In the April 2015 edition of e-FOREX, Richard Willsher addresses the uncertainty over the future course of regulation and whether more trading malpractice may come to light to continue to cloud the foreign exchange market. TraderTools CEO Yaacov Heidingsfeld shares his thoughts, below.
“We are very fast approaching the time when it will be too late for the market to be self-regulating. With every day that goes by, and with every announcement of potential wrongdoing by some of the largest and most reputable participants on the market-making side of the equation, we are fast losing that opportunity. If you think about what we have done as an industry since February of last year and what new allegations and settlements have occurred since, the self-regulating horse is pretty much out of the barn at this point.”
“Does the requirement for electronic trading eliminate the possibility of market abuse? I think that in a vacuum it does not. There has been recent investigation here in New York that two large banks programmed their electronic platforms to take advantage of certain situations that were of disadvantage to their customers. An honest system will only be as honest as the people who programmed it. There are still vendors who are hiding behind the idea of dark pools. And if they are not hiding then the customers are hiding. There is still a big dark pool in foreign exchange. It’s still a big part of our industry. To the extent we can shine a light on this and make it more visible, that will eliminate some of this abuse. Requiring people to trade electronically will eliminate some of the abuse.”
Regulation vs. Innovation
“Looking ahead five years from now, what is not electronic will be forced to become electronic. I think there will be some kind of standard that we will have to submit our algorithms to, to provide an additional level of transparency. Confidential rules differentiating trading platforms may not be able to be kept secret in future. If left to their own devices regulators may force published rules of engagement and execution. This goes for technology vendors like us as well as market participants – banks, brokers, retailers etc. This however is a very anti-innovative kind of world to live in. Because if I am forced to share my strategic advantage with the rest of the world, why would I want to innovate? I think innovation would stagnate. This is something that I fear. So I see a market that is more regulated. I see a market that is more electronic. I think that’s clear. And I think that this is a market that allows for significantly greater transparency and I would hope that innovators will find a way to be fairly compensated to innovate regardless.”