. An upgrade in February offers a five millisecond feed, reducing reliance on the controversial practice of “last look”.

FastMatch
FastMatch, which was founded in 2012, aims to provide the fastest access to reliable FX liquidity using the same technology that underpins Credit Suisse’s Crossfinder matching engine. Average daily volume reached $12.7 billion in 2016, up from $8.4 billion in 2015. FastMatch traded $39.8 billion on June 24 and $38.0 billion on November 9, following the Brexit vote and US elections respectively, putting it on a par with established platforms that often see a spike in volume at times of market stress. The platform made its proprietary algorithmic and transaction cost analysis services available to all subscribers last year.

FX Connect
The State Street owned business has existed since 1996 and sources liquidity from more than 60 firms, including both top-tier banks and regional specialists. Of the largest 50 global asset management firms, State Street estimates that 47 use FX Connect. The platform saw a peak day on June 30, 2016, in the aftermath of the Brexit vote, when FX trading volumes exceeded $400 billion, with more than 47,000 transactions processed. FX Connect supports a range of execution methods, including relationship-based request-for-quote, request-for-stream, voice trading and algo execution services.

FXSpotStream
Led by chief executive Alan Schwarz, bank-owned FXSpotStream has become an enduring presence in the rapidly changing FX market. With an average daily volume of $18.2 billion in 2016, and significant year-on-year growth reported in seven out of 12 months, the platform is attracting a growing pool of liquidity. FXSpotStream does not charge brokerage fees to either clients or liquidity providers. With liquidity provided by 12 global banks – double the number it had had when it started out in 2011 – the business now has offices in London, New York and Tokyo.

Hotspot
Turnover on institutional FX platform Hotspot has remained resilient in the past year, with an average daily volume fluctuating between $29.4 billion in the first quarter of 2016, $25.7 billion in Q3 and $26.7 billion in Q4. Since its acquisition by Bats Global Markets in 2015, Hotspot has launched a UK matching engine, developed trading in outright deliverable forwards and launched Hotspot Link, which allows clients to design their own relationship-based liquidity pools. The platform grew its market share from 11.5% to 12.5% last year, according to Bats. Hotspot recently hired Matt Vickerman from Sun Trading and Rahul Bowry from Markit.

JP Morgan Markets
While some of its competitors have pulled back, JP Morgan has continued to invest heavily in its electronic platform and has achieved significant growth in activity on eXecute, the FX and commodities trading platform on JP Morgan Markets. By December 2016, the average number of daily users trading on eXecute had increased 43% year-on-year. Mobile usage had increased by 23% year-on-year, while the biggest trade on a mobile device stands at $100 million. JP Morgan has set aside $100 million to further develop its electronic offerings this year.

Thomson Reuters
Thomson Reuters’ FX platforms support a combined average daily trading volume of $350 billion, representing a substantial chunk of global market turnover. FXall, the dealer-to-client platform acquired by Thomson Reuters in 2012, has 1,700 institutional clients and 160 market makers. The company’s interbank platform, Thomson Reuters Matching, is a key trading venue for commonwealth currencies, and average daily spot volume across venues averaged $100 billion in 2016. Thomson Reuters introduced a new high-speed data feed in 2016 to deliver faster price updates and is partnering with analytics provider BestX to deliver independent trade analysis to clients.

For queries and general information regarding our gala event, please contact: awards@fnlondon.com

 

 

https://www.fnlondon.com/articles/best-foreign-exchange-trading-platform-2018-the-nominees-20180327

Best Foreign Exchange Trading Platform 2018: The Nominees

The winners of FN’s Trading and Technology Awards will be announced at the V&A Museum in London on May 15

Our awards are independent and fee-free. The Financial News editorial team compiles a shortlist of five nominees in each category following extensive research, taking soundings from industry contacts, and reviewing data and industry information.

The winners will be announced at the 16th annual awards gala dinner to be held at the V&A Museum in London on Tuesday, May 15.

Here are the nominees for: BEST FOREIGN EXCHANGE TRADING PLATFORM

Cboe FX
In spite of multiple changes of ownership over the past three years – from KCG to Bats Global Markets to Cboe – the platform formerly known as Hotspot has gone from strength to strength, with an average daily volume of $29.5bn in 2017, up nearly 10% year-on-year. In the fourth quarter, its market share averaged 14.9%, up from 12% in 2016. Given the fragmentation of liquidity, that is a sizeable chunk of the global FX market. In May 2017, Hotspot launched outright deliverable forwards on the platform while non-deliverable forwards were launched on Cboe SEF, the exchange’s registered swap execution facility, in December. The Hotspot business has now been rebranded as Cboe FX and is led by Bryan Harkins, Cboe’s head of US equities and global FX, while Jon Weinberg was hired from UBS last year as head of FX liquidity analysis.

Currenex
Ten years after buying Currenex in a landmark deal for the sector, State Street has continued to invest in the platform and it remains a leading liquidity pool in the FX market. In readiness for the EU’s revised trading rulebook under the Markets in Financial Instruments Directive, State Street last year launched the Currenex Multilateral Trading Facility to enable clients to use a disclosed request-for-quote model for FX spot, swaps, forwards and non-deliverable forwards. The platform’s trading volume are not disclosed, but Currenex remains a significant pool of FX liquidity. It is supported by a range of market data services, including streaming tick data on 40 currency pairs as well as well as a 100-millisecond snapshot of aggregated top of book price data. Last year, State Street hired James Reilly from Cantor Fitzgerald as global head of Currenex.

FastMatch
Amidst a spate of FX platform launches in recent years, FastMatch has emerged as one of the most successful, achieving an average daily volume of $18.4bn in 2017, up from $12.7bn in 2016. Average daily volumes spiked to a record of $22.5bn in May 2017, putting FastMatch firmly into competition with more entrenched players. In August 2017, exchange operator Euronext acquired the platform as a means of expanding into the FX market, which has in turn allowed FastMatch to push into the real money space in Europe. Additional highlights of 2017 included the opening of a sales office in Connecticut to complement its offices in New York, London and Moscow, and the launch of FX Tape, a market data service intended to act as a central reference point for transacted prices in spot FX.

NEX Markets
NEX Markets, previously EBS BrokerTec before Icap sold its voice broking unit and rebranded as NEX Group, recorded average daily FX volumes of $82.6bn last year. This may be a far cry from its heyday in 2008 when EBS hit an average of $214bn, but the FX market has changed since then and liquidity is now far more fragmented. With 2,800 customers in 50 countries, EBS remains the benchmark in major currency pairs such as EUR/USD and USD/JPY. The EBS Live Ultra data feed was enhanced last year to deliver spot FX data at five-millisecond intervals in response to client demand, while NEX Quant Analytics, a newly launched service that allows clients to analyse their performance and conduct regular reviews has proven particularly popular. EBS revenue for the half year ending September 30 2017 was £75m, up 12% year-on-year, highlighting the success of its diversified product offering.

Thomson Reuters
This year got off to a flying start, with trading volume across the Thomson Reuters Matching and FXall platforms reaching record highs in January 2018, suggesting not only that FX volatility had picked up, but also that diligent preparations for Mifid II had paid off. Average daily volume for all products reached $432bn, including $107bn for spot only – a level not surpassed since June 2016. Enhancements were completed in July 2017 to allow European clients to continue using the platforms for FX products under Mifid II and further changes were made to the company’s multilateral trading facility in December to support FX derivatives. In January, Thomson Reuters hired Jill Sigelbaum from NEX Traiana to head FXall, the ever popular institutional platform that it acquired in 2012.

Methodology
Financial News’s awards are independent and fee-free. Nominees in each category are voted on by a distinguished, independent panel of industry practitioners who cast their vote electronically. Each judge awards a score out of five to each nominee. The results are then vetted by FN editors for conflicts of interest. The highest adjusted average score out of five is the winner.

For all editorial inquiries please contact, Financial News projects editor Juliette Pearse at juliette.pearse@dowjones.com.

If you are interested in sponsorship opportunities or would like to book a table at the awards dinner on May 15th please contact: awards@fnlondon.com.

 

BATS increases its institutional platform portfolio, first Hotspot FX, now ETF.com

BATS increases its institutional platform portfolio

Just who is forging ahead in the very competitive institutional ECN sector? It is a very close battle of the…

BATS increases its institutional platform portfolio

Just who is forging ahead in the very competitive institutional ECN sector? It is a very close battle of the titans….

Yesterday, exchange operator BATS Global Markets announced it was buying ETF.com, without disclosing the financial terms of the transaction, in a deal which is expected to close in April 1st.

The ETF.com website which generated 875,572 page views and attracted 291,191 unique visitors in February 2016 will become an independent media subsidiary of BATS Global Markets.

David Lichtblau, CEO of ETF.com, will remain in that role and report directly to Bats Executive Vice President and Head of U.S. Markets Bryan Harkins.”, said the press release, underscoring “our commitment to the ETF industry and our focus on providing unique, value-added content for issuers, brokers, financial advisors, market professionals and investors.”

Bats has been expanding its ETF business, doubling the number of ETFs listed on the US market to 56 as the Kansas-based firm offered to pay ETF providers as much as $400,000 to list on its exchange, since 2015.

On Monday, the company announced it would provide Money.com with Bats One Feed, a market data product that handled 26.2% of all ETF trading in February 2016.

In 2015, BATS Global Markets, Inc. Class A Common Stock (BATS:BATS) decided to expand into the foreign exchange market by buying currency-trading venue Hotspot FX from KCG Holdings Inc. in a $365 million deal in cash and additional payments under a tax sharing arrangement of $63 million, apparently valuing the company 14 times the EBITDA in 2014. HospotFX has a network of more than 30 prime brokers and an average daily volume over $30,000 billion in 2016.

Multi-asset institutional platforms have been dominated by EBS (ICAP) and Thomson Reuters who compete at almost level pegging volume wise for 3 years.

Thomson Reuters bought FXall for $625 million in 2012, having published its average daily spot volume at $111 billion in a total volume of $356 million in February. At the time, FXall CEO Phil Weisberg became Global Head of eFX for Thomson Reuters, a position he continues to hold today.

