Foreword : From ERM crisis to cyber trading.
Heering LigthartPresident ACIFinancial Markets Director Fortis Bank.
Heering Ligthart ponders whether the events of September 11 last
year have acted as a catalyst for existing trends in the foreign
At this point of time many articles refer to the tragic events of
11 September last year and are trying to describe or assess the
consequences of that event for their respective businesses. The
question is if 11 September was the main factor behind all kinds of
developments or the catalyst of existing trends.
It goes without saying that this date has, had and will have, a
dominating influence for a long time on the way we conduct our
business, in particular because of the potential medium-term
political consequences. The danger of a major armed conflict is not
a positive factor for the economy and the attitude of consumers and
producers alike. But apart from these important factors we have not
yet experienced a dramatic decline in volumes and volatilities in
the foreign exchange markets. The recovery of the Euro had been
predicted for quite some time and the volatility in other currency
pairs created enough trading opportunities.
It seems that FX products have again become an asset class in
itself which attracts old and new investors as the equity markets
have not performed that well, to put it mildly. Also the pricing of
FX products is not dependent on creative accounting, the quality
and the so called independent view/recommendation of an analyst and
the lack of transparency in the market. Moreover, in spite of a
slight decline in volumes see BIS report of April 2002 the FX
markets are too big to be manipulated, apart from some emerging
markets.However, measures taken by some authorities during the last
couple of years to prevent any further speculation against their
currency might have taken away some risk appetite of market
What kind of role is Cyber trading playing in this context ? NONE
whatsoever! Cyber or e-trading is an instrument, a tool like a
telex in the old days and/or - still - the telephone nowadays. The
failure of one of the multi-bank portal trading systems is an
indication that e-trading doesnt create a market in itself. The
technology behind it is important, in terms of speed, accessibility
and costs. Just like after the introduction of the first electronic
trading systems, e-trading will play an important and positive role
in the development of any market, including the FX market.
Authorities or anti trust agencies should realise that these
systems are just one of the alternatives which can be used by any
customer or bank. A customer or a bank will never completely rely
upon one tool or instrument in order to get the best available
price in the market. If they do, it is their choice, nobody will
force them to do so. E-based trading systems with STP possibilities
are a must for smaller and medium sized deal tickets in terms of
operating costs etc. Big deal tickets are still being done with
friends over the telephone, at least you can discuss and negotiate
Exactly 10 years ago Europe faced the first major crisis in the ERM
system followed by another one in September 1993. It was also 10
years ago that the last two tier foreign exchange system in Europe
was abolished: the financial and commercial Belgian franc. Since
than we had several currency crises all over the world: Mexico
1994-95, Asia 1997-98, Russia 1998, Brazil 1998-99, Turkey 2000-01
and Argentina 2001-02. All countries had different currency regimes
but none of them used the old European way of exchange controls:
two currency rates; one for commercially driven transactions and
one for financially driven transactions. Build up expertise and a
track record before making your currency fully convertible.
This means that potentially the Emerging Markets are in a position
to create new opportunities and fill up the gap left behind by the
introduction of the Euro. However, this needs a different approach
to the markets than at present and has to be based upon a stable
political and economic environment. Politicians, regulators and
market participants should operate together to develop these
markets, we all have the same goal.
At the ACI- The Financial Markets Association, we can and will play
an important role in terms of education and defining best market
practices for everybody.
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