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?".