Electronic Broking Services (EBS) which is the institutional ECN division of British interdealer broker ICAP Plc (LON:IAP) and is one of the largest dealing platforms, continues to hold its level pegging with FXall on a monthly basis, with average daily volumes in February 2016 coming in at $102 billion, and daily average of $107 billion in 2015, down from $274 million in 2008.

ICAP’s decision to bring EBS under the same roof in late 2014, combining its EBS foreign exchange and BrokerTec fixed income electronic trading platforms into one business unit, might have been the force behind Bats buying Hotspot FX, in a business environment where mergers and acquisitions are in fashion. Consolidation is the new big thing among institutional giants, now the other “big four”: Thomson Reuters, ICAP, BATS and KCG.

No.2 US exchange operator by volume, BATS expanded beyond equities and into foreign exchange and ETFs, aggressively trying to win market share. After a failed attempt to file an IPO in 2012, due to a glitch in the company’s trading systems, BATS is planning to file one in 2016, valuing the firm at $2 billion despite equity’s valuation at $1.5 billion.

This acquisition, when looking at the closely-contended institutional ECN sector, is a case of BATS Global Markets sharpening its bow as the battle for supremacy in this particular sector continues not only to be a four horse race, but a very marginal one at that.

Photograph: Time Square, New York. Copyright FinanceFeeds

#BATS, #etf.com, #hotspotfx, #institutional, #platform

 

Clearing of FX

  • CME Group
  • LCH
  • Eurex Group

 

 

https://www.euromoney.com/article/b12kp3zljw20cj/otc-fx-trading-becomes-exchange-like

OTC FX trading becomes ‘exchange-like’

Exchanges and the over-the-counter (OTC) market might have moved a little closer in recent years, but it is far from inevitable that demand for greater trading clarity will push a sizeable chunk of the market away from OTC.

The acquisition of trading platforms Hotspot and 360T by Bats Global Markets and Deutsche Börse respectively last year were bold statements of intent by exchange operators to grab a larger chunk of the trillions of dollars traded in FX every day.

However, while consolidation in the venues supporting FX trading can be expected to result in exchanges becoming more involved in the FX space, any actual market structure change is likely to take a long time to materialize, according to FXSpotStream CEO Alan Schwarz.

“The FX market continues to do a good job of addressing regulatory requirements and meeting the demands of market participants,” he says.

“We have seen a shift in the FX market looking to trade more on a disclosed basis. Our business has continued to see year-on-year growth because there is a move taking place from exchange-like anonymous trading to bilateral, fully disclosed trading between counterparties.

“Unlike trading on an exchange, the relationship via FXSpotStream is transparent and trading with the liquidity providing banks is on a fully disclosed basis.”

Nuances

Kevin McPartland, head of market structure and technology research at Greenwich Associates, believes that discussion of migration from OTC to exchange fails to take account of some of the nuances of the FX market and that the future lies in venues that support multiple trading models.

“There are a host of non-exchange electronic trading venues that allow clients to trade with each other in a variety of ways,” he says.

Kevin_McPartland-160x186
 

On the question of whether there is a discernible shift towards fully disclosed trading, McPartland refers to both central limit order book (CLOB) and request-for-quote (RFQ) having their merits.

Despite observations made by the likes of TeraExchange – that order book platforms offer a democratic marketplace through transparent, firm and executable prices – corporates have remained reluctant to abandon the RFQ model.

The key question for CLOB platform providers continues to be not why market participants have migrated to alternative models but rather when they will be in a position to win new business for products that are most suited for order books, such as the benchmarks and plain vanilla products.

“RGQ offers liquidity on demand and identification of counterparties, whereas CLOB is faster and its anonymity can be helpful,” says McPartland.

“But we are now seeing demand for a solution that provides the best of both worlds by enabling trading in an order book format while maintaining a bilateral relationship with counterparties.”

Regulation

According to James Sinclair, CEO of MarketFactory, options and other derivativesare moving closer to an exchange model due to the direct effects of regulation and the increased costs of compliance in OTC markets.

He refers to CME FX options as an example, noting they are effectively options on futures.

“However, the situation in the spot market is more complicated – some aspects are becoming closer to an exchange, others are moving further away,” he says. “FX has its own market structure that is hard to fit into the OTC/exchange paradigm.”

James Sinclair 2-160x186
 

One of the fundamental reasons why the market does not become centrally cleared, says Sinclair, is that a cleared model carries the cost of insurance against both settlement and market risk.

“CLS insures you against settlement risk but not the market risk,” he adds. “Counterparts still find it cheaper to self-insure against market risk in case of a counterparty default than to pay the extra cost of a fully cleared solution.”

A senior platform source observes that growth in exchange-traded products has largely come from futures traders who have looked for diversification and added FX as another asset class.

“Very little business has moved from OTC – some banks have added exchanges as additional liquidity sources to cover risk, but that is really the only business that has crossed the divide,” the source says.

OTC has become more exchange-like in that the largest banks have continued to extend their internalization of flow, so each now runs an order book trading structure internally.

However, our source also points out that the tightening of credit has reduced the number of prime brokers in FX and costs have risen “so the nearest thing that the FX OTC market has to centralized clearing has actually reduced its volume and capacity”, he concludes.

 

 

 

https://www.reuters.com/article/markets-forex-regulation/pressure-builds-to-move-more-fx-trading-onto-exchanges-idUSL5N0VJ1VU20150216

Pressure builds to move more FX trading onto exchanges

LONDON, Feb 16 (Reuters) – International regulators struggling to rein in the $5 trillion-a-day global foreign exchange market are finally finding some support from asset managers warming to the idea of moving more trading onto exchanges.

The juggernaut forex market operates 24 hours a day across all time zones, but unlike with shares or commodities, trading is not centralised, potentially leaving space for malpractices.

This has gone largely unremarked for years. But a global investigation into market-rigging, allied to post-2008 regulation which has raised trading costs, has prompted more fund managers to ask if they are getting a fair deal from banks.

Advocates say putting forex trading on to exchanges would increase transparency, limit the scope for manipulation and benefit consumers. That would all come at a cost that now looks less of an issue than it did even two years ago.

“We are talking to people who are planning to shift 10-20 percent of their portfolios to some form of exchange-based or cleared trading if only to see how it goes,” said Peter Jerrom, who has launched a new broking operation matching orders for certain types of derivatives at London-based Sigma Broking.

“There is a shift that is a reflection of how much people have become tired of a variety of issues with the banks.”

BATS Global Markets’ purchase of FX trading platform Hotspot last month and moves by NASDAQ and Eurex into the sector, as well as the growing role of commodities and futures exchange CME Group in FX dealing suggest the move is gathering momentum.

Straightforward spot trading, worth roughly $2 trillion a day, will almost certainly continue to be done ‘over the counter’, with participants dealing directly with one another by phone or electronically.

But the growing costs of trading derivatives and options means anything from 20 to 60 percent of the market will be up for grabs in the next few years.

“All of the big exchanges are looking at this space now,” said David Mercer, chief executive officer of LMAX, a “multilateral trading facility” (MTF), to all intents and purposes the world’s only regulated currency trading exchange.

The head of business development with another major exchange added: “It is clear to us that our clients want trading on exchanges. But they do not want all trading on exchanges.”

DON’T BANK ON IT

Alfred Schorno, managing director of FX trading platform 360 Trading Networks said the critical issue was increasing transparency rather than necessarily moving to exchanges.

Calls for clearer structures reached a crescendo last November, when a year-long global investigation into allegations of collusion and rigging culminated in multi-billion dollar fines for six of the world’s biggest banks.

The threat of further fines for the banks from the European Union remains, while the U.S. Department of Justice and Britain’s Serious Fraud Office are still pursuing criminal investigations.

One issue is that forex dealing is concentrated in relatively few hands, with just five banks accounting for more than half of all the trade. Understandably, they are reluctant to loosen that grip.

“The big platforms have a difficult choice to make. Faced with more regulation, if they favoured a move to exchanges, they might well be the biggest players – or at least from a manager’s point of view might be bought well by one of them,” a senior industry source said.

WTO warns of global trade slowdown as indicator hits 9-year low

“But the banks would go mad if they said that publicly so they have to keep quiet,” he said.

Britain’s Conservative-led coalition government has pushed the bigger issues of the structure of the FX market back until after May’s general election.

But with some 40 percent of global currency trading flowing through London every day, the Bank of England’s Fair and Effective Market Review recommendations, not expected out until June, will be an important sign of things to come.

The industry contact panel for the review is, notably, chaired by the head of one of the world’s biggest asset managers, Allianz IG’s Elizabeth Corley. She declined to comment for this article.

ROUBLE RUCTIONS, FRANC FALLOUT

One driver for the move to more regulation is the market’s sheer size. It is by far the world’s largest single financial market, backed by central bank balance sheets that have swollen by some $10 trillion since the 2007-08 crisis and global foreign exchange reserves that now stand at $12 trillion.

Switzerland’s shock removal of its cap on the Swiss franc on Jan. 15 helped drive a record 2.26 million transactions, worth $9.2 trillion that day. On Dec. 17, as Russia’s rouble crumbled along with oil prices, volumes hit a record $10.67 trillion.

While various financial centres have developed voluntary codes of conduct for FX trading, they are not legally binding. In FX, unlike on the stock market, short-selling or betting on a fall in the price of an asset is virtually unrestricted.

Spot trading is hardly regulated at all. Traders dealing tens of billions of dollars a day are not required to be on the UK Financial Conduct Authority’s register of approved persons.

But that leaves some $3 trillion of FX options, swaps and derivatives trading, which regulators have moved to push towards formal clearing. (Editing by Hugh Lawson)

 

From https://www.dummies.com/education/finance/international-finance/an-overview-of-foreign-exchange-derivatives/

An Overview of Foreign Exchange Derivatives

By Ayse Evrensel

In international finance, derivative instruments imply contracts based on which you can purchase or sell currency at a future date. The three major types of foreign exchange (FX) derivatives: forward contracts, futures contracts, and options. They have important differences, which changes their attractiveness to a specific FX market participant.

