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ClientKnowledge, client strategy firm, releases foresight paper: FX, Market and Technology, the Outlook

Predicts continued dramatic growth in global forex, driven by international trade and facilitated by doubling in technology spend.

The foreign exchange market is growing rapidly and will continue to do so over the reasonably foreseeable future. Currently exceeding $2 trillion daily, volumes will go above $3 trillion by 2010.

Electronic transactions represent a growing proportion of all trades, including more than half of client volumes rising to more than 75% by 2010. The technology infrastructure needed to enable and support those trades is now fundamentally interlinked with the infrastructure needed to support and render profitable nonelectronically transacted trades.

The challenges implied by the venues and modes of trading and distribution required of banks to achieve and maintain profitability oblige widescale revision of the infrastructure already in place at most firms and a limited lifecycle of any solution implemented.

The challenges of delivering robust solutions for key components of the dealing
architecture are driving a tendency to buy rather than build, even if internal builders are used to combine heterogeneous systems and components.

Banks are dependent on their technology infrastructure not only to improve or
protect net trading revenue capture but also to drive down human and processing costs.

Therefore, we should expect to see technology spends maintained and increased in this space, both in absolute terms and as a proportion of costs.

Today’s spend of around $400 million annually by the sellside on ecommerce
components will rise to closer to double that by 2010.

Comments Justyn Trenner, CEO and Principal of ClientKnowledge, “Our analysis demonstrates that the recent growth in the foreign exchange market is sustainable and will extend further over the next five years. Success for the sellside
will be predicated on their effectiveness in implementing interconnected technology, trading and distribution strategies – and they will be penalised rapidly for failing to do so. Technology strategy and spend, therefore, will be at the heart of future profitability. We expect a number of firms to benefit, particularly the marketleaders for fx ecommerce, Cognotec and Reuters.”