The focus on credit, as well as a degree of regulatory uncertainty, appears to have led to an increase in the importance of sales to financial institutions, according to sources at major FX houses. The reasoning is that banks are happy to assume counterparty risk with other banks and FIs, particularly in emerging markets, but less willing to trade directly with buy-side counterparties. Another issue is the uncertainty surrounding the legitimacy of some derivative products – whether or not they have been missold has led banks to effectively seek to have credit disintermediated.
“We’re trying to partner with regional institutions as a way of distributing our products and especially our derivative capabilities,” one senior figure based in London tells the FiX. “I think it’s fair to say that we might often prefer to trade with what we’d term under MiFID professional counterparties,” he adds. It’s good to see that the FX market has once again come up with a neat solution to keep the business flowing.