Old school voice brokers face automation in $4trn FX market

The $4 trillion-a-day currency swaps market is trying to break its reliance on dealers picking up the phone, with trading venues looking to automate this stubbornly manual corner of foreign exchange.

About 56% of FX swaps are already traded electronically, yet that compares with roughly 71% of spot transactions, according to the Bank for International Settlements. The gap is most visible in the inter-bank market, where traders frequently rely on voice brokers to manage large positions.

Now there’s a fresh push to make more of that business electronic, according to an industry gathering in Amsterdam. Technology provider 360T expects more trading on its electronic platform over the next year, while London Stock Exchange Group Plc is planning a clearing solution.

Market structure consultancy Positive Sum Associates said there are at least three venues building dealer-to-dealer swaps platforms.

“The race is on,” said Jasper Livingsmith, founder of Positive Sum Associates and the former head of G7 portfolio management at the European Bank for Reconstruction and Development. “I’m surprised that such an old, vanilla marketplace is still so primitive.”

FX swaps are more complicated to automate because they combine two currency transactions across different dates and depend on how much credit banks are willing to extend to one another.

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While greater automation could put some broker jobs at risk, cutting trading costs is an industry priority in the biggest type of currency market.

Trying to make the dealer-to-dealer swaps market “electronified is a key mission for top liquidity providers”, said Alexis Cayla, head of quantitative G-10 short term interest-rate trading at JPMorgan Chase & Co.

The US bank is going through that shift itself, he said, but the pace of change across the industry will depend on how willing other banks are to follow.

Read: Ignoring tech issues costs financial services industry millions every year

Still human

It is a familiar promise. Conference participants have spent years predicting that FX swaps will follow spot into the electronic age. Several attendees in Amsterdam this time were reluctant to do so again, after seeing the industry repeatedly declare that this would be the moment the market finally makes the leap.

Some still see value in the human element in currency markets. Panelists lamented that people don’t pick up the phone as much any more, while AI-generated summaries risk making chats and emails increasingly generic.

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Others joked that AI bots could be trained to chat about the latest football results, to replace the loss of banter with brokers.

Read: Microsoft launches AI that works like an executive assistant

Some funds have already automated smaller swaps deals. Ian Packer, an FX trader at UBS Asset Management, said as much as $500 million in major currencies can be handled electronically, while bigger transactions require a call.

“When we do sizeable swaps, we have to do things manually because the banks we face haven’t got sophisticated enough systems,” said Richard Turner, senior trader at Insight Investment. “We would like to automate things.”

Bloomberg LP, the parent company of Bloomberg News, hosts a currency-trading platform that includes swaps.

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