FX derivatives are contracts to buy or sell foreign currencies at a future date. The table summarizes the relevant characteristics of three types of FX derivatives: forward contracts, futures contracts, and options. Because the types of FX derivatives closely correspond to the identity of the FX market participant, the table is based on the derivative type-market participant relationship.

An Overview of the Relevant FX Derivatives
Forward Contracts Future Contracts Options
Standardized regarding the amount of currency No Yes Yes
Obligation to engage in the transaction on the specified
day
Yes Yes No, but premium must be paid
Traded No CME Group GLOBEX
OTC
CME Group
GLOBEX
ISE
OTC
Useful for MNCs Yes Yes Yes
Useful for speculators No Yes Yes

CME Group: the leading derivative exchange formed by the (2007) merger of the Chicago Mercantile Exchange (CME) and Chicago Board Options Exchange (CBOT); GLOBEX: an international, automated trading platform for futures and options at CME; ISE: International Security Exchange, a subsidiary of EUREX, a European derivative exchange; OTC: over-the-counter.

https://www.cls-group.com/products/settlement/clsclearedfx/

CLSClearedFX is the first payment-versus-payment settlement service specifically designed for over the counter (OTC) cleared FX derivatives. The service enables central counterparties (CCPs) and their clearing members to safely and effectively mitigate settlement risk when settling cleared FX products.

The service delivers capital, margin, leverage, liquidity and operational benefits for industry participants, and is consistent with goals set by the G20 in response to the global financial crisis to mitigate systemic risk through the clearing of standardized OTC derivatives.

https://www.clarusft.com/fx-clearing-the-750bn-market-that-keeps-growing/

FX Clearing – the $750bn market that keeps growing

  • LCH ForexClear continues to dominate the cleared NDF market.
  • CME have recently announced that 7 market participants intend to clear NDFs across their service next year.
  • We look at the CME’s existing volumes in FX futures.

FX NDF Clearing Update

When we last looked at NDF Clearing in June 2017, we saw that LCH were dominating volumes. Open Interest had risen to $600bn+ and monthly volumes were up over $400bn, with March 2017 pushing $500bn. Has anything changed since? Amir provided an update for September, and bringing this up-to-date via CCPView shows:

NDF Notional Outstanding

Showing;

  • LCH ForexClear continues to dominate NDF clearing. 92% of notional outstanding is at LCH.
  • Total Notional Outstanding of cleared NDFs has now surpassed $750bn – both in total and at ForexClear alone.
  • Growth since the beginning of 2017 has been impressive, with Open Interest basically doubling (it is 1.88 times higher now than end of December 2016).

And in terms of monthly volumes, October 2017 was near to the records set in September. The weekly time-series of volumes shows a steady upwards trend:

Weekly Cleared NDF Volumes
  • The biggest week was the end of September, when $184bn cleared in total.
  • There have now been four weeks when total clearing volumes have topped $150bn.
  • Our disclosures data shows that the number of participants at LCH ForexClear have increased over the past year. We started at 25 in Dec 2016 (23 of whom were banks), and we were up to 27 as at end June 2017 (our latest data point).

As a reminder, this move to NDF Clearing appears to be a post-trade process. We still see less than 4% of volumes reported to SDRs flagged as “Cleared”. Actual market take-up is much larger than this (about 20% of the total market is cleared and 35% of D2D markets according to our last estimates) – but the trades are novated to clearing after trading, and hence do not appear to be cleared in public trade reports.

FX Futures

Elsewhere in FX markets, CME recently announced a new “FX Link” product:

CME FX Link

This obviously piqued our interest at Clarus – we like innovation, we are keen followers of the FX market and we are continually looking at ways that volumes may move across OTC and Futures products. This new product ticks a lot of those boxes!

Add in the fact that EMIR brings VM to FX Forwards next year, and this product is one we will watch closely. If counterparties can bring in multilateral netting benefits of clearing to any of their OTC business, it may lessen the funding impacts from having to post VM on FX.

In terms of the product itself, I understand this to be the concurrent buy and sell of OTC Spot versus an FX Future at CME. As well as managing VM in a UMR world, this product offers the same exposures to risk factors as an OTC FX Forward – interest rate differentials between two currencies, very short dated cross currency basis exposure – but could allow users to manage OTC credit and settlement exposures by using a future for the long-leg.

For CME, I imagine transferring as much liquidity as possible from the OTC space to the futures space is important. Therefore, using Quandl, I had a look at FX futures volumes recently:

Daily FX Futures volumes in EURUSD. Data from quandl.com

Showing;

  • Number of contracts traded in the front EURUSD FX Futures contract every day since June.
  • Volumes have been very stable.
  • The rolling ten-day average (the orange line) shows anything between 150-250,000 contracts trade each day. Multiply by EUR125,000 notional value tells us we have a notional equivalent volume of around €25bn.
  • Bloomberg frequently call the FX market a “$5 trillion” market:

  • That number comes from the BIS Triennial Survey, which we’ve analysed in plenty of detail in the past.
  • In that BIS survey, we see an average daily volume for EURUSD spot of ~$500bn. If we treat the CME future as a spot-like product (because it trades on an outright basis and I imagine is largely used for price risk transfer) then about 5% of spot-market equivalent volume occurs in futures markets.

It will be an interesting one to watch. Our chart suggests volumes in FX Futures have been fairly static recently. Will this new product shake things up?

NDF Clearing at CME

That was going to be that before I saw another release from CME this week:

I’ve not got too much to add to the press release apart from;

  • Cross-margining versus Non Deliverable IRS will be offered. This is interesting as I do not think that LCH cross-margin ForexClear versus SwapClear (let me know if you think different in the comments). On the LCH 2017 roadmap, non deliverable swaps should soon be available at SwapClear (Q4 2017).
  • It is not clear if these members are new members or are existing clearing members at CME. Our Disclosures data (identified as “CME IRS” ) shows that CME had 23 clearing participants at end June 2017.

We will be keeping a keen eye in Q1 2018 for these volumes coming through into the CME service. Make sure to subscribe to stay on top of these market trends.

In Summary

  • Open Interest in Cleared NDFs has surpassed the $750bn mark.
  • LCH dominate NDF clearing at the moment, with up to $150bn in notional volumes trading each week.
  • CME will be bringing more competition to NDF clearing in 2018 with seven participants intending to clear.
  • CME already have a successful FX franchise, with EURUSD FX Futures accounting for around 5% of spot market volumes.
  • CME are introducing an FX Link product in 2018 which will combine OTC spot and Futures contracts into a single executable spread.
  • Clarus data helps market participants stay on top of these trends by showing where volumes are traded.

Stay informed with our FREE newsletter, subscribe here.

https://www.thetradenews.com/eurex-to-launch-otc-fx-clearing-service/

Eurex to launch OTC FX clearing service

Eurex will look to open up competition for clearing OTC FX derivatives in Europe.

 

Eurex will begin clearing OTC FX derivatives following the launch of new systems changes to clearing swaps, as it looks to compete in new asset classes with LCH.

Eurex Clearing is cooperating with 360T to introduce clearing on OTC FX swaps, spots and forwards in EUR/USD and GDP/USD, with CLS acting as the settlement agent.

According to a circular from the Frankfurt-based exchange group, it plans to launch the service after it goes live with a series of changes to EurexOTC Clear on 15 May. It currently provides clearing for FX futures and listed options.

The move will open up competition in the FX swaps market, with London-based LCH currently operating the only clearing service for OTC FX derivatives in Europe. So far this year LCH has cleared over 128,000 contracts with a notional volume of $2.9 trillion.

According to data from ClarusFT, over a third of dealer-to-dealer volumes were cleared in the non-deliverable forwards market at the end of last year.

Previous reports have suggested LCH is looking to launch an OTC FX options clearing service. Meanwhile CME Group has said it will expand its cleared FX suite this year by offering FX options on seven main currency pairings.

Tagged: , ,

https://www.bestexecution.net/360t-future-fx-david-holcombe/

360T : The Future of FX : David Holcombe

THE FUTURE OF FX: EXCHANGE TRADED AND OTC LIQUIDITY?

Best Execution talks to David Holcombe, Product Lead for FX Futures and Clearing, 360T

Is the FX market really heading towards being an exchange traded and centrally cleared market?

This isn’t an all or nothing point in either direction. One size does not fit all in the FX market. The Deutsche Boerse Group FX strategy is actually a good view of the end state of the FX landscape – where informed clients will establish whether to clear any given trade, then use the right tools to achieve that.

When will that be? Cleared and exchange traded FX is still a small fragment of the overall FX market, so surely that “end state” view is still many years away?

My role is to ensure 360T exploits tight integration between 360T, the Eurex Exchange, Eurex Clearing and other group entities to create a truly front-to back FX offering for our clients that covers Exchange and OTC FX liquidity. We haven’t made a public song and dance about this, but this integration really is very well advanced, and you will see FX futures traded via 360T in the first quarter of 2018.

Beyond tools to let our clients choose the right FX product for the trade they need to do, using the right execution model, and the right credit and clearing model to exploit all the benefits available, the challenge the industry faces right now is to understand what clearing means, and what it can do for them.

OK, so if clearing is the start point for all of this, how do I know whether to clear something?

It’s actually a complex consideration. We’ve had a specialist consultancy in to prepare analysis to quantify the benefits of central clearing for FX, as in the absence of clearing mandates, the decision process to clear needs to consider multiple attributes for any given scenario. With so many moving parts as variables in the model, we are now going through these results with clients individually, offering to put their sample portfolios through our modelling tool to see where they will gain.

Ultimately though, one has to understand what the real drivers for each trade are, and also to consider the full impact that the trade will have on the portfolio in each form it could take, in order to then make an informed decision of how and where to get the best trade done with the best outcome.

So, once you need to clear, how do you choose between OTC executed flow or exchange products?

