Friday, February 28, 2014

China Currency Plunges Most In Over 5 Years, Biggest Weekly Loss Ever: Yuan Carry Traders Crushed

And just like that the Chinese yuan devaluation has shifted away from the merely "orderly."
In the past few hours of trading, China, which as we reported two days ago has started intervening aggressively in the Yuan market (for the reasons why, read this), has seen its currency crash by nearly 0.9%, which may not seem like much, but is in fact the largest drop since December of 2008, and at last check was trading at around 6.18, even as the PBOC fixed the CNY reference rate 0.02% higher from the last official close to 6.1214, erasing pivot support point at 6.1346 and 6.1408.  Naturally this means that the obverse, the CNYUSD, has crashed to as low as 0.1620. Should this move sustain without reverting, this will be the biggest weekly loss ever!

The dramatic monthly plunge from the CNY perspetive is shown on the chart below.

There isn't much commentary on this most recent dramatic move aside from this commenbt by Zhou Hao, a Shanghai-based economist at ANZ, who said "CNY movements indicate that the authorities are determined to deter capital inflows and there were likely stop-losses triggered when the CNY broke key psychological levels."
What is more notable is that the move, while certainly intending to shake out the carry traders bent on riding the USDCNY ever lower, is starting to appear borderline erratic. As a reminder, and as we posted yesterday before the FT picked up the story earlier today, there is a lot of pain in store for those betting on a stronger Yuan, because while the move may not seem dramatic (by USDTRY standards), the reality is that the carry trade positions have massive leverage associated with them, with the pain level on $500 billion in existing carry trades beginning to manifest once the Yuan enters the 6.15-6.20 gap and becomes acute once the European Knock-In zone of 6.20 is crossed (see first chart below) and rising exponentially from there. In fact as we explained, should the renminbi break past 6.20 per dollar, which it is very close to right now, banks would be forced to call in collateral, accelerating the Yuan plunge, at which point the drop would become self-sustaining. The pain from that point on is around US$4.8 billion in total losses for every 0.1 above the average EKI (see third chart).
The total size of the carry trade is hard to estimate although even just looking at some of the onshore CNY positions accumulated, DB Asia FX strategist Perry Kojodjojo estimates that corporate USD/CNY short positions are around $500bn. The size of the carry trade and the fact that China saw significant capital outflows during the last period of substantial Renminbi depreciation in the summer of 2012 has led to concerns over what this might mean for both the Chinese economy and financial markets as well as broader global financial implications.
Morgan Stanley believes that one such carry-trade structured product that will be the "pressure point" for this - should the Yuan continue to depreciate - is the Target Redemption Forward (TRF) which has a payoff that looks as follows...
While this is just an example of a product payoff matrix to the holder, the broader point is that the USD/CNH market has a particular level (or range of potential levels) at which three factors can create non-linear price action. These are:
1. Losses on TRF products will (on average) crystallize if USD/CNH goes above a certain level. This has implications for holders of TRF products, who are mostly corporates;
2. The hedging needs of writers of TRF products (banks) mean that there is a point of maximum vega for banks in USD/CNH. Below this level banks need to sell USD/CNH vol; above this level banks need to buy USD/CNH vol;
3. The delta-hedging needs of banks are complex. As we approach the average strike (the 6.15 in the theoretical point of Exhibit 1), banks need to buy spot USD/CNH. Above this point but below the European Knock-in (EKI) (i.e., between 6.15 and 6.20 in Exhibit 1), banks need to sell spot. Then above the EKI, banks don’t need to do anything in spot.
From internal Morgan Stanley data, we estimate that the point of maximum vega is somewhere in the range of 6.15-6.20, and that the 6.15-6.20 in Exhibit 1 is reasonably indicative of the average strikes and EKIs in the market.
In other words, so long as the TRF products remain in place (i.e., are not closed out) and we remain below the maximum vega point (somewhere between 6.15 and 6.20), there is natural selling pressure by banks in USD/CNH vol.When we get above that level, there is natural vol buying pressure.

