e-Forex-Nov-23
transforming global foreign exchange markets e-FOREX e-forex.net NOVEMBER 2023 TRADING OPERATIONS Exploring next generation FX analytics REGIONAL E-FX PERSPECTIVE Taking a closer look at MENA FX FX ON EXCHANGES A story of growing demand and product development TREASURY AUTOMATION How technology is solving pressing needs TRADERS WORKSHOP Achieving ultra-low latency trading infrastructures COVER INTERVIEW ERIC DONOVAN and his Institutional FX team at StoneX Group LIQUIDITY • RISK MANAGEMENT • STP • E-COMMERCE
- Page 2 and 3: CitiVELOCITY REAL TIME INTERACTIVE
- Page 4 and 5: CONTENTS November 2023 CONTENTS Sae
- Page 6 and 7: 360T SUN extends API pricing to Asi
- Page 8 and 9: Banorte partners with Murex Grupo F
- Page 10 and 11: Edgewater Markets introduces RFQ pr
- Page 12 and 13: CobaltFX launches alternative Trade
- Page 14 and 15: Photos by Richard Hadley. RECENT EV
- Page 16 and 17: Takeaways from TradeTech FX in Pari
- Page 18 and 19: Takeaways from TradeTech FX in Pari
- Page 20 and 21: Next generation FX analytics: Bring
- Page 22 and 23: Next generation FX analytics: Bring
- Page 24 and 25: Next generation FX analytics: Bring
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- Page 30 and 31: Next generation FX analytics: Bring
- Page 32 and 33: Electronification rising amid turbu
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- Page 36 and 37: Electronification rising amid turbu
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- Page 40 and 41: THE E-FOREX INTERVIEW Offering a be
- Page 42 and 43: StoneX Group: Offering a better way
- Page 44 and 45: StoneX Group: Offering a better way
- Page 46 and 47: StoneX Group: Offering a better way
- Page 48 and 49: FX On Exchanges: Demand grows while
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transforming global foreign exchange markets<br />
e-FOREX<br />
e-forex.net NOVEMBER 20<strong>23</strong><br />
TRADING OPERATIONS<br />
Exploring next generation<br />
FX analytics<br />
REGIONAL E-FX<br />
PERSPECTIVE<br />
Taking a closer look at<br />
MENA FX<br />
FX ON EXCHANGES<br />
A story of growing demand<br />
and product development<br />
TREASURY<br />
AUTOMATION<br />
How technology is<br />
solving pressing needs<br />
TRADERS WORKSHOP<br />
Achieving ultra-low latency<br />
trading infrastructures<br />
COVER INTERVIEW<br />
ERIC DONOVAN<br />
and his Institutional FX team at StoneX Group<br />
LIQUIDITY • RISK MANAGEMENT • STP • E-COMMERCE
CitiVELOCITY<br />
REAL TIME<br />
INTERACTIVE TCA<br />
• Drive in-flight decision making based on real time insight<br />
• Full execution breakdown<br />
• Performance against key benchmarks<br />
• Fully customisable view<br />
• Access full post-trade TCA report<br />
STILL INNOVATING<br />
Contact your FX esalesperson to learn more<br />
100+<br />
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© 20<strong>23</strong> Citigroup Global Markets Inc. Member SIPC. All rights reserved. Citi Velocity, Citi Velocity & Arrow Design, Citi, Citi with Arc Design, Citigroup and CitiFX are<br />
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2 NOVEMBER 20<strong>23</strong> e-FOREX
Welcome to<br />
e-FOREX<br />
transforming global foreign exchange markets<br />
<strong>Nov</strong>ember 20<strong>23</strong><br />
Our regional e-FX perspective report in this edition focuses on<br />
the MENA region where the electronification of FX continues at<br />
pace along with growing demand for increasingly sophisticated<br />
fintech amongst financial market participants. A mixture of<br />
progressive regulatory environments and policies which have<br />
relaxed restrictions on foreign ownership of assets are attracting<br />
more foreign investors. Although electronic markets are firmly<br />
established in larger Middle East economies, in some regions<br />
e-trading is still relatively new so there remains enormous growth<br />
potential and opportunities for e-FX over the next few years<br />
which we will be following closely.<br />
Susan Rennie<br />
Susan.rennie@sjbmedia.net<br />
Managing Editor<br />
Charles Jago<br />
charles.jago@e-forex.net<br />
Editor (FX & Derivatives)<br />
Charles Harris<br />
Charles.harris@sjbmedia.net<br />
Advertising Manager<br />
Ben Ezra<br />
Ben.ezra@sjbmedia.net<br />
Retail FX Consultant<br />
Michael Best<br />
Michael.best@sjbmedia.net<br />
Subscriptions Manager<br />
David Fielder<br />
David.fielder@sjbmedia.net<br />
Digital Events<br />
Ingrid Weel<br />
mail@ingridweel.com<br />
Photography<br />
Tim Hendy<br />
tim@thstudio.co.uk<br />
Web Manager<br />
This month our trading operations feature is exploring FX analytics<br />
and why data and analytics now go hand in hand in helping<br />
to constantly reshape the execution process, making it clearer<br />
and more transparent. Demand is growing for high quality,<br />
independent data and with the link between post-trade data and<br />
pre-trade analytics for decision-making so important, it’s easy to<br />
understand the efforts that are underway to move data from a<br />
post-trade environment to a pre-trade one. The arrival of AI and<br />
ML are also likely to shake up and improve the task of execution<br />
analysis but their ultimate success in doing this is likely to depend,<br />
once again, on the quality of the data that is available to them.<br />
Building an ultra-low latency FX trading infrastructure is not an<br />
easy thing to do and as we discover in our traders workshop<br />
feature in this edition it is only half the battle for trading<br />
firms where the real challenge lies in maintaining speed in<br />
the face of multiple potential sources of delay. With that in<br />
mind we explore some of the specific factors that can impact<br />
latency and how use can be made of a number of analytical<br />
toolsets that can help firms monitor the state of their trading<br />
infrastructures. The takeaway lesson seems to be that enabling<br />
ultra-low latency trading is an ongoing process and if you<br />
decide to work with a third party provider to help you do it<br />
choose one that really understands the intricacies of this type<br />
of unforgiving trading operation.<br />
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Finally, we have now launched our new Institutional Digital Assets<br />
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As usual I hope you enjoy reading this edition of the magazine.<br />
Charles Jago, Editor<br />
NOVEMBER 20<strong>23</strong> e-FOREX 3
CONTENTS<br />
<strong>Nov</strong>ember 20<strong>23</strong><br />
CONTENTS<br />
Saeed Amen<br />
TradeTech FX<br />
Eric Donovan<br />
e-<strong>Forex</strong> Interview<br />
Stephan von Massenbach<br />
FX Swaps<br />
Vivek Shankar<br />
FX Analytics<br />
Nicholas Pratt<br />
e-FX in MENA<br />
Paul Golden<br />
Ultra-low latency FX<br />
RECENT EVENT<br />
14. TradeTech FX<br />
Saeed Amen provides some<br />
takeaways from the recent<br />
TradeTech FX event in Paris in<br />
September.<br />
TRADING<br />
OPERATIONS<br />
20. Next generation FX analytics:<br />
Bringing transparency and more<br />
to the FX execution process<br />
Vivek Shankar explores the<br />
increasing use of data analysis<br />
toolsets in FX and how they are<br />
likely to evolve further.<br />
REGIONAL E-FX<br />
PERSPECTIVE<br />
32. Electronification rising amid<br />
turbulence: Taking a closer look<br />
at the MENA FX trading picture<br />
The prevailing e-FX story across the<br />
MENA region is one of increasing<br />
electronification of FX coupled with<br />
increasing fintech sophistication.<br />
Vivek Shankar investigates the<br />
various issues at play.<br />
E-FOREX INTERVIEW<br />
40. With Eric Donovan, Global<br />
Head of Institutional FX at<br />
StoneX Group.<br />
FX ON EXCHANGES<br />
48. FX on the Exchanges: Demand<br />
grows while work continues to<br />
launch new products.<br />
Nicholas Pratt explores some of<br />
the trends in the listed FX trading<br />
world and what steps leading<br />
venues have been taking to attract<br />
new clients and launch new FX<br />
products.<br />
ASK A PROVIDER<br />
56. FX Swaps – The only<br />
constant is change<br />
e-<strong>Forex</strong> speaks with Stephan von<br />
Massenbach, CRO at DIGITEC, about<br />
the numerous changes that are<br />
taking place in the FX Swaps market.<br />
SPECIAL REPORT<br />
58. Corporate treasury<br />
automation: How technology is<br />
solving pressing needs<br />
Vivek Shankar finds out more<br />
about why treasurers now need<br />
automation more than ever.<br />
NETWORKS,<br />
HOSTING &<br />
CONNECTIVITY<br />
66. Crossing the Security<br />
Rubicon: How MSPs are<br />
hastening banks’ migration to<br />
the Cloud<br />
We look at the benefits of working<br />
with a dedicated financial services<br />
cloud provider.<br />
TRADERS<br />
WORKSHOP<br />
68. Achieving and maintaining<br />
an ultra-low latency FX trading<br />
infrastructure<br />
Achieving ultra-low latency is only<br />
half the battle for trading firms. The<br />
real challenge lies in maintaining<br />
speed in the face of multiple<br />
potential sources of delay and<br />
other challenges as Paul Golden<br />
discovers.<br />
COMPANIES IN THIS ISSUE<br />
A<br />
AbbeyCross<br />
B<br />
Banorte<br />
Beeks<br />
Bloomberg<br />
C<br />
Centroid Solutions<br />
Citi<br />
CLS<br />
CME Group<br />
Cobalt FX<br />
D<br />
DIGITEC<br />
p37<br />
p8<br />
p66<br />
p27<br />
p53<br />
IFC<br />
p61<br />
p52<br />
p13<br />
p56<br />
E<br />
Edgewater Markets<br />
Equiti<br />
Eurex<br />
F<br />
FairXchange<br />
Finalto<br />
FXCM<br />
FXSpotStream<br />
H<br />
HSBC<br />
I<br />
ION<br />
Integral<br />
IPC<br />
p10<br />
p65<br />
p49<br />
p6<br />
p71<br />
p51<br />
p11<br />
p33<br />
p29<br />
p17<br />
OBC<br />
K<br />
Kyriba<br />
L<br />
LSEG<br />
LMAX Group<br />
M<br />
Murex<br />
N<br />
NatWest<br />
New Change FX<br />
Nordea<br />
O<br />
oneZero<br />
P<br />
PLUGIT<br />
p59<br />
p34<br />
p6<br />
p8<br />
p10<br />
p25<br />
p59<br />
p19<br />
IBC<br />
R<br />
Reactive Markets<br />
Refinitiv<br />
S<br />
SGX<br />
smartTrade Technologies<br />
StoneX<br />
Swissquote Bank<br />
T<br />
360T<br />
TreasurUp<br />
W<br />
WBR<br />
p<strong>23</strong><br />
p63<br />
p55<br />
p5<br />
p40<br />
p7<br />
p6<br />
p9<br />
p35<br />
4 NOVEMBER 20<strong>23</strong> e-FOREX
Turning Payment Flows<br />
into Revenue Streams<br />
• A Complete Range of Currencies, Products, and Transaction Types<br />
• Intuitive Workflows for Simple and Complex Payments<br />
• Connecting to FX Liquidity with Dynamic Payment Routing<br />
• Ready for ISO 20022 Compliance<br />
CBP Architecture Overview<br />
Payments<br />
FX Liquidity<br />
$ €<br />
Workflows<br />
Reporting<br />
Integrations<br />
Routing<br />
Hedging<br />
Controls<br />
Web<br />
Mobile<br />
Voice<br />
Bank Core<br />
Systems<br />
Bank Internal<br />
Users<br />
External<br />
Users<br />
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Maximize Your Revenue Today!<br />
NOVEMBER 20<strong>23</strong> e-FOREX 5
360T SUN extends API pricing to Asia Open<br />
360T’s Swaps User Network (SUN) has<br />
become the first platform to offer round<br />
the clock API pricing for FX Swaps,<br />
with Commerzbank now providing<br />
prices for G3 currencies and USD/<br />
CNH from the APAC market opening.<br />
These developments are indicative of<br />
the growing interest from regional<br />
currency experts in providing pricing on<br />
360T SUN due to the improved price<br />
transparency and credit automation<br />
it offers. Leveraging an indicative<br />
streaming mid-rate that comes from<br />
360T’s award-winning Swap Data<br />
Feed (SDF), developed in partnership<br />
with DIGITEC, the platform provides<br />
grey-book risk exchange at mid-market.<br />
360T SUN also allows both GUI and API<br />
users to post resting bids and offers,<br />
using a choice of different automated<br />
Robin Nicholas<br />
credit models that remove the risk and<br />
latency of soft-matching. In addition,<br />
China Construction Bank (CCB), London<br />
Branch is also now providing liquidity<br />
in USD/CNH during the London trading<br />
hours in standard tenors out to 1 year.<br />
“Extending the API pricing on 360T SUN<br />
to provide continual interests across<br />
all market hours further enhances the<br />
value which the platform delivers to<br />
our global client base. Adding pricing<br />
for USD/CNH, meanwhile, is a strategic<br />
decision made on the basis of growing<br />
demand for Swap liquidity in this<br />
currency pair,” said Robin Nicholas,<br />
Head of Swap Product at 360T.<br />
NEWS<br />
LMAX Group granted RMO Licence from the MAS<br />
LMAX Group has announced that its<br />
subsidiary, LMAX Exchange Singapore, has<br />
received a Recognised Market Operator<br />
(RMO) Licence from the Monetary Authority<br />
of Singapore (MAS). The licence will<br />
enable the Group to offer Non-Deliverable<br />
Forward (NDF) trading in Singapore (SG1)<br />
and London (LD4). The launch of NDFs will<br />
allow clients to hedge their FX exposure<br />
against non-convertible currencies on a<br />
Central Limit Order Book (CLOB), delivering<br />
transparent price discovery, deeper liquidity<br />
and efficient market structure, streaming<br />
real-time, firm limit order market data to all<br />
participants. LMAX Group is committed<br />
to building an increasingly diversified<br />
offering to support growing demand<br />
from institutional investors for consistent,<br />
low-latency trading infrastructure. David<br />
Mercer, CEO, LMAX Group, said: “The<br />
David Mercer<br />
Monetary Authority of Singapore is among<br />
the most progressive and innovative<br />
regulators globally. We look forward to<br />
a continued, symbiotic relationship with<br />
MAS as we progress our expansion plans<br />
and build out our cross-asset product<br />
offering in the region for the benefit of local<br />
customers and the broader, vibrant, Asia<br />
Pacific market.” Receipt of an RMO licence<br />
recognises LMAX Group’s compliance with<br />
the principles set out by the regulator in<br />
accordance with international standards<br />
and best practices, whilst upholding<br />
stringent conduct around compliance, risk<br />
management and corporate governance.<br />
FXSpotStream joins the FairXchange ecosystem<br />
FXSpotStream has integrated Horizon,<br />
FairXchange’s, award-winning data<br />
analytics platform, enhancing real-time<br />
analytics for more precise trading<br />
execution and analysis. Horizon will<br />
help the Liquidity Management team at<br />
FXSpotStream manage relationships with<br />
both Price Takers and Liquidity Providing<br />
Banks. FXSpotStream clients will get<br />
unparalleled insights into their execution,<br />
helping them optimise their trading and<br />
strengthen their relationships with their<br />
liquidity providers. “FXSpotStream is one<br />
of the undisputed leaders in the provision<br />
of aggregation services, a unique<br />
technology provider that delivers crucial<br />
efficiencies to the FX trading community.<br />
We are delighted to be working with<br />
them to deliver our award-winning<br />
Guy Hopkins<br />
Horizon platform, bringing together<br />
FXSpotStream’s trading services with our<br />
market-leading, independent analytics,”<br />
says Guy Hopkins, CEO and founder of<br />
FairXchange. “We are always looking<br />
for ways to enhance our offering for<br />
both clients and LPs, and FairXchange’s<br />
Horizon platform will allow our clients<br />
to make informed decisions regarding<br />
their liquidity. FairXchange has developed<br />
a tremendous product and we are very<br />
excited to be working with them,”<br />
FXSpotStream Head of Sales, Antony<br />
Brocksom commented.<br />
6 NOVEMBER 20<strong>23</strong> e-FOREX
Institutional<br />
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LIQUIDITY SOLUTIONS<br />
Combine power and tailor-made for best-in-class execution on FX Spot, Metals,<br />
Swaps, Forwards and Commodities. With a deep liquidity pool, custom streams,<br />
a hybrid execution model and the best trading environments, you are ready to<br />
expand your counterparty network.<br />
Partner with the Swiss leader in online banking (SIX:SQN).<br />
swissquote.com/fx-prime<br />
NOVEMBER 20<strong>23</strong> e-FOREX 7
Banorte partners with Murex<br />
Grupo Financiero Banorte has enhanced experience significantly improved FX<br />
its FX derivatives trading client services, derivatives trading process efficiencies.<br />
powered by MX.3, Murex’s integrated “The Banorte transformation journey<br />
platform. The leading Mexican bank has involved many breakthroughs,”<br />
implemented a self-service to strengthen said Abraham M. Izquierdo, managing<br />
its corporate client business and further director, traded and treasury risks at<br />
its digitalization strategy. The goal of Banorte. “However, one of the most<br />
Banorte is to enable these clients to significant milestones has been the<br />
perform FX derivatives transactions self-service product offering. This<br />
by integrating MX.3 with an internal offering aligns closely with Banorte’s<br />
banking portal, Cambios Banorte digital strategy and meets the specific<br />
en Línea (CBL). The back end of<br />
expectations of our client base.” Banorte<br />
MX.3 facilitates complete self-service and Murex have a 12-year history of<br />
functionality to these clients, which collaboration. Banorte has expanded<br />
MX.3 use over this time, incorporating<br />
new modules and asset class coverage.<br />
In 2022, Banorte built a completely new<br />
XVA desk and revamped its PFE limits<br />
management. It chose Murex to support<br />
its risk and front office teams.<br />
Abraham M. Izquierdo<br />
NEWS<br />
Finalto embeds Gold-i’s MatrixNET into ClearVision<br />
Finalto has strengthened its longterm<br />
relationship with Gold-i,<br />
connecting Gold-i’s enhanced liquidity<br />
management platform, MatrixNET<br />
directly into its trading and account<br />
management system, ClearVision. Paul<br />
Groves, Finalto CEO explains, “Finalto<br />
and Gold-i have had a long-standing<br />
relationship dating back to the days of<br />
CFH Clearing. We are always looking<br />
at the best products and services<br />
to interact with our client base. The<br />
introduction of the Gold-i MatrixNet<br />
system backs our belief in offering<br />
only the best range of products and<br />
services to our clients. We look forward<br />
to continuing our working relationship<br />
with Gold-i over the coming years.” Tom<br />
Higgins, Gold-i CEO adds, “Key to our<br />
growth strategy for MatrixNET is for LPs<br />
Paul Groves<br />
to embed our software as an additional<br />
distribution and aggregation platform<br />
within their own technology. The<br />
simplicity and flexibility of our contract<br />
terms, combined with our robust and<br />
feature-rich technology for multi-asset<br />
liquidity distribution and aggregation,<br />
makes it a really attractive proposition<br />
for LPs. We are delighted that Finalto, a<br />
global market leader, is one of the first<br />
major LPs to license our new combined<br />
MatrixNET software. This installation<br />
of MatrixNET extends a strong and<br />
mutually beneficial partnership<br />
between Gold-i and Finalto.”<br />
Reactive Markets goes live with RFQ<br />
Reactive Markets has announced the<br />
addition of Request For Quote (RFQ)<br />
support on the service. RFQ functionality<br />
is made available across all channels<br />
(API/GUI/Mobile) and workflows,<br />
including upload and order staging<br />
functionality. “Our commitment to<br />
clients has always been to deliver the<br />
most cost effective, technology driven<br />
trading experience across all FX products<br />
and protocols. With the addition of<br />
RFQ and Order Staging functionality<br />
we provide the largest institutional<br />
clients with a technology solution<br />
that seamlessly plugs into any existing<br />
upstream and downstream trading<br />
processes” said Henry Durrant, Head<br />
of Business Development at Reactive<br />
Markets. “Traditionally clients have been<br />
beholden to a lack of execution flexibility<br />
ultimately leading to higher costs of<br />
execution. Our solution changes this<br />
giving users complete discretion over<br />
the order staging and routing process,<br />
leveraging any protocol to achieve best<br />
execution across ESP, RFQ and Algo.”<br />
Reactive Markets allows LPs to distribute<br />
prices to large numbers of clients, who<br />
can trade on a fully disclosed basis<br />
with their relationship LPs at no cost,<br />
connecting via a single API, front-end<br />
trader desktop and mobile app. Clients<br />
can trade FX Spot, Forwards, NDF,<br />
Swap and NDF Swap products across<br />
Streaming, RFQ & Algo protocols with<br />
25+ of the leading tier 1 bank, nonbank<br />
and regional specialist liquidity<br />
providers.<br />
Henry Durrant<br />
8 NOVEMBER 20<strong>23</strong> e-FOREX
NOVEMBER 20<strong>23</strong> e-FOREX 9
Edgewater Markets introduces RFQ product<br />
Edgewater Markets has announced the<br />
launch of its Request for Quote (RFQ)<br />
trade execution service. This exciting<br />
addition to Edgewater’s product lineup<br />
promises to transform the way the firms’<br />
clients execute their trades, offering a new<br />
level of efficiency for executing large and<br />
unique order flow. The foreign exchange<br />
market is known for its liquidity, but also<br />
for its complexities, and Edgewater has<br />
been at the forefront of delivering cuttingedge<br />
