(For other news from Reuters Global FX Summit, click on www.reuters.com/summit/FX13)
By Nia Williams and Anirban Nag
LONDON (Reuters) - A strong start to foreign exchange trading volumes in 2013 is likely to be sustained, but banks must beef up their electronic trading platforms to reap the most benefit, Nomura’s global head of foreign exchange said on Monday.
Speaking at the inaugural Reuters FX Summit, Jai Rajpal said the rise in volumes was helped by a sharp drop in the yen following dramatic monetary easing steps unveiled by the Bank of Japan this month.
The dollar is up nearly 15 percent against the yen so far this year and, as a Japanese bank, Nomura has seen a healthy pick-up in yen trading activity.
“2013 looks like a better year,” Rajpal said. “There is a clear trend towards in FX volumes across the market place.”
“The changes that Japan is going through, which is pretty aggressive QE (quantitative easing) from the BOJ...is very constructive for the market and it certainly means a lot more action from Japanese clients.”
Investors are also being tempted back into the currency markets by signs the highly-correlated “risk-on, risk off” trading regime, which saw asset classes move in lock step and reduced opportunities to make money, is fading.
The increased activity is driving banks such as Nomura to ramp up investment in technology and improve electronic trading platforms.
Rajpal said an electronic dealing platform was crucial for banks operating in the foreign exchange market.
“We are investing in our electronic platform. Almost every firm has launched single-dealer platforms. Without having a competitive platform you lose the edge”, he said.
The largest banks like Deutsche and Citi have been using their own proprietary “single-dealer” platforms for years.
The main advantage of electronic trading, whether streaming live prices to clients or using algorithms to generate smaller quotes automatically, is that it enables traders to concentrate on larger flows and the banks to handle higher volumes.
Rajpal identified the Chinese yuan options market as an area of opportunity.
One of the biggest trends in the currency market has been the growth of an offshore market in the Chinese yuan, Rajpal said. A further widening of the yuan’s trading band could happen in the next few months.
“I think the vol (volatility) space in offshore yuan will be very active. Investors outside Asia have been keen to buy optionality in future strength in the yuan,” he added.
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Editing by Nigel Stephenson