Foreign Exchange Dealing Rooms

Ever since the market experienced problems of unauthorized dealing, fraud and collusion in several institutions in the early 1970s, banks and institutions have been encouraged by their regulatory authorities to impose strict rules and regulations on the type of business transacted, its controls and the manner in which it is monitored. One of the most important aspects in the control of a dealing operation is the division of duties between dealing and back-office processing. Dealers should (a) effect the deals in the interbank market, or with clients, (b) maintain sufficient informal records as required to monitor their positions, (c) complete a source document (deal ticket) and, from that moment on, have no further part in or control over the processing, confirmation or settlement procedures involved.

COMPOSITION OF A DEALING ROOM
The composition of an institution’s dealing room very much depends on that institution’s size, its spread of market interests and its client base (see Figure 18.1). However, in general, the majority of institutions actively involved in the foreign exchange markets will have some or all of the personnel listed below.

Spot dealers
Spot dealers are the dealing section the media love the most. Whenever there is pressure on any currency, that pressure will be most noticeable on the currency’s spot value. They are market makers.

Forward dealers
Forward dealers will normally be active market makers in the same major currencies as traded by the spot dealers. Here, rather than dealing on the minute-by-minute value of the currency, forward dealers are looking at the relative currency interest rates over the standard forward period dates quoted by the market.

Money-market dealers
Money-market dealers control the interbank deposit and loan positions of the bank. The interbank market deals in all periods from overnight (depending on currency) to one-year funds and above. They are also responsible for funding the bank’s commercial asset portfolio.

Treasury product dealers
Treasury product dealers are involved in numerous other activities, involving other financial instruments and newer off-balance-sheet products. Some of the treasury products lend themselves to trading activities (futures, options, etc.), while others are offered by the treasury products dealers as a customer service in-house, to providing assistance wherever it is needed in the management of all types of financial risk.

Corporate dealers
Corporate dealers undertake a totally different role to that of the interbank dealers. In most situations, they will not make a market, but will instead obtain rates from the market makers in response to their client’s dealing requests and quote for those accordingly. They are, in effect, the ‘middle men’ between the market makers and the clients. In their own right, they have a tremendous marketing role to play as in many respects they are the front-line representatives of the institution.

Research personnel
Research personnel, generally, have a presence on the trading floor because they assist the traders in their task with technical and statistical research, market commentaries and graphical analyses, among other things.

Position clerks
Position clerks are the workhorses of the dealing room, as they tend to carry out all of the clerical functions that require immediate execution.

BACK OFFICE
In most institutional organizations, the term ‘back office’ is generally accepted as a description of all processing functions connected with a dealing operation outside the actual dealing itself. The back office starts, therefore, at the dealing room door and is a vital part of any dealing room function. It is concerned with settlement of trades, confirmations, maturity files and reconciliations. Other departments are financial control and information technology.
Source: A Foreign Exchange Primer

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