We're all aware that the size of the FX pie hasn't been growing. The latest triennial survey by the BIS supports this sentiment, having flagged a decline in FX volumes for the first time in 15 years. But after the slow-down in market activity, amidst the spate of regulations for the FX market, it is likely that the worst may be behind us.
As we look to the future, there is real opportunity for heads of FX desks to take stock and consider adjustments to their technology strategy. Recent research found that upgrading technology can have a profound effect on the FX business - reducing costs by improving operational efficiency and increasing market share by competing more effectively.
Banks have relied on legacy systems to manage their workflow for too long, opening the potential for unnecessary complexity and the increasing exposure to technology and business risk. Ensuring the right tech stack is selected requires a fresh outlook if banks are to harbour hopes of capturing optimal flow when volatility returns.
The leaders of tech innovation, companies in Silicon Valley, have long operated under a policy of only deploying ‘better, faster, cheaper' technology, in a bid to increase market share and retain clients. Could this mindset, if it were to be embraced by the FX markets, have a similar effect on the trading desks and act as an enabler for growth?
In terms of making things ‘better', cloud-based tech has the unique ability to deploy enhancements to the system for the benefit of all users. This cumulative wisdom from the broad swathes of the industry results in a more complete, comprehensive stack and high-performance functionality. Importantly, cloud systems are easily configurable, so the user can still deploy unique workflow and leverage what they deem to be their ‘secret sauce'.
Meanwhile, if you consider Total Cost of Ownership (TCO), the cloud is also a ‘cheaper' solution. The cost of technology is shared across the entire user-base and therefore leads to a significant reduction in operating costs for the equivalent functionality and service level if built and managed internally.
Finally, a clear benefit of a cloud environment is that it's ‘faster' to deploy, across a bank's operations - wherever the bank or their client's need it - and quickly adapted in line with a fast-evolving market and the client's own changing needs.
With more bank clients looking for services all around the world, the spoils will ultimately go to those who can improve cost efficiencies, manage operations intelligently and quickly expand their reach to optimally engage clients. Some might find comfort in their legacy systems, but this will only be a short-term solution. The modern, globalised world of FX trading demands solutions that can respond at speed with agility.
Increasing volatility will feel like a rising tide, lifting all boats over time. Before that happens, and to ensure that their boat is the nimblest, fastest and lightest, FX desks need to take a more proactive approach. Embracing a cloud-based system brings the opportunity to maximise profits and potential. We have seen the impact this has had in Silicon Valley; now it is time for the world of FX to follow suit.
Vikas Srivastava is chief revenue officer at Integral