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 20<strong>23</strong>, 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 20<strong>23</strong> e-FOREX
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