“Provisory Liquidity Protocols” Defy Intelligent Explanations

What would Winston Churchill have said about the new rules liquidity providers have set for FX platforms in the name

Liquidity providers have announced new rules for their FX platforms to clarify the way liquidity is offered. I urge you to keep the word clarity in mind as you read further.  The more I learn about these new guidelines, the less intelligent I feel.

Let us start with a statement from one company’s global head of FX who said: “Following the new matching rules set last year that encouraged high standards of behavior in primary markets, the updated operational procedures define the same rigorous standards for both our RFQ and streaming price trading protocols, where participants transact on a disclosed relationship basis, as well as our order book platform, where participants trade anonymously using either firm or provisory liquidity.”

Well now, that is clarification if ever I’ve heard it and it sure sounds intelligent, doesn’t it?

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Other FX trading firms have made similar remarks: “The new standards introduced include reducing the time frame market makers have to act on non-firm liquidity from 200 milliseconds to 100 milliseconds.” Well that sounds fantastic, and yes very intelligent!

I cannot see any relevance in it at all as to the rate at which your order is filled. However, the word ‘milliseconds’ sounds intelligent, so by all means include it in your statement.

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Another statement from yet another firm avows (and take a breath or a Tylenol before you read this): “The provisory liquidity protocol comes with behavioral and platform controls that empower participants to choose liquidity sources that best respond to their needs [nice of them] while limiting the impact of physical distance on execution quality. They also entitle qualified market makers to manage credit and operational risk when making market prices and enable intermediaries to offer liquidity to their customers on a non risk principal basis, hence enhancing transparency of execution.”

Well, I have a headache from reading that, but I did warn you about the Tylenol.  The statement sounds great, especially seeing as they snuck in terms like ‘non risk’, ‘physical distance’ and, of course, ‘TRANSPARENCY’.

All of these wonderful new guidelines are very clear, right? Of course they are- unless you aren’t intelligent. They sound great but mean nothing. If you can trade and get it right then you’ll do okay and if you can’t trade and get it right then you won’t.  It’s as simple as that- however it doesn’t sound intelligent.

I leave you with this quote: “There is no sphere of human thought in which it is easier to show superficial cleverness and the appearance of superior wisdom than in discussing matters or currency and exchange.”  – Winston Churchill, House of Commons, 1949.

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