As the FX landscape continues to undergo significant change, with market structure constantly developing and becoming increasingly complex, participants are focused on planning and predicting to stay ahead of the game.
A recent Coalition Greenwich report delved into the top trends affecting FX market structure, pinpointing ‘higher cost of accessing credit’, ‘more electronification of trade execution’, and ‘changing credit provision by banks’ as the main drivers.
Particularly from the buy-side perspective, increased use of cleared FX derivates was also a key consideration according to 37% of surveyed respondents.
Read more – CME Group on the evolving FX futures and options landscape
A study released yesterday by DataHorizzon Research predicted that the foreign exchange software market size – valued at $7.9 Billion in 2022 – will have a market size of $16.4 Billion by 2032 (a compound annual growth rate of 7.6%).
Drivers of this, according to the research body, includes rising competition among the key players and high technological adoption, further stating: “In addition, high spending on technology is expected to encourage the adoption.
“[…] Large organisations dominate the foreign exchange software market due to high spending capacity.”
Earlier this week, Ganesh Iyer, chief marketing officer at IPC Systems, highlighted that the FX ecosystem’s increasing complexity was down to the rapid proliferation of counterparties, service providers, execution platforms, and products, suggesting that the focus for market participants was firmly on the pursuit of an integrated trading infrastructure.
Iyer explained that the goal is for that technology “to connect all participants in the transaction lifecycle – buy-side firms, sell-side platforms, exchanges and liquidity providers, clearing/settlement systems, market data providers et al”.
In this vein, market participants are demonstrably making moves at an increased pace, the most recent example being buy-side player, Union Investment, executing its first FX futures trade through Deutsche Börse’s 360T and confirming its intention to implement its EMS in a bid to enhance its execution capabilities.
Speaking in an announcement, 360T explained that the fact that regulatory changes have the potential to theoretically increase costs when it comes to trading FX forwards across OTC channels, will likely make its offering increasingly attractive to market participants going forward.
Speaking to The TRADE this week, Christoph Hock, head of multi-asset trading at Union Investment, said: “What’s important for us when executing – not just in FX but all asset classes – is to get the very best outcome for our investors. Not just best execution, also the regulatory requirements. Our goal is to be connected to the very best platforms and have the best breadth of broker firms on this platform, enabling us to play the white keys, the black keys and the pedals of the piano.”
Results from the recent Coalition Greenwich study on this topic, empirically demonstrated that desks are increasingly investing in this space, aiming to enhance trade execution by prioritising data and workflow management in a bid to keep up with the increasingly complex FX markets.
The study found that of the top five overall investment priorities for FX desks, three relate to the theme of data and two to workflow, with Coalition Greenwich emphasising the link between these two areas, explaining that “data and workflow go hand in hand; without a systematic workflow, it is difficult to actually get the data.”
The TRADE’s recent exclusive interview with Gordon Noonan, head of FX and rates trading at Schroders, delved into the most important elements with respect to these data capabilities in FX products.
“On the data front, the swaps market continues to remain opaque with forward pricing not as visible as the spot market. Pricing across banks vary materially in the swap space,” said Noonan, who further added that “as trading technology further advances along with the increase in availability of datasets, it has become even more essential for trading desks to leverage these capabilities to improve execution decisions, maximise efficiency and reduce risks.”
Also speaking to the specifics around technological requirements earlier this week, Iyer asserted: “In the 4.0 technological age, and with an increasingly tech-savvy demographic occupying traditional trading roles, product and service differentiation must tick new – and many – boxes beyond efficient market access. Managed service solutions enable market participants to easily shop around, enabling freedom of choice and unfettered access to best-of-breed components in the trading stack.”