Of course, in the scenario that USD/CNH keeps trading higher and goes above the average EKI level, the removal of spot selling flow by banks and the need to buy vol means the topside move may accelerate.
Simply put, if the CNY keeps going (whether by PBOC hand or a break of the virtuous cycle above), then things get ugly fast...
How Much Is at Stake?
In their previous note, MS estimated that US$350 billion of TRF have been sold since the beginning of 2013. When we dig deeper, we think it is reasonable to assume that most of what was sold in 2013 has been knocked out (at the lower knock-outs), given the price action seen in 2013.
Given that, and given what business we’ve done in 2014 calendar year to date, we think a reasonable estimate is that US$150 billion of product remains.
Taking that as a base case, we can then estimate the size of potential losses to holders of these products if USD/CNH keeps trading higher.
In round numbers, we estimate that for every 0.1 move in USD/CNH above the average EKI (which we have assumed here is 6.20), corporates will lose US$200 million a month. The real pain comes if USD/CNH stays above this level, as these losses will accrue every month until the contract expires. Given contracts are 24 months in tenor, this implies around US$4.8 billion in total losses for every 0.1 above the average EKI.
Deutsche Bank concludes...
Looking forward it’s possible that the PBOC is not attempting to actively engineer a sustained depreciation of the Renminbi but rather is attempting to increase the level of two-way volatility in the market to discourage the carry trade and also excessive capital inflows. In terms of the broad risk going forward the sheer scale of the challenge the PBOC has set out to tackle likely means they will have to move with restraint. This is certainly a story to watch...
As Morgan Stanley warns however, this has much broader implications for China...
The potential for US$4.8 billion in losses for every 0.1 above the average EKI could have significant implications for corporate China in its own right, as could the need to post collateral on positions even if the EKI level is not breached.

However, the real concern for corporate China is linked to broader credit issues. On that, it’s worth reiterating that the corporate sector in China is the most leveraged in the world. Further loss due to structured products would add further stress to corporates and potentially some of those might get funding from the shadow banking sector. Investment loss would weaken their balance sheets further and increase repayment risk of their debt.

In this regard, it would potentially cause investors to become more concerned about trust products if any of these corporates get involved in borrowing through trust products. In this regard, this would raise concerns among investors, given that there is already significant risk of credit defaults to happen in 2014.
Remember, as we noted previously, these potential losses are pure levered derivative losses... not some "well we are losing so let's greatly rotate this bet to US equities" which means it has a real tightening impact on both collateral and liquidity around the world... yet again, as we noted previously, it appears the PBOC is trying to break the world's most profitable and easy carry trade - which has created a massive real estate bubble in their nation (and that will have consequences).
The bottom line is the question of whether the PBOC's engineering this CNY weakness is merely a strategy to increase volatility and thus deter carry-trade malevolence (in line with reform policies to tamp down bubbles) OR is it a more aggressive entry into the currency wars as China focuses on its trade (exports) and keeping the dream alive? (Or, one more thing, the former morphs into the latter as a vicious unwind ensues OR the market tests the PBOC's willingness to break their momentum spirit).
It appears, as Bloomberg notes, the PBOC is winning: "Yuan has gone from being most attractive carry trade bet in EM to worst in 2 mos as central bank efforts to weaken currency cause volatility to surge. Yuan’s Sharpe ratio turned negative this yr as 3-mo. implied volatility in currency rose in Feb. by most since May, when Fed signaled plans to cut stimulus."
So far the PBOC's "shock and awe" has impressed currency traders. Hopefully, the PBOC knows what it is doing because if indeed it causes the carry trade to unwind, the unwind could send the currency plunging well beyond the central bank's intended limits. What happens then nobody knows.
Curious for more? Read our first post in this series: Welcome To The Currency Wars, China (Yuan Devalues Most In 20 Years)
Finally, if indeed this is the start of the real carry unwind, things go from bad to worse: read "The Pig In The Python Is About To Be Expelled": A Walk Thru Of China's Hard Landing, And The Upcoming Global Harder Reset

