The unstoppable pace of FX on exchanges

With the incoming regulatory environment favouring centrally cleared products over OTC instruments Frances Faulds looks at how the exchanges are gearing up for continued growth.

The foreign exchange market and the stock and derivatives exchanges have had a checkered past with the exchange-traded business always being the tip of the iceberg. The tables were turned, post financial crisis, when the G20 leaders at the Pittsburgh 2009 Summit ruled that all standardised OTC derivative contracts be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties (CCPs); that OTC derivative contracts be reported to trade repositories; and that non-centrally cleared contracts be subject to higher capital requirements.  There is little doubt that the impact of OTC reform has been greatest in FX which has always found a natural affinity with the customised products offered by the OTC market. However, the exchanges have been chipping away at the iceberg and with the higher capital requirements for OTC instruments, coupled with innovations from the exchanges, such as smaller contracts and adopting the OTC quoting conventions, it looks as...continued

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