While the use of exchange listed products amplifies the benefits of clearing, the answer is still pretty much down to product access and liquidity.

It’s understandable that OTC execution is a place many start when considering clearing, because exchange-traded FX has never really been centre stage in the FX market. The majority of our clients being real FX participants state that a market built on the foundations of “how much and who’s asking”, with a myriad of ways in which LPs and clients can meet to bilaterally negotiate and trade OTC FX, have meant the US-focused exchange offerings, with limited value dates and product flexibility, have always been too far away from being a good fit for their needs.

Also, it is fair to say that trading on an exchange platform doesn’t suit everyone, and clients with strong relationships that have historically served them very well, particularly in bilateral disclosed models, are understandably inclined to favour those routes to interact with the market. This is the execution model you will see in our 360T Block and EFP network: access to FX futures, while trading using familiar OTC models and tools.

When OTC products are the right route though, the availability of a clearing service for the product you need is the first obvious consideration. While interdealer NDF clearing is pretty much routine now, no CCP has yet been able to satisfy the regulators that they are effectively managing the settlement risk they concentrate between members for deliverable OTC FX products, in order to address the bulk of the market’s ADV – deliverable Spot, Forward and FX Swaps. Deliverable OTC FX clearing will become a reality in 2018 though, as we are one of two major CCPs currently finalising a deliverable FX clearing service, with the Deutsche Boerse Group’s Eurex Clearing service being the only one focused on letting you clear FX Spot, Forward, FX Swap, alongside cross currency swaps.

Once you have determined the position is going to be cleared, then your focus should be whether listed or OTC products give you the best route to get that position into the clearing house, considering all liquidity available: in the exchange orderbook and off-book – exactly the model 360T has with support for OTC alongside exchange listed FX products.

Well that’s clear – the customer gets the choice of using an OTC or exchange FX product, and accessing those exchange products on or off the exchange orderbook, but surely the problem with listed FX remains – the products are not a particularly good fit for OTC users?

The uptake of FX futures will be helped by next generation products that evolve FX futures from the US contracts with a small number of infrequent value dates, to something closer resembling the flexibility of OTC products.

We do have classic shaped FX futures contracts, albeit with OTC characteristics like having the currency pair quoted the right way around for OTC users, but a perfect example of next generation FX is the Eurex Rolling Spot Future. This is the simplest way to get FX spot exposure into the CCP, using an exchange listed product designed with a focus on removing incumbent costs in OTC rolls, with multiple liquidity providers considering the exchange orderbook and also how they can use the 360T block and EFP functionality to increase their distribution.

With all of these points aligning, the future of FX is here. Giving the customer true choice of product, execution type, and credit/clearing model so they can exploit the benefits that clearing can bring is certainly a challenge, but all of the foundations are already there for this client choice to become a reality in 2018 within 360T and the Deutsche Boerse Group.

http://www.360t.com

https://marketvoice.fia.org/issues/2017-12/cme-vs-lch-take-twoCME vs. LCH: Take Two

CME reinvigorates NDF clearing service in battle with LCH’s ForexClear

By

Nicola Tavendale

CME Group is making another run at the OTC FX market. The Chicago-based market operator recently unveiled an agreement with seven leading liquidity providers to begin using its clearing service for non-deliverable forwards and redoubled its efforts to promote the capital efficiencies that clearing can provide for FX traders. But with LCH currently dominating NDF clearing, is there really enough demand for the CME solution?

Over the last two years, NDF clearing has exploded as margin requirements for uncleared derivatives have come into effect around the world. Banks seeking to avoid those margin requirements have mainly turned to LCH’s ForexClear service, which provides clearing for NDFs in 12 emerging market currencies as well as several G-10 currencies. The service has 30 clearing members and has signed up an additional 3,000 client accounts this year alone. In the third quarter, the London-based clearinghouse processed NDFs worth $1.5 trillion in notional value, up more than 400% from the third quarter of 2016.

NDF Clearing Surges
Monthly Notional Value Cleared at LCH (Billions USD)

NoteMonthly clearing volumes include a small amount of NDFs in major currencies such as EUR, GBP, JPY and CHF. These NDFs make up less than 0.1% of total NDF clearing volume.
Source: LCH 

Virtually all interdealer activity resides on the LCH platform, explained John O’Hara, Americas head of prime brokerage and clearing at Société Générale Corporate and Investment Banking. But he said there is demand for a CME solution as well. One reason is the potential synergy with CME’s well-established foreign exchange futures market, which boasts more than $91 billion in average daily volume and more than $260 billion in open interest. “People gravitate toward what is most familiar to them, and for those actively clearing futures on CME, OTC FX clearing is a natural progression,” O’Hara explained.

CME has offered NDF clearing for several years but with minimal success. As of early December, across the 12 emerging market NDFs that CME clears, the only one with any activity was the Colombian peso NDF. The open interest in all of the others was exactly zero.

CME sees an opportunity for a second chance, however. So far most of the NDF clearing has been for interbank trades, but fund managers and other buyside institutions are poised to take up clearing as margin requirements for uncleared derivatives come into effect. CME is hoping that it can capture a share of this business by offering a clearing solution that combines OTC FX products with listed futures and options. Portfolio margining of OTC FX NDFs and listed FX futures is not available yet, but CME is working on getting regulatory approval and is hoping to bring that live in 2018.

Getting Market Makers on Board

The deeper challenge is pricing. Market sources said because ForexClear has been so widely adopted, liquidity in NDFs that are cleared at LCH are quoted with a tighter bid-ask spread than NDFs cleared at CME. CME is hoping to address that issue with its November announcement that seven leading NDF liquidity providers intend to start clearing with the service by the end of the first quarter of 2018. The seven liquidity providers are BBVA, Citi, Itau Unibanco, NatWest Markets, Santander, Standard Chartered and XTX Markets.

It is no accident that three of the liquidity providers—BBVA, Itau Unibanco, and Santander—are specialists in Latin American markets. Many of the most heavily traded NDFs are based on Latin currencies such as the Brazilian real and the Colombian peso. The other big center for NDFs is in Asia. That is one of the strengths of Standard Chartered, one of the top liquidity providers in Asian forex markets.

XTX is the only one of the seven that is not a bank, but the London-based electronic trading firm has emerged over the last three years as a major liquidity providers in the FX market. In last year’s Euromoney survey, which calculates market share across the top forex market-makers, XTX took third place in electronic spot trading in last year’s Euromoney survey of market share across the top FX market makers, and first place in this year’s FX Week awards for best liquidity provider.

All Under One Roof

CME also argues that its solution has a structural advantage. At LCH, the ForexClear service has its own default fund that is separate from its clearing services for other asset classes such as interest rate swaps. At CME, NDFs are under the same umbrella as a range of related products, including listed FX futures and options as well as interest rate swaps. That opens the door for margin offsets that LCH cannot offer. For example, CME estimates that the margin offsets between NDFs and non-deliverable interest rate swaps denominated in currencies such as the Brazilian real and the Korean won could go as high as 51%. The single default fund structure also offers capital savings for clearing firms. Rather than having to commit their capital to multiple default funds, the clearing firms only need to make one commitment that covers all the asset classes that they clear.

“Our NDF clearing solution leverages the same guaranty fund as the entire CME Group-listed futures and options complex, enabling material capital savings for our NDF clearing members and lower fees for customers clearing via an FCM,” Sean Tully, CME’s senior managing director of financials and OTC products, said in November when the agreement with the seven liquidity providers was announced.

Buyside Interest on the Rise

One of the key drivers behind the rise in demand for NDF clearing is the implementation of uncleared margin rules, which are still in the early stages of being phased in. Paddy Boyle, global head of ForexClear, explained that bilateral initial margin was initially required from all participants with at least $3 trillion of notional outstanding. That limit has now fallen to $2.25 trillion and will continue to fall to lower and lower thresholds. By September 2020, nearly all market participants will be subject to the rules.

“When we reach the final threshold in 2020, NDFs that are bilaterally traded and uncleared will become significantly more expensive and will provide all types of institutions with obvious greater incentive to clear,” Boyle said. Although most buyside firms are not yet subject to the margin requirements, Boyle said there is a “small but active group” of buyside firms voluntarily clearing NDFs at LCH now. “We expect buy-side clearing to grow substantially over the next few years, particularly as most buy-side firms will be caught as the thresholds continue to fall in 2019 and 2020,” he added.

“We expect buy-side clearing to grow substantially over the next few years, particularly as most buy-side firms will be caught as the thresholds continue to fall in 2019 and 2020.”

– Paddy Boyle, LCH

Basu Choudhury, head of business intelligence at NEX Traiana, also predicted that the buy side will soon have to start clearing more. Choudhury, who worked at ForexClear before joining Traiana in August 2016, explained that the first two waves of margin rules created an upturn in demand from tier one and tier two banks for NDF clearing. “Come January 2018, buy-side firms globally will also start to be impacted, so what CME are looking to do on the NDF side makes sense,” he said.

There is an added attraction for mutual funds in the U.S., according to SocGen’s O’Hara. “Since these fund structures have leverage and cash retention requirements measured on a gross notional basis when trading deliverable forwards, they have been seeking ways to ensure that there is no chance of delivery so their exposure can be assessed purely on a mark-to-market basis,” he explained. Since the CCPs have a mechanism wherein they can disallow delivery, they should be able to provide this relief, he said.

Convergence Play

Bringing liquidity providers on board is only one part of a renewed focus on the OTC FX market at CME. The company also is preparing to roll out a new service in the first quarter that will give OTC market participants better access to the liquidity in CME’s FX futures. Starting on Feb. 18, CME’s Globex electronic trading platform will support a central limit order book for trades that track the basis between spot FX and FX futures. This service, called FX Link, will enable the trading of an OTC spot FX contract and an FX futures contract via a single spread trade.

CME is partnering with Citi, one of the largest liquidity providers in the FX market, to act as central prime broker for the spot FX transactions resulting from the spread. The benefit of this arrangement, according to CME, is that it will allow participants to tap into their existing OTC FX interbank credit relationships and the established OTC FX prime brokerage network.

