27 Sep 2011
David Holcombe and Ian Weavers voice concerns over the short term impact of regulation on FX liquidity in an FX Week article published on 27 September.
According to David, "much of the new regulation is a threat to liquidity as it changes market practice and creates uncertainty. Operational functions are moving upstream as they become a part of the execution decision process, and banks have to build for a future of cross-asset execution and clearing in order to support clients executing on a portfolio-wide, rather than single-asset basis."
Furthermore, Ian Weavers holds that regulation will lead to a transformation in the nature of FX markets with the introduction of swap execution facilities (Sefs) encouraging an increased volume of smaller transactions. "We expect the size of trades will lower and the volume will increase – this will create greater liquidity that will be balanced by an initially fragmented market, with many new players competing for that liquidity."
The full impact of regulation on FX markets remains to be seen but, in light of the Dodd-Frank Act and European Market Infrastructure Regulation, the implications for future FX transactions and markets are likely to remain a hot topic of conversation amongst our sector specialists and within the industry in general.
To view the original article on FX Week click here (requires registration).
