The buyside is expected to gain more control over its foreign exchange trading as structural changes in the sprawling over-the-counter market occur.
According to a new report issued by the U.K. consultancy Greyspark Partners, the marketplace is shifting from one controlled by large bank-owned dealers to a more open model with more players.
The shift began in 2010 when the number of “dealer-to-client” FX multi-dealer platforms began to proliferate due to new capital markets regulations, according to Greyspark. That created an environment in which the majority of FX liquidity began shifting away from the concentrated, bank-to-bank dealer-to-dealer FX platforms and onto dealer-to-client platforms instead.
In response, banks began directing increasingly larger amounts of proprietary and client FX liquidity onto the dealer-to-client venues in an effort to make currencies dealing an integral part of their capital markets business.
In the next three years, the lines will become blurred between the characteristics of the two types pf marketplaces. That will produce an “all-to-all” market for FX liquidity, Greyspark predicts. The emergence of these venues will continue from 2017 onward and will encourage the buyside to trade directly with one another. That will break the grip of the inter-dealer brokers.
