From Bloomie:
A widening probe of the foreign-exchange market is roiling an industry already under pressure to reduce costs as computer platforms displace human traders.
Electronic dealing, which accounted for 66 percent of all currency transactions in 2013 and 20 percent in 2001, will increase to 76 percent within five years, according to Aite Group LLC, a Boston-based consulting firm that reviewed Bank for International Settlements data. About 81 percent of spot trading — the buying and selling of currency for immediate delivery — will be electronic by 2018, Aite said.
“Foreign-exchange traders are much like stock floor traders: a rapidly dying breed,” said Charles Geisst, author of “Wall Street: A History” and a finance professor at Manhattan College in Riverdale, New York. “Once the banks realize they are costing them money, the positions will dwindle quickly.”
…Human traders have maintained their role in the foreign-exchange market while disappearing in areas such as equities because most trading takes place away from exchanges. That means clients don’t have a central repository showing the flow of completed orders, forcing them to piece together information about the direction of rates from traders and salesmen with knowledge of other clients’ orders. People were also needed because early computerized trading systems weren’t reliable and couldn’t handle larger transactions, according to dealers.
…Regulators are helping push more trading away from humans to electronic platforms by making some transactions more expensive for banks. The latest rules from the Basel Committee on Banking Supervision will make foreign-exchange derivatives — contracts with values derived from changes in currency rates — less attractive for banks by imposing charges for holding positions and products that aren’t cleared through exchanges.
…“A good chunk of spot traders, maybe 30 percent to 40 percent of them are at high risk of electronification eating their lunch,” said Javier Paz, senior analyst at Aite.
It’s a strange world when machines are more ethical than human beings.
