Leader : Relationship versus anonymous FX trading - the old debate returns
First Published in e-Forex Magazine July 2009
Bob McDowall
Research Director at TowerGroup,Europe.The debate about whether relationship trading or anonymous trading is superior is perennial, but now is an opportune time to revisit the methods' relative merits. The emerging competitive electronic trading platforms for the interdealer, multi-dealer, and dealer client markets have facilitated the adoption of electronic trading and the ability to trade anonymously during this decade. This article discusses a number of critical risk and regulatory outcomes from the current financial crisis that focus on the deployment of relationship trading vs. anonymous FX trading.
All the foreign exchange (FX) trading platforms provide levels of anonymity for institutions that do not wish to reveal liquidity and seek to prevent market leakage. Hedge funds progressively adopted and advanced anonymous trading from 2004 to 2008. Advances in scale and volume of anonymous FX trading have continued through adoption of technology that has enhanced the efficiency and reduced the cost of clearing and settlement. These have included relevant regulatory enhancements such as evidencing transparency through improved immediacy of reporting and audit functionality. Relationship FX trading has maintained an effective presence among the conventional asset managers who require advice and consultation as intrinsic elements in the execution of their FX transactions.
Foreign exchange, as an asset class, is weathering the global financial crisis better than other asset classes, but FX is also a service. During the crisis, electronic trading has continued to grow in scope, scale, and sophistication.