A 2020 Vision of FX Post-Trade

It seems that we are beginning 2020 facing the same uncertainty that we experienced last year. The previous 12 months have provided an interesting year geopolitically, with trade disputes between the US and China, along with the uncertainty surrounding Brexit; as such, it would not have been unreasonable to expect the currency markets to stagnate.

Darren Coote, Cobalt

However, if anything, they have mustered strength and grown, as was seen in the latest BIS Triennial survey, with global turnover reaching $6.1trillion, daily, and London holding its seat at the top of the global institutional foreign exchange (FX) market. This has painted a very positive picture of London in FX, and remaining in this place, along with ongoing political concern, will undoubtedly be a priority for the UK’s FX participants in 2020.

Aside from the uncontrollable challenges caused by factors such as Brexit, one aspect that the market can control is the use, adoption and development of technology. Technology is, of course, beginning to be embraced across the market, but there are some participants that are reluctant to adopt new ways of doing things, for a myriad of reasons.

As a financial technology company focused on the FX market, growth and appetite for this market is vital for Cobalt as a business. A priority for us as we progress through 2020 will be to continue adding new functionality to the platform and  continue to expand and diversify our network of clients.

Despite FX being the largest global financial market, it is strange that inefficient and often risk-laden technology is still used. We have seen substantial investment and modernisation throughout the front-office. Yet across post-trade operations, many are still reliant on fragmented systems. People are beginning to realise that we cannot continue in the same manner without moving forward with new technology.

During 2020 we expect market participants to wake up to the fact that we need a common post-trade infrastructure to manage and automate back and middle office functions. Not only is this cheaper, but it is far simpler than the current fragmented system. It is not rocket science, but the reality is that many people don’t think in this way yet. However, there is a sense that attitudes are changing – albeit slowly.

For FX participants, it is essential to utilise new technology and shake off outdated methods of operation if companies are to modernise; however, this still remains a challenge and will be a key point of focus in the year ahead. Ensuring companies don’t fall behind the technological evolution is a no-brainer and those that do embrace the change, will continue to reap its rewards.  

Currently, margins and budgets are tight; FX participants that use innovative technology and a utility-based approach to post-trade, will mitigate the pressure on their bottom line and ease their credit risk and balance sheet usage.

As economies across the world grow and technology is increasingly adopted across all international business activities, the need for change will continue. But the challenge for international FX hubs, will be how to leverage these opportunities.

Old, fragmented systems within post-trade will become obsolete as market participants see the benefit of standardization and the move from multiple layers of reconciliation to a centralized platform with a shared view of trade data. By embracing automation across the trade life cycle, participants will benefit from a reduction in post-trade inefficiencies and consolidation of post-trade resources. Transparency of operations and centralized platforms will become the norm, leading to a more efficient market.

Darren Coote is CEO of Cobalt