Considering the sadly historic “first” industry activity drop outlined by the latest BIS report, one could genuinely be stunned by the deafening silence that ensued.
Is it that market participants do not care? Do we realise the scale of the problem? Don’t we feel a communal responsibility to at least reflect and share our concerns? We do.
But maybe the seemingly never-ending stream of testing challenges of late – new regulation, market crisis, indictments and fines – has taken its toll on the otherwise resilient FX market boxer (John Lewis?).
So now on top of a general retrenchment of the FX markets (more on the BIS report in a future post) corporate Spot-FX Business would have receded 42% since 2012!?!
The research paper, and its catastrophic claim, seem to be based on a particular zoning of the data, and a hard-to-audit polling process. Mind you, who would blame a firm diligently trying to assess an “over the counter” market that does not centrally collect any of its own metrics!
Fresh from the humiliating lessons of political pundits proven wrong once again, let’s not object to bad news with denial and equally unverifiable counter-claims.
So Spot-FX volumes are dropping? At the same time, non-Bank providers are having difficulties to establish market share (bar the few Google-Apple-Facebook-Amazon of High Frequency trading) – anywhere else than Australia.
The reality is, this market is possibly more sick than the BIS numbers were telling us. But of course: one could draw parallels with the liberal trend of international trade agreements that are enduring a public backlash.
The post millennial years saw an explosion of new participants entering the FX arena, and the quasi-disruption of the carefully curated multi-tiered FX market. Thank you CurreneX, HotSpot and friends.
But most of all, thanks to FX PRIME BROKERAGE.
You could have expected a similar backlash in FX… (shall we indict the non computer-literate white male?). While incumbents are trying to put that genie back in the bottle, wielding last look and oh so precious credit lines, the back-draft was bound to hurt indiscriminately.
What happens if your industry’s growth is suddenly choked? No more bonuses, funding for projects and general progress. FX Sales teams are constantly thwarted by credit departments who “offboard” otherwise decent counterparties. Trying to do more with less, and lament the poor results…
=> Our FX market is broken: but like any sick patient, the recovery can only start with acknowledgment.
Written by Franck Mikulecz, FXCH Managing Director