LEADER
Regulatory
Arm-Wrestling:
Can the FX
market strike
a balance?
The market environment and events over the last two
years have brought regulatory concerns around the world’s David Poole is COO
financial services into the spotlight. There is more scrutiny of ClientKnowledge
over the general architecture of the market than before
the credit crisis. The regulatory concerns around FX have
yet to move beyond political rhetoric into hard business regulation, but that as part of that review
practicalities. At the moment FX feels hard done by. The it needs to be recognized that FX has the
industry sees itself as having ridden the credit crisis key risk management and reporting pillars
with a robust infrastructure and a self-regulated concern to build on.The industry expertise and self
that combines STP efficiencies with broader concerns interest that protected FX over the credit
for systemic risk as part of the natural evolution of the crisis need to be continually relied upon to
business model. build out the FX infrastructure.The aim
needs to be on increasing the percentage
of flow that is dealt with by the end to end
automated processes that are currently in place.ertainly the professional trading market can
point to many examples of efficiencies that have Identifying concernsC
reduced the settlement, credit and execution
risk. For example, prime brokerages monitor credit and There are two keys concern in the FX industry:
settlement risk on high volume hedge fund trading,
CLS has answered Herstatt risk and CME provides 1. That any increased regulation enforced on the
a solid central clearing solution.The key question financial services will spill over into FX in a manner
remains whether or not such a globally active, high that is disproportionate and essentially taxes FX
volume industry can oversee itself within the current on transactions with limited or negative benefit to
framework or will it need to alter the balance between systemic risk; and
imposed regulation and self-regulation? 2. The current uncertainty is creating delays in
committing to technology upgrades and business
Within the corridors of power the concern is that development.
the very same self interest that appears to have kept
FX from systemic risk has created bloated back As our research [on behalf of the CME] indicates there
office processing and unmanageable and undetected are clearly some concerns within the industry; both
systemic risk.The argument is not that FX should be settlement and counterparty risks are still real risks
excluded as a special case from the review of industry to the model (see charts). However, these concerns
|22 april 2010 e -FOREX
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