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FX: A bulge in the back office

The back office is the unglamorous end of the deal chain. But as some banks are now finding out, keeping the pipes clear is vital if business is to be kept flowing from the front end. Lee Oliver reports.

FEW, IF ANY, banks will admit it, but the surge in volumes in the foreign exchange market has led to almost intolerable pressure on some of their back offices. The problem has been worsened by the changing way deals are transacted and then booked. Trades that would have resulted in just one ticket a decade ago can now result in more than 100 entries passing through the system.

“We’ve spoken to quite a few banks that have had big volume issues. In fact both banks and trading platforms have had to address this, even for simple products like spot. Ticket processing is one of the biggest issues in FX,” says Octavio Marenzi, chief executive of consultant Celent Communications. “In the past, FX was dominated by the interbank market. Now there is a much wider range of participants, such as asset managers. They have different procedures and that is one reason why the ticket growth is so large.”

Jeff Feig, global head of FX at Citigroup, agrees. He believes that the trend towards smaller deal sizes has been in place for some time but that it has been accelerated by such factors as programme trading and the participation in the market of more buy-side players.

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