“By strengthening the integration between futures and the OTC FX marketplace, CME FX Link will enhance access to our deeply liquid FX futures market,” Paul Houston, CME’s global head of FX products, said in September when the initiative was announced. “OTC FX market participants will benefit from the capital and regulatory advantages of listed futures as well as optimizing credit lines through facing a central counterparty.”

“There will continue to be a convergence of sorts as OTC becomes more futures-like and futures assume some characteristics of OTC.”

– John O’Hara, Société Générale

In addition, both CME and ForexClear are preparing to launch OTC FX options clearing. CME said it is working with major FX options dealers to deliver a cash-settled clearing solution later this year, with the expectation of volumes beginning in early 2018. In contrast, ForexClear’s solution will offer physical settlement of OTC FX options in partnership with CLS, the widely used settlement service. ForexClear is currently seeking regulatory approval and plans to start by offering clearing in eight major currency pairs.

SocGen’s O’Hara explained that the options market has historically been characterized by physical settlement and many firms’ operational infrastructures have been built with this in mind. CME’s view, however, is that physical-settlement had become the standard simply as a consequence of how the market evolved and that cash settled would be the norm if it were starting today.

Ultimately the FX market is big enough to support both clearinghouses, according to Choudhury. “In IRS clearing we saw the buyside use CME initially while big dealers used LCH and it will be interesting to see if the same occurs with FX clearing,” he said. “CME do offer risk offsets between FX futures and OTC FX. For the buyside this may be attractive due to arbitrage opportunities, but dealers may prefer the LCH model due to larger netting pool.”

O’Hara commented that all of these moves are part of a larger trend that is blurring the lines between different sectors of the FX marketplace. “There will continue to be a convergence of sorts as OTC becomes more futures-like and futures assume some characteristics of OTC,” he said.

Other Topics

  • CME NDFs
  • Algorithmic Trading
  • High Frequency Trading
  • Global Code for FX Transactions

 

 

 

 

Please see my related posts

Understanding Global OTC Foreign Exchange (FX) Market

Key Sources of Research

Foreign exchange liquidity in the Americas

https://www.bis.org/publ/bppdf/bispap90.pdf

High-frequency trading in the foreign exchange market

https://www.bis.org/publ/mktc05.htm

 

Monitoring of fast-paced electronic markets

https://www.bis.org/publ/mktc10.htm

Click to access mktc10.pdf

Liquidity Provision in the Interbank Foreign Exchange Market

Frederick Van Gysegem

2013

 

Click to access 4197291.pdf

 

 

 

The Retail FX Trader: Rising Above Random

Christopher J. Davison

Nottingham Trent University, UK

February 4th 2016

 

Click to access 5881_Davison.pdf

 

 

 

 

The Evolution of Foreign Exchange Markets in the Context of Global Crisis

Mariana Trandafir1, Georgeta Dragomir2

 

Click to access 045cXL4244.pdf

 

 

 

Liquidity in FX spot and forward markets∗

Ingomar Krohn† Vladyslav Sushko‡

First draft: November 2017

Click to access 28-krohn-liquidity-in-fx-spot-and-forward-markets.pdf

 

Click to access GRU%232017-019%20Krohn%20Sushko.pdf

 

 

 

Essays on the FX Market Microstructure

 

https://biblio.ugent.be/publication/8541119/file/8541128

FX Spot and Swap Market Liquidity and the Effects of Window Dressing

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3092248

 

 

 

 

Foreign Exchange Market: Institutional Structure, Regulation, and Policy Implications

Fei Su1,*, Jun Zhao

 

Click to access jfe-5-5-1.pdf

http://pubs.sciepub.com/jfe/5/5/1/index.html

 

 

 

Trading Too Expensively in the FX Market? Empirical Evidence on Liquidity from an Aggregator

 

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3208229&download=yes

 

 

 

Development and Functioning of FX Markets in Asia and the Pacific1

Richard M. Levich2
NYU Stern School of Business and NBER

Frank Packer3
Bank for International Settlements

Click to access L-Packer.pdf

 

 

 

Settlement Risk in the Global FX Market: How Much Remains?

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2827530&download=yes

The Retail Spot Foreign Exchange Market Structure and Participants

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2753823

 

 

 

FX MARKET METRICS: NEW FINDINGS BASED ON CLS BANK SETTLEMENT DATA

Joel Hasbrouck Richard M. Levich
March 2017

Click to access w23206.pdf

 

 

The flows of the Pacific: Asian foreign exchange markets through tranquility and turbulence

Dagfinn Rime and Hans Jørgen Tranvåg

 

https://brage.bibsys.no/xmlui/bitstream/handle/11250/2496837/wp_2012_1.pdf?sequence=1

 

 

 

FX counterparty risk and trading activity in currency forward and futures markets☆

Richard M. Levich

https://onlinelibrary.wiley.com/doi/pdf/10.1016/j.rfe.2012.06.004

 

 

 

Downsized FX markets: causes and implications

 

Click to access dfc8c7fd137a4927bd1a910ddb7650aeb4d3.pdf

 

 

 

The Asia Pacific FX Markets: Opportunities for Growth

KPMG

 

Click to access the-asia-pacific-fx-markets.pdf

 

 

 

Foreign exchange market structure, players and evolution

Michael R. King, Carol Osler and Dagfinn Rime

 

Click to access Rime-2.pdf

 

 

 

Foreign exchange trading and settlement: Past and present

Click to access cflfebruary2006-223-pdf.pdf

 

 

The foreign exchange and derivatives markets in Hong Kong

 

Click to access fa.pdf

 

 

Developments in Foreign Exchange and OTC Derivatives Markets

Megan Garner, Anna Nitschke and David Xu

 

Click to access rba-bulletin-2016-12-developments-in-foreign-exchange-and-otc-derivatives-markets.pdf

 

 

What’s behind the BIS Triennial Foreign Exchange Survey in 2016:Waning Risk Appetite and Expanding RMB Transactions

Kikuko Takeda
Senior Economist

 

Click to access NL2017No_2_e.pdf

A set of global principles of good practice in the foreign exchange market

 

Click to access fx_global.pdf

 

 

Cleared OTC FX

Click to access otc-fx-clearing.pdf

Click to access coupon-blending-for-ndfs.pdf

 

 

The spillover of money market turbulence to FX swap and cross-currency swap markets1

 

Click to access r_qt0803h.pdf

 

 

The Foreign Exchange Market and Central Counterparties

Mark Manning, Alex Heath and James Whitelaw*

 

Click to access bu-0310-8.pdf

 

 

 

Foreign Exchange Swaps and Forwards: Product Overview

 

Click to access FXC_Letter_113010.pdf

 

 

 

 

DAT consultation response – Incentives to centrally clear over-the-counter (OTC) derivatives

 

Click to access GFMA-Global-Foreign-Exchange-Division.pdf

360t.com

Trends in Cross Border Mergers and Acquisitions

Trends in Cross Border Mergers and Acquisitions

 

From The Location of Cross-Border Mergers & Acquisitions in the USA

The vast majority of foreign direct investment (FDI) takes place in the form of cross-border mergers and acquisitions (M&As), see Evenett (2004). Analyzing the determinants and consequences of M&As is part of a large and growing literature in both (international) economics and (international) business. In economics, the dominant industrial organization (IO) literature does, however, typically not deal with the cross-border aspect of M&As, but instead concentrates on national M&As (Salant et al., 1983; O’Brien and Shaffer, 2005; Davis and Wilson, 2008; Egger and Hahn, 2010). A relatively small literature explicitly tries to include the cross-border aspect of M&As, but neglects the role of country factors that are central in international economics and international business to explain the structure and variation of cross-border transactions (Anand and Delios, 2002; Nocke and Yeaple, 2007, 2008, Bertrand and Zitouna, 2006; Fugmagalli and Vasconcelos, 2009, Halverson, 2012). The impact of country wide differences on cross-border M&As is taken explicitly into account by Neary (2004, 2007) who focuses on differences in comparative advantage between countries in a general equilibrium model to explain the occurrence of cross-border M&As. Empirical support for this idea is found by Brakman et al (2013), see also Blonigen et al (2014). In the international business literature – ever since the introduction of Dunning’s Ownership-Location-Internalization (OLI) framework – the mode of foreign entry and the choice of a foreign location have been central, but not explicitly modelled, as the OLI framework is more a taxonomy of relevant elements for location choice than a model (see for example Dunning, 2000).2

Both for the modern international business and international economics literature, however, whenever the location of cross-border M&As is taken into account, it usually refers to the host country as a whole. Where to locate the M&A within the host country is not analyzed. This amounts to assuming that if foreign firms have decided to engage in an M&A they choose a country but are indifferent regarding the target location within that country. This observation is the starting point for the present paper. In contrast to this observation with respect to cross-border M&As, the within country location choice with respect to greenfield FDI has been analyzed in depth. The seminal study by Head et al. (1995) was pivotal, and initiated a large and growing body of literature; see for example Fontagne and Mayer (2005); Basile et al., (2008); Defever, (2006); or Mataloni, (2011). Similar analyses for cross-border M&As are largely absent and this is striking because the bulk of FDI is in the shape of cross-border M&As. A priori, there is no reason to assume that the location decision of greenfield investments and M&As are similar. M&As, by definition, merge with or acquire existing firms at a specific location, whereas greenfield investments can, in principle, locate anywhere.

 

From Economic and Financial Integration and the Rise of Cross-Border M&As

FDI8

 

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI

  • Most of the Foreign Direct Investment (FDI) is in the form of Cross Border M&A.

 

The motivation for Cross Border M&A can be several:

  • Horizontal Integration ( Seeking Market Share)
  • Vertical Integration ( Control of Supply Chain)
  • Diversification (Market Seeking)

Research indicate that most of the cross border M&A are for seeking markets.

 

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI2

  • Cross Border Mergers have been rising since 1985.

 

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI3

 

  • Europe and North America dominate regions in which cross borders M&A are taking place.

