What factors have influenced how Equiti Capital is re-positioning its FX Desk?
An overview of the markets in 2021 and the outlook for 2022, has shaped Equiti Capital’s new FX institutional offering. Activity in the FX markets has been relatively subdued for some months now. Economic policies globally have been generally static, a combination of ongoing loose fiscal policy and monetary accommodation which have acted to suck risk out of the market and compress volatility. But things may be starting to change as concerns over rising inflation are requiring central banks to rethink their policy stance while pressure is similarly mounting on governments to begin the difficult task of fiscal consolidation.
The risk is that these policy adjustments have a negative impact on market sentiment, damaging risk appetite and weighing on asset classes such as equities. Rising interest rates are also likely to drive bond prices down and monetary authorities globally will want to avoid any knee-jerk market reactions that see yields overshoot higher. For FX markets such developments could provide the reinvigoration needed, generating renewed trading activity, and kicking off demand for both short and long volatility positions, trades that are likely to be more accentuated in emerging market currencies.
How has Equiti Capital’s FX Desk worked to differentiate itself given the number of Institutional FX brokers in what seems like an overcrowded market?
Over the past year Equiti Capital has been laying the foundations for our institutional client offering to expand beyond that of e-FX only, essentially expanding to cover clients in a similar fashion to what they would expect from a bank. This means we now cover all aspects of FX, from spot through to options, both in an electronic and voice capacity, while also producing our own high quality macroeconomic analysis.
Current subdued levels of volatility, bar a few events, has meant clients are less willing than ever to pay spreads. We have been increasingly focused on matching client interests with the resting interest we hold in our Central Limit Order Book (CLOB), essentially allowing clients with opposing interests to match at mid-market. To expand on this, Equiti Capital has been exploring more opportunities to electronically warehouse risk to capture more spread than would typically be done in an agency model, offering a more unique price to clients who are able to trade on this inventory. 2021 has very much been the year when the foundations for these developments have been established, including ensuring our Prime Brokers are happy for us to expand the range of products offered and building a back-office operation that can facilitate complex option products. It was testament to this work that April saw our first vanilla option traded, followed soon after by our first exotic option, a reverse European KO in USDCNH.
How is Equiti Capital looking to further expand its product offering and adapt to market changes in 2022?
Looking ahead to 2022 we will continue to look for opportunities to expand our product offering, including electronic FX forwards and NDFs. We are already able to trade both these products as part of our voice offering; the issue concerns the technology for aggregation and distribution as well as hurdles concerning automated regulatory reporting. Equiti Capital is also looking to add more complex FX products in other jurisdictions. When we enter new jurisdictions across the world, we work alongside local market regulators to meet local regulatory and reporting requirements, and to bring best global practices to new markets. As an FX Desk Equiti Capital is now well-positioned to adapt to market changes, and proactively consider new opportunities, as well as client demands. 2022 will certainly be an exciting year for Equiti Capital’s FX Desk.