e-Forex-May-23

Stacking up the USPs of FX ECNs
“ECNs that can demonstrate unique liquidity especially in
emerging market currencies have all gained substantial
volume and market share,”
client expectations for RTTs, fill rates,
market impact and other factors and
processes.”
Technology is another factor.
period, tenors and onshore pricing
“Access to technology in the FX
is often difficult to achieve without
market has become mainstream and
significant technology enhancement.
client sophistication has grown. An
On the back-end, settlement, credit
increasing number of players are
and STP fluency also require new
active in the electronic ECN space,”
technology to facilitate the workflow
says Norton. “There is also a rise
across regional liquidity providers
in demand for meaningful data in
and global clients. These can all be
the FX market. Data derived from
managed seamlessly by an ECN that
an ECN’s ecosystem is extremely
continually invests in technology,” says
valuable and often indicative of larger
Bhatia.
market trends. It can also be used to
Devang Bhatia
Some ECNs are also benefitting from
offer clients granular data to support
their decision making and pool
working with clients and market-
curation,” he states.
has developed is synthetic NDS where
makers to avoid liquidity abuse and to
customers are able to carry out
create custom liquidity pools to ensure
New trading styles such as
SPECIAL REPORT
the first leg with NDF/Spot and the
second leg with futures by leveraging
exchange-listed products’ synergies.
More work needs to be done though,
to improve the ECN model when it
comes to market data distribution and
order routing transparency. “ECNs
possess an immense wealth of data,
positive yield for the LP and optimal fill
rates for clients. “The CurrencyNode
liquidity management team works
very closely with LPs to complement
the prices that get streamed to market
participants, ensuring that there is no
duplication of liquidity for the client
nor is there any skew leakage for
the LP,” says Bhatia. “With constant
algorithmic trading where minimising
market impact and providing trading
analytics are key components have
also played into the strengths of FX
ECNs, says Norton. “Market impact
has become increasingly important
for clients assessing the overall cost
of execution. Price and spreads
are no longer the only measure
however there is a lot of investment
recalibrations, optimised liquidity
of execution quality. For algos
needed to store and distil, analyse,
is made available on the system for
specifically, market impact is just one
customise and present the data to
participants to consume.”
factor of intelligent execution. For
be sufficiently rich for consumption
by varied sets of participants,” says
DIVERSIFICATION APPEAL
many algos, undetected trading is key
to not only avoid market impact, but
Bhatia. “This is one area where we
According to Clinton Norton, Global
also avoid price recycling. The
see a lot of potential in creating new
Head of Sales at Euronext FX,
customizable nature of ECNs allows
partnerships with specialists in data
there are a number of reasons as
these algos to execute in highly vetted
and analytics.”
to why the ECN model remains a
environments.”
compelling proposition for FX market
ECNs are also looking to attract new
participants. One of the primary
Another driver has been the growth
clients by investing in new technology
reasons is the flexibility. “ECNs are
of the NDF market. “As NDF trading
and catering towards more niche
able to provide an advanced level of
becomes more mainstream gaps
currencies supported by regional
sophistication in speed, technology
in liquidity are closing, spreads are
liquidity. “Sourcing regional EM liquidity
and functionality. The flexibility in
improving and NDFs are traded
and aggregating it usually requires
trading solutions and diversification
more strategically as simply another
highly bespoke technology that is able
is the appeal,” says Norton. “As
product and not merely for hedging
to cope with the numerous nuances for
opposed to open-to-all Central
purposes. NDF trading has followed
each country’s currency,” says Bhatia.
Limit Order Books (CLOBs), the ECN
the path blazed by Spot FX trading
experience is completely customisable
with increasing electronification.
“The congruency of things such as
for clients. At Euronext FX, we curate
This allows for faster, more dynamic
terms trading, fixing dates, cut-off
anonymous pools of liquidity to meet
execution of orders and has the
52 MAY 2023 e-FOREX