Pressure builds to move more FX trading onto exchanges
This will just make forex rigging easier - so far only the number of forex brokers was defending us. When the number of brokers get smaller, they can cut a deal any time they want
It is just another globalization process : where money can be collected be sure that they will "regulate" it the way only big banks can do it in the future
nbtrading:
It is just another globalization process : where money can be collected be sure that they will "regulate" it the way only big banks can do it in the future
It is just another globalization process : where money can be collected be sure that they will "regulate" it the way only big banks can do it in the future
Ah : "regulations". Whenever I hear that word from the banksters lobby it makes me laugh
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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.
"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.
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