Thursday, February 27, 2014

Top 10 Signs That Reveal Mounting Panic In The World Banking System

Dear Depositor:
We don’t want to cause you unnecessary stress or worry, but it might be prudent to pay attention to a series of unusual news reports recently emanating from the banking world.  Viewed independently, each event might be rather insignificant.
However, when examined collectively, these events paint a very dire warning for the safety of bank deposits everywhere.  Naturally, most all of these have received little to no coverage by the mainstream media.  That is to be expected.
The MSM’s job one is to always obfuscate any potentially dangerous news that has a chance of frightening investors or depositors.  After all, the goal of the world banking cartel/equities Ponzi scheme is to keep depositors and investors relaxed and passive in their comfort zones until the complete collapse of their positions is unavoidable.
Here is a timeline of these very disturbing banking events that have occurred since last fall:
1 – October 3, 2013:  US banks fearing default stock up on cash.  The Financial Times reported today that two of the country’s biggest banks are putting into place a “play book” as preparation for a possible banking panic.  A senior banking executive reported that his bank has delivered 20 – 30% more cash than usual in cash panicked customers try to withdraw cash in mass.
2 – October 12, 2013:  Food stamp card malfunction causes riots at Walmart stores in Louisiana.  The technical problem that eliminated spending limits on food stamp debit cards sets off a bizarre shopping frenzy at Walmart stores in Louisiana.
3 – November 2 – 8, 2013:  A reputed computer glitch wipes out ATMs and online banking on a massive scale.  Major shutdowns of online banking occurred in Alabama, Arizona, and California and affected such banks as Wells Fargo, Chase, Bank of America, Compass, Chase Fairwinds Credit Union, American Express, and others.  Tellers reportedly had a hard time with even simple transactions such as check cashing and checking balances.  Rumors circulated on the internet that the banks are using this temporary shutdown as a beta test for a future full bank “holiday” closure.
4 – November 17, 2013:  JP Morgan Chase halts international wire transfers from the US for many small businesses.  Also, Chase alerted its small business customers that the total cash activity (the combined total of cash deposits and withdrawals made at Chase branches and ATMs, including money orders and cashier’s checks) is hereby limited to a total of $50,000 per business customer per billing cycle.
5 – January 16, 2014:  Reports from Hong Kong indicate another HSBC scandal:  an $80B capitalization shortfall.  Forensic Asia, a Hong Kong based research firm, issued a “sell recommendation” on HSBC because of “questionable assets” on its balance sheet.  The London Telegraph reported Forensic Asia’s warning that HSBC “had between $63.6B and $92.3B of ‘questionable assets’ on its balance sheet, ranging from loan loss reserves and accrued interest to deferred taxes.”
6 – January 24, 2014:  HSBC imposes restrictions on cash withdrawals in Britain.  Reports circulated that British HSBC customers have been suddenly refused cash withdrawals as low as 3,000 pounds.  HSBC admitted that it did not inform its customers of the abrupt policy change.  HSBC officers putatively suggested that it is “only for the protection of its customers.”
7  China’s Banking Problems are Escalating Fast.  Beijing based ICBC, the world’s largest bank by assets, announced it will not take full responsibility for a trust investment equivalent to US $500 million that may go bust.  ICBC, one of China’s “Big Four” banks, may be linked to a loan default very similar to the type that precipitated the Lehman Brothers crisis in 2007.
In fact, this may be only the tip of the iceberg that has an outside chance of bringing down the entire Chinese banking world.  This ICBC “trust investment” is actually one of a vast array of loans that comprises China’s secret shadow banking system.  It is estimated that China’s total shadow banking debt is now in excess of $4.7 trillion – a staggering figure for any market, let alone an unregulated one.  It is believed that much of this secret lending system is fraught with high interest, high risk loans that contain a strong possibility of default.  Any major failure in this market can only have catastrophic outcomes, for not only markets in China, but for all types of markets worldwide.
8 – January 28, 2014:  One of Russia’s top two hundred lenders, “My Bank,” introduces a one week complete ban on cash withdrawals.  The reputed reason is customers wishing to exit the declining ruble in exchange for other currencies.
9 – February 17, 2014:  Chase imposes imposes new capital controls on cash deposits.  Chase alerted customers that they must now present a valid ID when making any cash deposit and that the bank will now only accept cash deposits in the customer’s own account.  As of February 1, 2014, Chase customers are asked for ID for cash deposits for their account while cash deposits for another customer’s account will be completely banned after March 3, 2014.
Some analysts speculated that such measures are a sign that banks are getting ready for economic turmoil and possible bank runs.
10 – February 20, 2014:  Royal Bank of Scotland group announces lay-offs of 30,000 employees in coming months.  The Financial Times reported that Britain’s largest state owned lender will shrink its work force by 30,000 and also pull out of “dozens of the 38 countries” in which it does business.  As initially reported in Bloomberg (but later revised for online posting), this dramatic pull-back by RBS (which is 80% government owned), was strongly encouraged by British Prime Minister David Cameron, who undoubtedly has become concerned by the bank’s overextension in non-British markets.  (A special thanks to David Lenihan of Wavesync Research LLC, for the tip on this story)

