* Low market volatility hits trading volumes, returns
* Fed turn on rates outlook fails to change picture
* Suspicion grows fixing scandal fallout cooling trading
* Pressure on platforms, annual trading books likely to grow
By Patrick Graham
BERLIN, March 28 A drop-off in major currency
market volatility may be due as much to banking regulations and
a row over alleged manipulation as to ultra-low interest rates
in the developed world, industry figures said on Friday.
Meeting at one of the year's big foreign exchange gatherings
in Berlin, officials from banks, trading platforms and
brokerages said the industry is becoming increasingly hamstrung
as banks struggle with new rules and a series of investigations
into alleged wrongdoing around daily benchmark "fixings".
Behind the numbers showing currency markets are worth more
than $5 trillion daily, volatility, the lifeblood on which
investors depend to rack up profits, is close to all-time lows.
Three months into 2014, players are increasingly concerned about
when it will pick up for the major currencies.
The running assumption of most has been that the fall-off in
the vigour of price moves and speculation is due mainly to the
almost identical and very low returns offered by official rates
on dollars, euros, sterling, francs or yen.
But noticeably there was little lasting impact on volatility
from significant statements by the heads of the Bundesbank and
the U.S. Federal Reserve over the past two weeks. If the malaise
turns out to be due more to the fallout of banks' efforts to
shore up capital and control dealing rooms more tightly, it may
leave the market in the doldrums for far longer.
"As far as I'm concerned it's obvious that the banks are
simply not able to take as much risk as they were and that is
having an impact on volatility," said a senior official with one
leading trading platform, asking not to be named.
"In the past, when something happened that looked worth
trading on, people would just jump on it and the herd would
follow. Now people see something happening and they simply don't
have the ability to go out there and do something."
If anything was supposed to awaken the major markets from a
months-long slumber it was a stronger message on U.S. interest
rates like that given by Fed chief Janet Yellen last week.
Yet 10 days on, most of the main currency pairs are back in
the tight ranges that have dominated in some cases since as far
back as 2010.
Volatility, measured in the market by "Vols" options
contracts, is the degree to which prices move up or down. The
less there is, the more dealing rooms will struggle to meet
targets for annual trading returns.
"It has been like this before but it certainly doesn't bode
well," said a forex dealer with one London bank. "We would
expect February and March to be our busier time but there is
very little happening."
Opinion is divided, but many participants speculate there is
another factor at play: the official probes into market
manipulation that bankers say have forced all of the major banks
to look again at how their dealing rooms operate.
"One can certainly ask how much what is going on is related
to the fact that some people in the market have been given a
reason to pause and consider if everything they were doing was
strictly above board," says the same dealer.
"A lot of people have pulled in their claws and maybe that
is at the heart of this."
Others point to the strong moves on a number of emerging
currencies this year as evidence that the market is still ready
to jump on a clear investment story.
"If this had really been about the fixing scandal, we
wouldn't have seen those moves," said an official from the
broker arm of another London-based bank. "It is just there is no
story to hang your hat on with the majors. The problem is that
unless China's economy blows up, that may not change in a
(Editing by Ruth Pitchford)