October 2023


The future of FX: A view of the markets and industry

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Foreign exchange (FX) markets, much like the finance industry itself, have undergone a transformation in recent years driven by the emergence of modern technology, new products and compliance challenges. During a fireside chat, Lee Ferridge, head of Multi-Asset Strategy for North America at State Street Global Markets, sat down with Tony Bisegna, head of State Street Global Markets, to discuss the evolution of the FX industry. Bisegna explained how recent technological changes and innovations are poised to shape industry trends and the future of finance. The chat also delved into Bisegna’s views on the macroeconomic outlook.

“The technological advancement in the last 10 years is tremendous, and in the next five years, it is going to advance even further. You can’t read a news story without seeing a reference to artificial intelligence. Over the last year, we have also seen both good and bad about cryptocurrencies, compliance and outsourced trading, which is accelerating now,” Bisegna said.

Below are highlights of the conversation:

Impact of artificial intelligence (AI) on services and products
Information processing is the central function of financial markets, and the meteoric rise of AI in finance will undoubtedly transform the way investors extract and transmit tremendous amounts of data in real-time.

“It's going to change how we do our jobs, how we access liquidity and trade, gather information to make investment decisions and automate trading,” Bisegna said, adding that State Street is already leveraging AI — through the GlobalLink platform — to provide clients comprehensive, automated trading solutions. In short, the adoption of AI in finance is going to be an industry disruptor.

Cryptocurrency and blockchain
According to Bisegna, crypto is unlikely to replace traditional systems of banking and finance anytime soon, but its technology will help in broadening the investor base and creating secondary markets. Meanwhile, blockchain will revolutionize FX trading, transforming how trades are conducted and how payments are made, and speeding up settlements and tokenization. However, Bisegna said, both crypto and blockchain will increase competitive pressures and innovation within the industry, as investors turn to the technologies to meet and keep up with client expectations.

Outsourced trading
Outsourced trading is no longer merely an alternative for asset owners; it is a solution, Bisegna said. It gives firms the extra bandwidth to focus on growth and other important aspects of their business, and it is expected to keep evolving. He emphasized that outsourced trading is not an all-or-nothing solution; rather, it can serve as both a supplementary and strategic approach to trading.

“We see it increasing on the buy-side, looking to outsource non-core functions outside of the investment management process,” Bisegna said. “I think that’s going to be a trend that will evolve over the next five years or so.”

Outsourced trading is a significant part of the financial industry’s evolution, particularly in the context of FX trading. Bisegna said building tools and capabilities to automate peer-to-peer systems will enhance access to liquidity for the buy-side and streamline FX trading.

Bisegna expects to see interest rates continue to rise in the coming years, and a stronger US dollar. “If you look at the interest rate outlook, I think we roll into next year and we won't get the cuts. The [FX] market is kind of pricing in. That's a big tailwind for the dollar.”

Bisegna also foresees Europe and China experiencing inflation and facing a recession. He added that the upcoming T+1 settlement rules, shortening the settlement cycle to one business day for most securities transactions starting in May 2024, will impact FX transactions globally, particularly for offshore investment managers.

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