solutions to meet the evolving needs<br />
of their clients. With the introduction of<br />
the RFQ, Edgewater continues its tradition<br />
of innovation, empowering traders with<br />
a powerful tool to enhance their forex<br />
trading experience and profitability. “At<br />
Edgewater Markets, we are dedicated<br />
to delivering solutions that empower<br />
our clients to trade how they see fit,<br />
accommodating their unique order and<br />
trade flow” said Brian Andreyko, Chief<br />
Product Officer of Edgewater Markets.<br />
“Our RFQ product represents a significant<br />
milestone in our mission to provide traders<br />
with the tools they need to succeed in the<br />
forex markets. We are excited about the<br />
possibilities this product offers and the<br />
Brian Andreyko<br />
positive impact it will have on our clients’<br />
trading strategies.”<br />
NEWS<br />
New Change FX releases NCFX Forwards365<br />
New Change FX has announced the<br />
release of a new streaming swap data<br />
service. The service is called NCFX<br />
Forwards365 after its key feature of<br />
each broken date being individually<br />
calculated, rather than relying on<br />
interpolation of other points to arrive<br />
at a value. In addition to the NCFX<br />
Forwards365 service, New Change FX will<br />
shortly be releasing a live basis stream,<br />
Basis365. NCFX Forwards365 streams<br />
all business for the next 12 months of<br />
information and not just key dates. Paul<br />
Lambert, CEO of New Change FX said<br />
“We are extremely proud of the NCFX<br />
Forwards365 product. It has been a long<br />
and complex process to systematise the<br />
construction of accurate curves without<br />
using any interpolation, but the result<br />
is superb. Users can be sure that each<br />
point that they need to find a value for is<br />
individually calculated rather than being<br />
subject to what is inherently guesswork<br />
when using interpolation. This, coupled<br />
with the fact that users can stream<br />
365 days of data rather than having to<br />
calculate each point will deliver significant<br />
change to the electronification of the<br />
swaps market”.<br />
Paul Lambert<br />
NatWest joins FXSpotStream as liquidity provider<br />
FXSpotStream LLC has announced<br />
that NatWest has joined the Service<br />
as a liquidity providing bank. NatWest<br />
is now available and becomes<br />
the 16th bank available to clients<br />
connected to FXSpotStream’s price<br />
streaming service, joining Bank of<br />
America, Barclays, BNP Paribas,<br />
Citi Commerzbank, Credit Suisse,<br />
Goldman Sachs, HSBC, J.P.Morgan,<br />
Morgan Stanley, MUFG, Standard<br />
Chartered, State Street, Societe<br />
Generale and UBS. FXSpotStream<br />
Interim CEO, Tom San Pietro<br />
commented, “In Q1 of 20<strong>23</strong> FSS rolled<br />
out new liquidity provider pricing<br />
plans that allow liquidity providers<br />
to choose a plan that best fits their<br />
business and commercial needs. Our<br />
objective was to improve our value<br />
proposition to our clients by delivering<br />
more of their relationship liquidity<br />
needs. We are delighted to announce<br />
Tom San Pietro<br />
that NatWest has taken advantage of<br />
the new pricing plans and is the 16th<br />
liquidity provider available to clients.<br />
On the back of a record-breaking<br />
volume year for FXSpotStream in<br />
2022, it is tremendously exciting to be<br />
expanding the liquidity offering for the<br />
first time since 2020.” Olivier Werenne,<br />
Head of eFX Sales EMEA and APAC at<br />
NatWest, said: “FXSpotStream’s global<br />
footprint and shared infrastructure<br />
allow us to deliver better pricing and<br />
liquidity to our clients, providing<br />
them with one point of access to<br />
liquidity without incurring the costs<br />
of maintaining multiple APIs. We are<br />
delighted to join FSS.”<br />
10 NOVEMBER 20<strong>23</strong> e-FOREX
Evolving with the Market<br />
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FXSpotStream is a bank owned consortium operating as a market utility, providing the infrastructure<br />
that facilitates a multibank API and GUI to route trades from clients to LPs. FXSpotStream provides a<br />
multibank FX streaming Service supporting trading in FX Spot, Forwards, Swaps, NDF/NDS and<br />
Precious Metals Spot and Swaps. Clients access a GUI or single API from co-location sites in New York,<br />
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orders. FXSpotStream does not charge brokerage fees to its clients or LPs for its streaming offering.<br />
Algo fees from an LP are solely determined by the LP.<br />
NOVEMBER 20<strong>23</strong> e-FOREX 11
CobaltFX launches alternative<br />
Trade Notification Network<br />
NEWS STORY<br />
A Single Point of Failure (“SPoF”) in<br />
FX post-trade messaging, created<br />
by decades of market consolidation,<br />
poses a significant threat to the<br />
entire global financial ecosystem<br />
says industry veteran Andy Coyne of<br />
CobaltFX, voicing his concerns as the<br />
British fintech launches its alternative<br />
post-trade messaging service in<br />
efforts to de-risk FX and deal with<br />
lack of competition in the world’s<br />
effectively largest market.<br />
For far too long, the financial industry<br />
has grappled with lack of competition<br />
for FX post-trade messaging<br />
stemming from decades of industry<br />
consolidation; an issue having grown<br />
into a problem that today represents<br />
one of the most significant threats to<br />
the global financial ecosystem. In a<br />
nutshell, this is the brief assessment<br />
of Andy Coyne; a seasoned industry<br />
expert and founder of CobaltFX, today<br />
part of United Fintech, whose past<br />
tenures include executive positions<br />
with major global banks and FX<br />
fintechs alike.<br />
For the uninitiated, post-trade<br />
messaging is the digital exchange<br />
of real-time and critical trade<br />
confirmations between financial<br />
counterparts enabling the multi<br />
trillion-dollar a day FX industry.<br />
And according to Andy Coyne,<br />
there exists a number of core<br />
improvements that have long been<br />
overdue -notably that execution<br />
messages need alternative solutions<br />
that can run free of charge- that<br />
CobaltFX has set out to fix with<br />
a new Trade Notification Network<br />
(“TNN”) launching today in response<br />
to growing concerns amongst<br />
financial institutions about Single<br />
Points of Failure (“SPoF”) across the<br />
industry, reports Coyne:<br />
“Recent incidents, such as<br />
consolidation and a hack that<br />
disrupted market operations earlier<br />
this year, have raised concerns<br />
among major global banks about<br />
the inherent risks associated with<br />
SPoFs in FX operations and this has<br />
been a major call to action for us in<br />
launching the TNN. Further to that,<br />
we strongly believe that post-trade<br />
messaging is not a service that<br />
should be charged for. In the 21st<br />
cyber security scenario are far<br />
more severe than what is currently<br />
being reported publicly by financial<br />
institutions and industry observers<br />
alike, as many of the world’s largest<br />
banks are currently overexposed,<br />
leaving them vulnerable without an<br />
alternative or backup plan.<br />
To address the issue in the FX<br />
industry, CobaltFX’s launch of the<br />
TNN will provide banks with a<br />
genuine choice in post-trade FX<br />
messaging and backup plan in the<br />
event of cyberattacks or other forms<br />
of failure in the FX market - and<br />
essentially enable the industry to<br />
break free of the “Hobson’s choice”<br />
it has been caught-up in for decades,<br />
argues Coyne:“The FX market, by<br />
sheer trading volume, is amongst the<br />
world’s largest markets, making the<br />
need for comprehensive solutions<br />
even more pressing.<br />
Imagine if banks’ only messaging<br />
network all of a sudden came to a<br />
halt amid FX trading; this could stop<br />
trading completely. The introduction<br />
of the TNN is poised to eliminate the<br />
“Hobson’s choice” that has defined<br />
the FX industry’s service offering until<br />
now.<br />
century, messaging should be free<br />
and only value added services that<br />
It represents a significant step<br />
use that data should be chargeable”,<br />
forward in bolstering the industry’s<br />
says Andy Coyne.<br />
resilience against systemic risks - and<br />
Andy Coyne<br />
BREAKING WITH THE<br />
INDUSTRY’S “HOBSON’S<br />
CHOICE”<br />
Andy Coyne warns that the potential<br />
consequences of e.g. a catastrophic<br />
by effect the safeguarding of the<br />
entire financial ecosystem”, says<br />
Andy Coyne, noting that the threat<br />
of SPoFs should be a wake-up call<br />
for the financial sector to assess<br />
industry-wide - and not just in FX.<br />
12 NOVEMBER 20<strong>23</strong> e-FOREX
Accelerate time-to-trade<br />
with LPs & clients.<br />
Future-proof your business<br />
CobaltFX Trade Notification Network revolutionises the market<br />
by rapidly connecting you to LPs and clients, through a cost-free<br />
flexible post-trade FX messaging network.<br />
Read more at unitedfintech.com/cobaltfx<br />
NOVEMBER 20<strong>23</strong> e-FOREX 13
Photos by Richard Hadley.<br />
RECENT EVENT<br />
Takeaways from<br />
TradeTech FX in Paris<br />
September 20<strong>23</strong><br />
By Saeed Amen<br />
Saeed Amen<br />
I’ve been in markets for close to twenty<br />
years. What has been my persistent<br />
takeaway, aside from the fact that<br />
there’s always more to learn about<br />
markets, is that whilst markets do<br />
change, themes do reoccur. It’s been<br />
nearly a decade since I first spoke at a<br />
TradeTech FX event. I thought it would<br />
be an interesting exercise to look at<br />
the topics which were covered back at<br />
my TradeTech FX event. So searching<br />
through my e-mails, I managed to find<br />
the agenda back from that first event.<br />
In terms of market themes, there were<br />
topics around best execution, TCA and<br />
then impending MiFID II regulations,<br />
CTAs impact on the market, whether<br />
there would inflation or deflation, and<br />
so on.<br />
KEY THEMES<br />
If we roll forward a decade to the<br />
latest TradeTech FX conference in<br />
Paris, some themes have certainly<br />
persisted! Notably, there was still a<br />
lot of discussion on how to do best<br />
execution and how to measure this<br />
with TCA. Of course, these days, we<br />
have much more data and tools in<br />
order to do TCA, and we have firms<br />
like TradeFeedr, where you can do<br />
peer group analysis to do your own<br />
TCA. Many of the discussions around<br />
benchmarking also moved purely<br />
from looking at FX spot, to other<br />
FX markets such FX swaps, where<br />
there is less transparency. Discussions<br />
around market drivers this time around<br />
(perhaps unsurprisingly!) revolved<br />
around inflation and central banks.<br />
Over the coming paragraphs, I’ll try to<br />
14 NOVEMBER 20<strong>23</strong> e-FOREX
RECENT EVENT<br />
give a few more takeaways from the<br />
discussions around the event.<br />
The conference was opened with a<br />
panel on tackling inflation, shifting<br />
central bank policies and FX, with<br />
panellists, Altaf Kassam (State<br />
Street), Brian Mangwiro (Baring Asset<br />
Management) and Laura Cooper<br />
(BlackRock), alongside Peter Kinsella<br />
(UBP) as moderator. Kassam made<br />
the point that during QE, things were<br />
broadly simpler, with buy the dip and<br />
selling vol, as broad themes. Volatility<br />
was now back. Cooper, noted how we<br />
are seeing a new macro regime. The<br />
pandemic has sparked a significant<br />
shock. We were now in a higher<br />
inflation regime, and with other<br />
factors like net zero and demographic<br />
changes, yields were going to be<br />
higher for longer. Mangwiro suggested<br />
we are close to peak Fed rates, and<br />
leading indicators turning lower. There<br />
was broad consensus amongst the<br />
panellists of curve steepening.<br />
MACROECONOMIC FORECASTS<br />
A panel more focused on<br />
macroeconomic forecasts, was also<br />
moderated by Peter Kinsella (UBP),<br />
with panellists, Christophe Morel<br />
(Groupama), Florian Ielpo (Lombard<br />
Odier) and Mabrouk Chetouane<br />
(Natixis). Chetouane recapped how<br />
we got here in inflation, notably a<br />
supply shock and demand shock.<br />
Now there was a negative input from<br />
energy price drops, but core inflation<br />
was still sticky especially in Eurozone.<br />
There was a new era of scarcity in<br />
energy and labour markets. Morel also<br />
reiterated this point about scarcity,<br />
from commodities, human capital<br />
and also financial capital, noting we<br />
are in a new inflation regime. Ielpo<br />
discussed how in the US, you had<br />
fiscal policy effectively pulling up<br />
growth, whilst monetary policy was<br />
attempting to slow it down, and how<br />
inflation pressure was still building.<br />
On a broad basis, there was some<br />
consensus about inflation being an<br />
issue. That is somewhat at odds with<br />
our inflation forecasting models, at<br />
Turnleaf Analytics, which suggests that<br />
inflation is likely to be lower over the<br />
coming year in most markets.<br />
As befits an FX conference, there<br />
always needs to be panel on the<br />
dollar outlook! This was moderated<br />
by Isabel Albarran (Close Brothers),<br />
with panellists Stephen Jen (Eurizon),<br />
Caroline Houdril (Schroders), Stefan<br />
Hofrichter (Allianz), Kiran Kowshik<br />
(Lombard Odier), Samuel Zief (JPM<br />
Private Bank) and Gonzalo Canet<br />
(ATFX). A debate in markets is how<br />
how a soft landing would impact the<br />
USD. Houdril noted that whilst a soft<br />
landing would be likely negative for<br />
the dollar, if the US was doing better<br />
than elsewhere, it could support the<br />
USD. Albarran felt that the USD would<br />
be broader be stronger. In periods<br />
where there had been broader based<br />
depreciation, there had generally<br />
been several factors at play, the USD<br />
had been a lower yielder, there had<br />
been EM interventions and an impact<br />
from terms of trade moves. Currently,<br />
obviously, the USD is a higher yielder.<br />
For Jen, he noted that there have been<br />
two drivers for the USD, notably the<br />
Fed and inflation, a now a focus on<br />
China, which was new. Before, China<br />
had been a high beta play. Whilst<br />
there were structural negatives on the<br />
dollar, the twin deficits, we don’t tend<br />
to play attention to them till there was<br />
a cyclical turn. He suggested the USD<br />
was 10% overvalued.<br />
Kowshik discussed the topic from<br />
the perspective of his clients, who<br />
were generally EUR and CHF based. If<br />
equities fall, EUR tended to weaken.<br />
NOVEMBER 20<strong>23</strong> e-FOREX 15
Takeaways from TradeTech FX in Paris September 20<strong>23</strong><br />
and moderator Roderick Ngotho<br />
(Independent) was focused on East<br />
Asia. Jen, noted how Mexican exports<br />
to USA had passed those from China<br />
as a result of reshoring. There was<br />
still substantial financial exposure to<br />
China, Mederios said, from the vast<br />
majority of stocks that Americans<br />
own. Indeed, we only need to look<br />
at the recent price action in Apple as<br />
anecdotal evidence, of how China can<br />
impact US companies.<br />
RECENT EVENT<br />
ACTIVE CURRENCY STRATEGIES<br />
I was also on a panel on active<br />
currency strategies panel, alongside<br />
Andreas Koenig (Amundi Asset<br />
Management), Frederick Fischer<br />
(Allianz Global Investors), Achim Walde<br />
(Metzler Currency Management) and<br />
Roderick Ngotho (Independent). It<br />
also included some thoughts on the<br />
dollar, where most of the panellists<br />
were bullish, I was the odd one out,<br />
suggesting some downside, citing<br />
that on a relative basis that our<br />
inflation forecasts suggested more<br />
downside in the US versus the other<br />
major economies, which would likely<br />
be bearish USD. We also discussed<br />
how currency strategies fitting in<br />
broadly, in terms of investing. Walde<br />
made the point that FX risk was a big<br />
component of your returns, citing an<br />
example with US stocks over the past<br />
few years, where returns for a local<br />
investor would have been 300% versus<br />
400% for a Eurozone denominated<br />
investor. Whereas FX is often seen<br />
as an afterthought, managing it can<br />
make a big difference!<br />
For CHF the situation was trickier, it<br />
was low yielding, and has steadily<br />
appreciated, and has had its currency<br />
account surplus recycled. There was<br />
also the factor that FX was a monetary<br />
policy tool in Switzerland. The topic of<br />
the dollar as a reserve currency also<br />
came up, although the consensus was<br />
that it was difficult to replace. One<br />
important point was that the liquidity<br />
in financial sector is what counts for<br />
a reserve currency, given that the<br />
proportion of financial transactions is<br />
50x the real trade.<br />
A later panel also with Stephen Jen<br />
(Eurizon), alongside Bridgette Le Bris<br />
(Ostium), Gustavo Mederios (Ashmore)<br />
LIQUIDITY & MARKET<br />
STRUCTURE<br />
As mentioned earlier the topic of<br />
execution was also a key part of<br />
discussions at the event. There was<br />
an enlightening panel on liquidity<br />
and market structure, featuring<br />
Tgetg Roethlin (UBS), Jay Moore<br />
(FX HedgePool), Jeremy Smart (XTX<br />
Markets), Simon Osterberg (SEB),<br />
16 NOVEMBER 20<strong>23</strong> e-FOREX
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NOVEMBER 20<strong>23</strong> e-FOREX 17
Takeaways from TradeTech FX in Paris September 20<strong>23</strong><br />
RECENT EVENT<br />
Alexander Nowak (JPM) and Gordon<br />
Noonan. It was under Chatham<br />
House rules, so I’ll just give a broad<br />
generalisation of the discussion. One<br />
topic that came up several times was<br />
that of TCA, and how in spot it is<br />
more developed, with solutions like<br />
TradeFeedr. However, it was noted that<br />
in other areas like swaps TCA isn’t as<br />
well developed. In swaps of course<br />
it is is more difficult because of the<br />
need to understand dynamics around<br />
things like broken dates, which a simple<br />
interpolation may not necessarily<br />
capture if you are trying to create a<br />
benchmark. If you do TCA, there needs<br />
to be some sort of benchmark to judge<br />
against your own executions. There<br />
was talk of using a CLOB for swaps,<br />
although there might be differing<br />
incentives for this amongst market<br />
players. This would help solve the data<br />
problem associated with swaps.<br />
DIGITAL ASSETS<br />
One thing that I remember on my<br />
first TradeTech FX, was that there was<br />
a discussion about digital assets. At<br />
the time it seemed very exotic! Whilst<br />
digital assets are not still mainstream,<br />
the market is definitely maturing,<br />
and there was a digital assets panel<br />
moderated by Eva Szalay, with<br />
panellists Yves Choueifaty (TOBAM),<br />
Vinay Trivedi (Maxx Trader), Cassandra<br />
Cox (LMAX) and Zahreddine Touag<br />
(Woorton). One major discussion point<br />
was whether the ETF on bitcoin spot<br />
would be approved. The consensus<br />
was it would be and Choueifaty noted<br />
how having the ETF would make it as<br />
easy to buy bitcoin as any other asset<br />
available as ETFs. Touag also noted<br />
that many larger players were getting<br />
interested in digital assets.<br />
Where will FX markets be in another<br />
decade at TradeTech FX? I’m sure it’ll<br />
be an exciting 10 years, but I suspect<br />
a lot of the same topics will reoccur,<br />
but (to paraphrase Eric Morcambe) not<br />
necessarily in the same order!<br />
18 NOVEMBER 20<strong>23</strong> e-FOREX
NOVEMBER 20<strong>23</strong> e-FOREX 19
Next generation FX analytics:<br />
Bringing transparency and more to the<br />
FX execution process<br />
TRADING OPERATIONS<br />
Image by Shutterstock<br />
20 NOVEMBER 20<strong>23</strong> e-FOREX
TRADING OPERATIONS<br />
market risk back to the client. It is<br />
therefore crucial that analysis supports<br />
an auditable decision-making process<br />
to manage that risk.”<br />
Vivek Shankar<br />
Electronification has steadily increased<br />
in FX over the years, and has spawned<br />
new stakeholder needs. Proving<br />
commercial viability and increasing<br />
efficiency are two examples that have<br />
led to data analysis becoming a critical<br />
portion of the FX execution workflow.<br />
With more data at firms’ disposal<br />
than ever before TCA is playing an<br />
important role in helping them finetune<br />
their strategies. Guy Hopkins,<br />
CEO and Founder of FairXchange,<br />
believes this need underlies recent<br />
developments in execution analytics.<br />
“Regulatory drivers such as MiFID II<br />
have certainly increased adoption of<br />
data analysis,” he says, “however there<br />
is a much deeper commercial need to<br />
understand the impact of technology<br />
on the execution process.”<br />
Whilst Paul Lambert, Chief Executive<br />
Officer, New Change FX, adds that<br />
the shift towards algo execution has<br />
also had an effect. “The pandemic<br />
was key in driving adoption as traders<br />
were unable to use ‘old’ approaches<br />
to execution,” he says. “The realisation<br />
