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Forex Trading Arbitration Vs. Litigation: Toronto Attorney Guidance – LONDON () – Faced with the costs of competing in a world of electronic and algorithmic trading, many banks are outsourcing some of their foreign exchange operations, a trend that is undermining the dominance of large financial institutions in global currency trading. It may be strengthened.
File photo: In this illustration taken on May 26, 2020, a rolled up Euro banknote is placed on top of a US dollar banknote. /Dado Ruvic/Illustration
Forex Trading Arbitration Vs. Litigation: Toronto Attorney Guidance
The $6.6 trillion daily currency market has long had loose, informal relationships in which smaller players rely on larger players for the best prices and liquidity. But as high-tech deals increase competition for the fastest speeds and the toughest prices, more formal alliances are becoming more common.
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Given the importance of foreign exchange to corporate customers, few banks choose to significantly reduce their foreign exchange operations to, for example, stock trading. They are instead choosing to exit areas where they cannot compete but want to sell to customers.
“British and European banks need to focus on what they do best and will inevitably look for partnerships. Naturally, it makes sense to subcontract some [exchange trading].” said Simon Manwaring, head of currency trading at NatWest Markets.
This may include access to liquidity provided by multiple other banks or more formal agreements to rely on a particular institution for a particular currency or at particular times of the trading day. .
Mr Manwaring said outsourcing only made up a small proportion of NatWest’s trading volume, but it made sense in currencies and time zones where banks were less geographically present.
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The opacity of the foreign exchange market makes it impossible to measure the scale of this practice, often referred to as “white labeling”, as end clients always trade with and have exposure to their own banks. I am.
But what is clear is that trading concentration is increasing, with the top five banks’ exchange market share rising from 37% in 2016 to 41% in the first half of 2020, according to federation data.
Sweden’s SEB is looking to other banks to provide liquidity in emerging market currencies and certain FX options products, as well as help execute algo trading using computers, said the bank’s global head of FX. Svante Hedin said. He added that technological advances are accelerating outsourcing.
Other factors behind this change include shrinking profit margins and regulations such as Europe’s Mifid II, which requires banks and investors to ensure the best execution price for their customers.
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Market participants note that it is now much easier to measure the prices paid in foreign exchange transactions through third-party trade analysis than it was five years ago.
Big financial institutions dismissed concerns that outsourcing would give them more control, pointing out that their advantages and creditworthiness allow them to offer customers the best prices in the safest way.
There are also real hurdles to clear. Industry insiders say that while conversations often lead to no resolution, formal formalities between the two institutions have been delayed as banks and customers balk at exclusive arrangements that limit their ability to transact with other institutions. The agreement is said to be particularly tough.
New electronic market-forming organizations such as Citadel Securities and XTX Markets are also competing to provide liquidity, but their role is largely limited to spot trading.
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Kevin Kimmel, global head of eFX at Citadel Securities, said market makers need to provide “excellent execution and “We need to demonstrate quality,” he said.
New entrants not only compete with banks on multi-dealer trading platforms, but also offer outsourcing partnerships to help banks leverage liquidity.
XTX recently launched an FX execution algorithm that it sells to investors, banks and trading platforms, while Citadel Securities has increased the number of white-label partnerships it has with banks this year, according to people familiar with the matter. .
Although the company has primarily focused on providing algo liquidity in recent years, it has also been involved in various other types of white labeling arrangements.
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So what’s next? Despite recent growth, FX outsourcing remains limited. But HSBC’s head of global intermediary services, Vincent Bonamy, believes more and broader deals could materialize.
“What’s interesting in this regard is the potential to expand into broader outsourcing among different players in the market,” he said. “It concerns not only distribution but also potentially exchange settlement and enforcement.” The Competition Appeal Court (CAT) has issued an opt-out class action order (CPO) in favor of either of the two individuals disputing the class. refused to acknowledge. Leading position in spot foreign exchange (Forex) subsequent claims.
In May 2019, the European Commission announced that it had fined a number of banks more than €1 billion for participating in two cartels in the foreign exchange market of 11 currencies. His two cartels that were the subject of separate “cartel determinations” are:
The committee found that traders at participating banks exchanged confidential information and trading plans, and sometimes adjusted their trading strategies. All banks admitted their involvement in the cartel, and a cartel determination was made based on the cartel settlement process.
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The CAT subsequently received two applications to commence a class action under section 47B of the Competition Act 1998 to consolidate subsequent damages claims for breaches of article 101 of the Treaty on the Functioning of the European Union based on cartel decisions. I did.
As a result of the Joint Case Management Conference in early 2020, it was decided that the question of who is best suited to represent the class (known as a “carriage dispute”) could not be preliminarily determined because new issues had been raised. Ta. This issue will require a substantive hearing on:
CAT rendered its decision on March 31, 2022. A public hearing on important matters was scheduled to be held on May 5, 2022, but has been cancelled.
Before addressing the issue surrounding the grant or refusal of a CPO, the CAT decided to consider the possibility of revocation first from the claim, even though there was no application for revocation from the respondents.
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The CAT concluded that a claim may be set aside on its own initiative, including considering whether the applicant had a reasonable prospect of making such a claim (Rule 41 of the Arbitration Rules). 1)(b)). In this particular case, the CAT seemed concerned about the issue of causation, given that litigating this issue would involve all parties.
The argument stated that both O’Higgins’ and Evans’ applications were liable to be canceled under Rule 41(1)(b). However, the CAT also decided that this was a jurisdiction that the CAT should not exercise at this stage, as the application raised several rights.
As set out in section 47B of the Competition Act, there are two conditions for the granting of a CPO. The first concerns the approval of those who seek to bring suit on behalf of the proposed class (approval conditions). The second requires that the claim be eligible for inclusion in a class action (eligibility condition). Regarding the findings in this particular case, the majority holds that each application, if it is the only application at issue, is a class action lawsuit because both the authorization and eligibility conditions [CL1] are met. We concluded that it can and should be recognized as a
This led to consideration of whether the authentication process should be opt-in or opt-out.
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Under the Competition Act 1998, class actions may be brought on either an opt-in or opt-out basis. The opt-out procedure is binding on all persons in the class except those who opt-out, whereas the opt-in procedure applies only to those persons in the class who elect to participate in the class action. In deciding this issue, the CAT has adopted the approach of considering the licensing and eligibility conditions relevant to the certification issue, as well as considering several additional factors.
In relation to the accreditation conditions, the CAT concluded that the fact that neither applicant is an existing body, such as a trade association, with an established objective of representing a particular class, suggests that this application should not be accredited. I decided that this would be helpful in arguing that there is no such thing. On an opt-out basis. In addition, the CAT expressed concern about the level of funding each proposed class representative would have and the risks of substantially:
Regarding eligibility conditions, CAT considered a number of factors. The CAT commented that in an opt-out procedure, costs are deducted from damages rather than being borne by the class, and that this is a reason to support proceeding with an opt-out procedure. However, the CAT also believes that an opt-in procedure is better where there is a risk of duplication of claims (see Ongoing Litigation)
The case was transferred from the High Court to his CAT), because it is better for class participants to make a conscious decision to opt-in.
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Furthermore, the CAT considered that the allegations advanced were weak and this constituted a strong argument against certification on an opt-out basis. The CAT also emphasized that the applicant would not be able to substantiate the application against a large number of potential claimants and therefore the opt-out procedure would be unworkable. Nevertheless, the CAT determined that despite the small portfolio of plaintiffs, the sophistication of potential litigants and the overall content of the cases was increasing.
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