 

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI4

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI6

 

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI5

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI7

 

From  M&A Today: A Quick Pre-Financial Crisis Comparison

FDI9FTD10FDI11

Sources of M&A Data:

From Exploration of Mergers and Acquisitions Database: Deals in Emerging Asian Markets

There are four popular mergers and acquisitions databases,

  • SDC Platinum Mergers & Acquisitions (M&A) database,
  • Bloomberg M&A database,
  • Mergerstat M&A database,
  • ZEPHYR M&A database.

The SDC Platinum M&A Database covers domestic deals from 1979 to present and international deals from 1985 to present. Thomson Reuters states that the SDC includes more transactions than any other source and is widely used by the industry professionals and academic researchers.

The Bloomberg M&A database began putting the mergers and acquisitions product together in January 1998, with the intention of providing “100 percent coverage of all global deals as they were announced” (Ide, 2001). Bloomberg states that it has mergers and acquisitions staff in 12 offices worldwide compiling M&A data and relationships with over 800 legal and financial firms.

According to the Zimmerman (2006), the Mergerstat database covers both acquisitions and divestitures where at least one significant party is a U.S. company.

the ZEPHYR database covers transactions both inside and outside the U.S. and is particularly useful to study M&A deals in Europe (from 1997 forward for European transactions; from 2000 forward for North American transactions; global coverage begins in 2003).

 

Academic Libraries

 

Deloitte Consulting M&A Services

https://www2.deloitte.com/us/en/pages/mergers-and-acquisitions/solutions/merger-and-acquisition-services.html

 

KPMG Consulting

https://advisory.kpmg.us/content/kpmg-advisory/deal-advisory/ma-spotlight/ma-spotlight-june-2017.html?gclid=CjwKCAjwo4jOBRBmEiwABWNaMQAFeh6oDkE3FAlfCTiA8yKJkpHwuRPwcvBQlnZpFbm_JpODEt1AuRoC8t4QAvD_BwE

 

Thomson Reuters

https://financial.thomsonreuters.com/en/markets-industries/investment-banking-financial-advisory/mergers-and-acquisitions.html

 

PITCHBOOK.COM

http://get.pitchbook.com/mergers-and-acquisitions-data/?utm_term=mergers%20and%20acquisitions&utm_source=adwords&utm_campaign=ma&utm_content=ma&_bt=166828976390&_bm=p&_bn=g&gclid=CjwKCAjwo4jOBRBmEiwABWNaMSspbwSShK79f6OskgjShGv0_8c8qgrnqF35qv2Fu9t9ZvgwfzfTpxoCaa8QAvD_BwE

White and Case

http://mergers.whitecase.com

 

IMAA-Institute.org

https://imaa-institute.org/mergers-and-acquisitions-statistics/

FACTSET / MERGERSTAT

https://www.factset.com/data/company_data/mergers_acq

 

Bureau Van Dijk/ZEPHYR

https://www.bvdinfo.com/bvd/media/reports/global-fy-2016.pdf

 

STATISTA

https://www.statista.com/topics/1146/mergers-and-acquisitions/

UNCTAD / World Investment Report

http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/World_Investment_Report.aspx

Wilmer and Hale Law Firm

https://www.wilmerhale.com/uploadedFiles/Shared_Content/Editorial/Publications/Documents/2017-WilmerHale-MA-Report.pdf

 

Dealogic.com

http://www.dealogic.com/insight/ma-outlook-2017/

Please also see other related posts:

Mergers and Acquisitions – Long Term Trends and Waves

External Balance sheets of Nations

Low Interest Rates and International Investment Position of USA

 

Key sources of Research:

CROSS-BORDER MERGERS AND ACQUISITIONS:
ON REVEALED COMPARATIVE ADVANTAGE AND MERGER WAVES

Steven Brakman
Harry Garretsen
Charles van Marrewijk

2008

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1087886https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1087886

 

Cross-Border Mergers & Acquisitions: The Facts as a Guide for International Economics

CESifo Working Paper Series No. 1823

 

Steven Brakman

Harry Garretsen

Charles van Marrewijk

 

Date Written: October 2006

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=940348

 

Cross-border Mergers and Acquisitions: Their Role in Industrial Globalisation

2000

Nam-Hoon Kang and Sara Johansson

 

http://www.oecd-ilibrary.org/docserver/download/137157251088.pdf?expires=1505877469&id=id&accname=guest&checksum=BA90C157DC1196BE6E7C3CE1726D31FF

 

 

Theoretical foundations of cross-border mergers and acquisitions: A review of current research and recommendations for the future

Katsuhiko Shimizua,*, Michael A. Hittb,1, Deepa Vaidyanathc,2, Vincenzo Pisanod,3

Available online 24 July 2004

 

 

 Determinants of Cross-Border Mergers and Acquisitions

Isil Erel / Rose C. Liao /  Michael S. Weisbach

March 15, 2011

https://fisher.osu.edu/supplements/10/9864/ELW_JFRound3Revision.pdf

The Cross-Border Mergers and Acquisitions Wave of the Late 1990s

Simon J. Evenett

 

http://www.nber.org/chapters/c9545.pdf

 

 

 

The Macroeconomic Determinants of Cross Border Mergers and Acquisitions and Greenfield Investments

Paula Neto; Antonio Brandão; António Cerqueira

2010

 

https://www.researchgate.net/profile/Antonio_Brandao3/publication/46466162_The_Macroeconomic_Determinants_of_Cross_Border_Mergers_and_Acquisitions_and_Greenfield_Investments/links/0912f50c5ab64daab5000000.pdf

 

 

The Impact of FDI, Cross Border Mergers and Acquisitions and Greenfield Investments on Economic Growth

Paula Neto; Antonio Brandão; António Cerqueira

2010

https://www.researchgate.net/profile/Antonio_Brandao3/publication/24111675_The_Impact_of_FDI_Cross_Border_Mergers_and_Acquisitions_and_Greenfield_Investments_on_Economic_Growth/links/0912f50c5ab651626b000000.pdf

 

Exploration of Mergers and Acquisitions Database: Deals in Emerging Asian Markets

 

http://www.myacme.org/ijmtp/IJMTPV14N1/3%20IJMTP14005%20Draft%203%20final.pdf

 

 

Cross Border Mergers and Acquisitions

Scott Whitaker

2016

 

 

Economic and Financial Integration and the Rise of Cross-Border M&As

STEVEN BRAKMAN

GUS GARITA

HARRY GARRETSEN

CHARLES VAN MARREWIJK

March 2009

 

 

 

The Location of Cross-Border Mergers & Acquisitions in the USA

Steven Brakman
Harry Garretsen
Charles Van Marrewijk

CESIFO WORKING PAPER NO. 5331

APRIL 2015

 

 

M&A Today: A Quick Pre-Financial Crisis Comparison

2017

 

https://financial.thomsonreuters.com/content/dam/openweb/documents/pdf/financial/pre-financial-crisis-comparison.pdf

 

 

 

 

Cross-Border Mergers and Acquisitions and Financial Development:
Evidence from Emerging Asia

Douglas H. Brooks and Juthathip Jongwanich

No. 249 | February 2011

 

https://www.adb.org/sites/default/files/publication/28703/economics-wp249.pdf

 

 

 

MERGERS AND ACQISITIONS (M&As)

Prepared by
Directorate for Financial and Enterprise Affairs, Investment Division, OECD

May 2004

 

https://www.imf.org/External/NP/sta/bop/pdf/diteg4a.pdf

 

 

 

OECD BENCHMARK DEFINITION OF FOREIGN DIRECT INVESTMENT:

FOURTH EDITION –

ISBN 978-92-64-04573-6 – © OECD 2008

 

https://www.oecd.org/daf/inv/investmentstatisticsandanalysis/40193734.pdf

 

 

 

Economic and Other Impacts of Foreign Corporate Takeovers in OECD Countries

 

https://www.oecd.org/daf/inv/investment-policy/40476100.pdf

 

 

 

A Comparative Analysis of the Economic Effects of Cross-Border Mergers and Acquisitions in European Countries

Anita Maček

 

https://cdn.intechopen.com/pdfs-wm/38482.pdf

 

 

On Inequality of Wealth and Income – Causes and Consequences

 On Inequality of Wealth and Income – Causes and Consequences

 

Disparity in Wealth and Income of American workers/household is a hot public policy/economic/social/political issue.

  • Wealth (Stock)
  • Income (Flow)

what are the causes and consequences of Inequality on economics and society?

 

From TRENDS IN INCOME INEQUALITY AND ITS IMPACT ON ECONOMIC GROWTH (OECD)

The disparity in the distribution of household incomes has been rising over the past three decades in a vast majority of OECD countries and such long-term trend was interrupted only temporarily in the first years of the Great Recession. Addressing these trends has moved to the top of the policy agenda in many countries. This is partly due to worries that a persistently unbalanced sharing of the growth dividend will result in social resentment, fuelling populist and protectionist sentiments, and leading to political instability. Recent discussions, particularly in the US, about increased inequality being one possible cause of the 2008 financial crisis also contributed to its relevance for policy making. But another growing reason for the strong interest of policy makers in inequality is concern about whether the cumulatively large and sometimes rapid increase in inequality might have an effect on economic growth and on the pace of exit from the current recession. Is inequality a pre-requisite for growth? Or does a greater dispersion of incomes across individuals rather undermine growth? And which are the short and long-term consequences of redistributive policies on growth?

From Causes and Consequences of Income Inequality: A Global Perspective (IMF)

Widening income inequality is the defining challenge of our time. In advanced economies, the gap between the rich and poor is at its highest level in decades. Inequality trends have been more mixed in emerging markets and developing countries (EMDCs), with some countries experiencing declining inequality, but pervasive inequities in access to education, health care, and finance remain. Not surprisingly then, the extent of inequality, its drivers, and what to do about it have become some of the most hotly debated issues by policymakers and researchers alike. Against this background, the objective of this paper is two-fold.

