Senior FX departures highlight changing market structure
Author: Robert Mackenzie Smith
Source: FX Week | 02 May 2014
Issues ranging from low volatility, benchmark investigations to regulatory change have led to senior participants leaving the market either temporarily or permanently
The recent global departures at the very top of the foreign exchange industry represent a growing trend that is likely to continue this year, as low volatility, decreased client activity and increased compliance duties have irreversibly changed the roles of senior positions at banks, say market participants.
Since the turn of the year, FX Week has reported on 11 departures unconnected with the current FX benchmark investigations, nine of which have been global desk heads at different banks with decades of experience, including Deutsche Bank, Citi and Goldman Sachs (see list below).
One market participant connected with several major banks in London feels the evolution of responsibilities in the years since the financial crisis has made the top jobs at banks less and less desirable.
“Pre-2008, if we had seen this many senior people leave the market, then it would have been a disaster. But with the way the markets are now, it has less of an impact. The role of a global head in FX has now completely changed from what it was a while ago. Whereas before, the head of a business might have been much closer to the coal face of what was going on, nowadays a minimum of two hours a day is just spent on supervisory requirements. This is not what people aspire to,” he says.
Following the financial crisis, there have been spells of increased volatility and market volume, but since the summer of last year volumes have dropped off significantly, with many traders likening normally high-volume periods to holiday trading days. In its recent first quarter report, Deutsche Bank noted that FX revenues “were significantly lower than the prior year quarter due to lower client activity reflecting lower volatility and [a] challenging trading environment.”
Lori Courtney, president at recruitment firm Artemis Consulting in New York, says that as a result of lower revenues in FX, banks are continuing to assess the value of their senior staff.
“Banks are looking at their businesses and wondering whether they need all these senior managers and how they can adapt. If this year continues to go the way it is, then how are they going to pay everybody? Even if volatility comes back, many of the changes in the market will be permanent,” she says.
Courtney adds that a mix of low volumes, low volatility, the benchmark investigation, regulatory changes and economic conditions have also led to a “perfect storm, which has removed the real-money-generating activity out of the market”. Her pessimism is shared by other participants, who believe there needs to be a changing of the guard at the top before the industry can begin to recover.
“FX is broken and no-one knows how to fix it – volatility is low, liquidity is nil, budgets will not be met and senior people are getting laid off. FX will be like equities but maybe salaries will be lower, and morale will not be repaired until all the old people are gone and replaced by totally new people. FX is in trouble,” says one.