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The effects of Multi bank trading platforms on the foreign exchange market: the case of South Africa

By Basia Lebata

Abstract

Thesis submitted in fulfilment of the requirements for the degree of Master of Management in Finance and Investment in the Faculty of commerce law and management Wits Business School at University of WitwatersrandSince the floating of Foreign Exchange rates in the 1970’s, the global foreign exchange market has seen a transformation and evolution led largely by the invention of Electronic Trading. The Foreign Exchange market, which was previously opaque, has now been transformed in a manner that now makes the market cheaper to transact in as well as being more transparent than it was previously. This paper analyses the impact of Foreign Exchange Electronic Trading Platforms, with a focus on Multi Bank Trading Platforms, by companies in South Africa. Though this topic has been written about quite a lot from a global or developed market perspective, not much research has been done on this topic in the South African context. A corporate online survey questionnaire was sent out to more than 200 companies operating in South Africa to generate responses with regards to the respective companies views, opinions and beliefs with regards to Electronic Trading. Similarly, a bank online survey questionnaire was sent to all banks in South Africa who can buy and sell Foreign Exchange to corporates in order to gauge the respective banks’ views, opinions and beliefs with regards to Electronic Trading. The research suggests that Multi Bank Trading Platforms would be a welcome addition to treasury departments of companies operating in South Africa. Though Straight Through Processing is the desired state in using Multi Bank Trading Platforms, usage of the platforms without implementing Straight Through Processing is beneficial as the platforms lead to increased price transparency, better audit trail in terms of checking that FX deals are being concluded at the best possible rate, cost reductions, reductions in process risk and efficiency gains when transacting Foreign Exchange deals. The purported disadvantages of the platforms that they increase volatility, that they negatively affect liquidity and that they are bad for the FX market structure seem to be invalid with a majority of corporates and banks disagreeing with the purported disadvantages. Keywords: Foreign Exchange, Electronic Trading, Multi Bank Trading Platforms, Straight Through Processing.GR201

Year: 2018
OAI identifier: oai:wiredspace.wits.ac.za:10539/26303

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