First, we show why policymakers need to focus on the poor and the middle class. Earlier IMF work has shown that income inequality matters for growth and its sustainability. Our analysis suggests that the income distribution itself matters for growth as well. Specifically, if the income share of the top 20 percent (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20 percent (the poor) is associated with higher GDP growth. The poor and the middle class matter the most for growth via a number of interrelated economic, social, and political channels.

Second, we investigate what explains the divergent trends in inequality developments across advanced economies and EMDCs, with a particular focus on the poor and the middle class. While most existing studies have focused on advanced countries and looked at the drivers of the Gini coefficient and the income of the rich, this study explores a more diverse group of countries and pays particular attention to the income shares of the poor and the middle class—the main engines of growth. Our analysis suggests that

  • Technological progress and the resulting rise in the skill premium (positives for growth and productivity) and the decline of some labor market institutions have contributed to inequality in both advanced economies and EMDCs. Globalization has played a smaller but reinforcing role. Interestingly, we find that rising skill premium is associated with widening income disparities in advanced countries, while financial deepening is associated with rising inequality in EMDCs, suggesting scope for policies that promote financial inclusion.

  • Policies that focus on the poor and the middle class can mitigate inequality. Irrespective of the level of economic development, better access to education and health care and well-targeted social policies, while ensuring that labor market institutions do not excessively penalize the poor, can help raise the income share for the poor and the middle class.

  • There is no one-size-fits-all approach to tackling inequality. The nature of appropriate policies depends on the underlying drivers and country-specific policy and institutional settings. In advanced economies, policies should focus on reforms to increase human capital and skills, coupled with making tax systems more progressive. In EMDCs, ensuring financial deepening is accompanied with greater financial inclusion and creating incentives for lowering informality would be important. More generally, complementarities between growth and income equalityobjectives suggest that policies aimed at raising average living standards can also influence the distribution of income and ensure a more inclusive prosperity.

From World changes in inequality: an overview of facts, causes, consequences and policies (BIS)

Public concern about inequality has grown substantially in recent years. Politicians and journalists descant with increasing frequency on the increase in inequality as a threat to social stability, laying the blame on globalisation and its attendant so-called neo-liberal policies. There is certainly much truth in such views. However, the lack of rigour in the public debate is striking, and one may doubt whether a constructive discussion of inequality, its causes and its economic, social and political consequences can take place without more clarity. Is it really the case that inequality is everywhere increasing more or less continuously, as actually seems to be happening in the United States? What type of inequality are we talking about: earnings, market income, household disposable income per consumption unit, wealth? What matters most: the inequality of opportunity or the inequality of economic outcome, including income? What kind of measure should be used? The recently highly publicised share of the top 5, 1.1% taken from tax data may not evolve in the same way as the familiar Gini coefficient defined on disposable incomes. And, then, what is known about the nature of the unequalising forces that seem to affect our economies and what tools might be available to counteract them?

In an international survey conducted in 2010, people were asked how they thought inequality had changed over the previous 10 years.1 In few countries was the perception of inequality trends in agreement with what could be observed from standard statistical sources about inequality. US citizens felt inequality had remained the same, whereas it was surging by most accounts, Brazilians found it was also increasing despite the fact that, for the first time in over 40 years, inequality was declining, while French and Dutch people thought that inequality had increased although the usual inequality coefficients were remarkably stable.

Good policies must rely on precise diagnostics. It is the purpose of this paper to take stock of what is known at this stage about the evolution of inequality around the world. In so doing, it will be shown that an ever-increasing degree of inequality at all times and everywhere over the last 30 years is far from the reality, and that there is a high degree of specificity across countries. In turn, this suggests that the combination of equalising and unequalising forces may be quite different from one country to another. Some factors may be common and truly global but others may be country-specific, the outcome being quite variable across countries. It also follows that tools to correct inequality, if need be, may have to differ in nature depending on the causes of increased inequality.

Tackling all these issues in depth is beyond the scope of this paper. My aim is only to offer an overview of what is observed and the main ideas being debated in the field of economic inequality. The paper is organised as follows. It starts with a quick “tour d‘horizon“ of the evidence for the evolution of various dimensions of economic inequality. It then tackles the issue of the potential causes, identifying what may be seen as common to most countries and what may be specific. Finally, it touches upon the consequences of excessive inequality and the tools available to counter it, emphasising the rising constraints imposed by globalisation.

Causes of Inequality

  • Shareholder Capitalism
  • Focus on Cost Minimization
  • Focus on ROIC and Economic Value Added (EVA)
  • Consolidation – Mergers and Acquisitions
  • Free Trade Agreements – NAFTA
  • Increased Outsourcing
  • Global Commodity Chains
  • Global Production Networks
  • Global Value Chains
  • Lack of Educated Workforce
  • Lack of protection for Low income earners
  • Compensation for Executives vs Labor
  • Unemployment, Underemployment
  • Value of High Skilled Technical Workers
  • Technological Change
  • Skills Obsolescence

Consequences of Inequality

  • Impact on Effective Demand
  • Slows Economic Growth
  • Decreased Economic Mobility
  • Health and Social effects
  • Living Standards at the Bottom (Poverty)
  • Intergenerational Mobility
  • Democratic Process and Social Justice
  • Reduced Consumption
  • Financial Crisis
  • Social Cohesion
  • Global Imbalances
  • Hampers Poverty reduction
  • Access to Health services
  • Access to Financial Services
  • Access to Education

 

Key Sources of Research:

 

The Age of Inequality

Edited by Jeremy Gantz

2017

 

 

The Price of Inequality

Joseph Stiglitz

2012

A Firm-Level Perspective on the Role of Rents in the Rise in Inequality

Jason Furman

Peter Orszag

October 16, 2015

http://gabriel-zucman.eu/files/teaching/FurmanOrszag15.pdf

Firming Up Inequality

Jae Song, David J. Price Fatih Guvenen, Nicholas Bloom

2015

http://eprints.lse.ac.uk/62587/1/dp1354.pdf

 

 

 TOWARDS A BROADER VIEW OF COMPETITION POLICY

 

Joseph E. Stiglitz

University Professor, Columbia University,

Chief Economist at the Roosevelt Institute

June 2017

https://www8.gsb.columbia.edu/faculty/jstiglitz/sites/jstiglitz/files/Towards%20a%20Broader%20View%20of%20Competition%20Policy_0.pdf

 

 

ACCOUNTING FOR RISING CORPORATE PROFITS: INTANGIBLES OR REGULATORY RENTS?

Boston University School of Law
Law & Economics Working Paper No. 16-18

November 9, 2016

https://www.bu.edu/law/files/2016/11/Accounting-for-Rising-Corporate-Profits.pdf

Inequality: Facts, Explanations, and Policies

Jason Furman
Chairman, Council of Economic Advisers

City College of New York New York, NY

October 17, 2016

https://obamawhitehouse.archives.gov/sites/default/files/page/files/20161017_furman_ccny_inequality_cea.pdf

Domestic Outsourcing, Rent Seeking, and Increasing Inequality

 Eileen Appelbaum

First Published July 21, 2017

http://journals.sagepub.com/doi/abs/10.1177/0486613417697121

 

Global Concentration and the Rise of China

Caroline Freund and Dario Sidhu

Peterson Institute for International Economics

http://econ.au.dk/fileadmin/Economics_Business/Research/Seminars/2016/Global_Concentration_Final.pdf

How Could Wage Inequality within and Across Enterprises Be Reduced?

Columbia Business School Research Paper No. 17-62

Posted: 10 Jun 2017 Last revised: 17 Aug 2017

Christian Moser

Columbia University

Date Written: December 15, 2016

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2983691

 

 

 

The Fall of the Labor Share and the Rise of Superstar Firms

David Autor, David Dorn, Lawrence F. Katz, Christina Patterson, John Van Reenen

NBER Working Paper No. 23396
Issued in May 2017

http://www.nber.org/papers/w23396

Inequality: A Hidden Cost of Market Power

Posted: 29 Mar 2017 Last revised: 31 Mar 2017

Sean F. Ennis  Pedro Gonzaga  Chris Pike

Organization for Economic Co-Operation and Development (OECD) – Competition Division

Date Written: March 6, 2017

https://papers.ssrn.com/Sol3/papers.cfm?abstract_id=2942791

 

 

Wealth and Income Inequality in the Twenty-First Century

Joseph E. Stiglitz
International Economic Association World Congress
Mexico City
June 2017

https://www8.gsb.columbia.edu/faculty/jstiglitz/sites/jstiglitz/files/Wealth%20and%20Income%20Inequality%2021st%20Century.pdf

 

 

The Globalization of Production and Income Inequality in Rich Democracies

Matthew C Mahutga
Anthony Roberts
Ronald Kwon

Social Forces, Volume 96, Issue 1, 1 September 2017, Pages 181–214,

 

INCOME AND WEALTH INEQUALITY: EVIDENCE AND POLICY IMPLICATIONS

EMMANUEL SAEZ

Contemporary Economic Policy

Vol. 35, No. 1, January 2017, 7–25
Online Early publication October 14, 2016

 

https://eml.berkeley.edu/~saez/SaezCEP2017.pdf

 

 

Consequences of Rising Income Inequality

BY KEVIN J. LANSING AND AGNIESZKA MARKIEWICZ

October 17, 2016

Economic Research Department of the Federal Reserve Bank of San Francisco.

 

http://www.frbsf.org/economic-research/files/el2016-31.pdf

 

 

 

Top Incomes, Rising Inequality, and Welfare

Kevin J. Lansing
Federal Reserve Bank of San Francisco

Agnieszka Markiewicz

June 2016

http://www.frbsf.org/economic-research/files/wp12-23bk.pdf

 

 

Causes and Consequences of Income Inequality: A Global Perspective

Era Dabla-Norris, Kalpana Kochhar, Frantisek Ricka, Nujin Suphaphiphat, and Evridiki Tsounta
(with contributions from Preya Sharma and Veronique Salins)

IMF

June 2015

https://www.imf.org/external/pubs/ft/sdn/2015/sdn1513.pdf

 

 

Piketty, Thomas. 2014.

