A little help from our friends: banks team up as FX trading gets tougher

LONDON - Faced with the costs of competing in a world of electronic and algorithmic trading, many banks are outsourcing parts of their foreign exchange businesses, a trend that may cement big lenders’ dominance of global currency trading.

Given the importance of forex to corporate clients, few banks would opt to drastically reduce FX operations, the way they could with equities trading, for example. They are choosing instead to pull back from areas where they cannot compete but still want to sell to their customers. While outsourcing constitutes a small part of NatWest’s trading volume, Manwaring said it makes sense for currencies or time zones where the bank has little geographic presence.

Sweden’s SEB looks to other banks to supply liquidity in emerging market currencies, certain FX option products and to help execute computer-run algo trading, its global head of FX, Svante Hedin told Reuters, adding that the progression of technology had accelerated outsourcing. Newer electronic market-making outfits such as Citadel Securities and XTX Markets are in the meantime battling with the banks, although their role is largely limited to spot trading.

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