Z/Yen Limited FX JSC Operations Managers Conference 2005 Where is the FX Market going? Jeremy Smith firstname.lastname@example.org
Current Market Trends • Business • Significant increase in volumes across major currencies pairs in both the Corporate and Interbank sectors • Formation of consortiums to ensure no dominance by one player • Prime Brokerage services now being offered to major clients • More volume being generated from IR Swaps and Credit Derivative trading • Market liquidity is increasing and bid-offer spreads are tightening. • Market is more and more a high volume low margin business • Regulation • Active role by regulators to reduce structural risks in the market • Processing • STP rates are around 99.99% for Interbank (through implementation of CLS). This makes FX trading the most commoditised in the world and virtually volume independent. • Cost per trade is falling but still a marked contrast between interbank and corporate workflows & costs (see over)
FX – Average Cost per Trade Corporate Operations Cost $6.40 Interbank Operations Cost $2.60 The biggest cost decrease is in Operations costs for CLS trades. IT costs (per trade) have however stayed constant.
Future Trends • Business • Volumes will continue to increase in part driven by internal trades and the increasing availability of trading platforms. • Market volatility will continue to increase creating on-going opportunities for good returns on investment. • Regional banks will use existing ‘white labeled and ‘grey labeled’ products to market to their client base. • Regulation • Regulators will continue to apply pressure on the market to reduce systematic risk • Corporate clients need to be given incentives to invest in technology • Processing • Cost per trade will decrease as the market continues to invest in and implement more sophisticated technology and through outsourcing/relocation.
What do the clients want?(Z/Yen OPB Survey 2004) • Core Transaction Processing is considered critical • Particularly with the history of perceived simplicity and automation of FX/MM products • Good Operational Performance protects business allocation but is unlikely to increase it. • However: • Client knowledge is desired to ensure a satisfactory relationship. • The role of the CRM is considered important to clients, particularly as a single point of contact, an escalation point and as the provider of more detailed and frequent MIS. • Most clients were aware of CLS, but not fully aware of potential benefits for them. • 2005 Survey: • Z/Yen will be interviewing 50+ clients in May to July