Capital in the Twenty-First Century.

Cambridge, MA: Harvard University Press.

 

 

Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze—an Update to 2007

Edward N. Wolff

Levy Economics Institute of Bard College

March 2010

http://www.levyinstitute.org/pubs/wp_589.pdf

 

 

 

CONSUMPTION AND INCOME INEQUALITY IN THE U.S. SINCE THE 1960S

Bruce D. Meyer James X. Sullivan

NATIONAL BUREAU OF ECONOMIC RESEARCH

August 2017

http://www.nber.org/papers/w23655.pdf

 

 

Top Income Inequality in the 21st Century: Some Cautionary Notes

Fatih Guvenen Greg Kaplan

April 2, 2017

https://gregkaplan.uchicago.edu/sites/gregkaplan.uchicago.edu/files/uploads/top_income_inequality_web_April2_2017.pdf

 

FIFTY YEARS OF GROWTH IN AMERICAN CONSUMPTION, INCOME, AND WAGES

Bruce Sacerdote

May 16, 2017

http://www.dartmouth.edu/~bsacerdo/Sacerdote%2050%20Years%20of%20Growth%20in%20American%20Wages%20Income%20and%20Consumption%20May%202017.pdf

http://www.nber.org/papers/w23292.pdf

 

 

The Inequality Puzzle

BY LAWRENCE H. SUMMERS

 

http://democracyjournal.org/magazine/33/the-inequality-puzzle/

 

 

 

 GLOBAL INEQUALITY DYNAMICS: NEW FINDINGS FROM WID.WORLD

Facundo Alvaredo Lucas Chancel Thomas Piketty Emmanuel Saez Gabriel Zucman

NATIONAL BUREAU OF ECONOMIC RESEARCH
February 2017, Revised April 2017

 

http://www.nber.org/papers/w23119.pdf

 

 

 

Power and inequality in the global political economy

NICOLA PHILLIPS

March 2017

https://academic.oup.com/ia/article-lookup/doi/10.1093/ia/iix019

 

 

 Outsourcing governance: states and the politics of a ‘global value chain world’

Frederick W. Mayer & Nicola Phillips

04 Jan 2017

 

http://www.tandfonline.com/doi/full/10.1080/13563467.2016.1273341

 

 

What’s caused the rise in income inequality in the US?

https://www.weforum.org/agenda/2015/05/whats-caused-the-rise-in-income-inequality-in-the-us/

Why are American Workers getting Poorer? China, Trade and Offshoring

Avraham Ebenstein, Ann Harrison, Margaret McMillan

NBER Working Paper No. 21027
Issued in March 2015

http://www.nber.org/papers/w21027

 

 

 

The Geography of Trade and Technology Shocks in the United States

David H. Autor, David Dorn, and Gordon H. Hanson

American Economic Review

May 2013

https://www.aeaweb.org/articles?id=10.1257/aer.103.3.220

 

Economic Consequences of Income Inequality

Jason Furman
Joseph E. Stiglitz

https://pdfs.semanticscholar.org/cee6/1573cd50b9c8eae3379cf1f1c92301f40927.pdf

 

Labor’s Declining Share of Income and Rising Inequality

https://www.clevelandfed.org/newsroom-and-events/publications/economic-commentary/2012-economic-commentaries/ec-201213-labors-declining-share-of-income-and-rising-inequality.aspx

 

 

World changes in inequality: an overview of facts, causes, consequences and policies

by François Bourguignon
Monetary and Economic Department
August 2017

BIS working paper

http://www.bis.org/publ/work654.pdf

“Trends in Income Inequality and its Impact on Economic Growth”

OECD Social, Employment and Migration Working Papers, No. 163

http://www.oecd.org/social/inequality.htm

http://www.oecd.org/els/soc/trends-in-income-inequality-and-its-impact-on-economic-growth-SEM-WP163.pdf

 

Causes of income inequality in the United States

https://en.wikipedia.org/wiki/Causes_of_income_inequality_in_the_United_States

 

Economic inequality

https://en.wikipedia.org/wiki/Economic_inequality

 

 

Income inequality in the United States

https://en.wikipedia.org/wiki/Income_inequality_in_the_United_States

 

 

Redistribution, Inequality, and Growth

Prepared by Jonathan D. Ostry, Andrew Berg, Charalambos G. Tsangarides

 

April 2014

IMF

 

Click to access sdn1402.pdf

 

 

 

Understanding the Economic Impact of the H-1B Program on the U.S.

John Bound† Gaurav Khanna‡ Nicolas Morales§

April 20, 2017

 

Click to access c13842.pdf

Evolution of Banks Complexity

Rise of complexity in Banks since 1980s has been remarkable.

Increase in

  • Assets
  • Connections
  • Number of Subsidiaries
  • Income Mix
  • Funding sources
  • Intermediation chains
  • Securitization (exotic structured financial products)
  • global reach

From  Bank Size and Systemic Risk

Large banks have grown significantly in size and become more involved in market-based activities (those outside traditional bank lending) since the late 1990s. The advance of information technology and deregulation, which has led to a proliferation of financial markets, may have been the key driver of this process.

Large banks tend to have lower capital, less-stable funding, more market-based activities, and be more organizationally complex than small banks. This suggests that large banks may have a distinct, possibly more fragile, business model.

Large banks are riskier, and create more systemic risk, when they have lower capital and less-stable funding. Large banks create more systemic risk (but are not individually riskier) when they engage more in market-based activities or are more organizationally complex.

Failures of large banks tend to be more disruptive to the financial system than failures of small banks. The failures of large banks generate liquidity stress in the banking system, their activities that rely on economies of scale and scope cannot easily be replaced by small banks, and the marginal cost of taxpayer support may increase in the volume required.

Traditional bank regulation, which focuses on individual bank risk, may be insufficient for large banks. Additional regulation, based on systemic risk considerations, is needed to deal with the externalities of distress of large banks. This may include capital surcharges on large banks and measures to reduce their involvement in market-based activities and their organizational complexity.

Banks may operate at a size that is too large from a social welfare perspective due to “too- big-to-fail” subsidies and corporate governance shortcomings. However, the potential for economies of scale in large banks cannot be dismissed. As a result, “optimal” bank size is uncertain.

 

Key Sources of Research:

5-Bank Asset Concentration for United States

https://fred.stlouisfed.org/series/DDOI06USA156NWDB

 

Return on Average Assets for all U.S. Banks

https://fred.stlouisfed.org/series/USROA

 

Return on Average Equity for all U.S. Banks

https://fred.stlouisfed.org/series/USROE

 

Evolution in Bank Complexity

Nicola Cetorelli, James McAndrews, and James Traina

 

Click to access 1412cet2.pdf

 

Measures of Global Bank Complexity

Nicola Cetorelli and Linda S. Goldberg

Click to access 1412ceto.pdf

 

Organizational Complexity and Balance Sheet Management in Global Banks

Nicola Cetorelli, Linda S. Goldberg

Issued in April 2016

https://www.semanticscholar.org/paper/Organizational-Complexity-and-Balance-Sheet-Cetorelli-Goldberg/338d3c37584b95016563a311fdee28c58af1dcd5/pdf

 

Same Name, New Businesses: Evolution in the Bank Holding Company

Nicola Cetorelli and Samuel Stern

http://libertystreeteconomics.newyorkfed.org/2015/09/same-name-new-businesses-evolution-in-the-bank-holding-company.html#.V2CtQlehmoo

 

Cross-Border Banking Flows and Organizational Complexity in Financial Conglomerates

Linda S. Goldberg

January 27 2016

 

https://www.newyorkfed.org/medialibrary/media/research/economists/goldberg/the-cross-border-banking-landscape_012716.pdf?la=en

 

A Structural View of U.S. Bank Holding Companies

Dafna Avraham, Patricia Selvaggi, and James Vickery

Click to access 1207avra.pdf

 

Consolidation in the U.S. Banking Industry: Is the “Long, Strange Trip” About to End?

 

Kenneth D. Jones and Tim Critchfield

2006

Click to access article2.pdf

 

CORPORATE STRUCTURES, TRANSPARENCY AND RESOLVABILITY OF GLOBAL SYSTEMICALLY IMPORTANT BANKS

Jacopo Carmassi & Richard J. Herring

2014

 

Click to access 15-10.pdf

 

U.S. Banks’ Changing Footprint at Home and Abroad

Linda Goldberg and Rose Wang

2015

http://libertystreeteconomics.newyorkfed.org/2015/11/us-banks-changing-footprint-at-home-and-abroad.html#more

 

Federal Reserve Bank of New York Economic Policy Review

December 2014 Volume 20 Number 2

Special Issue: Large and Complex Banks

 

Click to access EPRvol20no2.pdf

 

In-Depth: The Big Banks: Too Complex To Manage?

2012

https://www.stlouisfed.org/publications/central-banker/winter-2012/the-big-banks-too-complex-to-manage

 

Too Big To Fail:The Pros and Cons of Breaking Up Big Banks

David C. Wheelock

 

2012

Click to access Too_Big_To_Fail.pdf

 

Systemically Important or “Too Big to Fail” Financial Institutions

 

Marc Labonte

June 30, 2015

 

Click to access R42150.pdf

 

Bank Size and Systemic Risk

Luc Laeven, Lev Ratnovski, and Hui Tong

 

 

The Evolution of Banks and Financial Intermediation: Framing the Analysis

 

Nicola Cetorelli, Benjamin H. Mandel, and Lindsay Mollineaux

2012

Click to access 1207cet1.pdf

 

 

Evolution and Heterogeneity among Larger Bank Holding Companies: 1994 to 2010

 

Adam Copeland

2012

Click to access 1207cope.pdf

 

The Role of Banks in Asset Securitization

Nicola Cetorelli and Stavros Peristiani

 

Click to access 1207peri.pdf

 

Federal Reserve Bank of New York Economic Policy Review

July 2012
Volume 18 Number 2

Special Issue: The Evolution of Banks and Financial Intermediation

 

Click to access EPRvol18n2.pdf