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.”