SOFIA (Bulgaria), November 13 (SeeNews) – Increased volatility on global foreign exchange markets alongside dampened liquidity and tight capital and risk controls pose challenges to market participants that require new trading tools, industry experts commented.
This has been a more volatile year than 2014 and yet the industry is seeing foreign exchange volumes drop, pulled down by new regulation and capital requirements, Philip Weisberg, global head of FX at Thomson Reuters, told SeeNews earlier this week in a joint interview with Axel Jester, Thomson Reuters managing director for Europe East.
“Those factors – capital and risk control coupled with a lot of focus on conduct, a re-engineering of how banking processes need to work to be consistent with modern standards of conduct as opposed to standards of conduct that may date back twenty-thirty years - mean it is more expensive to run an FX franchise than it used to be and there are a lot of rules associated with doing that,” Weisberg added.
For large companies or large asset managers before the financial crisis there was an abundance of liquidity but with all of these market reforms and market structure changes liquidity is not free anymore and that leads people to a different thinking about how they are going to execute, he said.
“Those are changes that require different tools, and what we have done is we have put these tools all in one place for our clients,” Weisberg said.
Earlier this week Thomson Reuters announced it has integrated all of its FX transaction venues - request for stream service (FXall QuickTrade), continuous streaming prices (Bank Stream), central limit order books (Matching, Order Book) and conversational dealing platform (Dealing) – on one platform, FX Trading. Users of the FX Trading platform will have access to liquidity venues that over the past 12 months have facilitated a collective average daily trading volume of $367 billion (340 billion euro).
The new system has been launched globally with the same timeline of rollout for all users, including clients in Central and Eastern Europe (CEE).
“In the CEE countries, where we have roughly 300 customers in 14 countries, 50 sites are in parallel run with more than 100 active users, and we see some very early adopters in the industry,” Jester said, adding that four banks in Romania and as many in Serbia are on the new technology already.
“We have added capabilities for both the price-makers and the liquidity-takers to integrate and understand a fragmented liquidity pool better,” Weisberg said. The new platform has profound ramifications for the different market players, including banks in CEE as it offers a one-stop shopability to affectively build their own liquidity pools in the markets where they don’t want to manage price risk anymore, he added.
In CEE, ongoing consolidation, limited access to credit lines and security concerns related to Greek affiliates are putting additional cost pressure on the banks, Jester said.
“As liquidity is becoming more and more a question of scalability and automation, banks need to serve their customers a bit different than in the past, the buy-side is getting more and more educated and using more electronic venues which also has an impact on the flow and the margins for the banks,” he noted.
In his view, banks in CEE are unlikely to be able to continue operating long like they did in the past and should move on to more integrated, deeply straight-through processing. “The future is integration and providing liquidity and automation to all market participants,” Jester said.
($=0.9265 euro)