that passing an algo order is effectively<br />
the same as passing an ‘at best’ order<br />
to a bank has simultaneously driven<br />
the realisation that analysis is vital<br />
to ensure best execution. The risk for<br />
buyside traders that they might be<br />
making poor execution choices now<br />
poses a direct threat to the trader’s<br />
job. The effect of algos is to transfer<br />
PREPPING FOR DATA ANALYSIS<br />
Given the twin needs of justifying<br />
trade decisions and demonstrating<br />
their value to firms, data quality is<br />
playing a key role. Lambert lists a<br />
few different datasets traders look<br />
at from a high level. “Traders need<br />
to understand all aspects of the<br />
behaviour of their LPs,” he says. “The<br />
historical approach of simply adding<br />
LPs via an EMS is no longer adequate<br />
because each LP and their effect on<br />
the pool needs to be understood.”<br />
“Similarly, algo execution details like<br />
LP prioritisation and selection, reject<br />
rates, market impact, etc, need to<br />
be understood at a granular level<br />
rather than on a generalised, posttrade<br />
basis,” he continues. “The<br />
most important aspect remains<br />
the recording of a decision-making<br />
process that justifies execution<br />
methodology using real-time data.<br />
Static TCA is of little use in that<br />
process.”<br />
Meanwhile, Oleg Shevelenko, FX<br />
Product Manager, Bloomberg, echoes<br />
Lambert’s point about algos breeding<br />
new data analysis needs. “Automation<br />
and algorithmic trading require<br />
participants to have a much deeper<br />
understanding of their execution<br />
performance and how it can be<br />
incorporated into execution strategies<br />
that realise the most benefit,” he<br />
says. “Unbiased data is fundamental<br />
to the objective evaluation of trading<br />
performance,” he continues. “Liquidity<br />
providers are turning to third-party<br />
independent data providers to help<br />
them demonstrate the quality of their<br />
execution algorithms to their clients,<br />
while clients are also looking for<br />
independent data to benchmark their<br />
execution decisions and showcase<br />
their value to investors.”<br />
NOVEMBER 20<strong>23</strong> e-FOREX 21
Next generation FX analytics: Bringing transparency and more to the FX execution process<br />
TRADING OPERATIONS<br />
“It is important to differentiate between independent<br />
analysis and independent data”<br />
Guy Hopkins<br />
James Knoop, FX Back Office Solution<br />
Specialist at ION, believes independent<br />
data is critical for banks. “Banks<br />
having their own independent data<br />
is critical so that they have leverage<br />
when interacting with their LPs,” he<br />
says. “Being able to highlight areas<br />
where LPs are struggling against<br />
their peers or being deliberately toxic<br />
with their flow can lead to a closer<br />
collaboration between Bank and LP.<br />
This in turn improves their execution<br />
and profitability.” He cites a situation<br />
as an example. “Toxic flow from clients<br />
or toxic actions for LPs such as long<br />
last look times or quote spamming<br />
can impact the bank’s trade execution<br />
outcomes. Having access to data to<br />
identify these scenarios enables bank’s<br />
to make informed decisions about how<br />
to price clients and interact with their<br />
LPs.”<br />
Lambert stresses the importance of the<br />
unbiased standard or ruler to ensure<br />
the data firms receive is independent<br />
and lacks biases. “If the ruler isn’t<br />
independent, then you cannot trust<br />
your results to be objective,” he says.<br />
“For example, if you are using data<br />
from inside your trading ecosystem<br />
when LPs are skewing their prices, as<br />
they often will to reflect their trading<br />
view, your ruler is changing, and<br />
you will embed bias. For unbiased<br />
measurement, you need to use an<br />
exchange rate that your activity isn’t<br />
affecting.”<br />
Phil Morris, CEO of Reactive Markets,<br />
is extremely familiar with these biases<br />
and the importance of ensuring high<br />
quality independent data. When asked<br />
about the effects of independent data<br />
on the kind of analysis liquidity takers<br />
can perform, he lists a scenario. “A<br />
liquidity taker may have access to vast<br />
amounts of market data from their LPs<br />
on a specific platform,” he says. “This<br />
allows them to analyse the relative<br />
pricing and execution quality between<br />
these participants. It does not answer<br />
questions about how their LP pricing<br />
may differ on other trading platforms,<br />
or how a new LP may be able to<br />
change the shape of their liquidity<br />
pool. Adding independent data can<br />
open up insights into how their LPs<br />
or platform providers are performing<br />
relative to the wider market.”<br />
“Similarly,” he continues, “an LP will<br />
only see its trades with a specific<br />
liquidity taker and will have no context<br />
about its relative performance or<br />
what improvements it needs to make<br />
to win more business. By accessing<br />
independent anonymised datasets,<br />
an LP can proactively optimise their<br />
pricing on a client-by-client basis<br />
resulting in better outcomes for both<br />
the client and the LP. At Reactive<br />
Markets, we offer complementary<br />
liquidity management and data<br />
services tools as a core part of our<br />
offering,” he says. “On client request,<br />
we capture and deliver their dataset<br />
to several specialist data and analytics<br />
companies where they can analyse this<br />
alongside their larger, independent<br />
datasets.”<br />
FX execution workflow resembles a conveyor belt where orders are moving through various stages<br />
Lambert explains how New Change FX<br />
assists its clients. “The NCFX mid-feed<br />
is designed to be the unbiased ruler<br />
because it is not part of a trading<br />
platform,” he says. “The possibilities<br />
for measurement expand enormously<br />
once you can triangulate your own<br />
available spread and midrate, your<br />
micro price, your available volume, and<br />
prevailing market conditions (volatility,<br />
update frequency, etc.) To measure<br />
your outcomes, you need the data<br />
from inside your system and measure<br />
them against the independent<br />
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NOVEMBER 20<strong>23</strong> e-FOREX <strong>23</strong>
Next generation FX analytics: Bringing transparency and more to the FX execution process<br />
TRADING OPERATIONS<br />
“The historical approach of simply adding LPs via an EMS is<br />
no longer adequate because each LP and their effect on the<br />
pool needs to be understood.”<br />
benchmark from outside the system. It<br />
is from this information that the trader<br />
can create an execution methodology<br />
for each trade.”<br />
FairXchange’s Hopkins acknowledges<br />
the importance of independent data<br />
sources but stresses that analysis is<br />
just as critical. “It is important to<br />
differentiate between independent<br />
analysis and independent data,” he<br />
says. “Independent data analytics firms<br />
like FairXchange provide objective,<br />
neutral analysis of trading firms’ data.<br />
This gives firms valuable insights into<br />
their trading business that they might<br />
otherwise miss, and it also removes<br />
the perception of “marking your<br />
homework”. Indeed certain types of<br />
analysis only make sense when based<br />
on a particular firm’s data – their<br />
unique liquidity, for example,” he<br />
states.<br />
Paul Lambert<br />
When does incorporating a benchmark<br />
or ruler (as Lambert explained)<br />
hold water? “There are times when<br />
it is helpful to combine this with<br />
independent data sources,” Hopkins<br />
responds. “Particularly when the<br />
analysis is intended for third parties,<br />
such as clients, counterparties, or<br />
regulators. This gives a useful degree<br />
of standardisation, and can remove<br />
the potential for a given firm’s trading<br />
activity to leave a signature on the<br />
reference data against which trades are<br />
measured. It is also helpful for creating<br />
a level playing field, using objective<br />
data that counterparties can agree<br />
on.”<br />
COMBINING DATA WITH<br />
ANALYTICS TOOLS FOR MORE<br />
TRANSPARENCY<br />
“Data alone is quite useless without<br />
analytics,” Bloomberg’s Shevelenko<br />
says, “as analytics are a vehicle that<br />
make sense of your data and uncover<br />
meaningful conclusions. Therefore, data<br />
and analytics go hand in hand helping<br />
to constantly reshape the execution<br />
process, making it clearer and more<br />
transparent.”<br />
Hopkins believes data standardisation<br />
is a critical first step firms must invest<br />
time into. “Standardise the data into a<br />
format that permits firms to compare<br />
across different venues, trading<br />
platforms, and counterparties,” he<br />
says. “The analytics then need to be<br />
powerful enough to allow firms to<br />
quickly identify areas of interest, in real<br />
time if possible. This now extends to<br />
using AI to detect anomalies or issues<br />
that require attention.”<br />
He also points out that these analytics<br />
must be accessible to as broad a<br />
constituency of users as possible.<br />
“Data and data analysis are now part<br />
of everyone’s daily working life, it is no<br />
longer the province of a small number<br />
of highly qualified specialists,” he notes.<br />
Lambert counters that firms must<br />
look earlier in the cycle and focus<br />
on sourcing enough data. “Almost<br />
no buyside users can consume and<br />
analyse their available liquidity,”<br />
he says. “They are shooting in the<br />
dark without the data to understand<br />
their feeds and act accordingly. Most<br />
analysis available today is based on<br />
‘dead’ data, which offers little in terms<br />
of live execution problems.”<br />
He explains that using such data with<br />
algos doesn’t make sense. “The use of<br />
a historic database of algo executions<br />
to guess which algo to use now is like<br />
driving from A to B using last week’s<br />
traffic conditions when roadworks<br />
may have moved, and the weather<br />
may have changed. This challenge is<br />
what led New Change to build its<br />
Data Processing as a Service (DPaaS)<br />
offering. NCFX, under an ordinary<br />
platform agreement, can take feeds<br />
from banks and process them to<br />
produce live analytics for its clients.<br />
Clients can create their live midrate,<br />
see how a trade or algo execution<br />
with a bank affects the prices at every<br />
other institution, and triangulate their<br />
midrate with the independent midrate<br />
from NCFX and their own micro-price.”<br />
Lambert adds that while these feeds<br />
are built on live data, clients can store<br />
James Knoop<br />
“Being able to highlight areas where LPs are struggling<br />
against their peers or being deliberately toxic with their flow<br />
can lead to a closer collaboration between Bank and LP.”<br />
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Next generation FX analytics: Bringing transparency and more to the FX execution process<br />
“Data and analytics go hand in hand helping to constantly<br />
reshape the execution process, making it clearer and more<br />
transparent.”<br />
complete record of execution decisions<br />
requires that all available pricing is<br />
available, analysed, and understood.<br />
There are lessons in yesterday’s<br />
outcomes, but without live feedback<br />
and the contextualisation of current<br />
and dynamically changing conditions,<br />
we are trying to optimise with only<br />
half of the picture.”<br />
extremely valuable, given this link.<br />
FairXchange’s Hopkins notes that<br />
while the shift in data is promising,<br />
the implications for real-time decisionmaking<br />
driven by human traders are<br />
uncertain. “With the rapid progress<br />
of AI,” he says, “humans might step<br />
back from the decision process at the<br />
actual point of execution, and instead<br />
transition to becoming real-time risk<br />
managers, with oversight over a suite<br />
of automated execution tools that are<br />
responding seamlessly to changes in<br />
the market.”<br />
TRADING OPERATIONS<br />
Oleg Shevelenko<br />
their data feeds with New Change FX<br />
and run historical analyses on them.<br />
TCA, LPA, AND MOVING DATA<br />
FROM POST TO PRE-TRADE<br />
Lambert’s comments highlight<br />
the effort solutions providers are<br />
undertaking to move data from a<br />
post-trade environment to a pretrade<br />
one. As Lambert puts it, “It is<br />
no longer adequate to base trading<br />
choices purely on historical data. Nor<br />
is it acceptable to take an LP’s word<br />
for what their products can do. A<br />
Shevelenko notes that this move is<br />
critical, and the breadth of post-trade<br />
datasets impacts signal reliability.<br />
“The link between post-trade data<br />
and pre-trade analytics for decisionmaking<br />
is very important,” he says.<br />
“Trading parameters such as the<br />
choice of liquidity providers for a<br />
given instrument, optimal number of<br />
liquidity providers in RFQ, or the choice<br />
of the algorithmic trading strategy<br />
are now available. More extensive<br />
analysis of post-trade data can also<br />
reveal the impact of updating algo<br />
parameters while the order is in flight<br />
versus leaving the default ones for the<br />
duration of an algo.” He adds that<br />
platforms offering peer analytics are<br />
“The big market makers have been<br />
doing this for many years,” he adds,<br />
“so it would not be a surprise to see<br />
this more widely adopted on the buyside.<br />
This has important ramifications<br />
for how analytics develop.”<br />
Analytics are central to TCA, but the<br />
industry has witnessed a lot of talk<br />
about a move to LPA or Liquidity<br />
Provision Analytics recently. How valid<br />
is this chatter, and is TCA analysis<br />
evolving faster than expected? John<br />
McGrath, Chief Revenue Officer<br />
of BidFX, thinks otherwise. “BidFX<br />
termed the phrase ‘LPA’ when we<br />
started to develop our Liquidity<br />
Provision Analytics feature to give<br />
THERE IS STILL PLENTY OF<br />
ANALYSIS TO BE DONE IN<br />
THE TCA SPACE<br />
26 NOVEMBER 20<strong>23</strong> e-FOREX
NOVEMBER 20<strong>23</strong> e-FOREX 27
Next generation FX analytics: Bringing transparency and more to the FX execution process<br />
“TCA in combination with LPA gives a much more holistic<br />
view on the trade performance of counterparties.”<br />
volatility. Stakeholders have long been<br />
interested in leveraging execution data<br />
to dig deeper into them.<br />
there is no guarantee that another<br />
McGrath believes the pieces are in<br />
LP would have filled them, especially<br />
place for firms to break down this<br />
in a volatile environment,” he says.<br />
opacity. “Cost chains are complex,<br />
“However, reject ratios, response<br />
but with advanced data collation and<br />
time and spread analysis can be easily<br />
a deep understanding of customer<br />
measured. It has traditionally been the<br />
workflow, we can now start to address<br />
role of the Liquidity Manager to look<br />
these underlying components across<br />
at these numbers in a holistic way and<br />
the whole trade process,” he says.<br />
make some sense of them.”<br />
He explains that BidFX developed a<br />
“Best Value” suite to allow the buyside<br />
“A low fill ratio doesn’t immediately<br />
to factor in costs in real-time. “This has<br />
TRADING OPERATIONS<br />
John McGrath<br />
clients the ability to start evaluating<br />
their counterpart selection based on<br />
the wealth of data we could provide<br />
whether that be average LP spreads,<br />
skews, TOB, and market impact,”<br />
he says. “I wouldn’t say people are<br />
moving away from TCA. More that<br />
in combination with LPA, it gives a<br />
much more holistic view on the trade<br />
performance of counterparties. Clients<br />
now want to be able to affect their LP<br />
selection in flight based on a feedback<br />
loop on their LPA.”<br />
Lambert agrees with McGrath’s views.<br />
“At present, there is still plenty of<br />
analysis to be done in the TCA space,”<br />
he says. “The key to getting the best<br />
outcome is to use all the relevant<br />
information, and we believe that<br />
does indeed mean using live analytics<br />
around LPA, but it is still important to<br />
understand how trading choices have<br />
performed historically and how the<br />
method of execution was affected by<br />
the conditions in the market.”<br />
Meanwhile, Paul Liew, Head of<br />
Liquidity Management at TradAir, an<br />
ION company, notes that quantitative<br />
metrics are giving traders a great<br />
view on the execution impact of<br />
their decisions. “It’s difficult to put a<br />
monetary cost on rejected orders as<br />
mean that an LP is problematic,<br />
when the orders arrive only at the<br />
last minute just before the quote<br />
is refreshed. TCA will still be an<br />
important tool as PnL impact is more<br />
easily calculated.”<br />
Shevelenko thinks the utility of LPA<br />
analytics is high enough for firms to<br />
demand them as default parameters<br />
in execution platforms, something<br />
Bloomberg is acting on. “Recently,<br />
Bloomberg released a new suite of<br />
FX pricing quality tools that allow<br />
price takers to investigate how often<br />
a counterparty priced and won<br />
the trade, were runner up with the<br />
“Best Alternative” price or placed<br />
somewhere in the pack,” he says.<br />
“Price takers can also measure how<br />
often a counterparty declined to<br />
price, failed to pick up the request, or<br />
rejected a request to deal. Using the<br />
same analytical toolkit, price makers<br />
can quickly identify when clients<br />
traded away, or where opportunities<br />
to price are being missed and<br />
why, such as issues with internal<br />
counterparty setup, enablement<br />
issues, or internal credit rejects.”<br />
REMOVING OPACITY IN<br />
EXECUTION COST CHAINS<br />
FX execution cost chains have plenty<br />
of hidden costs within them, especially<br />
when evaluating the impact of<br />
counterparty liquidity and market<br />
now been developed to allow clients<br />
to start planning how they factor in<br />
counterparty selection to the trade<br />
process via a feedback loop.”<br />
Shevelenko echoes these views.<br />
“FX execution workflow resembles<br />
a conveyor belt where orders are<br />
moving through various stages such<br />
as creation, validation, compliance<br />
checks, eligible counterparty<br />
assignments, netting, and<br />
optimization,” he says. “Aggregated<br />
analysis over a representative<br />
timeframe could suggest various<br />
actionable enhancements to the<br />
workflow and trading process.”<br />
Hopkins offers a few examples of<br />
the questions execution analytics can<br />
answer now. “What is the economic<br />
impact of a valued counterparty<br />
terminating a relationship?,” he says.<br />
“How much does it cost to establish<br />
a relationship that is capable of filling<br />
the gap? Which liquidity providers<br />
should a firm be trading with? These<br />
are questions that firms have been<br />
wrestling with since trading began, but<br />
only now are technologies emerging<br />
that can start to help firms answer<br />
them on a systematic basis.”<br />
New Change FX’s Lambert cautions<br />
that examining the context behind<br />
the data is critical. “By providing the<br />
ability to capture, analyse and store<br />
28 NOVEMBER 20<strong>23</strong> e-FOREX
NOVEMBER 20<strong>23</strong> e-FOREX 29
Next generation FX analytics: Bringing transparency and more to the FX execution process<br />
TRADING OPERATIONS<br />
“By accessing independent anonymised datasets, an LP can<br />
proactively optimise their pricing on a client-by-client basis<br />
resulting in better outcomes for both the client and the LP.”<br />
Phil Morris<br />
the live price data direct from the<br />
source, without knowing what the<br />
EMS does, there is only a limited set of<br />
conclusions that a trader can reach,”<br />
he says. “Only the most obvious and<br />
egregious costs can be spotted, and<br />
the refinement that exists in the detail<br />
is lost. We do not see others putting<br />
in place the necessary foundations to<br />
make unbiased, informed, and timely<br />
trading decisions.”<br />
A ROLE FOR AI AND ML<br />
Can AI and ML play a role in bringing<br />
context and simplifying analysis here?<br />
Lambert says yes, but with a few<br />
caveats. “Their success will rest on the<br />
quality of the data that is available to<br />
them,” he says. “We know that with<br />
a model it is always a case of garbage<br />
in garbage out, and that is true with AI<br />
and ML too.”<br />
Hopkins agrees and adds more<br />
nuance. “It is important to recognise<br />
that AI is not a silver bullet,” he says.<br />
“The point of execution analysis is<br />
to provide insight and transparency.<br />
Deploying black-box algorithms<br />
to the analysis process that no<br />
one understands introduces an<br />
“explainability” problem. This moves<br />
the opacity from the trading process<br />
to the analysis process, which doesn’t<br />
solve anything.”<br />
However, he concedes that AI and<br />
ML have highly exciting use cases.<br />
