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Foreign Exchange

Andy Durrant, Director at CME Group: On Asian FX

There can be no ignoring the enormous potential that exists in Asia for FX businesses.

While Lee Oliver, Euromoney’s FX correspondent, is on summer break, the weeklyFiX is supplied by guest writers from the industry. Our second contributor is Andy Durrant, Director at CME Group.

With everyone’s TV tuned into Beijing and the Bird’s Nest Stadium every day to see the world’s finest athletes shoot for their place in the Olympic medals table, it’s no surprise that thoughts are focused on Asia as it showcases its new economic and cultural might. But what is the best approach to getting into the medals in the FX events?

In our business, everybody seems to be looking for explosive growth from Asia but realistically, should it be seen as a short-term play? CME Group FX is just starting to see the benefits of long-term investment in the region. Our numbers in percentage terms show Asia returning the high levels of volume growth, but it’s from a relatively low starting level and currently represents approximately 7% of our total FX volume. So are we fooling ourselves that we are even close to enjoying serious success?

We have taken a long-term view to developing our presence in these markets. We have had high-level customer contact over many years, at the same time finding ourselves following a path of cultural integration. There has been a great deal of knowledge transfer from a futures and risk management perspective; visits to the exchange in Chicago from disparate entities based in Asia and return visits to the region by CME staff; and specific initiatives such as client segment visits (especially hedge funds) to China to meet nascent industry counterparties, which are now evolving into promising two-way relationships. Our commitment to Asia in terms of staffing now covers Hong Kong, Singapore, Sydney and Tokyo, with frequent visiting programmes largely of an educational nature, as well as exploring other types of opportunity. Obviously others have made the same type of long-term commitment and there is still much to do: we still see evidence that technology constraints and cultural differences are barriers to entry.

Regulatory liberalisation has begun – for example in China and India, the two fastest-growing emerging countries – but this is not a quick process and institutions that have taken an opportunistic approach may lack the expertise and knowledge to take full advantage. The same applies from a technology angle: does the existing regional infrastructure support rapid growth? Obviously there is headway being made in terms of single bank platforms, ECNs and portals of various descriptions improving liquidity, lowering costs and increasing client segment involvement but again this has been the result of long-term commitment and there is still some way to go.

Sovereign wealth funds are flavour of the month, but again, as with most processes in Asia, their approach is long-term and very considered. Relationships must be built and understanding gained of their specific needs and requirements.

With recent phenomena, such as the carry trade and stories of Tokyo housewives staking the house on FX, there can be no ignoring the enormous potential that exists in Asia for FX businesses. But the approach needs to be a patient one, with an eye to building relationships over the long term and responding to the specific challenges posed by opening up this new territory. It remains to be seen who will stand on the winners’ podium: we think it will be the organisations that have put in the hard training.

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