My timing might be off, but it seems about time somebody spoke up in defence of the FX market, writes Peter Garnham, Editor at FX-MM.
Peter Garnham, Editor at FX-MM
Admittedly it has been through the ringer in recent months as a result of the probe into alleged rigging of the London fix. The market even warranted a mention in the UK chancellor’s annual Budget speech this month.
And it is true, if collusion among dealers can be proved, then they must be dealt with. Banks are the liquidity providers; they, after all, are selling liquidity. And the spreads they charge are the price of liquidity. If they collude with each other, they are increasing those prices to the detriment of consumers. It is no different to a cartel in any other market.
But the investigation into the fix, which is likely to be a drawn out process, should not take away from the fact that the FX market as a whole does an extraordinarily good job in serving its clients.
Let’s not forget that it provides 24 hour liquidity, five days a week. As one fund manager told me this month, he can call up a dozen banks at any time of day and get two-way quotes for $10 million, $100 million in a host of different currency pairs, hit either side of those quotes and the spread will be tiny. That liquidity, that transparency is unparalleled.
There simply is no other market that works as well for its users. And it works that well because, despite the outcome of the fixing inquiry, in general there is just a lot of competition in what is a very transparent and fungible product. That message is in danger of getting lost.
And let’s not forget the amazing progress the FX market, which has only been in existence since the 1970s, has made over the last 30 or so years. Indeed, to many it had developed into an asset class in its own right, sitting beside equities, fixed income and commodities as a true investment opportunity.
Click here to listen to Peter Garnham discuss the investigation into the FX industry on BBC Radio 4’s The World This Week.