The research findings of Swiss Finance Institute Professor Harald Hau from the University of Geneva, Dr. Peter Hoffmann and Sam Langfield from the European Central Bank, and Yannick Timmer of Trinity College Dublin confirm that this decision will lower the cost of hedging foreign exchange (FX) risks for non-financial companies and therefore make a key contribution to reducing risk in the real economy.

The resolution of the G20 nations to require all standardized OTC derivatives to be traded in future on central electronic platforms will have a major impact on the foreign exchange market in particular. With a global daily turnover of USD 5.1 trillion, this is the world’s largest financial market. Under the previous system, dealing banks were not obliged to make offers and prices public. Correspondingly, low market transparency means that less experienced non-financial companies have to pay significantly higher prices for currency hedging.

Trading currency derivatives on electronic platforms featuring numerous providers mitigates this problem. Less experienced non-financial companies can benefit from price competition between providers. This erodes the traditional markups, leading to a uniform price for all clients. This, in turn, simplifies access to the OTC market, especially for SMEs, and makes it cheaper to hedge foreign exchange risks. In turn, the centralized system makes a key contribution to the stability of the real economy.

David Mellor of Thomson Reuters confirms these research findings. He says that there has been huge growth in trading on multi-dealer RFQ platform as the FX community has understood the benefits of structured and consistent trading involving all its existing providers. Mellor adds that clients trading on a multibank platform also benefit from substantial efficiency gains across a range of areas.

Read the full version in English I German I French I Italian