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FX Industry at Regulatory Crossroads

by James Kemp, Managing Director, 
Global FX Division at the Association for Financial Markets in Europe (AFME)

The Foreign Exchange (FX) event hosted in Brussels on 12 January 2011 by the Association for Financial Markets in Europe (AFME), in conjunction with HSBC, arrived at a critical time for an industry under the regulatory spotlight in Europe and the US. With the Dodd Frank Act stirring debate on the exemption for FX forwards and swaps and the European Commission to follow the US lead under two separate legislative umbrellas, EMIR and MiFID, time is running out to make the case for FX exclusion from mandatory clearing. And, as delegates at the AFME event learned, the unintended consequences of the proposed legislation could have a serious economic impact on both corporates and pension funds.

A model of evolved efficiency

The first panel session, moderated by HSBC’s Joe Norena, chronicled the evolution of the FX market, with the introduction of electronic trading partly responsible for the increase in trades from $500bn per day to today’s estimated $4tr. In the context of this dramatic market rise, the European Central Bank (ECB) is regularly examining how the market is handling growth and how the trades are executed, according to Holger Neuhaus, D-G of the ECB’s Market Operations.

Looking ahead, as the banks continue to make markets, they need to continue to invest in risk management, observed Richard Anthony, FX eRisk at HSBC, as well as to find new ways to differentiate themselves. The ‘corporate’ perspective, provided by Christian Held, Head of Corporate Treasury at Bayer, highlighted serious repercussions that could arise from a ‘one size fits all’ regulatory approach.