Tuesday, February 25, 2014

Ukrainians Withdrew 7% Of All Deposits In Two Days

Well that escalated quickly. It seems the ouster of Yanukovych, heralded by so many in the West as a positive, has done nothing to quell the fear of further economic collapse in Ukraine:
This is around a 30 billion Hyrvnia loss (over $3 billion) in just 2 days for the banks and the new central bank chief is considering "stabilizing loans" to help banks deal with the liquidity crisis (though Ukraine's reserves stand at a mere $15 billion).
Reserves are in freefall... and will only get worse if the bank run continues...

Open a Forex Account

Sunday, February 23, 2014

ATMs limiting cash in Australia

With iron-ore stockpiles at record highs in China amid the escalating cash-for-steel financing debacles, one can only imagine the squeeze that is about to occur on the banks of a nation that is almost entirely economically dependent on said iron-ore mining production... which made us think when we saw this sign "justifying" holding low cash amounts in an Aussie bank ATM...  from Zero Hedge 

Banks struggle to fill staff gaps in forex rigging row

Chief dealers and traders at major Forex banks have been fired and otherwise left their jobs, leaving a void for banks to fill:

LONDON: A void is appearing in the upper reaches of the world's biggest and most powerful financial market as banks struggle to replace currency traders suspended or fired during a global investigation into allegations of foreign exchange rate-rigging. 
Recruitment firms and sources at some of the banks at the centre of the probe say there is huge reluctance to hire externally because replacements could be tainted by allegations of collusion themselves. 
That leaves managers wit .. 
Read more at:

Sunday, February 16, 2014

BOE Staff Said to Have Condoned Currency Traders’ Conduct

Bank of England officials told currency traders it wasn’t improper to share impending customer orders with counterparts at other firms, a practice at the heart of a widening probe into alleged market manipulation, according to a person who has seen notes turned over to regulators.
A senior trader gave his notes from a private April 2012 meeting of currency dealers and two central bank staff members to the Financial Conduct Authority about six weeks ago because of mounting media coverage of the investigation, said the person, who asked not to be named while probes are under way.
Traders representing some of the world’s biggest banks told officials at the meeting that they shared information about aggregate orders before currency benchmarks were set, three people with knowledge of the discussion said. The officials said there wasn’t a policy on such communications and that banks should make their own rules, according to the people. The notes could drag the U.K. central bank into another market-rigging scandal two years after it was criticized by lawmakers for failing to act on warnings that Libor was vulnerable to abuse.
If traders can show “they made Bank of England officials aware of practices in the FX market some time ago, then the bank will be at risk of being characterized as having endorsed, by its silence and inaction, the very practices which are now under investigation,” said Simon Hart, a lawyer at RPC LLP in London.
Photographer: Chris Ratcliffe/Bloomberg
Visitors walk up a staircase as a logo sits on a sign in the reception area of the... Read More

