More gloom ahead for FX dealers in next two years
Consultancy paints a far from rosy picture for the FX market in the years ahead as technology investment takes centre stage.
Foreign exchange revenue and front-office headcount at banks will continue to decrease over the remainder of this year and into 2015 as resources are reallocated to deal with the increasing demands of new technology, according to a report by financial markets research and strategic advisory firm Tabb Group.
The headcount of major dealers has been steadily falling, particularly over the last year as banks have been caught up in investigations regarding alleged manipulation of the WM/Reuters benchmark, which has resulted in more than 30 traders being suspended or fired.
“The last three years have brought a decline in profits from trading, translating into the need to reduce expensive headcount and reduce resources. As and when resources are reallocated, most anticipate this will lead to an increase in technology spend rather than a reinvestment in staff,” says the report.
Revenues have continued to deteriorate this year across fixed-income, currencies and commodities divisions, with most banks reporting declining revenues in the second quarter.
Banks are increasingly needing to choose between operating a balance sheet-focused trading service for clients and one that encompasses more of an agency model, which the report says is predominantly decided according to the dealer’s risk appetite.
Tabb also points to recent examples of banks outsourcing technology requirements to keep on top of costs, pointing to UBS’s tie-up with Murex and Ion Trading for its fixed-income trading platform, while Credit Suisse has launched a joint venture with high-frequency trading firm Tower Research Capital.
“Both cases can be seen as leading indicators that outsourcing is increasingly accepted by banks, which need to avoid increases in spend and commitments to maintain entirely new platforms,” says Tabb.
Source: fxweek
