Crunch time nears for forex traders on faster trading

A shift to halve the settlement time for US equities to just one day in May could leave the forex market out of sync with its equity peers. — Bloomberg

NEW YORK: There’s one topic dominating the agenda as foreign-exchange (forex) traders descend on Miami this week: how the currency market can adjust to a fast-approaching change to US stock settlements that stands to shake-up their industry.

Representatives from all corners of the US$7.5 trillion-a-day global currency market will gather at TradeTech FX USA 2024, an annual meeting that is set to draw about 600 participants this year, to discuss everything from the timing of the Federal Reserve’s rate cuts to the role of artificial intelligence.

But a shift to halve the settlement time for US equities to just one day is the key concern for many participants. Known as T+1, that change in May will leave the forex market out of sync with its equity peers.

Currency trades that usually take two days to complete will need to accelerate to keep up, potentially creating a rush for currencies at the end of the day and increasing the risk of failed trades.

Indeed, CLS Group Holdings AG, the world’s largest forex settlement firm, said about one third of asset managers aren’t ready yet.

“The futures trader, the spec trader, the momentum trader, it’s not going to affect them,” said Marc Chandler, a conference attendee and chief market strategist at Bannockburn Global Forex LLC.

“But the asset managers, it really affects them. And then who does it affect? The custodians.”

Forex liquidity is highest when major global markets in Asia, Europe and the United States are open, but it dries up in the US afternoon, when other markets are shut. Some funds could choose to set up offices in the United States or automate the trades, all of which comes at a cost.

“It may mean more transactions late in the New York day,” said Steven Englander, head of global G-10 FX research and North America strategy for Standard Chartered Bank. — Bloomberg

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