Derek, you've worked in foreign exchange for over 18 years and been at the heart of the business as it has successfully adapted to many exciting and rapid developments in technology and operations over that period
What do you see as the key challenges the industry faces today?
Having spent 16 years working in Paris and London globally running an FX Options and Structured Products for a French investment bank, and now having spent almost 2 ½ years running global Foreign Exchange for CME Group, I feel that I have a unique view on both the opportunities as well as the threats to the global FX market today
While this market has demonstrated tremendous growth rates over the past 10 years driven in large part by technology and electronic trading, the key challenge we now face is how to deliver sustainable growth rates in such challenging market conditions
Probably the most important issue facing the global FX market is access to credit, which is the life blood of not only the Spot FX market, but even more critical to the Forwards, Swaps and FX Options markets
Without access to sufficient credit, FX market participants find that access to counterparties quickly constricts, leading to a decrease in global liquidity with the attendant widening of spreads and decreased depth of book
Prices become more volatile, and it becomes more difficult to enter and exit trades without moving markets
Concern over counterparty risk is widespread throughout the industry, as illustrated in a recent poll
CME Group’s annual survey showed this concern growing among banks, which cite counterparty risk as their biggest worry when supplying e-pricing, up to 84 percent this year, from 72 percent last year
By contrast, only 16 percent regarded latency as a concern, down from 19 percent in 2007
So you see concerns shifting away from “how can I do business faster?” to “how can I do business more safely?”