“It is an area that FairXchange has<br />
invested in significantly,” he says.<br />
“Guided by appropriate experience<br />
and domain expertise, and based on<br />
THE ROLE OF THE LIQUIDITY<br />
MANAGER CAN BE AUTOMATED<br />
TO A CERTAIN EXTENT BY AI<br />
30 NOVEMBER 20<strong>23</strong> e-FOREX
TRADING OPERATIONS<br />
robust, standardised data and highperformance<br />
infrastructure, there<br />
is a huge opportunity in this area.”<br />
He cites an example. “One area that<br />
is getting a lot of focus currently is<br />
AI-driven alerting, informing users<br />
about things happening in their<br />
trading business that they might<br />
not otherwise be aware of. With<br />
the huge amount of data available<br />
individuals cannot check all potential<br />
factors that might impact their<br />
business. AI will play an essential role<br />
in pointing them to the issues that<br />
need attention.”<br />
BidFX’s McGrath talks about a few<br />
initiatives. “We already have a team<br />
working on this developing product at<br />
BidFX and although the industry is still<br />
in the early phase of rolling out these<br />
features there could be some real<br />
efficiency and quantifiable benefits for<br />
the sellside and buyside in how MIS,<br />
data, and analytics are accessed and<br />
actioned upon,” he says.<br />
ION’s Liew adds, “The role of the<br />
Liquidity Manager can be automated<br />
to a certain extent by AI, such as<br />
finding optimum combinations of<br />
Market Takers, Liquidity Providers, and<br />
Currency Pairs quickly. This can be a<br />
tedious manual process.”<br />
COLLABORATION AND THE<br />
EVOLUTION OF FX ANALYTICS<br />
While solutions providers are offering<br />
innovative solutions, they’re hampered<br />
by the sheer number of touchpoints<br />
in the execution workflow. Reactive<br />
Markets’ Morris lays out the issue.<br />
“Market participants often have<br />
many market-facing execution touch<br />
points within a given workflow,” he<br />
says, “whether an execution protocol<br />
(ESP, RFQ or Algo,) or platform being<br />
used. Consolidating that into a single,<br />
normalised view of the world can be<br />
complex, with specific benchmarks<br />
and analytical requirements by each<br />
individual counterparty.”<br />
“It’s difficult to put a monetary cost on rejected orders as<br />
there is no guarantee that another LP would have filled<br />
them, especially in a volatile environment,”<br />
Collaboration and integration<br />
between platforms is the best way to<br />
solve this roadblock, Morris says. “By<br />
collaborating and having connectivity<br />
to the leading analytics and TCA<br />
providers in the market, clients have<br />
the flexibility and opportunity to<br />
automate much of their data and<br />
algo analytics while we complement<br />
the workflow by providing leading<br />
execution performance and<br />
connectivity to liquidity providers. This<br />
superset of independent data from<br />
a variety of sources allows clients to<br />
make informed, data-driven decisions,<br />
something which we encourage and<br />
actively facilitate in providing our<br />
clients access to.”<br />
Hopkins adds to this view. “Without<br />
collaboration through data, firms are<br />
solely restricted to their own view of<br />
the world,” he says. “FairXchange<br />
was conceived purely to facilitate<br />
collaborative dialogue between<br />
trading counterparties. It is even the<br />
inspiration of our name – the fair<br />
exchange of data between trading<br />
firms to arrive at the optimal mutual<br />
outcome.”<br />
Lambert thinks our daily conditioning<br />
to data readily available on<br />
smartphones makes it obvious<br />
that FX analytics providers will<br />
face similar demands. “The most<br />
popular ecosystem will be the one<br />
that provides its users with the best<br />
experience by offering the most choice<br />
and highest quality of applications to<br />
manage the FX workflow from end-toend,”<br />
he says. “That means bringing<br />
together all required components.<br />
Each part of the workflow demands<br />
different attributes, whether its<br />
technology, liquidity provision,<br />
independence, or analytical power,<br />
and we believe that no single provider<br />
can be all things to all.”<br />
Moving forward, Shevelenko thinks<br />
integration and collaboration’s benefits<br />
are too obvious to ignore. “As resource<br />
constraints and cost pressures continue<br />
to present challenges for the industry,<br />
the platforms offering front-to-back<br />
execution and analytics services are<br />
likely to continue to gain traction with<br />
clients,” he says. He believes these<br />
conditions will create a virtuous circle<br />
where platforms and LPs come to<br />
rely on each other, pointing to how<br />
the execution analytics space will<br />
evolve. “Advances in technology are<br />
going to continue to drive innovation<br />
including data and analytics,” he<br />
says. “Platforms are going to further<br />
rely on liquidity providers to share<br />
aggregate data sets to power analytics.<br />
Liquidity providers are likely to leverage<br />
platforms for independent and<br />
objective evaluation of their liquidity<br />
and algorithms.”<br />
Ultimately, every trader aims to<br />
reduce market impact from their<br />
trading. Execution analytics are quickly<br />
evolving, and with more AI use cases<br />
emerging, traders do not have to fly<br />
blind.<br />
Paul Liew<br />
NOVEMBER 20<strong>23</strong> e-FOREX 31
Electronification rising<br />
amid turbulence: Taking<br />
a closer look at the<br />
MENA FX picture<br />
By Vivek Shankar<br />
REGIONAL E-FX PERSPECTIVE<br />
Image by Shutterstock<br />
32 NOVEMBER 20<strong>23</strong> e-FOREX
REGIONAL E-FX PERSPECTIVE<br />
The MENA region has never grabbed<br />
FX headlines quite as violently as it did<br />
this past month. News of the Israel-<br />
Hamas conflict increased volatility in<br />
the stock and commodity markets, with<br />
the side effects impacting FX flows.<br />
However, the current crisis has not<br />
changed the prevailing e-FX story in<br />
MENA. The electronification of FX,<br />
fintech sophistication, and the Gulf<br />
region’s decoupling from oil wealth<br />
are all steadily rising. Add to this the<br />
resilience of Israel’s nascent fintech<br />
sector and growing diversity in financial<br />
products on offer and the MENA’s<br />
overall economic and technology<br />
outlook seems well placed despite<br />
current events.<br />
Hussain Almohri, Head of Trading,<br />
MENAT, at HSBC, points to strong GDP<br />
growth as a factor for increasing FX<br />
demand. “During the past couple of<br />
years, what with strong GDP growth in<br />
the region,” he says, “there has been<br />
a material shift in FX requirements,<br />
particularly after the pandemic.”<br />
“Saudi Arabia alone is projected to<br />
see its GDP reach US$1.7tn by 2030.<br />
It stood at over US$1trn for 2022, up<br />
from US$868bn the year before. In<br />
addition, many asset managers and<br />
hedge funds have moved their physical<br />
locations to MENA, to capitalise on<br />
the economic growth of the region,<br />
the region’s vision to invest in its<br />
infrastructure, as well as its ambitious<br />
growth plans.”<br />
DELIVERING TRANSPARENCY<br />
Recent local economic reports show that<br />
cross-border FX needs have remained<br />
high, given the number of expat<br />
workers in the region’s biggest markets.<br />
While recent drives to hire citizens in<br />
Gulf countries have slowed FX volumes a<br />
bit, the region continues to account for<br />
a significant amount of outflows.<br />
For instance, the Gulf region accounts<br />
for the highest amount of FX outflows<br />
NOVEMBER 20<strong>23</strong> e-FOREX 33
Electronification rising amid turbulence: Taking a closer look at the MENA FX picture<br />
REGIONAL E-FX PERSPECTIVE<br />
“During the past couple of years, what with strong GDP<br />
growth in the region, there has been a material shift in FX<br />
requirements, particularly after the pandemic.”<br />
Hussain Almohri<br />
to South Asian countries despite<br />
slowing economic growth (The Gulf<br />
region grew by 7.4% in 2022, a<br />
number expected to drop to 2.5% per<br />
the World Bank.)<br />
“We have seen SAR, AED, and KWD<br />
as the currencies most in demand,”<br />
Almohri says, “with AED having the<br />
most notable growth in terms of<br />
volumes over the past 18 months.”<br />
News is not as positive with the Israeli<br />
Shekel, which has lost strength due<br />
to internal government crises in that<br />
country and the recent war.<br />
Despite Israel’s central bank pouring<br />
$30 billion into supporting its currency,<br />
the Shekel shed 3% in its biggest fall<br />
since February 20<strong>23</strong>, when the judicial<br />
crisis was at its peak. Observers can<br />
divide the MENA picture between<br />
the GCC and the rest, with the rest<br />
experiencing considerable strain.<br />
Lebanon continues to reel under the<br />
weight of consecutive economic crises,<br />
and Egypt’s dependence on external<br />
tourism for hard currency receipts<br />
has not reduced. Given its proximity<br />
to the Gaza war zone and recent<br />
errant excursions by Israel’s military,<br />
Egypt faces significant challenges in<br />
managing its currency exchange rate.<br />
On the positive side, Chinese<br />
investments in the region have<br />
increased, creating more diverse<br />
sources of FX flows, and pushing<br />
traders to call for more transparency<br />
and efficient risk management. Small<br />
vanilla FX flows are largely automated,<br />
with more market participants<br />
demanding TCA as standard.<br />
Albert Blackburn, EMEA EM Business<br />
Development Manager, FX, at LSEG,<br />
explains, “The buy side is eager to<br />
understand trade costs and what their<br />
impact is on the market and how their<br />
liquidity will be used. Pre-trade and<br />
post-trade analytics continue to see an<br />
increase in their usage and offer better<br />
transparency to the market.”<br />
And what about STP and TMS<br />
demands?<br />
“STP and Treasury Management<br />
Systems continue to be rolled out at<br />
pace across the regions as firms seek<br />
to maximise their positions,” he says.<br />
This rise in electronification has shrunk<br />
spreads, with more banks offering<br />
greater context behind their pricing, like<br />
market news and historical trends.<br />
Other transparency-enhancing efforts<br />
include IM communication channels<br />
and data-backed insights into RFQ<br />
workflows. Blackburn lists a few<br />
ways in which LSEG is meeting these<br />
demands. “LSEG FX has a history<br />
of delivering market infrastructure<br />
and workflow tools into frontier and<br />
emerging markets,” he says.<br />
“Matching and FXall offer robust bestin-class<br />
solutions that can be leveraged<br />
by regional banks and clients with<br />
little friction. Our white-label workflow<br />
products provide turn-key solutions<br />
that reduce time-to-market for smaller<br />
banks looking to quickly expand their<br />
digital footprint.”<br />
Regulation and continued government investment in infrastructure are slowly turning the GCC into a hub for<br />
sophisticated investors<br />
Blackburn notes that local banks have<br />
released new features to their platform<br />
in response to corporate demand. And<br />
what are some of these? “Competitive<br />
quotes are always key, and the ability to<br />
trade at the best price is key,” he says.<br />
“However resting orders, options, and<br />
fixing orders are also in demand. Some<br />
of the banks have started to use algo<br />
for trading and this continues to be a<br />
new growth area for the banks that<br />
serve the region.”<br />
34 NOVEMBER 20<strong>23</strong> e-FOREX
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NOVEMBER 20<strong>23</strong> e-FOREX 35
Electronification rising amid turbulence: Taking a closer look at the MENA FX picture<br />
REGIONAL E-FX PERSPECTIVE<br />
“Like elsewhere, the buyside across the MENA region is<br />
eager to understand trade costs and what their impact is on<br />
the market and how their liquidity will be used.”<br />
Albert Blackburn<br />
HSBC’s Almohri agrees. “Local banks<br />
are adapting to electronification at<br />
pace,” he says. “It’s a strong trend<br />
that we do not see slowing down<br />
anytime soon. This has involved material<br />
changes in workflow, processes, and<br />
technological buildout, which, as one<br />
might expect, can carry operational<br />
risks in their execution and, therefore,<br />
might require adjustment in planning<br />
timelines.”<br />
Blackburn notes that LSEG doesn’t view<br />
the region as an emerging market, as is<br />
the prevalent global view. Several GCC<br />
countries only recently moved from<br />
the MSCI Frontier Markets index to the<br />
Emerging Markets one. While this move<br />
has accelerated FDI inflows, volumes<br />
remain small compared to global<br />
benchmarks.<br />
He explains further. “Many of the<br />
regional firms have been engaged<br />
in electronic trading in the global<br />
FX market for many years,” he says.<br />
“Whilst there are opportunities to<br />
support governments and central banks<br />
evolve market structure as countries<br />
look to reform access to their domestic<br />
currencies, we see no difference in the<br />
levels of client sophistication in this<br />
region to any other.”<br />
DEMAND FROM SOPHISTICATED<br />
INVESTORS<br />
Regulation and continued government<br />
investment in infrastructure are slowly<br />
turning the GCC into a hub for<br />
sophisticated investors. Almohri lists a<br />
few reasons for several hedge funds<br />
and asset managers setting up shop<br />
here.<br />
“Exponential growth in the region’s<br />
debt capital markets, following the oil<br />
Many asset managers and hedge funds have moved their physical locations to MENA, to capitalise on the economic<br />
growth of the region<br />
price drops between 2014 to 2016,<br />
together with the transformation<br />
and economic diversification plans in<br />
MENA, has attracted a large number<br />
of hedge funds and asset managers<br />
into the region,” he says. “With that,<br />
we have observed a higher interest<br />
in methods of execution and data<br />
analytics, which are tailored for a more<br />
sophisticated segment of the market.”<br />
“We have observed more demand and<br />
FX flow driven by foreign investors,”<br />
he continues. “This has been in<br />
response to policy changes leading to<br />
a relaxation of restrictions on foreign<br />
ownership of assets and allowing more<br />
access to the market.”<br />
As electronification steadily rises, algo<br />
adoption is also increasing. “FX algo<br />
execution is still at an early stage of<br />
adoption in MENA,” cautions Almohri,<br />
“although it is becoming a growing<br />
topic of discussion with clients as<br />
an additional tool at their disposal,<br />
particularly among institutions that<br />
trade equities. Algorithmic stock<br />
executions are more mature and<br />
already embedded in their typical<br />
workflow.”<br />
And what does the electronic versus<br />
voice trading picture look like? Some<br />
MENA currencies are famously illiquid.<br />
Has electronification changed that<br />
picture? Blackburn and Almohri reckon<br />
it hasn’t. “Electronic markets are<br />
now the norm in more established<br />
and larger Middle East economies,”<br />
Blackburn says, “however in smaller<br />
markets, central banks are seeking to<br />
work with their local counterparties<br />
to facilitate orderly markets. In some<br />
regions e-trading is still relatively new,<br />
continued pressures on credit and<br />
banks are facilitating this approach.”<br />
“Voice trading is still the preferred<br />
channel for large transactions,” Almohri<br />
says, “where electronic liquidity<br />
doesn’t exist or is particularly thin. One<br />
significant factor for further increasing<br />
electronic liquidity distribution would<br />
36 NOVEMBER 20<strong>23</strong> e-FOREX
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NOVEMBER 20<strong>23</strong> e-FOREX 37
Electronification rising amid turbulence: Taking a closer look at the MENA FX picture<br />
REGIONAL E-FX PERSPECTIVE<br />
THE STATE OF<br />
RETAIL FX IN MENA<br />
Low volatility, the crypto winter,<br />
and high interest rate macro<br />
environments: Retail brokers<br />
have had plenty to contend with<br />
over the past year. When we last<br />
checked in with Mohammad<br />
Isbeer, Global Head of Brokerage<br />
Sales at Equiti Group, he noted<br />
observing high retail trading<br />
flows, particularly in the crypto<br />
and DeFi space. Is this still the<br />
case? “I’d say overall flows<br />
haven’t dropped off, but they<br />
certainly have switched from<br />
speculative assets like crypto to<br />
safe-haven ones like gold. Low<br />
volatility across all asset classes<br />
and macro uncertainty have<br />
pushed flows that way,” he states.<br />
Isbeer notes that gold has<br />
accounted for over half of all<br />
retail trading flows over the past<br />
three to four quarters. As retail<br />
interest in FX and CFD trading<br />
remains high, the MENA region<br />
has witnessed more retail brokers<br />
emerging, leading to a highly<br />
competitive sector.<br />
“A lot of this rise is driven by<br />
regulations opening up, like<br />
the SCA licence in the UAE and<br />
Jordan modifying regulations a<br />
couple of years ago,” Isbeer says.<br />
“Add to this existing centres like<br />
Bahrain, and you have fertile<br />
ground for retail presence.”<br />
He’s quick to point out that while<br />
regulations are weeding out<br />
undesirable brokers, even fully<br />
licensed ones face challenges<br />
when getting business up and<br />
running. For one, their choice<br />
of LP is crucial. “The market has<br />
seen some offers too good to be<br />
true, and unfortunately, some<br />
brokers have fallen victim to<br />
them.”<br />
“Checking whether an LP can<br />
offer you Tier 1 access to prices<br />
is the most critical thing,” Isbeer<br />
continues. “If your LP can’t give<br />
you that access, then what’s<br />
the point of the relationship?<br />
Regulation is important too. Every<br />
credible LP is regulated in a Tier 1<br />
jurisdiction.”<br />
Isbeer also recommends brokers<br />
check their LP’s balance sheet<br />
strength and risk management.<br />
“It boils down to security,” he<br />
says. “What are their risk limits,<br />
and how do they monitor them?<br />
Any risk lapses on the LP’s end<br />
will reflect poorly on the retail<br />
broker too, costing them their<br />
reputation.”<br />
A loss of reputation in a crowded<br />
market might spell the end of a<br />
broker’s business. Add to this mix<br />
increasing sophistication amongst<br />
investors, and risk management<br />
becomes paramount. Brokers<br />
seem to be taking this into<br />
account.<br />
“Many brokers are working<br />
towards reducing risk limits,<br />
incorporating tools like smart<br />
hedging to reduce their<br />
exposure.” Isbeer also explains<br />
that technology is playing a role<br />
in trading strategies.<br />
“EA activity continues to increase,<br />
along with other auto trading<br />
models,” he says. “Right now, I’d<br />
say the direction is towards AI and<br />
ML tool development, something<br />
that is impacting how brokers<br />
assess risk too.”<br />
Mohammad Isbeer<br />
Interestingly, Isbeer explains that<br />
low volatility has given simple<br />
strategies the space to become<br />
profitable once again. He cites<br />
the Martingale strategy as an<br />
example of realising significant<br />
profit over the past year. While<br />
simplicity is playing well in FX,<br />
reduced volatility has reduced<br />
crypto demand in MENA.<br />
“Institutional demand for crypto<br />
is always present to a certain<br />
extent because retail brokers<br />
want them. We’re meeting that<br />
demand, but overall volumes have<br />
been sluggish,” Isbeer says.<br />
Brokers are riding out the winter,<br />
he explains, focusing on offering<br />
those products via CFDs to their<br />
clients, and managing their risk<br />
appropriately. Isbeer is bullish<br />
about the growth of retail eFX in<br />
MENA.<br />
“Regulation is only opening up<br />
further, and we’re seeing several<br />
EU and American institutions set<br />
up base in Dubai due to this,”<br />
he says. “Demand is increasing,<br />
both on the retail side and<br />
the institutional end. For now,<br />
MENA continues to show great<br />
potential, and I expect it to only<br />
grow from here.”<br />
38 NOVEMBER 20<strong>23</strong> e-FOREX
REGIONAL E-FX PERSPECTIVE<br />
be an electronic interbank market<br />
in the region, which would act as a<br />
precursor to a fully-fledged electronic<br />
offering.”<br />
However, Almohri notes that the share<br />
of electronic trading is increasing,<br />
a trend he expects to accelerate.<br />
Blackburn echoes this view and<br />
highlights a few changes that have<br />
supported this trend. “Regional banks<br />
across the region have developed<br />
their single dealer offerings to allow<br />
customers to reach their branches,<br />
customers, and the wider community<br />
of multi-dealer platform users,” he says.<br />
“There has been a general consensus<br />
from MENA countries to change their<br />
methods of trading, and central banks<br />
have been key to ensuring that markets<br />
