e-Forex July 22

Electronification and Automation: Unlocking the full potential of Emerging Market FX trading
against its best bid offer (BBO).
provider who potentially has not
currencies are best priced by local
This mechanism protects the maker
yet finished hedging the earlier
participants who are informed and
from off market trades while at the
trade,” says Norton.
directly involved in the trading
same time prevents information
leakage since the taker’s intent to
CHOICE OF PROVIDER
of their niche EM currency, says
Norton. “A suitable EM trading
trade is not disclosed, says Norton.
Norton identifies four important
platform needs the right set of
factors that should influence the
specialized liquidity providers on
Full amount (FA) trading in EM
choice of EM trading provider –
board to price accurately and
is encouraged to avoid market
speed, liquidity, data driven service,
aggressively but also needs the
impact, says Norton. “The larger
and flexible functionality.
flexibility to allow them to price on
FA trade becomes a genuine
their own terms. The platform also
risk transfer to the maker and
“Speed helps to avoid trading on off
needs to solve for possible limited
leaves the act of hedging to the
market quotes. Both sides benefit
credit with the street as well as
experienced liquidity provider to
from speed of trading. A taker
technology concerns that can make
perform in his own time. Our EM
enjoys better fill ratios and a more
it difficult for remote EM LPs to
FA volumes have more than tripled
precise execution with fills in line
bring their prices to the market.”
YoY and stand at a record high in
with the market at the time of trade.
June 2022. To protect the maker,
Speed allows a maker to be more
Euronext FX employs a local
we are creating a lock-in period
aggressive in his prices without the
liquidity management team, says
mechanism, adjustable by size and
fear of being inadvertently picked
Norton. “We understand the EM
currency pair, to ensure a repeat
off or triggering Last Look rejects.
players, their different needs and
trade in the same pair within a
Speed can be achieved through
trading styles and we understand
SPECIAL REPORT
certain time frame can only go to
the same liquidity provider. Should
the same taker come back for more
before the end of the lock-in, he
will be sent to the same liquidity
better technology as well as working
to reduce the distance between
counterparties trading together,”
says Norton.
In terms of price discovery, EM
the market in which they interact.
Through regular dialogue with
both makers and takers, through
data analysis we share with the
highest level of transparency
possible, our LM teams create and
manage bespoke liquidity pools
with interests from both sides of the
trade at heart.”
Although remote niche LPs can supply very competitive prices, they often lack the tools to check and monitor the
quality of takers
Understanding the needs of
clients is one thing but having the
functionality and the flexibility
to accommodate multiple trading
styles simultaneously is crucial,
says Norton. “This means allowing
for the expected traditional twoway
last look lit pricing, but also
providing the capabilities to trade
via algos, to trade skew-safe, to
use passive orders (dark or lit) or
aggressive price taking, to trade
full amount or sweep, to trade on
last look or firm liquidity. All these
trading styles are appropriate in
certain conditions. It is important
for EM FX traders to have these
tools available and understand how
and when to use them.”
36 JULY 2022 e-FOREX