Is Trade Becoming An Asset Class?

By Denise Bedell



For the first time in Sibos history, the trade delegates from many, if not most, transaction banks actually outnumbered the payments and cash management delegates. This is a clear signal of exactly what is happening in the trade business. As both domestic and cross-border flows continue to grow globally—albeit at different rates—trade is beginning to develop as an asset class for alternative investors. And hedge funds, pension funds, and sovereign wealth funds are starting to see the potential that the enormous, relatively stable flows and often-high turnover rate of trade assets provide. But before it can move beyond the backwater, it needs to develop a secondary market, and in order for that come about; it needs a consistent regulatory framework and cross-industry standardization.


This, of course, is easier said than done, but the cost of getting it wrong could be enormous. “Ultimately corporates pay the price,” said Kah Chye Tan, head of trade and working capital at Barclays. “We can’t sit back as clients pay 100 basis points one moment and 200 basis points the next for the same product. We can’t keep passing that on to clients.”

Creating a market for trade assets, could, or should, reduce the volatility that is now plaguing the market, said Tan. But one big challenge is the lack of consistency—from basic things such as naming conventions to more critical issues such as document and contract standardization. Although some industry associations, such as the International Chamber of Commerce—are working on this, it could be some time before those efforts bear significant fruit.