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A little help from our friends: banks team up as FX trading gets tougher
Sep 23, 2020
LONDON (Reuters) - Faced with the costs of competing in a world of electronic and algorithmic trading, many banks are outsourcing parts of their foreign exchange businesses, a trend that may cement big lenders’ dominance of global currency trading.
FILE PHOTO: Rolled Euro banknotes are placed on U.S. Dollar banknotes in this illustration taken May 26, 2020. REUTERS/Dado Ruvic/Illustration
Loose, informal relationships where smaller players rely on bigger peers for the best prices and liquidity have long existed in the $6.6 trillion-a-day FX market. But as high-tech trading supercharges competition for the fastest speeds and tightest prices, more formal tie-ups are becoming common.
Given the importance of forex to corporate clients, few banks would opt to drastically reduce FX operations, the way they could with equities trading, for example. They are choosing instead to pull back from areas where they cannot compete but still want to sell to their customers.
“UK and European banks have had to focus on areas of strength and an inevitable consequence of this is to look for partnerships. Naturally it makes sense to sub-contract some,” said Simon Manwaring, who heads currency trading at NatWest Markets.
This can involve accessing liquidity provided by multiple other banks, or more formal agreements to rely on a specific institution for certain currencies, or during a specific time of the trading day.
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