That is the growing sense of certainty some 750 senior executives in the forex industry debated in three days of meetings at the annual gathering of their trade body, the ACI, in Stockholm last week.

``The nature of the market is changing,'' Zar Amrolia, managing director of global currencies and commodities at Deutsche Bank, told ACI delegates Saturday as the conference came to a close.

``The nature of who is a client and who is a counterparty is changing,'' he said. ``There is definitely a new breed of entrants in the market.''

Aggressive hedge funds, which trade in direct competition with the banks, dominate the influx, with an additional push for change coming from increasingly sophisticated corporate clients demanding access to transparent wholesale pricing and liquidity.

The transformation of clients into competitors is fueled by the relentless pace of technological change, creating an array of competing electronic trading platforms that are cutting transaction costs and increasing price transparency.

``The reality is that corporates could be regular participants on systems like EBS [a foreign exchange trading platform] within a couple of years,'' said Tom Buschman, treasury development manager at oil firm Shell International.

Big corporates mean big business to the market. Shell's total treasury trading book is worth about US$1.5 trillion (HK$11.7 trillion) a year, about US$300 billion of which is forex-related, Buschman said.

Hedge funds bring high frequency trades with lots of leverage and multiple positions - making their business worth many times the US$1 trillion or so of assets they manage globally.

The dilemma for the interbank forex industry is that to attract the additional volume required to boost revenues from razor-thin trading margins it must welcome to the wholesale market the customers who not only currently pay for foreign exchange services, but who will try to out-trade the banks for profit.

``This is a problem for our industry,'' said the head of money markets and foreign exchange at a German-based bank. ``In a business driven by scale you need more volume every year to make the same profits you made the previous year, but the people who can provide it are clients who will trade against us,'' he said.

``We can see it coming and it is not a pleasant change. But we have to realize it is going to happen. We cannot stay protected from this.''

An added problem is that the fee-generating prime broking services banks have actively marketed to hedge funds enable the already secretive funds to trade against the banks under a cloak of anonymity.

Clients pay banks a fee for prime brokerage services, instead of making transactions on their behalf, giving them direct control of their own forex trades without having to identify themselves as traders - counterparties only know the prime broking bank's identity.

As well as worrying commercial banks, central banks are also wary of the development, regarding it as a further complication in efforts to police a market which already operates on a mainly unregulated basis.

``What is interesting here is the move in the core financial employment system. The prime broking method and counterparty assessment - they add a new angle to trading, to exposures that impact on liquidity in the market place,'' Sheryl Kennedy, deputy governor of the Bank of Canada, said.

Hedge fund critics say those exposures risk undermining market stability, while advocates say their liquidity and arbitraging nature lower risk and prices in the long term.

Equity and bond markets have dealt with transparency problems by developing exchanges.

Many industry players think similar developments are coming to the foreign exchange market.

David Clark, honorary president of the ACI, says the drive towards electronic trading platforms is a natural development for a market that has used electronic quote systems for many years, but resisted a shift into fully transparent exchange-based trading.