Predictions on the Future of the FX Industry

Following his retirement from Citi, where he spent nearly 30 years and most recently served as global
head of G10 FX, James Bindler, reflected at Forex Network London about the changes that he’s observed in
the industry.

He’s also made a number of predictions regarding its future.

1. The line between banks and non-banks will continue to blur

“As always with all these things, it comes from both sides of the equation. Banks will get faster and
high-frequency traders will seek capital to backstop their risk taking activities,” said Bindler.

Discussing the challenges facing market makers, Bindler noted that the cost of FX trading is generally
rising, particularly for firms that need to use prime brokers to access the market.

Another issue he highlighted was that volatility has been muted and there appears to be what Bindler
described as “mini Ice Age” occurring in terms of globalisation. He made it clear that he views this as
a temporary halt in a long-term trend towards more global trade rather than a reversal of it.

“Clearly it’s been politically led, and as trade volumes come down I think that market volumes will
come down as well,” he commented.

2. Cost pressures will continue to drive market behaviour

“I think as we go through a mini Ice Age, where volumes drop for a year or two, that cost pressures
are going to force changes,” said Bindler.

In particular he highlighted distributed ledger
technology (DLT) as one solution that could significantly reduce costs around the confirmation and,
potentially, the settlement of currency trades.

Bindler added: “But also in the world that we live
in, this Uber world, this electronic and intelligent world, it strikes me that the distribution of FX is
perhaps overly staffed and too expensive. I think there’s potential to take a lot of cost out of the
distribution side.

“I look at the trading floor sometimes as a factory floor, and it’s really
production – just like making widgets – and it’s distribution. The production costs are what they are,
and we know exactly what we’ve got there, but it seems to me that the distribution cost is still relatively
too high for this kind of factory.”

3. Prime brokerage could become it’s own industry

“Prime brokerage firms can be federated. I think that there’s quite a good possibility to see prime
brokerage become an industry rather than just owned by separate financial institutions,” said Bindler.

4. Central banks will ultimately have to stand behind clearing houses

“Here’s a contentious one for the central banks,” warned Bindler. “I’m convinced that ultimately
clearing houses will have to have a central banks, or central banks, as backstops.”

He argued that eventually real world events will test clearing houses, and that when this happens they
will need to have central banks willing to stand behind them.

You can watch the full discussion here:

Galen Stops

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