Navigating the FX market storm: Technology as your compass

by Tod Van Name

The economics of the $5 trillion-a-day foreign exchange market, the largest financial market in the world, are at a delicate juncture. Several factors are impacting liquidity, most notably changes in balance sheet requirements, which have forced banks to revisit their role as liquidity providers. Uncertainty about regulations and investigations of manipulation scandals are dampening appetites for risk. What can FX professionals do in these stormy conditions? Technology holds some answers.

No matter what the market presents, FX players need the tools to respond appropriately under a variety of conditions.  Now, more than ever, it’s vital that asset managers and corporate treasurers improve work flow, transparency and best execution. Efficiency is particularly important today, as FX professionals globally are being asked to do more with less.

Automating the FX workflow includes tools for reliable price discovery, netting, allocation, staging, flexibility in execution methods, and straight-through-processing (STP). Many trading desks require sophisticated solutions that include smart order routing, algorithmic trading and transaction cost analysis. Middle office, back office, and compliance teams need tools to increase efficiency while reducing operational risk, from trade capture through confirmation, matching and settlement.

All of those needs can be addressed via electronic trading. Today, nearly 75% of all FX trading is done electronically, which will continue to increase as new technologies reduce risks and costs, and increase efficiency and performance. Even emerging markets, which traditionally trade via telephone, are increasingly embracing e-trading to improve deal capture and risk management.

Structural market changes have placed greater pressure on the bottom-line. Investors need access to a wide range of liquidity providers to improve their execution success. FX executives face added burdens of trading and reporting in several regulated jurisdictions, draining IT capital that could have been used to expand client facing product and services.

Bloomberg is anticipating our clients’ need to meet market demands, while increasing transparency. We have developed new compliance tools to provide real-time support for monitoring interaction, both intra-firm and between clients and sales traders. And Bloomberg’s FXGO— an electronic trading platform on the Bloomberg Terminal—offers access to more than 500 firms, providing access to deep and broad liquidity.

We are also in full support of the FX Global Code of Conduct that will make it clear what accepted market behavior is, and we are creating compliance tools to help our clients provide verification.

All of these moves are designed to give the market what it needs – more efficiency, transparency and best execution — good results for all involved.

Tod Van Name is the head of Bloomberg FXGO its electronic trading for FX and OTC Commodities. His comments come after his recent participation at TradeTech USA. For more information on Bloomberg’s FX solutions go to www.bloomberg.com/professional/foreign-exchange/