Two weeks ago we took part in a great panel entitled “The Changing FX Marketplace” at Mondo Visone’s Exchange Forum in London.
The main question asked was whether the FX market would move from being mainly OTC to being traded on exchange. This is in light of increased global regulation, calls for better transparency and the increasing cost of credit.
My main takeaways –
1) There is undoubtedly a change in the market structure. Market participants are waking up to the fact that EM liquidity isn’t always as deep as they would like, so they need access to all sources of liquidity, be this OTC or exchange-based. There are definite advantages to being able to access these two distinct channels, given that the pricing often reflects very different flows. There is a growing demand to combine prices from OTC and exchanges, and to provide a choice to clients of whether or not their trades are cleared.
There used to be a clear distinction between trading FX either OTC or on exchange. That distinction is blurring, particularly in the EM space and as technology supports a hybrid credit model, which ultimately increases access and liquidity for all.
2) There was much debate about the charges applied to market data. Some considered them excessive given that venues have the data already, but the bottom line is that if organisations want to prove Best Execution they need the data and if its EM data they need – its not easy to find. I know of many buy-side traders who are already conducting TCA even if not currently required to do so. It looks like its only a matter of time before regulation makes this mandatory for all types of contract.
3) After many years of growth (mainly enabled by technology) the global FX market is at a crossroads. Volumes have flattened whilst trading infrastructures have required significant investment. Sell-side organisations are no longer chasing flow and are now looking to differentiate themselves through investing in technology (to reduce costs and increase access) and providing analytics for clients.
Thanks to Eva Szalay (FX Week) who moderated a really interesting panel, and my fellow panellists Lucian Lauerman (Saxo Bank), Marco Baggioli (ADS Securities), Carlo Koelzer (360T) and Dan Marcus (ParFX).
And thanks to Herbie Skeete from Mondo Visione –