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Screenshot of a breaking news alert e-mail from Q2 2017
The Financial Times reports that ICAP, the world’s largest electronic trading platform for foreign currency, said on Sunday that it had been preparing for the possible break-up of the Euro.
In addition, the Wall Street Journal reported that CLS Bank International, whose platform enables banks to settle their currency trades, is running “stress tests” to prepare for a dissolution of the Euro.
While providing a near-term headache of adding currency pairs and preparing hedging / liquidity options, the breakup of the Euro would, in our view, be a tremendous boon to Forex firms, especially those that truly operate internationally. More currencies means more volatility in the currency markets. It also means that many Europeans would again be able to hold and trade their “home” currency, something which is likely to increase people’s general interest in trading. Last, more currencies means greater chance of market making firms being “naturally hedged” in their nostro accounts, requiring less outside hedging – and more profit per volume.