Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

What Brexit? London tightens grip in forex trading

Stock Markets Oct 11, 2019 06:51AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
GS
-1.03%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DBKGn
+0.68%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
CBKG
+2.37%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
BNPP
+2.52%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Tommy Wilkes and Saikat Chatterjee

LONDON (Reuters) - Financial analytics firm Mosaic Smart Data has doubled the number of developers and quantitative analysts it employs since 2018 at its London base, where nearly 40 now crunch numbers to help banks trade foreign exchange and bonds.

Far from suffering under the economic and political uncertainty wrought by Britain's journey toward leaving the European Union, London is strengthening its grip on currency trading, the crown jewel of the city's financial industry.

Technological and regulatory trends little impacted by Brexit are driving more forex flows into a single, centralized trading hub, largely to London's benefit, interviews with bank executives, investors and central bank officials show.

A boom in new financial technology jobs is helping London to offset a decline in traditional trading roles as the industry becomes ever more automated, though it may not compensate for Brexit-related losses in other financial sectors.

London's share of global daily forex turnover has rocketed to a record 43% - from 37% in 2016 - as it stole market share from New York and Asian hubs, according to a Bank of International Settlements survey last month.

London has long led in forex thanks to its convenient time zone and cutting-edge trading infrastructure.

But the news surprised many who had predicted Brexit would drive an exodus of banks and traders from London, or at least arrest its growth, while cities such as Hong Kong and Singapore were seen benefiting from a boom in local currency activity.

"London is hard to beat ... The depth and diversity of the skill pool here is unrivalled," Matthew Hodgson, the founder of Mosaic, one of a clutch of new fintech companies tapping into the forex industry, told Reuters.

Mosaic employed a handful of staff from a shared office around the time Britain voted to leave the EU.

"There is a network effect for talent, the FX liquidity and the clustering of institutions," he said, predicting London's advantage was "likely to have staying power" despite Brexit.

(GRAPHIC - Geographical distribution of OTC FX turnover: https://fingfx.thomsonreuters.com/gfx/editorcharts/GLOBAL-FOREX-TURNOVER/0H001QXBQ8S6/eikon.png)

Big banks including Citi, BNP Paribas (PA:BNPP), Deutsche Bank (DE:DBKGn), Goldman Sachs (NYSE:GS) and UBS base their global forex heads in London.

And some banks have expanded their presence in recent years.

Dutch bank ING, for instance, chose London to centralize its forex trading operations, previously scattered across various cities. ING's global forex and rates boss Gary Prince said it was efficient to run more business out of the British capital.

London's forex fortunes could also be benefiting as European banks retrench from the United States, a recent HSBC report said.

TRANSPARENCY

The BIS gives no explanation for London's increased share.

Some traders caution that improved bank reporting of turnover - especially booming forex swap volumes - may have inflated the 2019 numbers globally, although that would not undermine London's success at the expense of rivals.

Part of the story appears to be new regulations that require investors to justify the prices they get while trading.

Rules introduced in 2018 by the EU aim to bring forex trading more in line with equities and have seen a raft of new London-based firms launch to provide "transaction cost analysis" to traders.

Their data, now used by 60% of buyside investors for currencies, according to Greenwich Associates, has reinforced what some market players already knew: trading costs are lowest when liquidity - the ease with which you can buy and sell - is deepest.

And that's overwhelmingly when Asian and American time zones overlap with London.

Quantifying intra-day liquidity is difficult without a single forex trading platform, but several traders said it had become easier and cheaper to transact in London than elsewhere.

Large investment funds can as much as halve execution costs when trading dollar/yen in London versus in Asia or New York, two senior traders told Reuters.

An extra bonus for the city is the increase in electronic trading and the use of computer models known as algorithms, or algos. Aimed at cutting costs and getting the best price, algos are often programmed to seek out the biggest liquidity pools.

"Because London has the liquidity and because liquidity is what larger players are looking for across the spectrum, they are moving the time in which they transact to the most liquid time zones," said Itay Tuchman, London-based global head of forex at Citi.

(GRAPHIC - OTC foreign exchange turnover: https://fingfx.thomsonreuters.com/gfx/editorcharts/GLOBAL-FOREX-BIS/0H001QX6T8EJ/eikon.png)

NEW JOBS?

London's grip on the bank trading business is encouraging more forex fintechs to expand in the city. Often run by ex-bank traders and brokers, these startups offer a range of services, from data analysis to designing programs that can shave milliseconds off trading times.

A City of London report said Britain's fintech sector employs an estimated 76,500 people, while London saw 61% growth in such jobs last year.

Some of Britain's most valuable fintechs are in the forex industry, such as TransferWise and Revolut.

"The network effect of having London as a talent hub to me is a very strong argument on why this city will dominate, even post-Brexit," Citi's Tuchman said.

Currencycloud, which builds forex payments infrastructure for businesses, has around three-fifths of its 250 staff in London and is expanding, its CEO Mike Laven told Reuters.

But is has also opened an office in Amsterdam and will employ 20 people there by the end of the year to help serve clients in the EU post-Brexit. These are jobs that "we would have hired in London," Laven said.

London's forex dominance may not offset a broader employment hit in financial services from Brexit.

That's because the same trends that are encouraging more centralizing of trading are leading to forex automation and job cuts in the trading community.

At the world's 12 biggest investment banks, the number of trading and sales staff employed in bonds, forex and commodity globally was down to 1,400 by 2018 from 2,300 in 2010, analytics firm Coalition estimates.

But the draw of London remains strong, even for those who lose their jobs.

When Peter Kinsella was told in 2017 by Commerzbank (DE:CBKG) that it was shrinking teams and might move his forex strategy role from London to Frankfurt, he left the bank.

"You've got the best people in London and the best market information. You can get a call on a Monday and someone will ask what are you doing tomorrow morning? We've got a meeting with a politician on Brexit," said Irishman Kinsella, who now advises well-heeled clients at Swiss bank Union Bancaire Privee - from London.

"That type of connectivity you don't get in other parts of the world."

(Graphics by Ritvik Carvalho; Editing by Mark Potter)

What Brexit? London tightens grip in forex trading
 

Related Articles

Israel stocks lower at close of trade; TA 35 down 2.12%
Israel stocks lower at close of trade; TA 35 down 2.12% By Investing.com - Oct 02, 2022

Investing.com – Israel stocks were lower after the close on Sunday, as losses in the Banking, Financials and Real Estate sectors led shares lower. At the close in Tel Aviv, the TA...

Tesla's third-quarter deliveries miss estimates
Tesla's third-quarter deliveries miss estimates By Reuters - Oct 02, 2022 4

Tesla (NASDAQ:TSLA) Inc on Sunday announced its third-quarter electric vehicle deliveries were 343,830, lower than expected and weighed down by production stoppages to update its...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email