While FX has always been a global market, it has been predominantly centered around New York, London and Tokyo. Now, Asia and in particular Singapore, is attracting market share of the FX trading volumes. We have already started seeing FX platforms establishing presence in the Asian markets, targeting Asian currency pairs. Together with this change in the market, we’re also seeing a change in the nature and behavior of FX participants, particularly in the way they are accessing FX liquidity in search for best prices from more FX destinations.
But, what’s prompting this shift in the FX markets? What kinds of solutions are FX traders gravitating toward to accommodate this shift? And, what kind of role can technology play in providing connectivity for the inflow and outflow of FX trading from and into the US market?
Regional Markets are Changing Rapidly
Europe’s major economies have been undergoing massive and rapid changes, driven by multiple factors. From proposed market regulations like MiFID II, to political upheavals like the United Kingdom’s Brexit vote to leave the European Union, the impact of recent economic events mean the landscape of these markets by the end of 2017 will look considerably different than they did at the beginning of 2016.
We’re already seeing this take shape in London, which, despite remaining the FX capital of the world, has seen its total share of that market drop by 12 percent – or $2.41 trillion USD (2 trillion pounds) – over the past three years. As Reuters notes, much of this drop can be attributed to changes in banking regulations, and that’s before Brexit is factored into the discussion (the 12 percent figure was discovered by a survey conducted pre-Brexit), which will only drive further volatility in the markets in the years ahead.
On the other hand, Asian markets have seen relatively higher economic activity, driven mainly by the growth in China. Such markets have so far seen less regulation and more competition for attracting flows from the Asian region and from around the world.
The U.S. is no different. For years, Dodd-Frank and the Volcker Rule imposed particular limitations on the actions of commercial banks and traders; with President-elect Donald Trump’s vow to overturn Dodd-Frank, this could create an equally drastic overhaul for how U.S. traders function within both their regional market and in international markets.