‘Brief Discussion’

A spokeswoman for the Bank of England declined to comment about the 2012 meeting beyond what was contained in a summary provided to Bloomberg News last month. Those notes included a reference to “a brief discussion on extra levels of compliance that many bank trading desks were subject to when managing client risks around the main set-piece benchmark fixings.” No further details of the discussion were provided.
“The Bank of England has already released its record” of the meeting, the central bank said in a statement today. “We are continuing to support the FCA in its investigations.”
The central bank had no responsibility for regulating U.K. lenders until April 2013. Chris Hamilton, a spokesman for the FCA, which supervises British markets, declined to comment.
“Allegations that banks may have been rigging the forex market are extremely serious, particularly for firms but also for regulators who had been telling Parliament that banking standards were improving,”Andrew Tyrie, the British lawmaker who led an inquiry into practices in the banking industry following the Libor scandal, said in a statement today.

Suspended Traders

Dealers at the April 2012 meeting with Martin Mallett, the Bank of England’s chief currency dealer, and James O’Connor, who works in its foreign-exchange division, were told not to record the discussion or take notes, one of the people said. One trader wrote down what was said soon after leaving because of concerns spawned by investigations of attempted manipulation of the London interbank offered rate, or Libor, the person said.
Two traders at the meeting -- Citigroup Inc. (C)’s Rohan Ramchandani and UBS AG (UBSN)’s Niall O’Riordan -- are among at least 20 employees of global banks who have been fired, suspended or put on leave since Bloomberg News first reported in June that dealers said they shared information about client orders to manipulate benchmark rates used in the $5 trillion-a-day currency market, the world’s biggest.
No firms or traders have been accused of wrongdoing by government authorities. Mallett and O’Connor didn’t respond to e-mails or return phone calls seeking comment. Ramchandani, who was fired, said he couldn’t comment. O’Riordan, who was suspended, didn’t respond to a message left on his mobile phone.

‘Bandits’ Club’

At the center of the inquiries are instant-message groups such as “The Cartel” and “The Bandits’ Club.” Their members, which included Ramchandani, exchanged information on client orders and agreed how to trade at the fix, the one-minute window when benchmark rates are set, five people with knowledge of the probes said in December.
The U.S. Justice Department, the Federal Reserve, the Swiss Competition Commission and the European Commission are among more than a dozen authorities on three continents investigating currency-trading practices. New York’s top financial regulator, Benjamin Lawsky, has asked more than a dozen banks, including Goldman Sachs Group Inc. (GS) and Deutsche Bank AG (DBK), for documents related to foreign-exchange trading, Bloomberg News reported this week, citing a person familiar with the matter. Spokesmen for those two banks declined to comment.

Sharing Positions

The 2012 meeting was one of three held that year by the chief dealers’ subgroup of the Bank of England’s Foreign Exchange Joint Standing Committee. The group was set up in 2005 to bring central bank officials together with spot traders from the world’s largest banks to discuss market issues.
The April session, held at BNP Paribas SA (BNP)’s London office on Harewood Avenue, was led by Mallett, according to the Bank of England summary. In addition to O’Connor, Ramchandani and O’Riordan, more than half a dozen traders from lenders including Royal Bank of Scotland Group Plc were in attendance, two of the people with knowledge of the meeting said.
During a 15-minute conversation on currency benchmarks, traders said they used chat rooms to match buyers and sellers ahead of the fix to avoid trading at one of the most volatile periods of the day, the people said. That required them to share aggregate positions. They instigated the discussion because they were concerned that similar practices were under scrutiny at the time in the Libor investigations, the people said.

