Humans becoming less important in world's biggest market

NEW YORK - The US$5.1 trillion-a-day currency market is losing its human touch.

That's the conclusion of trading and foreign-exchange heads surveyed by the organizers of the TradeTech FX conference in Miami. Of the 100 North America-based respondents, 94 said they aimed to automate more of their foreign-exchange trading operations in the next three years.

The market is embracing electronic and algorithmic trading, and Coalition Development Ltd estimates that from 2012 to 2016 banks cut front-office sales, trading and research headcount by about a quarter in Group-of-10 foreign exchange.

Automation has also gained favor after some of the world's biggest banks were entangled in currency-rigging scandals that resulted in more than US$10 billion in penalties. Last month, a former HSBC Holdings executive was the first individual to be convicted for front-running after the revelations prompted investigations around the world.

"These scandals just accelerated that move" toward technology which enables investors to execute orders online and get better prices more rapidly, said Paresh Upadhyaya, a portfolio manager at Amundi Pioneer Asset Management, which oversees about US$83 billion.

"It gets people a little nervous and more accepting of regulations," said Upadhyaya, who also sits on the conference's advisory board and participated in the survey.

The poll shows market participants still have room to increase the amount of trading that steers clear of humans, with 62 per cent of respondents having automated a quarter of their flows or less. Just 8 per cent said automation accounted for more than half their flows.

"It's an irreversible trend," said Upadhyaya. "The focus in money management clearly is best execution for our shareholders, and it's also important to keep expenses down."

Here are some other findings from the TradeTech FX survey, which was conducted in the third quarter:

- The biggest priorities for currency trading desks, apart from best execution, are: Reevaluating broker and counterparty relationships (54 per cent of respondents) Finding alternative methods to source liquidity (49 per cent) Reducing costs (47 per cent).

- Regulation has had an overall positive effect on capital markets in the last decade (64 per cent of respondents agreed with this)

- London will lose its status as the global FX capital after Brexit (77 per cent of respondents agreed).

BLOOMBERG