It has generally been accepted that the FX industry in the US has been in decline for some time. Official data would appear to support this hypothesis. The April 2001 BIS survey on global turnover (see Profit & Loss, November / December 2001) indicated a 27.8% drop in volume in the US. Not only was this the biggest percentage drop of the four major trading centres that reported more than $100 billion per day in turnover, but the US saw the three main Asian centres collectively push further ahead in volumes terms.
Although this evidence is backed up by a belief amongst many market participants that North America is now the “third” trading zone behind Europe and Asia, the bare facts do not tell the entire story. Taking exchange rate considerations into account, “real” volume actually dropped by around 12%, according to Federal Reserve Bank data. The US has also been at the forefront of banking industry consolidation, a move that many believe is just commencing in Europe and is only now beginning to see the efficiency benefits of the multitude of merger activity.
A good example of how the forex industry in the US has struggled of late can be found in the trials and tribulations of the Financial Markets Association-USA (FMA), under the umbrella of ACI – The Financial Markets Association. Peter Wadkins, president of FMA, says the organisation has been struggling in recent years, primarily due to the large number of mergers. “We have half the number of banks we had just a few years ago,” he says, “That can devastate your ability to maintain membership numbers.”
There are signs now however, of increased interest in the forex industry and FMA. FXall recently said that it had more clients signed up and using the system in North America than in Europe (see Profit & Loss, September 2002).
Education, Education, Education
As far as FMA is concerned, efforts to rebuild interest are underway and education is leading the effort. Wadkins says that everything FMA stages has an educational content, and notes that the association recently held one in a series of seminars aimed at increasing its profile. “We normally get speakers from leading organisations to talk to members about how they manage their business, market conditions and issues facing them in general.”
The most recent seminar held was in mid-September, when Goldman Sachs’ vice president and senior economist John Youngdahl presented the firm’s US economic outlook. In addition to FMA members, also in attendance were members of the New York Foreign Exchange Committee. “This was our first real push to raise awareness and build the FX Committee’s exposure to ACI and education,” Wadkins says. “We hosted the latest committee meeting at the Reuters building ahead of the seminar.”
Wadkins sits on the FX Committee, and has also taken a voluntary observer’s role on the Chief Dealer’s Sub-Committee. “This allows me to be in touch with the people who are employing staff and who are in tune with the issues of day-to-day running of an FX business in New York,” he says.
Although FMA’s efforts to get education officially recognised (such as has occurred in Canada and Hong Kong) are unlikely, Wadkins says that whilst the Federal Reserve morally supports education, it feels that it is an issue best dealt with under the auspices of ACI. To this end, discussions have recently been taking place aimed at re-starting what he says was a very successful treasury management course, as well as junior seminars. “We are trying to reinvigorate interest in the educational side of ACI at all levels,” he says. “We have seen some interest in these moves, but it is a slow process.
“It has been a tough year for America and Americans,” he continues, “We lost many members of our community last year, which took its toll on the markets as a whole. We are in a rebuilding stage, only now are we getting back to where we were just over a year ago, but it is a tough job. We have achieved stabilisation – we now have to look at the next level.”
Wadkins believes his biggest challenge is attracting and maintaining the interest of the major banks in New York, an issue FMA has long struggled with. “We can attract people by demonstrating the positive aspects of our association,” he says. “We attract many top level speakers, so we invite them to bring along some members of their organisations. We are providing the platform for these institutions to show how good they are, they then have the opportunity to get more involved with ACI which can bring many positive things to their business. More and more of the big banks are targeting those lower down the chain – ACI is an organisation for all levels, therefore it provides an ideal framework for those efforts.”
Efforts are also being made at a regional level in the US. Carlene Crnkovich is a senior vice president, foreign exchange at US Bank in Minneapolis and also secretary of FMA. “We are finding that the regional banks are leading the way in taking advantage of education, rather than the money centre organisations,” she says. “Mainly because they do not have the access to the range of education provided by the latter, which have internal programmes.”
Crnkovich says that US Bank, for example, looks to education to improve the skills of its staff but also the staff’s own job prospects. “We have made it part of our performance review – what are staff doing for their professional development? Those that have taken an examination automatically have something to show. This means they can get ranked higher on this part of the appraisal which can lead to other benefits,” she says. “This is not a requirement for a trader, but it is an encouragement as it represents a positive reinforcement of a trader’s skills.”
US Bank has had four traders with ACI Diplomas, six with Certificates and six studying. “Out of 22 traders, that is a significant percentage,” says Crnkovich “Having an educated dealing team can be a differentiator because clients want to talk about all of their issues, not just FX. It enables us to compete with the money centre banks on knowledge and skill levels.”
Crnkovich has herself taken the diploma – in 1997 – in order to better understand the education process. She has also written a 40-hour course for USAID (US Agency for International Development) covering the same materials as those in the diploma, and says this has been taught in the former USSR republics and some Balkan nations.
She believes the education process is an important part of the development of any trader. “There are rewards to be gained from taking the diploma,” she stresses. “We have one holder who went to head forex at 3M, and another to fill the same role at Boeing – it is not just about the banking industry. People are using education to further their careers and we want to demonstrate that there are good careers in the forex industry – it has a strong future in the US.
“We also have to understand that further consolidation is likely in the industry,” she continues, “This means that many will feel the need to improve themselves to hold onto their jobs. It is not how it was a few years ago when as long as you made money you were fine, banks are demanding multi-skilled people. Education can make a person stand out.”
Widening the Net
Although both Crnkovich and Wadkins stress that there is much work to be done, they see opportunities for growth in the non-banking sector. “We have already seen interest from some in the corporate sector – especially in the wake of the problems at Allfirst (see Profit & Loss, April 2002). Many are interested because they want access to the Model Code, which is a tool I believe we can focus on more and more as we access the wider FX community. Asset managers are likely to come later – they probably feel they have everything covered at this stage – but this does not mean we cannot make an impact later.”
Crnkovich confirms that interest is also coming from a number of regional centres outside the banking sector. “Many corporates are looking at how they train their people, and at what ACI has to offer,” she says. “We are starting the process by building interest in FMA-USA, but it is not only about being a member of ACI, this is part of an effort to boost interest in forex throughout the US, which, as a market has been through some tough times. We are looking to expand ACI training processes to the wider market as part of the overall effort to build confidence, knowledge and participation in the FX market.”
The benefits to staff and members of the education process seem clear, but Wadkins also notes that employers stand to benefit as well. While Crnkovich has observed how regional banks use education as a differentiator, Wadkins points out that there are also issues facing the bigger banks that should make them sit up and take notice. “In the wake of Allfirst, and amidst gathering concerns over whether the banking industry is doing enough vis a vis corporate governance requirements, banks are looking at their structures.
“ACI makes sure that every member has a copy of the Model Code and that they understand that they are expected to behave under those terms,” he adds. “If an entire dealing room are members of ACI, an institution can use this to demonstrate that it is making extra efforts to avoid fraudulent activities above and beyond their internal rules.
“The Model Code is a very strong tool that I do not think has been used enough and something which could be a spearhead of our efforts into all areas of the market. We still face a tough task raising awareness of ACI in the US, but I believe the Model Code and education are the keys to any success,” he concludes.