A new derivatives rule could halt the shift by forex traders to multi-dealer trading platforms and keep volume on single-dealer systems.
That’s the finding of a new report released today by industry consultancy Greenwich Associates. In its report, “U.S. Regulations May Slow Shift to FX Multi-Dealer Platforms,” Greenwich concludes that new rules requiring multi-dealer platforms to register as swap execution facilities or SEFs could hurt the growth of multi-dealer trading systems. Furthermore, requiring SEF registration could even trigger consolidation among the multi-dealer trading platforms.
Click for the Report:U.S. Regulations May Slow Shift to FX Multi-Dealer Platforms
Regulations requiring multi-dealer platforms to register as SEFs may drive more trading volume to single-dealer platforms in the near term as clients look to minimize the impact of new regulations on their trading process. [IMGCAp(1)]
According to Greenwich, global trading volume on multi-dealer platforms climbed to 44 percent last year from 38 percent in 2007. During the same timeframe, single-dealer volume dropped to 42 percent from 49 percent.
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The biggest growth in multi-dealer FX trading platforms has been among three vendors: FXall, which has 29 of business, 360T with 18 percent and Bloomberg with 17 percent.
Greenwich Associates projects FX trading on single-dealer platforms to remain steady or grow slightly in the next 6 to 12 months, especially among financials, who are already the heaviest users of these systems.
“The good news for multi-dealer platforms is that we see this shift as a transitory phenomenon,” said Greenwich Associates Head of Market Structure and Technology Advisory Service Kevin McPartland. “In the long term, the move to multi-dealer platforms will resume.”
However, McPartland warned that the resurgence of multi-dealer platform volume may be spread over fewer players and Greenwich Associates believes the regulatory burdens and other demands of operating a SEF will trigger the consolidation of multi-dealer platforms, especially those operated by a single parent company.