Pooling Information

The Bank of England officials said they viewed the practices as positive to reduce market volatility and wouldn’t take the matter to the standing committee, according to the people with knowledge of the meeting. That body included a representative from the Financial Services Authority, the FCA’s predecessor, according to central bank records.
By pooling information on client orders, current and former traders interviewed by Bloomberg News have said they could gain an impression of probable moves in currency markets, knowledge they said they sometimes used to place their own bets before the benchmark WM/Reuters rates are set at the 4 p.m. London close.
Spokesmen for Paris-based BNP, New York-based Citigroup, Edinburgh-based RBS and Zurich-based UBS declined to comment.
The Bank of England, then under the leadership of Mervyn King, was criticized by lawmakers in July 2012 for failing to act on warnings about Libor, the benchmark interest rate used for $300 trillion of securities. While the U.K. central bank and the Federal Reserve Bank of New York discussed flaws in the rate-setting process for Libor in 2008, the benchmark fell outside their jurisdiction -- a conclusion the U.K. Parliament’s Treasury Select Committee agreed with in a 2012 report. Rate-rigging continued at several of the largest banks for years, according to findings by the committee.
“The Libor scandal demonstrated regulators need to be extra vigilant about how key benchmarks are set,” said Pat McFadden, a member of Parliament who sits on the Treasury Select Committee. “The Bank of England has taken over hugely increased responsibilities, but that system will only work if it shows a strong appetite for investigating any suggestion of improper market behavior.”
To contact the reporters on this story: Suzi Ring in London at; Gavin Finch in London at; Liam Vaughan in London at
To contact the editor responsible for this story: Heather Smith at

Wednesday, February 5, 2014

Currency Market Unsettled by Trader Exits on Lawsky Probe

The foreign-exchange trading business was in upheaval across Wall Street as senior executives resigned and others were fired amid an expanding probe of possible currency manipulation.
Benjamin Lawsky, superintendent of New York’s Department of Financial Services, asked more than a dozen firms including Deutsche Bank AG (DB)Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) for documents on their currency-trading practices, said a person with knowledge of the matter. Deutsche Bank, the top foreign-exchange trader, fired four dealers after an internal probe, people with knowledge of the move said. Goldman Sachs lost two partners while Citigroup said its foreign-exchange chief will leave in March.
Lawsky’s investigation is at least the 12th opened by authorities in Europe, the U.S. and Asia since Bloomberg News reported that traders at the world’s largest banks colluded to manipulate the benchmark WM/Reuters rates. Even staff who aren’t being probed are reassessing career plans as the scandal forces firms to change fundamental practices as revenue falls.
“Currency traders are now sitting in an unprecedented and unwelcome spotlight,” said John Purcell, chief executive officer of Purcell & Co., a London-based executive-search firm. “Regulatory pressures, scandals and attendant reputational issues are making it a much more challenging environment.”

Deutsche Bank
At least 16 traders have been suspended or put on leave amid the global probe. Citigroup last month fired European spot trading chief Rohan Ramchandani.
Deutsche Bank dismissed three New York-based traders following an internal investigation, a person familiar with the matter said yesterday. Diego Moraiz, who dealt in Latin American currencies, Robert Wallden, who was questioned by the U.S. Federal Bureauof Investigation last year about his electronic communications concerning foreign-exchange markets, and Christopher Fahy were fired for inappropriate communications, according to the person.
The bank also fired Ezequiel Starobinsky, a trader based in Buenos Aires, Argentina, a person with knowledge of the matter said. A phone call to a number for Starobinsky wasn’t answered.
“Deutsche Bank has received requests for information from regulatory authorities that are investigating trading in the foreign-exchange market,” Renee Calabro, a spokeswoman for the company, said in an e-mail. “The bank is cooperating with those investigations and will take disciplinary action with regards to individuals if merited.”

