e-Forex-Nov-23

Electronification rising amid turbulence: Taking a closer look at the MENA FX picture
REGIONAL E-FX PERSPECTIVE
“During the past couple of years, what with strong GDP
growth in the region, there has been a material shift in FX
requirements, particularly after the pandemic.”
Hussain Almohri
to South Asian countries despite
slowing economic growth (The Gulf
region grew by 7.4% in 2022, a
number expected to drop to 2.5% per
the World Bank.)
“We have seen SAR, AED, and KWD
as the currencies most in demand,”
Almohri says, “with AED having the
most notable growth in terms of
volumes over the past 18 months.”
News is not as positive with the Israeli
Shekel, which has lost strength due
to internal government crises in that
country and the recent war.
Despite Israel’s central bank pouring
$30 billion into supporting its currency,
the Shekel shed 3% in its biggest fall
since February 2023, when the judicial
crisis was at its peak. Observers can
divide the MENA picture between
the GCC and the rest, with the rest
experiencing considerable strain.
Lebanon continues to reel under the
weight of consecutive economic crises,
and Egypt’s dependence on external
tourism for hard currency receipts
has not reduced. Given its proximity
to the Gaza war zone and recent
errant excursions by Israel’s military,
Egypt faces significant challenges in
managing its currency exchange rate.
On the positive side, Chinese
investments in the region have
increased, creating more diverse
sources of FX flows, and pushing
traders to call for more transparency
and efficient risk management. Small
vanilla FX flows are largely automated,
with more market participants
demanding TCA as standard.
Albert Blackburn, EMEA EM Business
Development Manager, FX, at LSEG,
explains, “The buy side is eager to
understand trade costs and what their
impact is on the market and how their
liquidity will be used. Pre-trade and
post-trade analytics continue to see an
increase in their usage and offer better
transparency to the market.”
And what about STP and TMS
demands?
“STP and Treasury Management
Systems continue to be rolled out at
pace across the regions as firms seek
to maximise their positions,” he says.
This rise in electronification has shrunk
spreads, with more banks offering
greater context behind their pricing, like
market news and historical trends.
Other transparency-enhancing efforts
include IM communication channels
and data-backed insights into RFQ
workflows. Blackburn lists a few
ways in which LSEG is meeting these
demands. “LSEG FX has a history
of delivering market infrastructure
and workflow tools into frontier and
emerging markets,” he says.
“Matching and FXall offer robust bestin-class
solutions that can be leveraged
by regional banks and clients with
little friction. Our white-label workflow
products provide turn-key solutions
that reduce time-to-market for smaller
banks looking to quickly expand their
digital footprint.”
Regulation and continued government investment in infrastructure are slowly turning the GCC into a hub for
sophisticated investors
Blackburn notes that local banks have
released new features to their platform
in response to corporate demand. And
what are some of these? “Competitive
quotes are always key, and the ability to
trade at the best price is key,” he says.
“However resting orders, options, and
fixing orders are also in demand. Some
of the banks have started to use algo
for trading and this continues to be a
new growth area for the banks that
serve the region.”
34 NOVEMBER 2023 e-FOREX