Mobile FX trading: still stuck on the launch pad?
The financial markets, like any industry, have been caught up in the buzz of the new generation of technology that pervades the world of e-commerce: the ubiquitous app. But will mobile trading ever take-off in institutional foreign exchange?
As one global head of FX at a leading bank told Euromoney in an interview two years ago, trading apps were the future and would change the way the market operated. Others were more sceptical – with good reason, as it turned out. EuromoneyFXNews’ buyside e-trading survey results show that while more than two thirds of buy-side professionals use a mobile device in relation to their work, 65% do so to look at news, market trends and pre-trade research, only 21% use them to monitor orders and positions and just 14% use a mobile device to place orders or execute trades.
Far from revolutionising the way the market works, few banks have immediate plans to introduce mobile trading, citing the increased operational risks compared to using an office-based desktop system.
"One challenge for trading on mobile devices is that - even with several security checks in place to enter the portal - once logged in, if that device ends up in the wrong hands, then there is a serious security issue for both the client and the bank,” says Brock Arnason, global head of Matrix at Morgan Stanley"
Banks worry that if a loss resulting from a rogue trade were to occur, then the insurance and legal ramifications would be far from straightforward. So-called fat-finger trades are also a greater risk on mobile devices than on traditional desktop setups, they say.
“At present, the security risks for mobile trading loom large in relation to the expressed client demand, but that is something we are always monitoring for reconsideration,” says Arnason."
That reflects the fundamental reason behind banks’ reluctance to enter the space of mobile e-trading. The client demand at this stage is not large enough to justify the investment needed to offer the service, given the potential risk-management drawbacks, most banks say.
Many banks that have spoken to EuromoneyFXNews said that clients, while enthusiastic about the uses of research portals, did not express demand for the use of mobile trading applications because their employers did not allow trades to be executed outside of the office.
“We do not allow mobile trading, whether that be by voice or mobile and mobile apps, for all of the issues around risk management, and control and audit trails, and accountability and so on,” says James Wood-Collins, chief executive officer at Record Currency Management, based in Windsor.
“I don’t see that changing at all. If anything, from an institutional perspective, the trend is going the other way.”
Colin Jowers, global chief operating officer of research and strategy at RBS, said moving from offering research access and real-time monitoring to full-execution functionality is something that the market is not ready for.
Aside from the technical and security issues, trade execution on mobile platforms is a huge step that would require work done within the industry to establish common standards and understanding of best practice. Operational procedures and risk-management standards would need re-examining and financial market regulators would also need to be involved.
In November, the Financial Services Authority (FSA) issued new regulation requiring all mobile phone telephone conversations to be recorded to prevent insider-trading malpractices, but the FSA has said it has no plans to issue new rules pertaining to execution of trades on mobile devices.
A spokesperson for FSA told EuromoneyFXNews that so long as all trading-related activity on mobile devices – whether voice or electronic – is capable of being recorded, the FSA has no view on which technologies are used to execute orders.
More and more banks are now in the process of developing mobile applications allowing institutional clients to access research and electronic platforms away from the workplace, but many of those at the helm of enhancing their banks’ mobile offering say, when it comes to trading, the market just isn’t ready – and won’t be without industry-wide changes.
However, not all banks are so hesitant about trading on mobile devices.
JPMorgan, for example, has embraced the technology, and is looking for first-mover advantage.
The bank’s mobile technology apps allow clients to access research, monitor multiple markets, place orders and even execute. In essence, clients are able to use many of the features they would on their normal desktop computer on a mobile device.
Troy Rohrbaugh, global head of FX at JPMorgan, believes the market will move towards mobile trading quickly and says the bank invested in the technology early, testing it on JPMorgan’s own traders and ironing out the compliance issues.
“We’ve thought about this a lot,” he says. “We want be able to trade FX remotely, so we have invested in this early and consistently.”
The benefits of this investment might have already begun to materialise. A year ago, virtually no orders or trades were placed using a mobile device outside of JPMorgan staff, but by the end of 2011 external orders placed on mobile devices accounted for almost 5% of all orders.
Rohrbaugh admits that JPMorgan was not the first to the party in e-commerce, but believes the investment in mobile trading technology will give the bank an edge when it comes to attracting, and keeping, new clients.
It’s a strategy that has often been met with flippant resistance from both the buyside and sell side. The most common worry for compliance departments seems to be a belief that traders could be sitting in a pub and dealing on their mobile devices – in effect, drunk in charge of a dealing system. This argument seems flawed however. Couldn’t traders be drunk anywhere and still trade?
For the moment, the JPMorgan appears to be swimming against the tide, but as the steady creep of mobile technology continues, it might well be that other market players are forced to alter their course.