e-Forex-Nov-23

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When it comes to FX Swaps and
Forwards, the result is that trading
firms need fast, scalable, and robust
technology to manage this change,
where thousands of data points
need to be accurately priced along
a forward curve. As an example of
the scale of the challenge, a large
Market Making bank can price up to
20,000 data points, which quickly
adjust when the market starts to
move.
Old technology and models that
solely rely on prices based on FX
Swap points published by brokers are
particularly vulnerable, as these data
points are not only among the last to
update in times of movement, they
also do not cover relevant points such
as the central bank dates and turns
that show the largest effect.
How is the use of data changing?
Data is vital to be able to accurately
price along the forward curve. DIGITEC
and 360T partnered to launch Swaps
Data Feed (SDF), which filled a gap
in the market, providing a unique,
independent, and reliable source of
FX Swaps data, taken from major FX
banks. This enables clients to build their
own fully automated and accurate
real-time curves.. SDF is based on
participating banks raw pricing, which
represents Interbank quality.
Modern pricing models also require
the speed and accuracy that are
found in the STIR Futures market.
Instruments like the one-month
and three-month USD SOFR Futures
or the still prevalent three-month
EURIBOR Futures increasingly
form the backbone of FX Swaps
pricing. They do however need to
be supplemented with market data
from other assets, creating the need
for a pricing engine that is able to
combine multiple data assets and
sources into one cohesive model.
While the short end of the curve
is based on Futures, the long end
required to price Cross-Currency Swaps
will need to be built out of Swaps.
DIGITEC is seeing growth in the
regional bank segment. Why is
this?
In the past, many regional banks
could not justify the investment in
on-premise applications deployed
and managed on a bank’s own server
infrastructure, and instead used Excel
to price FX swaps. The recent adoption
of SaaS applications deployed in
the cloud makes specialised pricing
engines more affordable and accessible
for an increased number of firms,
helping the market to finally move
away from relying on Excel.
Over the last two years we have seen
much of our new business growth
come from the regional bank sector,
following the launch of D3 Lite
(a SaaS version of the D3 pricing
engine) to enable them to price
FX swaps and forwards, providing key
functionality in an intuitive web-based
GUI, with auditing functionality.
Is interbank e-trading the final step
in the electronic evolution of FX
Swaps?
For FX Swaps to automate further,
there is a requirement for an efficient
and increasingly more automated
interdealer FX Swaps market to help
firms make markets to clients and
efficiently risk manage their positions.
With this in mind, 360T and LSEG offer
electronic interdealer FX Swaps trading
venues, and many other markeplaces
are looking into establishing new
and additional venues . At DIGITEC
we developed D3 OMS, to increase
workflow automation and enable
traders managing FX Swaps risk to
connect directly and efficiently place
orders in these interdealer FX Swaps
venues.
By launching D3 OMS we are making
trading workflows more efficient and
flexible. As with any market that is
evolving to a more electronic structure,
we expect the result to be increased
volumes on electronic interbank
matching platforms. This in turn will
drive increased market liquidity, greater
participation, improved client pricing
and risk management, and for the FX
Swaps market to grow for the benefit
of all parties.
We launched D3 OMS in September
this year and are seeing a great deal
of interest, some from our existing
bank clients and some completely new
relationships which plan to use D3
OMS as a standalone product.
NOVEMBER 2023 e-FOREX 57