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SCMP Reporter

International currency futures trading faces big changes through the increasing use of a new electronic broking system.

 The system - Dealing 2000-2 Forwards - encompasses both on-screen order-related conversation and automatic order execution capabilities, which will improve the efficiency and reduce costs of handling currency forward transactions.

 The Reuters system enables a bank to ask for price quotations from a number of counter-party institutions simultaneously and run a check on their credit limits before putting a transaction into action.

 That represents a breakthrough to the traditional mode of one-on-one order matching using telephone lines, with the help of more primitive versions of electric price quotation systems, or by going through money brokers.

 Reuters Asia managing director Jeremy Penn said the system should enhance trading efficiency, help banks create higher trading volumes and make more profit.

 It would take a while for banks to get used to the system and transfer the execution of orders from the traditional mode of order matching to the new system.

 He said the system had received a very good response in Japan, with more than 90 per cent of Japanese yen/US dollar forward transactions now done through it.

 The success of the new system will depend not only on its advanced features but also on the ability of Reuters to persuade banks they need to use it to keep abreast of competition.

 A growing number of participants and increasing volume should help the system improve liquidity and drag down the bid-offer spread, Reuters' Mr Penn said.

 The system was initially launched in the UK, the United States, Switzerland, France and Germany.

 It is now being used in 17 countries, including Hong Kong and Japan, and is capable of handling transactions denominated in 11 currencies.

 In Hong Kong, the system is used by 30 banks, including big names like Hongkong Bank, Sumitomo, the Bank of China group, Paribas and Chase Manhattan Bank.

 Mr Penn said that unlike spot transactions, currency forward transactions involved longer-term commitments and more accurate checking on the counter-party's credit limit and default history.

 This requirement pushed system suppliers to design more sophisticated products to fulfil traders' needs.

 Despite the sheer convenience and cost-effectiveness offered by the new electronic broking system, Mr Penn said the money broking industry should continue to exist.

 He said the human brokers should discover their niche in handling illiquid and complex products such as non-deliverable forwards which are widely used by foreign investors in countries without freely-convertible currencies.



New system peps up forex futures trading