Banks speed up shift to forex automation in foreign exchange and rates trading as they move to slash costs and reduce the risk of further price manipulation scandals

June 22, 2014 5:43 pm

Banks speed up shift to forex automation

By Daniel Schäfer and Martin Arnold in LondonAuthor alerts

Banks including Barclays and UBS are accelerating a shift towards automation in foreign exchange and rates trading as they move to slash costs and reduce the risk of further price manipulation scandals.

Senior bankers are aiming to minimise human intervention because traditional trading over the phone has come under an intense regulatory spotlight. Authorities around the globe are investigating alleged manipulation of benchmarks such as currency fixes and interbank lending rates.

“We already have around 90 per cent of spot foreign exchange going from trade to settlement via automated processes and we expect that to increase,” Antony Jenkins, chief executive of Barclays, told the Financial Times.

“There is going to be further and faster automation of much of what is considered investment banking today.”

Swiss rival UBS, like Barclays one of the four biggest traders in the foreign exchange market, is also seeing more volume migrating to electronic means over the next three years, people close to the situation said.

About two-thirds of UBS’s forex business is conducted through its Neo platform. This is in line with overall markets where 65 per cent of the $2tn a day in spot trading is electronic, according to data from the Bank for International Settlements.

The push towards digital trading underlines how probes into potential benchmark rigging are speeding up a reshaping of once opaque but lucrative businesses to become more heavily regulated and less risky.

For much of the more vanilla types of trading activities we will see increased automation

– Antony Jenkins, chief executive of Barclays

The shift to automation of many areas of investment banking is expected to lead to thousands more job losses in an industry that is already under pressure to rein in costs.

Bankers say the flipside is that margins in automated trading are much lower, a factor that plays into the hands of those banks with the largest scale.

Some bankers warn that equity markets tell a cautionary tale about the unforeseen consequences of automation. “The debate about high-frequency trading shows that [a high degree of digital trading] can cause problems. You may get more volatility because machines will just do things,” a top executive at a European bank said.

Barclays has been one of the fastest to automate its forex trading through its Barx platform. It had the fourth-largest market share in electronic trading last year, according to Euromoney data.

Mr Jenkins said the lender was planning to increase the switch to automation across much of its macro business, which includes rates and commodities trading.

“For much of the more vanilla types of trading activities we will see increased automation, and we’re leading the way on that, particularly in our macro business,” he said. “And we’re doing that because automation leads to a better client experience, at lower cost, with stronger control.”

The move away from old-fashioned trading over the phone coincides with an exodus of “voice” traders from banks, as some are fired or suspended amid internal probes and others leave voluntarily in disillusionment over heightened regulatory scrutiny and a sharp drop in revenues.

Sassan Danesh, managing partner at Etrading Software, a consultancy group, said: “The days of voice trading are numbered, even for larger orders.

“But there is a difference between electronic trading and zero touch. There will still be sales people talking to clients.”


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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