operate with a degree of transparency<br />
around them.”<br />
ISLAMIC FINANCE - VANILLA<br />
BUT IN HIGH DEMAND<br />
Increasing sophistication amongst<br />
MENA investors has affected another<br />
unique aspect of the region’s<br />
markets: Islamic finance. Demand<br />
for Shari’a-compliant products has<br />
steadily increased, with service<br />
providers offering both innovative and<br />
questionable products.<br />
Retail FX is an example of the latter.<br />
Shari’a law prohibits interest and<br />
gambling, both of which are present<br />
in copious amounts in the retail FX<br />
market. While brokers cannot control a<br />
client’s gambling instinct, they have full<br />
control over interest charges, and this<br />
leads to interesting compromises.<br />
Swaps, for instance, are central to<br />
the FX market’s functions, but several<br />
brokers in the region advertise swapfree<br />
accounts. These brokers reframe<br />
the swap as a client fee and execute<br />
the swap on the back end. Is such a<br />
product truly Islamic?<br />
The Qatar Central Bank’s Fintech Strategy 2030 details an ambitious plan to electronify the Kingdom’s financial<br />
infrastructure<br />
of balancing customer demand<br />
with Shari’a needs. So far, MENA<br />
governments haven’t commented on<br />
such tactics. On the institutional side,<br />
greater financial engineering leeway<br />
has resulted in the creation of Shari’acompliant<br />
hedges, swaps, and options.<br />
However, these products remain<br />
relatively vanilla. Bloomberg’s FXGO<br />
platform currently offers the trading of<br />
Islamic deposits and forwards (Wa’ad)<br />
QATAR RAMPS UP FINTECH<br />
STRATEGY 2030<br />
Qatar is a relatively silent presence<br />
in the Gulf region compared to the<br />
behemoth that is KSA and the flashy<br />
UAE, led by the Emirate of Dubai.<br />
However, the Government of Qatar<br />
has made regulatory moves that reflect<br />
the Kingdom’s ambition to be counted<br />
amongst its neighbours.<br />
The Qatar Central Bank’s Fintech<br />
Strategy 2030 details an ambitious plan<br />
to electronify the Kingdom’s financial<br />
infrastructure. While the central bank’s<br />
regulations surrounding loan-based<br />
crowdfunding grabbed headlines, the<br />
body outlined a roadmap to define<br />
regulations for wealth tech, eKYC, DLT<br />
initiatives, open banking, and digital<br />
banking, amongst others.<br />
the Kingdom driving the need for a<br />
sophisticated support system. The plan<br />
seeks to triple the number of registered<br />
fintechs in the country by 2027 and<br />
promote greater financial inclusion.<br />
The move also comes after Fitch<br />
Ratings analysts pointed out the lack of<br />
regulation holding back Qatar’s fintech<br />
sector. As FDI inflows increase in the<br />
region, Qatar is positioning itself as a<br />
viable alternative to Dubai and Riyadh.<br />
WHAT’S IN STORE FOR THE<br />
MENA?<br />
Despite the region experiencing<br />
instability and illiquidity in some<br />
pockets, industry analysts view the<br />
MENA’s prospects favourably. The Gulf<br />
economies’ growth is undoubtedly<br />
positive and is expected to turn that<br />
region into a financial hub.<br />
Dubai is well-positioned as a financial<br />
centre already, and with KSA opening<br />
its economy, analysts expect more firms<br />
to consider Riyadh as a potential hub.<br />
While localisation efforts will reduce<br />
expat FX outflows from the region,<br />
investor sophistication will increase. As<br />
a result, electronic FX workflows and<br />
automation will likely experience steady<br />
adoption.<br />
Other examples such as the approval<br />
for futures products reflect an attitude<br />
This initiative comes in conjunction with<br />
greater foreign investment interest in<br />
In short, the MENA continues to move<br />
forward, despite current turbulence.<br />
NOVEMBER 20<strong>23</strong> e-FOREX 39
THE E-FOREX INTERVIEW<br />
Offering a better<br />
way to trade FX<br />
StoneX Group Inc is a diversified<br />
financial services firm providing<br />
institutional traders access to deep<br />
global liquidity in markets all over the<br />
world. We spoke with Eric Donovan,<br />
Global Head of Institutional FX at the<br />
company, to learn more about the<br />
business he is running and the key<br />
people who are helping him.<br />
Eric Donovan<br />
40 NOVEMBER 20<strong>23</strong> e-FOREX
THE e-FOREX INTERVIEW<br />
Eric, you have been working in<br />
the financial trading industry for<br />
a long time. Please tell us a little<br />
about your background and career<br />
to date.<br />
I went to Rutgers University, close<br />
to NYC, which gave me some<br />
opportunities to work in the hedge<br />
fund and trading industry while I was<br />
still in college, so I was very lucky in<br />
that respect. After graduating I moved<br />
to Chicago and began working for an<br />
options market-making firm, where<br />
I became a floor trader in S&P 500<br />
options. I did that for 5 years, then<br />
left to start a firm that was focused<br />
more on automated trading systems.<br />
The firm did very well through the<br />
financial crisis and the flash crash.<br />
In 2014, I decided to quit trading<br />
and go to law school, because I saw<br />
the industry changing so much after<br />
Dodd-Frank and it was getting harder<br />
and harder to survive as a small firm.<br />
Then, kind of on a whim, I took a<br />
job at StoneX which I planned to<br />
stay at for just a few months until<br />
my classes started. I ended up loving<br />
the company, withdrew from law<br />
school, and have been here for almost<br />
9 years. That was one of the best<br />
decisions I ever made.<br />
What does your day-to-day<br />
job involve and what key<br />
responsibilities do you have?<br />
My energy is entirely focused<br />
on building the best experience<br />
imaginable for institutions involved<br />
in trading foreign exchange. That<br />
means building trading systems that<br />
continually lower our cost structure<br />
and improve performance, so we can<br />
deliver great products and services at<br />
a price point that provides real value.<br />
In addition, scale is significant so I<br />
also dedicate time to our sales and<br />
marketing efforts.<br />
What range of FX execution and<br />
Liquidity services does StoneX Pro<br />
offer and what mix and types of<br />
clients are you providing these for?<br />
StoneX Pro bundles everything<br />
needed to tap into the global FX<br />
market in a very simple, turnkey<br />
account structure. This includes<br />
institutional-grade liquidity in spot,<br />
forwards, NDF, options, NDOs,<br />
deliverable FX and interest rates<br />
swaps for corporate and financial<br />
institutions. Our clients range from<br />
asset managers, hedge funds,<br />
regional banks, financial institutions,<br />
money service businesses, and a<br />
global network of corporates.<br />
StoneX Pro has the support of<br />
your powerful parent company,<br />
StoneX Group Inc. What else do<br />
you think really sets StoneX Pro<br />
apart from other firms in this<br />
highly competitive business?<br />
StoneX Pro bundles everything needed to tap into the global FX market in a very simple, turnkey account structure<br />
NOVEMBER 20<strong>23</strong> e-FOREX 41
StoneX Group: Offering a better way to trade FX<br />
THE E-FOREX INTERVIEW<br />
We’ve assembled an exceptional team to provide our clients with an innovative and comprehensive FX solution<br />
StoneX Group Inc. is a fast-growing<br />
Fortune 500 company, renowned<br />
across almost every asset class. I<br />
would say the biggest advantage<br />
we have is the economies of scale<br />
with respect to balance sheet and<br />
having regulated entities in almost<br />
every jurisdiction. For example, just<br />
in the US we have a broker-dealer,<br />
we have one of the only non-bank<br />
swap dealer entities, an FCM, and<br />
a Retail <strong>Forex</strong> Dealer. I think it’s<br />
becoming increasingly difficult for<br />
firms to function in just one of these<br />
areas, it’s simply not cost effective<br />
to do so. Another major advantage<br />
we have as a “StoneX” business<br />
is the geographical distribution of<br />
the firm, which allows us to very<br />
easily place teams on just about<br />
every continent. This is one of the<br />
core values we have as a company<br />
— being physically located near our<br />
clients, allowing us to truly navigate<br />
local markets while also leveraging<br />
the scale and efficiencies of a large<br />
organization.<br />
Our global sales team is the lifeblood of our business and is led by Gerard Melia (left) in London<br />
42 NOVEMBER 20<strong>23</strong> e-FOREX
THE e-FOREX INTERVIEW<br />
Fred Allatt (right) leads sales for the Americas and is based in New York<br />
How important is state-of-theart<br />
technology in helping you to<br />
deliver and maintain the platforms<br />
and execution services you offer<br />
and what direct benefits are<br />
your clients getting from the<br />
investments you make in it and<br />
access you give them to it?<br />
During the venture capital boom of<br />
the 2010’s there were a lot of large<br />
investments in FX technology. There<br />
were so many firms trying to earn a<br />
small piece of every transaction they<br />
could touch, and many of them were<br />
actually very innovative. However,<br />
eventually you end up with a market<br />
that’s flooded with tech vendors, and<br />
way too many hands in the cookie<br />
jar on each transaction and the<br />
consumer wasn’t seeing any reduction<br />
in costs. I think this peaked around<br />
2018, and for our business we had to<br />
become laser focused on delivering<br />
the best trading environment<br />
without any marginal costs attached.<br />
Every investment we make in<br />
technology tends to be focused on<br />
price compression, allowing us to<br />
continually win on tighter pricing,<br />
while growing our own profitability on<br />
scale and increased volume<br />
Earlier this year e-<strong>Forex</strong> reported<br />
on how demand for your FX<br />
trading services has been growing<br />
significantly recently. What factors<br />
have been influencing that?<br />
Obviously, market volatility is a big<br />
factor, driven by both higher interest<br />
rates and geopolitical instability. We<br />
trade longer tenor forwards, options,<br />
as well as interest rate swaps, so I<br />
think we are even more impacted by<br />
the rate environment than your typical<br />
spot FX liquidity provider. At the same<br />
time, we’ve seen some very high-profile<br />
banks pull out of the FXPB space<br />
entirely, while others are pulling back<br />
due to a combination of regulations,<br />
capital usage, risk, and opportunity<br />
cost. This has certainly opened the door<br />
for us to increase our market share.<br />
In what ways has the FX market<br />
been evolving to create new<br />
opportunities for firms like StoneX<br />
Pro to come along and disrupt<br />
the status quo by offering more<br />
efficient access to institutional FX<br />
markets?<br />
The number one pain point we’ve<br />
tried to address in the institutional<br />
FX space has been the complexity<br />
StoneX Group by the numbers<br />
NOVEMBER 20<strong>23</strong> e-FOREX 43
StoneX Group: Offering a better way to trade FX<br />
The number one pain point we’ve tried to address in the institutional FX space has been the complexity and<br />
inefficiencies of the bank FXPB model<br />
THE E-FOREX INTERVIEW<br />
and inefficiencies of the bank FXPB<br />
model. It typically takes a year of<br />
legal contract negotiations to open<br />
an account with a bank, then you<br />
need to build all of your own trading<br />
infrastructure, procure trusted liquidity<br />
providers, map out all of your posttrade<br />
messaging, and continually<br />
manage limits and legal documents<br />
with all of your counterparties. Unless<br />
you are trading hundreds of yards of<br />
volume per year, this just doesn’t make<br />
sense. So we came in with the mindset<br />
that we already have all of these things<br />
and we’re really good at them, why<br />
don’t we bundle this into something<br />
our clients can plug into very quickly?<br />
That was the idea behind StoneX Pro,<br />
that you can literally open an account<br />
in a couple of weeks, connect to our<br />
high-performance infrastructure and<br />
full-service trading team, and trade all<br />
of the same products, including physical<br />
settlement and delivery. It’s easier,<br />
cheaper, and a better overall experience.<br />
Each year we publish important<br />
regional spotlights on the fastestgrowing<br />
global electronic FX<br />
trading hubs such as Singapore.<br />
How important are this and other<br />
Emerging Market regions to your<br />
business growth plans and why is<br />
StoneX Pro perfectly positioned<br />
to capture the opportunities they<br />
present?<br />
We’re proud that our efforts have been recognized across the industry<br />
Our Singapore FX desk is very<br />
important strategically. The growth<br />
potential in APAC is high and we look<br />
to the Singapore desk as a gateway<br />
to regional markets across Asia. Our<br />
Singapore team, which we continue<br />
to grow, has its finger on the pulse<br />
of local markets to identify specific<br />
regional opportunities where we can<br />
add value. Emerging markets have<br />
always been one of the cornerstones<br />
of StoneX across all asset classes. Our<br />
flexibility as a company as well as<br />
our risk appetite to support EMs give<br />
us the optimal positioning to service<br />
44 NOVEMBER 20<strong>23</strong> e-FOREX
THE e-FOREX INTERVIEW<br />
OUR SINGAPORE FX DESK IS VERY<br />
IMPORTANT STRATEGICALLY<br />
these markets. As a multi-asset broker,<br />
the reach of our global sales teams<br />
connects us directly with FX clients in<br />
emerging markets so in many cases,<br />
the market awareness of our brand is<br />
higher in these markets than in some<br />
more established ones.<br />
In October we launched our<br />
new Institutional Digital Assets<br />
newsletter, IDAssets to cater for<br />
growing interest amongst our<br />
readers in this fast-developing<br />
market. What are your opinions<br />
about institutional engagement<br />
with Digital Assets and what<br />
needs to be done to encourage<br />
more of it?<br />
The digital asset space is definitely<br />
a growth market for StoneX Pro. As<br />
crypto exchanges & custodians expand<br />
into new markets, this often increases<br />
the pressures on treasury teams to<br />
manage multiple currencies effectively.<br />
This has been particularly challenging<br />
as the banking sector pulls back due<br />
to its risk appetite for all things digital,<br />
which has created an opportunity<br />
for StoneX Pro to step in and provide<br />
the foreign exchange services needed<br />
by this industry. We have taken the<br />
approach that digital assets are a new<br />
emerging market, and like any other<br />
asset class we want to be there to<br />
partner with and support our clients<br />
with their needs. The lack of regulatory<br />
clarity, particularly in the US, is<br />
probably the biggest impediment to<br />
increased investment at this time, but<br />
we are still very much involved.<br />
The StoneX Pro division continues<br />
to win awards. What’s the secret<br />
behind that?<br />
NOVEMBER 20<strong>23</strong> e-FOREX 45
StoneX Group: Offering a better way to trade FX<br />
It’s about continually focusing on our<br />
mission to provide a very simple and<br />
efficient way to access the full scope<br />
of FX products and services at a highly<br />
competitive price point. We’re proud that<br />
our efforts have been recognized across<br />
the industry and again, that’s a signpost<br />
to us that we’re providing significant<br />
value to our clients.<br />
You and your team have clearly<br />
been working extremely hard to<br />
build a thriving business. What<br />
achievements are you most proud<br />
about so far and what key objectives<br />
are you going to be focused on for<br />
2024?<br />
THE E-FOREX INTERVIEW<br />
When we acquired Gain Capital in 2020,<br />
we had an opportunity to rethink who<br />
we wanted to be in the corporate and<br />
institutional FX world. We also thought<br />
about what the market really needed. We<br />
pulled together several fragmented teams<br />
to create a new, unified approach to our<br />
FX business which could be scaled across<br />
many client verticals and geographies.<br />
The people who made this happen are<br />
real experts, and while we are very proud<br />
of what we’ve accomplished over the<br />
last few years, I am even more excited<br />
about what lies ahead. We have created<br />
a better way to trade FX, and in 2024<br />
we are going to make sure that message<br />
reaches new markets and new clients as<br />
we continue our rapid growth.<br />
For further information about StoneX<br />
FX trading and liquidity solutions please<br />
visit: www.stonexpro.stonex.com/<br />
contact-us/<br />
STONEX GROUP INC.<br />
IS A FAST-GROWING<br />
FORTUNE 500<br />
COMPANY, RENOWNED<br />
ACROSS ALMOST EVERY<br />
ASSET CLASS<br />
46 NOVEMBER 20<strong>23</strong> e-FOREX
THE e-FOREX INTERVIEW<br />
(From left to right) Sevinc Edikci, Qian Ying Goh, Gerard Melia, Edward<br />
Bolton, Eric Donovan, Thomas Friesleben, Fred Allatt, Andrea Michael.<br />
NOVEMBER 20<strong>23</strong> e-FOREX 47
FX On Exchanges:<br />
Demand grows while<br />
work continues to<br />
launch new products<br />
FX ON EXCHANGES<br />
Nicholas Pratt<br />
Image by Shutterstock<br />
48 NOVEMBER 20<strong>23</strong> e-FOREX
FX ON EXCHANGES<br />
There are two clear trends in the listed FX trading<br />
world. Firstly there is growing demand, as evidenced<br />
by the increased volumes for cleared FX and especially<br />
non-deliverable forward clearing shown in the Bank of<br />
International Settlements (BIS) triennial surveys and also its<br />
quarterly FX reviews.<br />
The other trend is that listed FX and OTC trading are<br />
increasingly housed under the same roof. For example,<br />
within Europe there have been mergers and acquisitions<br />
such as CME Group’s purchase of EBS via the acquisition<br />
of NEX Group, LSEG’s purchase of Refinitiv FXAll;<br />
Euronext’s acquisition of FastMatch and Deutsche<br />
Boerse’s acquisition of 360T. And many of the leading<br />
exchanges have put the need for a hybrid trading model<br />
at the forefront of their product development, typified<br />
by the Exchange for Physicals service developed by Eurex<br />
Clearing.<br />
BUILDING CRITICAL MASS<br />
Over the previous few years, Eurex Clearing, the<br />
derivatives arm of Deutsche Boerse, had developed a listed<br />
FX capability. The last time e-<strong>Forex</strong> magazine spoke to Lee<br />
Bartholomew, global head of fixed income & currencies<br />
derivatives product design at Eurex, the focus for the firm<br />
was on achieving critical mass for its listed FX offering.<br />
“The focus is still on building critical mass,” says<br />
Bartholomew. “We are making good progress on that<br />
front. A number of banks like Goldman Sachs and<br />
UniCredit have gone live and we have three more global<br />
banks in the pipeline, ready to go live before the end of<br />
the year. Alongside 360T, we feel we have a very clean<br />
and compelling offering and we are all set for accelerated<br />
growth in 2024.”<br />
Increasingly, buy-side firms are telling their sell-side<br />
counterparts to set up with Eurex Clearing, says<br />
Bartholomew. “There is a growing realisation within the<br />
fixed income market that listed and OTC trading can<br />
be complementary. That has led to a degree of comfort<br />
among both bank and non-bank liquidity providers<br />
with listed FX and that suits Eurex. We have spent the<br />
last several years doing the heavy lifting and building<br />
out the platform. Now our focus is on activation and<br />
implementing portfolio listing and other activities.”<br />
There is also a realisation among sell-side banks that listed<br />
FX trading is not an adversary to the OTC world. “It is not<br />
about competing with the banks. Increasingly, banks are<br />
looking to segment their trading into high touch and low<br />
touch. By using on-exchange trading for those assets and<br />
NOVEMBER 20<strong>23</strong> e-FOREX 49
FX on the Exchanges: Demand grows while work continues to launch new products.<br />
“By using on-exchange trading for those assets and<br />
instruments with low margins and high volumes, it allows<br />
those banks to focus on the high-value, high-touch and highreturn<br />
instruments and assets,”<br />
“Regulations continue to foster more<br />
efficiency in the FX market. But you<br />
also have to plug into traders’ decisionmaking<br />
and factor that into product<br />
development.”<br />
the platform and to focus on areas<br />
where we can provide a point of<br />
GROWING BUY-SIDE<br />
ADOPTION<br />
difference.”<br />
As of July 20<strong>23</strong>, the CME Group FX<br />
futures and options market trades<br />
Over the previous two years, Eurex<br />
an average notional daily volume of<br />
has sought to develop cross-border<br />
US$81.8 billion, as opposed to $76<br />
agreements with other exchanges<br />
billion in 2021. According to CME<br />
to expand its international footprint,<br />
Group this increase is down to growing<br />
notably the Korea Exchange and an<br />
