Foreign currency traders in London are expecting a huge drop in their profit sharing amid tougher banking regulations.
Bonuses of currency traders are estimated to decline as much at 43 percent in 2014, according to the salary benchmarking website Emolument.com. This significant reduction in bonuses is the effect of tighter banking and trading regulations amid the recent scandals in the currency trading market.
The European Union has prohibited bonus payouts of more than twice the fixed salary of its employee. This is in line of their thrust to prevent another financial crisis.
The currency market exchanges hands $5.3 trillion a day. With the current regulated environment on currency trading, it is becoming more difficult for traders to make more profit. Banks have been closely monitored, especially their profits from client activity. The currency market was recently under investigation as allegations rose on traders leaking confidential information from clients and collaborating with each other to rig benchmarks.
Big banks like Deutsche Bank AG, Barclays, Goldman Sachs Group Inc, Royal Bank of SCotland Group Plc and UBS AG may be under pressure since they account for 43 percent of the world's foreign exchange activities. Earnings declined to its biggest since 2008 and bonus payouts will be greatly affected.
Lower volatility and weak client activity have put much pressure on banks. Though fixed income and commodities are up, rates and emerging-market deals have declined.
This year though, the commodity market has revived compared to last year where some banks' commodity businesses closed. Those that remained will be able to profit from commodities performance this year.
Last June 2013, Bloomberg News reported that at least 15 banks were found to be rigging foreign exchange bechmark by front-running client orders and then collaborating with their counterparts to push trades a minute before the benchmark or fixing rate was set. Transcript of trades, chatrooms and emails were also investigated.
