REGIONAL e-FX PERSPECTIVE
However, in some ways the development of reporting requirements in Mexico and the move towards greater market transparency is waiting on the more developed markets to provide a lead. Tis is surely coming according to Tomson Reuters’ Matt O’Hara. “Short term I think the local market has to understand and prepare for the changes that are inevitably coming in the future. None of us know when these changes are going to happen or what exactly they will contain. But we’ve got a pretty good idea of what is going to happen around certain OTC derivative instruments. Te paradigm is going to change. And with LATAM they trade with the regions and jurisdictions that are going to be impacted by these new regulations and so they need to be ready for that.”
Tod Van Name
“From an interbank perspective, many LATAM countries already trade spot over interbank exchange platforms. Eventually as the markets grow here there will be room to expand to NDFs, futures and options. It remains to be seen if this will be done via an exchange or over the counter.”
has resurfaced some fears among the most important economies, that could set back the path towards a liberalization of the FX market.”
FXall’s Michael Bernal sees a divergence of regulation, with some countries loosening controls while others are becoming more stringent. “You see relaxation of regulations in Brazil, then you see an increase in regulation in Argentina and Venezuela. Even in Mexico there are some regulations that are being placed on funds for financial reporting purposes. Te position reporting carried out in the US or in Europe is now being emulated in LATAM. Tis type of regulation is more of an accumulation of information of the financial risks that a country’s institutions are facing. In places such as Argentina and Venezuela regulation exists for purposes of expropriation and government control. Tis sort of regulation is likely to impact capital flows.”
Te use of electronic trading platforms and capabilities is increasing in response to such regulation as well to customer demand. Greater compliance and reporting demands more efficient connection from front to back office using up-to-date electronic tools.
68 | july 2012 e-FOREX
Tis also impacts the rate of innovation in the region as a whole. “Te market has had to spend a lot of time and money, resources and investment on making sure that they can continue to operate and comply with the new regulations,” O’Hara continues. “Tat means that the balance of innovations, especially around proprietary trading platforms, macro-based electronic trading platforms has had to slow down to make sure they can be compliant. Tat’s something that the local market absolutely has to understand and be working on. Tere’s a lot more education and awareness around and regulatory compliance to make sure that they’re ready. Long term, when these regulations actually come in there are certain instruments that we believe and the market understands are going to be caught up in these regulations. NDFs for example. Tat is a primary trading instrument and hedging tool for LATAM. If NDFs have to be traded in a different way in order to meet these regulations then this is something that the local market needs to be preparing for.”
Price transparency
Citi’s Simon Jones says bodies of regulation such as, Dodd Frank and MiFID that affect developing world currencies, as well as various localised regulations that are coming from Asia, will lead to price transparency that we haven’t seen in LATAM before. He says, “Tis will open up the market for more hedge fund involvement and will give price transparency to the corporate and real money community that will be good for business. Tis will happen in the next 6-18 months. Ultimately the liberalisation of currencies in the BRICS or elsewhere is an inevitability. Knowing when this will happen is very difficult. You are definitely seeing steps in Brazil and China to pave the way for the day when their currencies become
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