buy-side adoption of cleared FX<br />
agreement struck in 2021 to list KOSPI<br />
products. It is also an indication that<br />
Lee Bartholomew<br />
and USD/KRW derivations at Eurex,<br />
thereby expanding its presence in the<br />
more investors are using exchangetraded<br />
derivatives as an alternative<br />
Asia market and also adding more<br />
to OTC products to optimise funding<br />
instruments with low margins and high<br />
liquidity and extending trading hours.<br />
and the capital impacts of Basel II’s<br />
volumes, it allows those banks to focus<br />
implementation of SA-CCR and<br />
FX ON EXCHANGES<br />
on the high-value, high-touch and highreturn<br />
instruments and assets,” he says.<br />
The reasons for the greater comfort<br />
with on-exchange trading are threefold,<br />
says Bartholomew. The sell-side<br />
has figured out how to embed and<br />
optimise technology within their<br />
setup to accommodate structured<br />
“We have always been open to strategic<br />
alliances,” says Bartholomew. “We want<br />
to be the incumbent destination for<br />
euro crosses, for the Scandi currencies<br />
and for other instruments or currencies<br />
where we have a strong presence. We<br />
have an expanding client base in Asia<br />
but we are not looking to compete<br />
directly with Singapore Exchange (SGX).<br />
Uncleared Margin Rules (UMR). YTD<br />
20<strong>23</strong>, CME Group has cleared 98.5%<br />
of the global volumes in EUR/USD<br />
FX futures according to FIA data; the<br />
remaining 1.5% was shared across<br />
another 5-10 venues that also offer the<br />
contract.<br />
However, there is also a common<br />
themes and products. “All the verticals<br />
There is no point trying to break into<br />
misconception, states CME Group , as<br />
are integrated,” says Bartholomew.<br />
new markets if we don’t possess a<br />
regards liquidity and the belief that FX<br />
“Electronic trading is more prevalent in<br />
distinct advantage.”<br />
futures are not liquid enough to trade<br />
listed markets and that makes it easier<br />
Bartholomew says he has spent some<br />
on exchange and are better traded OTC.<br />
to integrate workflows. And there is<br />
time on making the Eurex message<br />
“While there is clearly a role for both<br />
more comfort with the plug and play<br />
clearer when it comes to listed FX. “It<br />
futures and OTC venues in liquidity<br />
model which allows sell-side banks to<br />
is still a very nascent business and you<br />
provision, it is useful to place the CME<br />
automate more of their operations and<br />
cannot be all things to all people. It is<br />
FX futures market within the context<br />
to focus more on high-touch trades.”<br />
about simplifying our overall strategy.<br />
of the leading OTC FX venues, using<br />
We feel there are two markets where<br />
traded volume as a proxy for liquidity,”<br />
Another trend is that ETFs have<br />
we want to be global and where we<br />
they say.<br />
become more prevalent and they<br />
feel we can create the best value for the<br />
are becoming multi-currency which<br />
end customer – credit and FX.<br />
The exchange cites a working paper<br />
creates a rebalancing risk. “The<br />
published by the Bank of International<br />
ecosystem of listed products is evolving<br />
“Basis trading is something people<br />
Settlements (BIS) earlier this year which<br />
and people are working out how to<br />
want to do – we see that in portfolio<br />
found that “a growing number of<br />
monetise aspects of that market,”<br />
trading - ETFs in the US and FX and<br />
market participants of all types now<br />
says Bartholomew. “We try to work<br />
OTC and the listed worlds and regularly<br />
seem to consider currency futures<br />
collectively and collaboratively with<br />
trade basis. If you are able to create<br />
traded on the CME as at least a close<br />
market participants to deal with<br />
products that are flexible, you can then<br />
cousin of the primary [spot FX] central<br />
evolving trends. We are trying to grow<br />
look at what service enhancements<br />
limit order book (CLOB) venues”.<br />
the number of apps that we have on<br />
you can add,” says Bartholomew.<br />
Furthermore, CME Group states that<br />
50 NOVEMBER 20<strong>23</strong> e-FOREX
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The information provided is intended for institutional and professional clients only. Trading on margin carries a risk that losses<br />
may exceed your deposited funds. The products may not be suitable for all investors. Please ensure that you fully understand<br />
the risks involved. The FXCM Group is headquartered at 20 Gresham Street, 4th Floor, London EC2V 7JE, United Kingdom.<br />
NOVEMBER 20<strong>23</strong> e-FOREX 51
FX on the Exchanges: Demand grows while work continues to launch new products.<br />
FX ON EXCHANGES<br />
“An increasing number of new participants, particularly from<br />
the hedge fund and asset manager community, are looking<br />
to access futures liquidity to solve margin and capital<br />
challenges.”<br />
Paul Houston<br />
the robust liquidity and use of its<br />
CLOB as a complement to the Block &<br />
EFRP activity is vital for a good client<br />
experience and trading efficiencies.<br />
THE GROWTH OF BITCOIN FUTURES<br />
US-based exchange operator Cboe Global Markets is<br />
set to introduce trading in margin futures on bitcoin<br />
(BTC) and ether (ETH) in January 2024. The trading<br />
and clearing will be handled by Cboe Digital, the<br />
exchange group’s virtual assets subsidiary which was<br />
given permission by the Commodity Futures Trading<br />
Commission in June to offer margined crypto futures.<br />
Margined trading allows investors to post a percentage<br />
of their total position before trading, as opposed to<br />
fully collateralised futures contracts. According to the<br />
exchange, it is the first time a digitally-native exchange<br />
in the US has offered such a product.<br />
Cboe also claims to have the support of several trading<br />
firms, both traditional and crypto-focused, such as<br />
StoneX Financial, Cumberland DRW, Jump Trading<br />
Group, Marex and Wedbush. Cboe Digital president<br />
The firm, robust liquidity in the CLOB<br />
is available on a truly all-to-all credit<br />
agnostic basis which combines with a<br />
huge ecosystem of over 90,000 traders<br />
to provide benefits such as zero reject<br />
rates and the ability to trade passively.<br />
In 2022, almost two-thirds (63.1%) of<br />
hedge fund and asset manager volume<br />
was traded passively in CME FX futures<br />
and 70.4% of volume was traded<br />
passively in CME FX options. Group<br />
Liquidity is more than just volume<br />
though, says CME Group, citing reject<br />
rates, market impact, the ability to trade<br />
passively and the diversity of the trading<br />
ecosystem as “hugely important”<br />
John Palmer described the development as a “significant<br />
milestone” for the company. “We believe derivatives will<br />
foster additional liquidity and hedging opportunities<br />
in crypto and represent the next critical step in this<br />
market’s continued growth,” he said.<br />
The move has also been welcomed by a number of<br />
trading firms. Chris Zuehlke, global head of Cumberland<br />
factors for traders. Furthermore, CME<br />
Group states that its use of CLOBs<br />
means that there is diversity of users,<br />
zero reject rates and the ability to trade<br />
passively. In 2022, almost two-thirds<br />
(63.1%) of hedge fund and asset<br />
manager volume was traded passively<br />
in FX futures and 70.4% of volume was<br />
traded passively in FX options.<br />
According to Paul Houston, global head<br />
of FX products at CME Group, many<br />
of its customers have long recognised<br />
the liquidity benefits of CME FX futures<br />
as a complement to OTC activity. The<br />
difference in 20<strong>23</strong> is that there is now<br />
the same recognition from the buyside.<br />
“An increasing number of new<br />
participants, particularly from the hedge<br />
fund and asset manager community,<br />
are looking to access futures liquidity to<br />
solve margin and capital challenges,”<br />
said Houston.<br />
DRW, said that “providing secure access to regulated<br />
futures markets is key to maturing this nascent asset<br />
class and enabling broader institutional participation”.<br />
Thomas Texier, head of clearing at Marex said<br />
“there is customer demand for these products” and<br />
“Cboe Digital’s margin futures launch will help bring<br />
competitive technology and innovative solutions to<br />
regulated markets”.<br />
And while this may be true, the majority of institutional<br />
interest in the US remains focused on the prospect of<br />
a crypto spot ETF being approved by the Securities and<br />
Exchanges Commission (SEC).<br />
BlackRock is the latest asset manager to file with the SEC<br />
for such an ETF and in its application the asset manager<br />
highlighted a perceived contradiction between the<br />
regulatory treatment of crypto futures and crypto spot<br />
ETFs.<br />
“Given that the Commission has approved ETFs that<br />
offer exposure to ETH futures, which themselves are<br />
priced based on the underlying spot ETH market,<br />
[BlackRock] believes that the Commission must also<br />
approve ETFs that offer exposure to spot ETH,” states the<br />
BlackRock application.<br />
52 NOVEMBER 20<strong>23</strong> e-FOREX
NOVEMBER 20<strong>23</strong> e-FOREX 53
FX on the Exchanges: Demand grows while work continues to launch new products.<br />
FX ON EXCHANGES<br />
“The increased volatility of Asian currencies due to divergent<br />
monetary policies across central banks, alongside geopolitical and<br />
economic uncertainties, have led to heightened risk management<br />
and hedging activities across our key SGX FX futures contracts.”<br />
VOLATILE MARKET<br />
CONDITIONS<br />
Alongside the evolving regulatory<br />
regimes as a result of UMR and<br />
SA-CCR which has led to investors’<br />
increased use of listed FX futures to<br />
help reduce capital costs, another<br />
headwind for listed FX has been the<br />
volatile market conditions, says KC<br />
Lam, global head of FX rates at SGX<br />
Group. “The past year has seen one<br />
of the most volatile global interest rate<br />
rises and inflation in recent history,” he<br />
says.<br />
“The increased volatility of Asian<br />
currencies due to divergent monetary<br />
policies across central banks,<br />
alongside geopolitical and economic<br />
uncertainties, have led to heightened<br />
risk management and hedging<br />
activities across our key SGX FX<br />
futures contracts. Notably, activity<br />
and liquidity from US and European<br />
market participants has been on the<br />
rise, with over 40% of SGX FX futures<br />
traded in US and European trading<br />
hours.”<br />
SGX has looked to build on this<br />
KC Lam<br />
increased demand by launching two<br />
new market data offerings – the SGX<br />
Trade-Weighted CNY Index that tracks<br />
the performance of a basket of five<br />
major trading partners of China, and<br />
the SGX Trade-Weighted INR Index that<br />
tracks the performance of a basket of<br />
five major trading partners of India.<br />
The exchange has also looking to<br />
improve its trading platform Titan<br />
to support the increase in products,<br />
participants and volumes, including<br />
extended trading hours, enhanced<br />
risk controls and system safeguards to<br />
help market participants manage their<br />
trading and clearing positions round<br />
the clock.<br />
And more recently it has focused on<br />
market structure improvements for FX<br />
derivatives. These include enabling bait<br />
orders in our trade registration system<br />
for SGX USD/CNH Futures to improve<br />
price discovery and advertise the<br />
liquidity available in the marketplace.<br />
“This has resulted in tighter top-ofbook<br />
quotes especially for longer<br />
tenure contracts. This will also help<br />
create implied out orders based on an<br />
outright together with a spread order,<br />
which will increase liquidity across the<br />
curve,” says Lam.<br />
“To cater to firms that utilise different<br />
Trading Codes or brokers to route their<br />
orders, we enhanced our Self-Trade<br />
Prevention (STP) feature to include<br />
a higher level of STP at the Trading<br />
Group level (STP-TG); preventing orders<br />
from participants that belong to the<br />
same STP-TG from matching,” says<br />
Lam. “To address feedback from OTC<br />
participants wanting to engage in<br />
cross-product strategies, we launched<br />
USD/INR month-end contracts, making<br />
us the only international exchange to<br />
offer conventional USD base currency<br />
quotes.”<br />
“To make it easier for participants<br />
to transact in large sizes without<br />
impacting the price of the underlying,<br />
we implemented the Titan OTC RFQ to<br />
facilitate block trades, allowing larger<br />
trades to execute more quickly and<br />
efficiently. And to enable clients to trade<br />
at-reference to an IOSCO benchmark<br />
and participants to enter and exit<br />
positions based on a single price point<br />
with a deep pool of liquidity, we have<br />
embarked on delivering the ability to<br />
trade at a reference rate,” says Lam.<br />
“To enable clients who would like to<br />
replicate OTC FX forward positions but<br />
using the listed cleared futures format,<br />
SGX has introduced FlexC FX futures<br />
allowing participants to effectively<br />
mitigate counterparty credit risk with the<br />
flexibility of retaining bilateral trading<br />
relationships. This brings about lower<br />
margin costs and capital requirements<br />
and at same time enhancing capital and<br />
operational efficiencies,” says Lam.<br />
Lam also referenced the steps taken<br />
to widen the exchange’s international<br />
footprint, attract new clients and grow<br />
their FX products and services. “As<br />
regulatory developments such as Basel<br />
III SA-CCR and UMR Phase 6 came into<br />
full force, we drove industry discussions<br />
locally and globally to educate clients on<br />
navigating changing regulations,” says<br />
Lam. “We also publish comprehensive<br />
educational material on UMR and SA-<br />
CCR on our website, including steps on<br />
how clients can utilise our derivatives to<br />
increase capital efficiency.”<br />
Lam also says that the exchange<br />
continues its ambition to bridge the<br />
FX OTC and futures worlds. “We are<br />
the only FX futures exchange in Asia<br />
with an OTC FX trading venue and<br />
full OTC FX workflow automation. We<br />
also launched SGX CurrencyNode, an<br />
FX electronic communication network<br />
that connects global participants<br />
anonymously to unique and deep OTC<br />
FX liquidity pools.”<br />
54 NOVEMBER 20<strong>23</strong> e-FOREX
Your gateway to the global FX<br />
ecosystem, empowered with<br />
cutting-edge technology<br />
SGX FX brings innovation to the global FX<br />
ecosystem - from accessing wide liquidity pools in<br />
both OTC and Futures markets, to customising<br />
cutting-edge workflow solutions for the buy and<br />
sell-side, our comprehensive offerings are designed<br />
to help you stay ahead of the curve.<br />
Singapore Exchange<br />
sgx.com<br />
SGX Group Companies:<br />
NOVEMBER 20<strong>23</strong> e-FOREX 55
FX Swaps<br />
The only constant is change<br />
e-<strong>Forex</strong> speaks with Stephan von Massenbach, Chief Revenue Officer at DIGITEC, about<br />
the numerous changes that are taking place in the FX Swaps market. Stephan talks about<br />
the increasing client demand for electronic Swaps prices, trader workflow automation,<br />
implementing advanced technology to deliver accuracy and speed, making technology<br />
available to regional banks using SaaS, and the growth of the interbank market.<br />
ASK A PROVIDER<br />
Additionally, the rise in interest rates<br />
and longer-term yields has amplified<br />
this move and contributed towards<br />
increasing volumes in FX Swaps, as<br />
far-side clients have sought to hedge<br />
FX exposures.<br />
As the FX Swaps market has grown,<br />
clients have increasingly demanded<br />
that their relationship banks provide<br />
liquidity across multiple currencies and<br />
tenors. When the market was smaller,<br />
banks used to price FX Swaps manually<br />
or use Excel, but the increased<br />
volume of FX Swaps has led to more<br />
electronic trading and an interest in<br />
more efficient and scalable technology<br />
solutions.<br />
What is the impact of automation?<br />
How is the FX Swaps market<br />
evolving?<br />
The latest BIS Triennial survey showed<br />
that FX Swaps accounted for $3.8<br />
trillion per day in April 2022. (See chart<br />
on facing page).<br />
Stephan von Massenbach<br />
Traditionally, repos and money markets<br />
were seen as important instruments<br />
for firms looking to roll, hedge, or<br />
fund their positions. Over the past few<br />
years, there has been a sustained move<br />
towards FX Swaps fulfilling this need as<br />
a source of global funding.<br />
The FX Swaps market is now at a point<br />
where the majority of client trades are<br />
electronic, and workflows automated<br />
(to increase efficiency and make more<br />
prices to clients). These greater levels of<br />
automation and electronic trading have<br />
led to increased market velocity, which<br />
translates into a greater need for speed<br />
and lower latency, as markets react<br />
more quickly to events.<br />
56 NOVEMBER 20<strong>23</strong> e-FOREX
ASK A PROVIDER<br />
When it comes to FX Swaps and<br />
Forwards, the result is that trading<br />
firms need fast, scalable, and robust<br />
technology to manage this change,<br />
where thousands of data points<br />
need to be accurately priced along<br />
a forward curve. As an example of<br />
the scale of the challenge, a large<br />
Market Making bank can price up to<br />
20,000 data points, which quickly<br />
adjust when the market starts to<br />
move.<br />
Old technology and models that<br />
solely rely on prices based on FX<br />
Swap points published by brokers are<br />
particularly vulnerable, as these data<br />
points are not only among the last to<br />
update in times of movement, they<br />
also do not cover relevant points such<br />
as the central bank dates and turns<br />
that show the largest effect.<br />
How is the use of data changing?<br />
Data is vital to be able to accurately<br />
price along the forward curve. DIGITEC<br />
and 360T partnered to launch Swaps<br />
Data Feed (SDF), which filled a gap<br />
in the market, providing a unique,<br />
independent, and reliable source of<br />
FX Swaps data, taken from major FX<br />
banks. This enables clients to build their<br />
own fully automated and accurate<br />
real-time curves.. SDF is based on<br />
participating banks raw pricing, which<br />
represents Interbank quality.<br />
Modern pricing models also require<br />
the speed and accuracy that are<br />
found in the STIR Futures market.<br />
Instruments like the one-month<br />
and three-month USD SOFR Futures<br />
or the still prevalent three-month<br />
EURIBOR Futures increasingly<br />
form the backbone of FX Swaps<br />
pricing. They do however need to<br />
be supplemented with market data<br />
from other assets, creating the need<br />
for a pricing engine that is able to<br />
combine multiple data assets and<br />
sources into one cohesive model.<br />
While the short end of the curve<br />
is based on Futures, the long end<br />
required to price Cross-Currency Swaps<br />
will need to be built out of Swaps.<br />
DIGITEC is seeing growth in the<br />
regional bank segment. Why is<br />
this?<br />
In the past, many regional banks<br />
could not justify the investment in<br />
on-premise applications deployed<br />
and managed on a bank’s own server<br />
infrastructure, and instead used Excel<br />
to price FX swaps. The recent adoption<br />
of SaaS applications deployed in<br />
the cloud makes specialised pricing<br />
engines more affordable and accessible<br />
for an increased number of firms,<br />
helping the market to finally move<br />
away from relying on Excel.<br />
Over the last two years we have seen<br />
much of our new business growth<br />
come from the regional bank sector,<br />
following the launch of D3 Lite<br />
(a SaaS version of the D3 pricing<br />
engine) to enable them to price<br />
FX swaps and forwards, providing key<br />
functionality in an intuitive web-based<br />
GUI, with auditing functionality.<br />
Is interbank e-trading the final step<br />
in the electronic evolution of FX<br />
Swaps?<br />
For FX Swaps to automate further,<br />
there is a requirement for an efficient<br />
and increasingly more automated<br />
interdealer FX Swaps market to help<br />
firms make markets to clients and<br />
efficiently risk manage their positions.<br />
With this in mind, 360T and LSEG offer<br />
electronic interdealer FX Swaps trading<br />
venues, and many other markeplaces<br />
are looking into establishing new<br />
and additional venues . At DIGITEC<br />
we developed D3 OMS, to increase<br />
workflow automation and enable<br />
traders managing FX Swaps risk to<br />
connect directly and efficiently place<br />
orders in these interdealer FX Swaps<br />
venues.<br />
By launching D3 OMS we are making<br />
trading workflows more efficient and<br />
flexible. As with any market that is<br />
evolving to a more electronic structure,<br />