Own Volition

Others are leaving the industry on their own volition. Citigroup, the third-largest U.S. bank, said foreign-exchange head Anil Prasad will depart the bank to “pursue other interests,” according to an internal memo. His exit isn’t related to the industry probe, said a person with knowledge of the situation.
Steven Cho and Leland Lim, two partners in Goldman Sachs’s currency-trading business, have also left, a person briefed on the matter said. Cho was global head of spot and forward trading of G-10 currencies in New York, while Lim was co-head of macro trading, which includes interest rates and currencies for Asia, excluding Japan, said the person. Cho and Lim were both named partners in 2010.
Prasad, Cho and Lim haven’t been accused of any wrongdoing.
Wall Street firms often see departures in February and March after awarding year-end bonuses, which can account for the majority of an employee’s pay. Some banks also make cuts in their senior ranks around this time to make room for new hires and internal promotions.

Lawsky Probe

Lawsky also requested information from Credit Suisse Group AG and Standard Chartered (STAN) Plc. Spokesmen at those two banks, Citigroup and Goldman Sachs declined to comment on the departures or Lawsky’s investigation.
Lawsky, who has authority over financial institutions chartered in his state, including several non-U.S. banks that do business in the country, asked for traders’ e-mails and instant messages to review whether they manipulated currency rates, according to the person. While he isn’t authorized to bring criminal charges, he can make referrals to prosecutors.
“You have a law enforcer with zeal who no doubt has numerous weapons, and he’s prepared to deploy them on behalf of the law and on behalf of consumers,” said Bartlett Naylor, a lobbyist for Washington-based consumer group Public Citizen. “The record shows that’s missing in so many other places including the federal level.”

Diminished Fluctuations

In August 2012, Lawsky garnered attention when he made public statements about possibly revokingStandard Chartered’s banking license over the firm’s violations of U.S. sanctions involving dollar transfers to Iranian clients.
The investigations come as diminished price fluctuations trigger a drop in trading revenue at the biggest banks. UBS AG (UBSN), Switzerland’s largest bank, said foreign-exchange revenue declined in the fourth quarter in part because of “client risk appetite,” according to a statement.
Volumes in the biggest financial market fell to $4.87 trillion in December compared with $5.7 trillion in June, according to the latest data from CLS Bank, which operates the world’s largest foreign-exchange settlement system.
Deutsche Bank’s Currency Volatility Index, which measures the market’s expectation of future price swings for nine currency pairs, slumped to as low as 7.41 percent on Jan. 13 from 10.6 percent on June 28. That’s a 30 percent drop. The measure was as high as 15.8 percent in September 2011.

Overhauling Rules

Germany is pushing firms to shift currency trading to regulated exchanges, Deputy Finance Minister Michael Meister said.
Banks are also overhauling rules governing how traders execute client orders and communicate before key benchmarks are set. Goldman Sachs, Royal Bank of Scotland Group Plc, UBS, JPMorgan Chase & Co. and Citigroup have all banned employees from taking part in chat rooms involving other banks. The move ended conversations used by traders across firms to agree on transactions, share gossip and exchange tips on business flows.
“The foreign-exchange landscape is rapidly changing, with increased automation and financial-services industry regulation,” said Andy Naranjo, finance professor at the University of Florida in Gainesville who specializes in foreign-exchange markets. “Not surprisingly, effective FX traders are talented people who choose to re-utilize their skills in other capital market areas with more upside potential.”
Wall Street foreign-exchange dealers will see a 2 percent rise in compensation in 2013, compared with a 19 percent increase for equities salesmen and traders, according to a November report by recruitment firm Options Group Inc.
“Currencies aren’t the flavor of the month anymore,” said Jason Kennedy, chief executive officer of London-based recruitment firm Kennedy Group. “It’s not what it used to be in terms of pay, career progression and management.”