Normally, such uncertainty is synonymous with a negative outlook. However, the volatility following recent macro-economic events has presented genuine opportunities within the marketplace for FX trading. Rather than seeing a decrease in FX trading, we’ve witnessed significant spikes – particularly after the recent UK General Election exit polls, and for some organisations Trump’s victory also contributed to increased FX trading volumes.
In addition to working within an increasingly volatile landscape, FX providers also have to think about incoming regulations – namely MiFID II. Set to be implemented in January 2018, its requirements will categorise the price quality, speed of execution, likelihood of execution, settlement size, information relating to execution venue and financial instrument traded. All of this information must be reported to the regulator.
So, amidst a fluctuating market and a complex regulatory environment, how can FX players ensure that they survive, and thrive, in this new landscape?
Demonstrating proficiency to the regulator
One of the fundamental goals of any FX organisation is to achieve and maintain regulatory compliance. For MiFID II, this means being able to demonstrate “best execution,” which proves you can report on all of the elements outlined, plus – from a technical standpoint – time-stamp trade events, with varying degrees of precision to UTC. For the first time, we’re seeing a stringent, uniform best-execution approach imposed on the FX industry. This brings benefits for customers, but also has an overhead cost associated with implementing and maintaining compliance.
With a Hybrid IT approach in mind, combining different types of cloud and on-site environments, financial institutions can achieve compliance whilst remaining cost efficient. The advantages brought about by this approach include increased agility, flexibility and cost reduction.
However, with this level of IT outsourcing, the FX provider needs to prove that it doesn’t increase operational risk levels. A hybrid approach allows any associate risk with the use of multi-tenant platforms to be mitigated by restricting to certain workloads and data types.
Achieving best practices
FX organisations are under increasing pressure to show they have ultra-low latency, reliable access to a variety of liquidity sources and a highly reliable, stable platform with high uptime characteristics for clients to trade on.
In order to achieve all of these requirements, FX organisations need two fundamental things from a technology perspective: the ability to access liquidity and publishing venues in a consistent, reliable and low-latency manner, and the ability to access best of breed when it comes to agile computing.
These capabilities are available through a hybrid mix of cloud platforms. In simplistic terms, this could mean production workloads can run on a dedicated cloud, while all non-production systems, such as user acceptance testing (UAT) and testing/development, can run on or burst into the public cloud utilising the benefits of hyper-scale cloud providers.
The ability to mix workloads between multiple platforms allows the organisation to respond quickly, scaling up the platform rapidly when required, while also remaining agile, with the ability to maintain uptime and access to liquidity.
Organisations that have adopted such an environment are already experiencing additional flexibility and agility, whilst maintaining access to liquidity and high service-level agreements (SLAs).
Those still relying on legacy IT environments are simply not benefitting from the advantages that a hybrid IT setup provides. As a result, they will struggle to keep up when it comes to quickly deploying, and rapidly responding to changing market conditions and regulation.
Ironically, while macro-economic events, like Brexit, are creating uncertainty around the future of cities such as London as a capital markets hub, they have only increased FX trading volumes.
In order for FX organisations to take advantage of the opportunities presented and prove to the regulator that they are doing so in a compliant manner, they must address their infrastructure setup as a priority, or risk losing out to the more agile and prepared players.
CenturyLink delivers highly reliable infrastructure for many of the largest financial institutions across the globe, including a number of the world’s leading exchanges and liquidity venues. From traditional equities and derivatives exchanges to alternative trading venues, such as dark pools and crossing networks, foreign exchange and fixed income ECNs, all trust CenturyLink to host their trading systems and matching infrastructure