we expect the result to be increased<br />
volumes on electronic interbank<br />
matching platforms. This in turn will<br />
drive increased market liquidity, greater<br />
participation, improved client pricing<br />
and risk management, and for the FX<br />
Swaps market to grow for the benefit<br />
of all parties.<br />
We launched D3 OMS in September<br />
this year and are seeing a great deal<br />
of interest, some from our existing<br />
bank clients and some completely new<br />
relationships which plan to use D3<br />
OMS as a standalone product.<br />
NOVEMBER 20<strong>23</strong> e-FOREX 57
SPECIAL REPORT<br />
Corporate<br />
treasury<br />
automation:<br />
How<br />
technology<br />
is solving<br />
pressing<br />
needs<br />
By Vivek Shankar<br />
Image by Shutterstock<br />
58 NOVEMBER 20<strong>23</strong> e-FOREX
SPECIAL REPORT<br />
Treasury automation has consistently<br />
been a hot topic since the COVID-19<br />
pandemic hit. Institutions embraced<br />
a wave of electronification in several<br />
areas, and treasury processes were<br />
no exception. However, corporate<br />
treasurers soon ran into a ceiling.<br />
While automating internal processes<br />
was straightforward, overall cash<br />
management efficiency depended<br />
on other departments in their<br />
organisations embracing automation.<br />
For instance, while firms can automate<br />
cash projection, the process depends<br />
on collection efficiency, a largely<br />
manual task.<br />
With volatility increasing worldwide,<br />
treasurers need automation more than<br />
ever, something Bob Stark, Global<br />
Head of Strategy at Kyriba, notes.<br />
“Corporate treasurers are focused<br />
on reducing the impact of currency<br />
volatility on their balance sheets,<br />
income statements, and cash flow,”<br />
he says.<br />
“With FX volatility remaining<br />
stubbornly high, treasury teams<br />
must maximise the impact of natural<br />
hedging while reducing the cost<br />
of derivative hedging programs to<br />
meet increased resilience to currency<br />
markets and improve the effectiveness<br />
of their FX program.”<br />
These factors have pushed the<br />
automation wave further, with service<br />
providers rising to fill corporate<br />
treasury needs.<br />
HOW AUTOMATION HELPS<br />
Matti Honkanen, Head of Next Gen FX<br />
at Nordea, says that time is a constant<br />
stumbling block for treasurers.<br />
“According to our survey of corporate<br />
treasurers, there is a big mismatch<br />
between where the treasurers use<br />
time and where they would like to. As<br />
a rule, treasurers would like to play a<br />
more strategic role.”<br />
“That is not possible if they don’t free<br />
up time from the time-consuming stuff<br />
that they are primarily responsible for<br />
and that is possible to automate with<br />
the e-FX technology,” he continues.<br />
“Another driver (of automation) is<br />
the need to do liquidity and risk<br />
management more frequently and<br />
accurately, which is very tough with<br />
a manual process. There are plenty of<br />
technological solutions that can help<br />
with this.”<br />
When asked what drives<br />
electronification in treasury processes<br />
right now, Niels van Daatselaar, Cofounder<br />
and CEO of TreasurUp, points<br />
to the banks. “The reality is that<br />
banks are the primary investors in the<br />
technology required to increase the<br />
levels of digitization or automation<br />
available to corporations to deploy<br />
within their operating environment,”<br />
he says. “Where there is the scale to<br />
justify it, Corporate Treasurers are more<br />
inclined to invest in straight-through<br />
processing of workflows between<br />
their TMS or ERP platforms and the<br />
transaction solutions delivered by the<br />
banks.”<br />
Like Honkanen, he explains that<br />
treasurers have plenty of options to<br />
choose from. There is no doubt that<br />
automation delivers benefits. But, in<br />
which areas does it specifically help<br />
treasurers?<br />
Stark says, “Streamlining extraction<br />
and structuring of exposure data<br />
from the ERP, integrating online trade<br />
portals with the treasury management<br />
system, and automating the<br />
designation, valuation and accounting<br />
for hedges. Automation not only<br />
improves productivity but also delivers<br />
accuracy in an area where compliance<br />
is paramount.”<br />
van Daatselaar dives deeper into the<br />
data-driven advantages. “Storing<br />
more contextual data around the cash<br />
NOVEMBER 20<strong>23</strong> e-FOREX 59
Corporate treasury automation: How technology is solving pressing needs<br />
“Automation not only improves productivity but also delivers<br />
accuracy in an area where compliance is paramount.”<br />
to morph into a “Whole of Treasury”<br />
decision support framework with<br />
multi-product execution capabilities.”<br />
SPECIAL REPORT<br />
Bob Stark<br />
flows that drive FX trades can lead<br />
to incremental services and decision<br />
support tools,” he says. “Banks have<br />
previously been unable to deliver<br />
these due to the vanilla data that<br />
has historically accompanied trade<br />
instructions.”<br />
He goes on to illustrate an example.<br />
“We are working on solutions for<br />
banks to deliver to clients that<br />
enable rules to be configured by a<br />
Corporate Treasurer,” he says. “They<br />
can automatically calculate and adjust<br />
a net hedge position, complete cash<br />
flow forecasts based on real data,<br />
and then automatically sweep excess<br />
balances back to base currencies or<br />
into money market instruments.”<br />
Honkanen believes automation’s timesaving<br />
benefits are obvious, but not<br />
readily apparent. “Whenever there<br />
is any recurring task that is taking<br />
people’s time,” he says, “or whenever<br />
they think something should be more<br />
systematic, if it just didn’t take so<br />
much time, it is wise to investigate<br />
how the automation solutions could<br />
help.”<br />
While time savings are an obvious<br />
benefit, Honkanen explains they extend<br />
further. “The benefits are twofold,” he<br />
says. “Either reduced costs via improved<br />
liquidity and risk management, or the<br />
ability to focus on more value-added<br />
and strategic themes when operations<br />
are more efficient.”<br />
van Daatselaar opines that<br />
automation can change the nature<br />
of the corporate FX portal. “FX risk<br />
management and funding are a<br />
small proportion of the challenges a<br />
Corporate Treasurer needs to handle,”<br />
he says. “We are convinced that the<br />
FX portal used by clients will begin<br />
EXTENDING AUTOMATION<br />
Corporate treasurers currently have a<br />
good idea of which processes stand<br />
to benefit from automation. But are<br />
there any underrated workflows that<br />
deserve more automation? Kyriba’s<br />
Stark believes so.<br />
“FX exposure management, especially<br />
quantifying the impact of currency<br />
on the balance sheet, is an area most<br />
treasury teams can improve upon,”<br />
he says. “Organisations generally do a<br />
good job with their cash flow hedges,<br />
typically struggling only with the<br />
estimation of future cash flows so they<br />
can be as effective as possible with<br />
their hedging.”<br />
“Yet,” he continues, “balance sheets<br />
are a completely different process<br />
requiring a separate data strategy and<br />
unique tools to extract, organise, and<br />
quantify exposures within balance<br />
sheet accounts. This allows treasurers<br />
to make more informed decisions<br />
about natural hedges that can be<br />
leveraged and derivative positions that<br />
can mitigate remaining exposures and<br />
reduce value at risk.”<br />
van Daatselaar doesn’t label any<br />
specific workflows when asked,<br />
believing treasurers must approach the<br />
question from a risk perspective. “It’s<br />
the management or orchestration of<br />
data that drives the decision-making<br />
where Corporate Treasurers and<br />
banks need to start,” he says, “before<br />
taking advantage of readily available<br />
electronic execution capabilities.”<br />
With volatility increasing worldwide, treasurers need automation more than ever<br />
“Taking control of how data is<br />
collected across an organisation,”<br />
he continues, “processing it so that<br />
balance shortfalls and exposure to<br />
currency volatility are as close to<br />
real-time as possible, then taking the<br />
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NOVEMBER 20<strong>23</strong> e-FOREX 61
SPECIAL REPORT<br />
Source: Nordea’s 20<strong>23</strong> Treasury Survey: Brave new world<br />
Corporate treasury automation: How technology is solving pressing needs<br />
“Another driver of automation is the need to do liquidity and<br />
risk management more frequently and accurately, which is<br />
very tough with a manual process.”<br />
Matti Honkanen<br />
appropriate actions to mitigate that<br />
risk is vital.”<br />
Honkanen states that defining<br />
the scope of automation can be<br />
challenging and suggests a set of<br />
steps to work through the decision.<br />
“I encourage you (treasurers) to start<br />
asking yourself<br />
“What are the tasks where we have<br />
some obvious solutions available”,<br />
“what are the tasks that take the most<br />
time”, and “What are the things that<br />
we should do more frequently and<br />
more accurately?” he says.<br />
“I would also urge you to start<br />
with the ones that are easiest to<br />
implement. It does not need to be a<br />
huge improvement, the key is to get<br />
going. Then you will learn how you<br />
can tackle even nastier problems.”<br />
THE SOLUTIONS LANDSCAPE<br />
If defining the scope of automation<br />
is challenging, choosing a solutions<br />
provider is even more so. van<br />
Daatselaar notes that with costs<br />
pushed to lows over the past 20 years,<br />
price should not contribute majorly to<br />
a firm’s buying decision.<br />
“Credit relationships are a stronger<br />
driver than ever when it comes to<br />
the direction of FX flows,” he says.<br />
“Beyond credit, what does a bank<br />
bring to the table in terms of multichannel<br />
access? Decision support?<br />
Automation? Passing data through<br />
from an ERP platform and scheduling<br />
workflow that only needs exception<br />
handling has to be part of the solution<br />
set that Treasurers aspire to embed.”<br />
He notes that TreasurUp has seen<br />
an increase in banks reviewing their<br />
legacy infrastructure to meet new<br />
demands. “Transformation programs<br />
that extend into the broader banks’<br />
technology delivery are commoditizing<br />
the microservice-enabled environment<br />
needed to deliver nimble digital<br />
platforms,” he says.<br />
van Datselaar continues, “Many banks<br />
are already curating a subset of fintech<br />
partners to combine with in-house<br />
solutions and deliver an enhanced<br />
FX experience that transcends the<br />
traditional payments and payments<br />
hedging booking tools.”<br />
Stark notes that the best solutions<br />
provider helps treasurers land a big<br />
impact on their organisations. “A<br />
good solutions provider empowers<br />
the treasurer to be the chief data<br />
officer,” he says. “This helps them<br />
communicate to the CFO, CEO, and<br />
the Board the impacts of currency on<br />
revenue, earnings, and cash flow and<br />
how these risks have been and will<br />
continue to be managed.”<br />
He explains that this view stems from<br />
a belief that a solutions provider<br />
must assist in transformational<br />
improvement, not just automation.<br />
“Mitigating FX risk is a constantly<br />
changing program for most<br />
organisations in response to rapidly<br />
volatile currency markets,” he says. “FX<br />
risk management is not an automation<br />
story; it is about supporting the<br />
treasury’s data strategy.”<br />
“As always, the most important<br />
question in choosing any partner is<br />
who is reliable,” Nordea’s Honkanen<br />
says. “Among those who pass this first<br />
criterion, you should choose the ones<br />
that can help you with problems that<br />
matter most. And then again we come<br />
back to the question of what activities<br />
you should automate.”<br />
Areas with the greatest efficiency improvement potential<br />
He cautions against overthinking<br />
this. “The most important thing is<br />
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NOVEMBER 20<strong>23</strong> e-FOREX 63
SPECIAL REPORT<br />
Corporate treasury automation: How technology is solving pressing needs<br />
“We are convinced that the FX portal used by clients will<br />
begin to morph into a “Whole of Treasury” decision support<br />
framework with multi-product execution capabilities.”<br />
Niels van Daatselaar<br />
for you to start doing stuff, first the<br />
small wins and then increasing the<br />
bets,” he says. He points to Nordea’s<br />
integration abilities as an example of<br />
reliability.<br />
“Even if our guiding principle is to<br />
use modern technical standards,<br />
we acknowledge the fact that the<br />
old legacy technologies are still<br />
ubiquitous,” he says. “For example,<br />
the most critical requirement for<br />
any solution is that it is easy to<br />
integrate into an Excel spreadsheet<br />
that is still the backbone of all the<br />
corporates.”<br />
“Even if the solutions would skip<br />
Excel altogether, the first step is to<br />
make sure the customer can try out<br />
the new solution without abandoning<br />
the good old Excel spreadsheet. And<br />
of course, there are plenty of other<br />
old standards that are almost equally<br />
relevant for quite some time, like<br />
XML, FTP, etc.”<br />
THE IMPACT OF NEW<br />
TECHNOLOGY<br />
AI, DLT, blockchain. Technology<br />
is evolving rapidly, and FX has<br />
already witnessed the entry of<br />
these examples of advanced tech in<br />
different applications. Blockchain and<br />
DLT solutions are increasing in the<br />
cross-border payment and settlement<br />
niches, while AI is leaving a mark in<br />
analytics and algo-based execution.<br />
van Daatselaar believes AI will soon<br />
spread to treasury management.<br />
“Artificial intelligence will have a<br />
tremendous impact on the way<br />
Treasuries operate in the future,”<br />
he says. “The ability of this<br />
technology to identify drivers of<br />
successful outcomes and amplify the<br />
redistribution of learnings across the<br />
Corporate Treasury community cannot<br />
be understated.”<br />
He also notes the human impact<br />
of this development. “Professionals<br />
used to take months or years to earn<br />
their stripes working within junior<br />
roles, building up a knowledge base<br />
that justified a promotion or transfer.<br />
Shortly, this career development<br />
model will turn on its head.”<br />
Stark echoes van Daatselaar’s views<br />
on AI. “APIs and AI will have a greater<br />
impact on treasury digitisation than<br />
blockchain and DLT, as the biggest<br />
opportunity for treasury teams is to<br />
leverage data to make more efficient<br />
and intelligent FX risk decisions,” he<br />
says.<br />
Does this mean blockchain won’t<br />
have any impact? “Blockchain<br />
will support greater transparency<br />
for trading and settlement of FX<br />
transactions,” Stark responds, “yet<br />
the greater benefit for treasury teams<br />
will be to make more data-driven<br />
decisions around how to protect cash<br />
flow and earnings - a responsibility<br />
which artificial intelligence is perfectly<br />
suited for.”<br />
When asked about the impact<br />
blockchain and DLT will have on<br />
treasuries, van Daatselaar notes his<br />
excitement about CBDCs and their<br />
impact on settlements.<br />
“CDBCs will power the broader<br />
adoption of Blockchain across banking<br />
infrastructure,” he says, “tokenization<br />
will democratise access to unlisted<br />
assets, and debt collateral will be<br />
eventually managed across borders<br />
without the need to participate in<br />
traditional FX trades.”<br />
“We can expect the concept of STP<br />
to evolve from today’s automated file<br />
updates,” he continues, “to an atomic<br />
settlement of cross-border capital<br />
flows visible in real-time on a bank’s<br />
digital front end.”<br />
FOCUS ON THE BASICS FIRST<br />
While he’s excited about new tech<br />
development, Honkanen cautions<br />
that firms must get the basics right<br />
first. “I think 99% of the discussion<br />
about new technologies has no<br />
relevance for treasuries,” he says.<br />
“You should focus on automating the<br />
boring daily stuff with pretty boring<br />
technological solutions. If you don’t do<br />
that and start small, there will not be<br />
any new big technology that will save<br />
you and take you to a new level. The<br />
most successful treasuries are those who<br />
focus on getting things done, not the<br />
ones who ignore relevant problems.”<br />
No matter where a firm’s corporate<br />
treasury workflow lies, technology<br />
can introduce more efficiency. A firm’s<br />
technological focus depends on its<br />
current position, something Honkanen,<br />
Stark, and van Daatselaar believe<br />
treasurers should rigourously examine.<br />
Ultimately, the results of that<br />
examination determine whether<br />
advanced tech can solve their pressing<br />
issues.<br />
64 NOVEMBER 20<strong>23</strong> e-FOREX
NOVEMBER 20<strong>23</strong> e-FOREX 65
Crossing the Security Rubicon:<br />
How Managed Service Providers<br />
are hastening banks’ migration<br />
to the Cloud<br />
NETWORKS, HOSTING & CONNECTIVITY<br />
The notion that ‘freedom lies on the other side of fear’ holds true not only in human<br />
psychology but also in the context of financial business. In the FinTech world, cloud technology<br />
is freeing banks and financial institutions into greater flexibility, resilience and, prudently<br />
done, profitability. To achieve this, they have to conquer fears about security and regulatory<br />
compliance.<br />
BARRIERS TO MIGRATION<br />
Not too long ago it was considered<br />
a highly risky proposition to store,<br />
manage and process sensitive<br />
financial and customer data in the<br />
cloud. In addition, the onus for<br />
compliance rested squarely on banks’<br />
shoulders. Relinquishing control of<br />
their environment while remaining<br />
responsible for their own security<br />
policies and procedures felt like too<br />
much of a risk.<br />
GROWING TRUST<br />
Nevertheless, to have any competitive<br />
relevance, banks and other financial<br />
Oscar Neill<br />
institutions must be able to innovate,<br />
streamline their operation, scale up<br />
or down, and ensure the highest<br />
levels of quality, performance, and<br />
customer service, all with the greatest<br />
agility and adaptability, and without<br />
compromising security.<br />
In recognition, specialist financial<br />
infrastructure providers are dedicated<br />
to facilitating not only operational<br />
efficiency but also secure and<br />
compliant governance up and down<br />
the supply chain.<br />
Oscar Neill, Chief Information and<br />
Security Officer for Beeks Group<br />
comments: “A dedicated financial<br />
services cloud provider understands<br />
the needs and pain-points of its<br />
client’s business as well as the controls,<br />
frameworks and compliance demands<br />
incumbent upon it. It keeps abreast<br />
of new regulations, forges securityfocused<br />
partnerships, and ensures its<br />
own security accreditations and quality<br />
standards are as current, auditable and<br />
dynamic as possible.”<br />
MSP OFFERINGS<br />
Consequently, the preparedness of<br />
Managed Service Providers (MSPs)<br />
to shoulder much of the compliance<br />
burden on behalf of their customers is<br />
beginning to influence the increasing<br />
level of comfort and trust among<br />
banks in cloud migrations.<br />
Here are a few key examples of how<br />
financial MSPs are doing this:<br />
Integrated pillars of security<br />
Describing how cloud security<br />
capabilities are key pillars of his<br />
company’s flexible architecture,<br />
Neill says: “Our capital markets<br />
dedicated private and hybrid<br />
Infrastructure as a Service (IaaS)<br />
solutions have integrated market<br />
leading malware protection and<br />
vulnerability scanning capabilities<br />
to ensure secure configurations<br />
for our customers’ infrastructure.<br />
Zero Trust access management,<br />
firewalling, intrusion detection<br />
and prevention, and Security<br />
Information and Event Management<br />
(SIEM) are all baked into our<br />
solutions from day one. Unlike<br />
public cloud infrastructure sharing,<br />
Beeks’ private cloud provision<br />
puts us in complete control of our<br />
66 NOVEMBER 20<strong>23</strong> e-FOREX
NETWORKS, HOSTING & CONNECTIVITY<br />
clients’ environment security, giving<br />
us the confidence that there is endto-end<br />
protection.”<br />
Source:Beeks Group<br />
Compliance Frameworks<br />
ISO 27001 and SOC 2 are important<br />
complementary frameworks for cloud<br />
service providers to follow.<br />
ISO 27001 is the international<br />
standard for information security<br />
management, governing how overall<br />
security is defined, implemented,<br />
operated, controlled, and improved<br />
within an organisation. It is an ISO<br />
certification that is audited annually<br />
and recertified every three years.<br />
