New official rules will come into place on January 1st which will basically spell the end of all prop trading at the major banks, which in most cases had already stopped anyway. Banks will also be faced with the dilemma of defining where market-making stops and where holding prop risk begins.
Bank trading rooms will become more increasingly automated with flows being immediately cleared for a small margin or commission. Risk takers will become obsolete with only managers and sales dealers finding any longevity in previously massive trading rooms.
Hedge funds will still exist, providing liquidity and proprietary risk opportunities for professional investors. The main change to this end of the industry is in the profile of a typical hedge fund employee, with most of them well into the second half of their trading careers and few if any developing traders coming from the disappearing interbank talent pool.
The FX market will naturally come to depend more and more on the retail market to provide liquidity and risk outlets. Thankfully the retail market is becoming more sophisticated, developing its own pool of trading talent which will become the next generation of market makers and prop traders. Retail brokers are creating their own liquidity hubs with each other and are building their businesses now on profitable traders, rather than on the losing traders which was often the case in the past. Products and services now available to the sophisticated retail trader are very close to those which the institutional trader has always enjoyed and whilst there is still a way to go, the retail market is well on the way to becoming the number 1 dominant sector in the FX marketplace. Changed times indeed!
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