e-Forex July 22

Electronification and Automation: Unlocking the full potential of Emerging Market FX trading
SPECIAL REPORT
It’s important for an FX platform to have a diversified pool of liquidity providers
“Today, those friction points have
been solved, and clients can now trade
NDFs 24/5 via both request-for-quotes
(RFQ) and streaming liquidity, from a
wide range of banks and non-banks.
Many offer algo trading and options
for NDFs. These developments also
allow for better price transparency
for off-shore investors, who can
confidently trade and then mark-tomarket
their positions.”
There will be further benefits,
especially on the post-trade side,
as digital workflow innovation and
automation in emerging FX platforms
develops, says Van Name. “Eventually
EM countries could benefit from
central bank digital currencies and
workflows, but this will require greater
regulatory clarity and a high degree of
jurisdictional cooperation.”
When it comes to the issues that
can influence a suitable choice of
EM trading provider with whom
to partner, Van Name highlights
the role of accessibility. “Access to
multiple liquidity providers is essential,
particularly those who are able to
provide reliable pricing (spreads) and
liquidity in both on-shore and offshore
currency pairs and instruments.
FXGO provides liquidity from over 800
regional and global banks.”
LIQUIDITY CHALLENGES
One of the most significant challenges
when it comes to FX trading in
emerging markets involves liquidity.
“Adding a new pair of emerging
market currencies to a platform
is easy. Providing good liquidity
on that emerging market pair is
not,” says Clinton Norton, head
of sales, Americas at Euronext FX.
“Emerging market currencies are best
priced locally by informed market
participants. The platform needs to
have the reach, the functionality and
incentives to attract both makers and
takers.”
It’s important for an FX platform to
have a diversified pool of liquidity
providers that spans all regions and
allows for specialization to be readily
available to the taker, says Norton. “A
niche emerging market player may
not necessarily have the credit and
distribution web to reach the taker
flow he would find beneficial.”
Technology can also help to reduce the
complexity and manual intervention
that can be prevalent in the emerging
market FX process. “Manual
intervention typically takes place
when trades need ‘special care’,” says
Norton.
“In the case of emerging market
pairs, typically more volatile because
32 JULY 2022 e-FOREX