SOC 2 defines criteria for managing<br />
customer data based on five ‘Trust<br />
Service Principles’ (TSC), Security,<br />
Availability, Processing Integrity,<br />
Confidentiality and Privacy. It differs<br />
from ISO 27001 in that it evaluates<br />
the effectiveness of an organisation’s<br />
security controls and processes<br />
over a specific period of time.<br />
Commenting on Beeks’ accreditation<br />
status Neill says: “Beeks achieved ISO<br />
accreditation in 2020 and is aiming<br />
to receive our first SOC 2 report in<br />
February 2024.<br />
SOC 2’s transparent and independent<br />
audit process gives clients and<br />
prospects compelling evidence about<br />
how our security controls actually<br />
work and operate. This gives clients<br />
more dynamic, detailed, and timely<br />
operational information to review for<br />
their own compliance.” he explains.<br />
5 main requirements of DORA<br />
experience in security operations reporting, business continuity and<br />
for government and private sector operational resilience testing. Our<br />
environments and were named Global most recent large-scale Exchange<br />
Microsoft MSSP partner of the year in Cloud implementation for<br />
20<strong>23</strong>.”<br />
Johannesburg Stock Exchange is a<br />
good security case study to highlight<br />
Offering rapid threat detection and these capabilities. However, we are<br />
response for incidents involving not resting on our laurels and have<br />
credential theft, anomalous<br />
engaged an independent audit firm<br />
behaviours, and malware propagation, to conduct gap analyses to assess our<br />
BlueVoyant gives Beeks a head start DORA readiness.”<br />
in threat intelligence sharing, which is<br />
of increasing importance in ensuring DEDICATED SERVICES VS PUBLIC<br />
robust and resilient infrastructures CLOUD<br />
across supply chains.<br />
“Of course, public cloud hyperscalers<br />
will also offer highly accredited<br />
EARLY ADOPTION OF THE DIGITAL solutions to tier 1 participants,”<br />
OPERATIONAL RESILIENCE ACT comments Neill, “but not<br />
(DORA)<br />
necessarily with the correct scope<br />
of understanding of secure and<br />
DORA is an EU financial regulation resilient ultra-low latency and<br />
which comes into full force in January high-performance environments.<br />
2025. According to the wording For example, AWS might advertise<br />
of the Act itself it will define rules fully redundant availability zones,<br />
on the five key pillars; financial ICT but if their customers are not<br />
risk-management, incident reporting, deploying across multiple availability<br />
operational resilience testing, ICT zones, they will not have access to<br />
third-party risk monitoring and the redundancy. Dedicated MSPs<br />
information and intelligence sharing, can guide banks away from these<br />
to safeguard the soundness of the misleading risks, and actually stipulate<br />
entire financial system.<br />
redundant architectures.”<br />
Defence in Depth<br />
Highlighting Beeks’ trusted<br />
partnerships and multi-layered<br />
approach to security controls Neill<br />
explains: “We’ve partnered with<br />
US-based Managed Detection and<br />
Response (MDR) specialist BlueVoyant<br />
to complement our threat-detection<br />
capabilities. Their team of security<br />
analysts each has at least 10 years’<br />
“DORA will put further pressure<br />
on providers and suppliers to align<br />
their products and services with<br />
the necessary controls to comply<br />
with the regulation,” says Neill.<br />
“Beeks is already getting ahead on<br />
this by aligning our solutions to<br />
ease the sales journey and reassure<br />
banks procurement teams. We’re<br />
already doing much of the incident<br />
Neill concludes: “We are arriving in<br />
an age where banks are realising<br />
that not only can cloud technology<br />
provide them with a level of flexibility,<br />
security, and resilience difficult to<br />
achieve with legacy on-premises<br />
solutions, but that generic cloud tech<br />
doesn’t go the extra mile that their<br />
infrastructure needs. Beeks is Ready<br />
to fill that gap.”<br />
NOVEMBER 20<strong>23</strong> e-FOREX 67
Achieving and maintaining<br />
an ultra-low latency FX<br />
trading infrastructure<br />
TRADERS WORKSHOP<br />
Paul Golden<br />
Image by Shutterstock<br />
Achieving ultra-low latency is only half the battle for trading firms – the real challenge lies<br />
in maintaining speed in the face of multiple potential sources of delay and other challenges<br />
ranging from trading partner limitations and technological advances to budgetary constraints.<br />
Paul Golden investigates.<br />
68 NOVEMBER 20<strong>23</strong> e-FOREX
TRADERS WORKSHOP<br />
NOVEMBER 20<strong>23</strong> e-FOREX 69
TRADERS WORKSHOP<br />
Achieving and maintaining an ultra-low latency FX trading infrastructure<br />
“Achieving ultra-low latency requires a holistic approach that<br />
meticulously optimises each step from data transmission to<br />
execution”<br />
Alexander Culiniac<br />
Ultra-low latency trading can be<br />
defined as a system capable of<br />
processing data in nanoseconds,<br />
compared to standard low latency<br />
which is measured in milliseconds<br />
or microseconds. Bridging this gap<br />
is expensive, though, and requires<br />
specialised hardware and software.<br />
“It is not just about going faster; it’s<br />
about designing a sleek, custom built<br />
engine capable of conquering those<br />
tiny fractions of time that make all the<br />
difference in high stakes trading,” explains<br />
Ariel Silahian, Director of Electronic<br />
Trading at SiS Software Factory.<br />
You can pay to be as close to the<br />
exchange as possible, but with<br />
equitable access you can only get<br />
as close as other participants states<br />
Gordon McArthur, CEO of Beeks<br />
Group. “If you have fixed latency<br />
budgets then your competitors<br />
generally do as well, so ultra-low<br />
latency is about ensuring all other<br />
elements of your trading system are as<br />
fast as possible,” he says.<br />
The number of participants in<br />
the market at different stages of<br />
implementing ultra-low latency<br />
limits the benefits since interactions<br />
between two parties will only be<br />
as fast as the slowest participant<br />
observes Alexander Culiniac, CTO/<br />
Managing Director of the commercial<br />
banking & payment product business<br />
group at SmartTrade Technologies.<br />
ATTENTION TO DETAIL IS VITAL<br />
“An FX trading platform must contend<br />
with various latency types, such as<br />
network, propagation, processing, and<br />
software-related delays,” says Culiniac.<br />
“Achieving ultra-low latency requires<br />
a holistic approach that meticulously<br />
optimises each step from data<br />
transmission to execution.”<br />
The primary users of these systems<br />
include high-frequency trading<br />
firms, hedge funds, and market<br />
makers, although as the value of<br />
improved performance rises relative to<br />
infrastructure costs, firms across the<br />
sell-side and buy-side are looking to<br />
achieve ultra-low latency.<br />
Silahian notes that the decentralised,<br />
fragmented nature of the FX market<br />
presents some specific challenges.<br />
“Unlike equities, FX is more about<br />
exploiting delayed prices across<br />
different platforms,” he says.<br />
“Execution speed is generally a little<br />
slower - even the fastest margin FX<br />
broker isn't as quick on the draw as<br />
Nasdaq. In addition, looser regulation<br />
in FX leads to protective measures<br />
by market players against high speed<br />
trading strategies, such as speed<br />
bumps or last look.”<br />
“The primary protocol for FX market<br />
data and trading is slow, lacks traceable<br />
timing, and is peer-to-peer rather than<br />
multicast observes McArthur. “Some<br />
FX markets have started to offer lower<br />
latency multicast market and binary<br />
trading protocols, but these are still<br />
in the minority,” he says. “With no<br />
single source, it takes a lot more time<br />
and effort to apply the methodical<br />
approach to ensuring latency-tuned<br />
access between participants.”<br />
Specific factors that impact latency<br />
include:<br />
• Slow infrastructure (servers/network<br />
cards/switches)<br />
• Additional infrastructure adding<br />
hops (firewalls, layers of switches)<br />
The decentralised, fragmented nature of the FX market presents some specific challenges<br />
• Physical distance from trading<br />
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Achieving and maintaining an ultra-low latency FX trading infrastructure<br />
“Even a minor tweak can ripple through the latency<br />
landscape. This is where specialised monitoring systems earn<br />
their keep”<br />
replacements can be expensive, while<br />
software optimisations are often more<br />
cost-effective.<br />
well as the closeness of its vendor<br />
relationships.<br />
Distance from the participant is yet<br />
another crucial factor. McArthur<br />
notes that just 200 metres of cabling<br />
can introduce approximately one<br />
microsecond of latency in each<br />
direction.<br />
TRADERS WORKSHOP<br />
Ariel Silahian<br />
• Code that has not been optimised<br />
for speed<br />
• Subscribing to too much market<br />
data<br />
To determine whether these issues<br />
can be resolved via software or<br />
hardware solutions, the first step is to<br />
identify the type of latency (network,<br />
disk, application) suggests Eugene<br />
Markman, ION FX Chief Operating<br />
Officer.<br />
“Each requires a different approach,”<br />
he continues. “Network latency<br />
issues, for instance, may be addressed<br />
with software optimisations or by<br />
upgrading network hardware. A<br />
root cause analysis is important to<br />
determine whether the source is<br />
a software bug, inefficient code,<br />
network congestion, or hardware<br />
limitations.”<br />
From this, bottlenecks will need<br />
to be identified and resolved. If<br />
the bottleneck is due to hardware<br />
limitations such as a slow disk drive<br />
or insufficient RAM, a hardware<br />
upgrade may be necessary, whereas<br />
optimisation can resolve inefficient<br />
resource usage. Hardware upgrades or<br />
DON’T REST ON YOUR LAURELS<br />
Enabling ultra-low latency trading<br />
is an ongoing process. In addition<br />
to inadequate or ageing hardware<br />
components, slow network<br />
connections, poorly designed software<br />
architecture, and inefficient code,<br />
there are a host of other factors that<br />
can degrade operational performance.<br />
“Relying on third party data providers<br />
or trading platforms can introduce<br />
latency, especially if these services<br />
experience delays or downtime,” says<br />
Markman. “Inefficient data processing<br />
or a lack of parallel processing can also<br />
lead to latency, as can inefficient order<br />
routing algorithms or connections to<br />
exchanges.”<br />
Performing thorough risk checks and<br />
compliance validation can add latency<br />
to trading systems, which underlines<br />
the challenge of balancing low<br />
latency execution and effective risk<br />
management.<br />
“Rapidly changing market conditions<br />
can stress trading systems and<br />
lead to latency degradation, as can<br />
overloading the trading system with<br />
too many orders or data feeds,” adds<br />
Markman. “It is also essential to<br />
carefully validate software updates or<br />
patches before deploying them in a<br />
trading environment.”<br />
Inevitably, cost is a major<br />
consideration. Software fixes tend<br />
to be cheaper, but new hardware<br />
may provide a long term solution.<br />
The final decision is often influenced<br />
by whether the firm has in-house<br />
software or hardware expertise, as<br />
“The choice between store and forward<br />
switching and low latency cut-through<br />
switches is also significant,” he explains.<br />
“Enterprise switches (designed for<br />
capacity and throughput) often involve<br />
large buffers and store and forward<br />
operation, taking tens of microseconds<br />
to pass on packets. Conversely, purpose<br />
built low latency cut-through switches<br />
can deliver packets in hundreds of<br />
nanoseconds.”<br />
Where there is redundancy built into<br />
the architecture (for example, high<br />
availability switches, bonded NICs, or<br />
primary and secondary network links)<br />
it can be easy to forget to test the<br />
failover or monitor the performance of<br />
secondary routes.<br />
“A good system will have ongoing<br />
failover/resiliency testing and monitor<br />
the impact on performance,” adds<br />
McArthur.<br />
KEEP YOUR EYES ON THE PRIZE<br />
To establish an ultra-low latency<br />
framework it is crucial to have<br />
clear targets, controls, and an<br />
understanding of the trading<br />
platform’s scope.<br />
Any deviation from these parameters can<br />
result in performance declines, suggests<br />
Culiniac. “A comprehensive monitoring<br />
and analysis system is therefore essential,<br />
one that integrates both technical and<br />
business indicators to detect and address<br />
any early signs of potential degradation,”<br />
he adds.<br />
Markman refers to a number of analytical<br />
toolsets that can help firms monitor the<br />
state of their trading infrastructures:<br />
72 NOVEMBER 20<strong>23</strong> e-FOREX
TRADERS WORKSHOP<br />
“Rapidly changing market conditions can stress trading<br />
systems and lead to latency degradation, as can overloading<br />
the trading system with too many orders or data feeds”<br />
Eugene Markman<br />
• Specialised market data feed<br />
handlers like MarketFactory enable<br />
efficient and low latency handling<br />
of market data feeds from various<br />
ECNs and data providers<br />
• In-memory databases such as<br />
Apache Kafka can store and process<br />
data with extremely low latency<br />
• Tools like Grafana and Kibana<br />
enable the creation of<br />
customisable, real time dashboards<br />
for monitoring trading system<br />
performance and latency metrics<br />
• The network monitoring<br />
capabilities of Crovill and Geneos<br />
can help to identify and address<br />
network latency issues<br />
• Cloud-based platforms such as AWS<br />
Lambda, Google Cloud Functions,<br />
and Microsoft Azure Functions<br />
provide scalable resources for real<br />
time data analytics and can be<br />
integrated into trading systems<br />
Ultra-low latency architecture is<br />
underpinned by a comprehensive<br />
suite of monitoring and analytical<br />
instruments which go beyond<br />
conventional systems. These tools<br />
include advanced statistical models<br />
capable of predicting potential<br />
bottlenecks through forecasting.<br />
“Additionally, AI enhances the system<br />
by grouping related incidents, allowing<br />
for more efficient troubleshooting<br />
and resolution,” says Culiniac. “Alert<br />
engines are fine-tuned to promptly<br />
notify technicians of any emerging<br />
issues. These sophisticated tools<br />
operate on top of the basic monitoring<br />
infrastructure, providing a multilayered<br />
defence against latency-related<br />
performance degradation.”<br />
The slightest disruption - network<br />
congestion, for example, or a snag in<br />
scalability - can throw a spanner in the<br />
works, while dependencies on external<br />
services such as data providers are<br />
another wildcard. “Even a minor<br />
tweak can ripple through the latency<br />
landscape,” says Silahian. “This is<br />
where specialised monitoring systems<br />
earn their keep.”<br />
THE MORE INFORMATION THE<br />
BETTER<br />
Increased market volumes demand<br />
analytics that can scale in real time.<br />
McArthur observes that the global<br />
expansion of cloud infrastructure<br />
and lower latency links has shifted<br />
focus from a localised race to zero<br />
latency to a more globally connected<br />
trading infrastructure.<br />
“A key trend is combining analytics<br />
from multiple sources,” he says.<br />
“Openness of data is crucial for<br />
seamless integration with other<br />
toolsets.”<br />
The current toolkit for monitoring<br />
ultra-low latency trading setups<br />
is dispersed across individual<br />
tools. Network analytics tools use<br />
AI to catch network hiccups in<br />
real time and suggest fixes, and<br />
there are applications offering<br />
precise timestamping to track data<br />
flow down to the picosecond.<br />
Development frameworks are also<br />
on the table, easing the creation and<br />
upkeep of ultra-low latency setups,<br />
although Silahian says most firms will<br />
build their own tools and monitoring<br />
systems based on their specific<br />
needs.<br />
The decision to either undertake<br />
to build an ultra-low latency<br />
infrastructure in-house or outsource<br />
it to a specialist provider is usually<br />
influenced by financial resources<br />
and in-house expertise according to<br />
Markman.<br />
TO DETERMINE<br />
WHETHER<br />
ISSUES CAN BE<br />
RESOLVED VIA<br />
SOFTWARE OR<br />
HARDWARE<br />
SOLUTIONS,<br />
THE FIRST STEP<br />
IS TO IDENTIFY<br />
THE TYPE OF<br />
LATENCY<br />
NOVEMBER 20<strong>23</strong> e-FOREX 73
TRADERS WORKSHOP<br />
Achieving and maintaining an ultra-low latency FX trading infrastructure<br />
“When your business grows your infrastructure will need to<br />
be able to accommodate increasing trading volumes”<br />
Gordon McArthur<br />
“Most true low latency is built inhouse<br />
as firms like to retain the IP,<br />
but finding employees with the right<br />
skill set to be able to do this can be<br />
difficult as there are not many low<br />
latency engineers in the market,” he<br />
says. “Alternatively, hiring consultants<br />
can be very expensive. In general, the<br />
project would be costly, so budget will<br />
be a large deciding factor.”<br />
In-house development demands a<br />
team with specialised knowledge in<br />
network and system architecture and if<br />
a firm lacks this expertise, it may lean<br />
towards outsourcing suggests Culiniac.<br />
“Building and maintaining an ultralow<br />
latency infrastructure can be<br />
expensive, so firms need to consider<br />
whether the potential return on<br />
investment justifies the upfront<br />
and ongoing expenses,” he says.<br />
“Outsourcing can be faster compared<br />
to building in-house - a critical factor<br />
in markets where timing is crucial<br />
– and companies may choose to<br />
outsource if ultra-low latency trading<br />
platforms is not their core business,<br />
allowing them to focus on their<br />
primary market activities.”<br />
McArthur reckons the average timeto-money<br />
for an in-house build ranges<br />
from 18 months to three years if the<br />
firm can guarantee the right resources<br />
and location. “On top of that there<br />
is the CapEx for the infrastructure<br />
and also the cost of hosting and<br />
connectivity,” he adds. “People might<br />
question the security of outsourcing<br />
infrastructure rather than keeping it<br />
in-house, but the right infrastructure<br />
and provider will provide a solution<br />
that addresses these concerns.”<br />
He suggests firms question each<br />
provider’s scalability and security<br />
offering, the measures they have in<br />
place to reduce downtime (as well<br />
as how compliant they are with<br />
NETWORK ANALYTICS TOOLS USE<br />
AI TO CATCH NETWORK HICCUPS<br />
IN REAL TIME AND SUGGEST FIXES<br />
industry regulations), their proximity to<br />
financial hubs in order to ensure real<br />
time data access, and the scalability of<br />
their solution.<br />
“When your business grows your<br />
infrastructure will need to be able<br />
to accommodate increasing trading<br />
volumes,” adds McArthur.<br />
ASK THE DIFFICULT QUESTIONS<br />
When considering specialists for<br />
trading network and infrastructure,<br />
experience with ultra-low latency<br />
is vital according to Silahian, who<br />
cautions that although there are<br />
a plethora of providers, not all<br />
understand the intricacies of ultra-low<br />
latency operations.<br />
“Customisation is another factor<br />
and specifically whether they can<br />
tailor solutions to fit your trading<br />
operations,” he says. “The support<br />
they offer post-setup - and how they<br />
price their service without skimping on<br />
quality - are other considerations, as<br />
are scalability, the ability to stay on the<br />
right side of regulators, and security.”<br />
Markman agrees that ultra-low latency<br />
expertise is vital and that working with<br />
a partner that has successfully built<br />
and integrated similar systems will<br />
reduce risk.<br />
When deciding to partner with<br />
a specialist trading network and<br />
infrastructure provider, Culiniac also<br />
believes it is crucial to prioritise firms<br />
with a proven track record in achieving<br />
ultra-low latency since achieving<br />
such performance levels demands<br />
substantial R&D and time investment.<br />
“Additionally, the chosen provider<br />
should offer a comprehensive solution<br />
that optimises infrastructure, network,<br />
and software,” he concludes. “They<br />
should support a deep functional<br />
scope and have the capability<br />
to maintain and extend solution<br />
capabilities while maintaining ultralow<br />
latency.”<br />
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76 NOVEMBER 20<strong>23</strong> e-FOREX<br />
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