Peer Joost

FX Swaps – Inter dealer eTrading expected to accelerate market growth

September 2023 in Product Development

DIGITEC has just launched D3 OMS, its new Order Management System which automates interdealer FX Swap workflows and connects users to trading venues. e-Forex spoke with Peer Joost, CEO of DIGITEC to understand the market demand for this service, and why it was launched now.

What is D3 OMS?

D3 OMS combines Position Management, Risk Management, OMS and EMS functionality to increase workflow automation and enable traders to connect and efficiently place orders in the interdealer FX Swaps market. At launch it is connected to 360T SUN and LSEG FX Forwards Matching, with more trading venues to be added.

D3 OMS enables traders to automate and enhance their current workflows, managing interdealer FX Swaps orders from a single screen. It supports two sided continuous orders which are automatically updated by the D3 pricing engine, but also has the flexibility to send pegged and discretionary orders, allowing quantity and price to be partially hidden, so that a trader’s forward curve is not broadcast to the market.

Why has DIGITEC developed D3 OMS?

360T and LSEG have launched electronic interdealer FX Swaps trading venues with API access. In this market, further electronification, particularly when fueled by the rise of interbank platforms, enables more participation, increased transparency, and, therefore, more efficient markets. When we developed D3 OMS we wanted to provide the market with the tools necessary to integrate to and participate in this increasingly electronic and automated market.

Initially, we were approached by some of our bank clients to develop this service to make placing orders onto these venues as efficient as possible, using tried and tested workflows. We worked closely with the market, clients, and partners to understand exactly what was required from an OMS.

Why did you launch now?

Increased client demand for FX Swaps pricing has led to banks automating trading workflows in a drive for efficiency. The volume of data required to make accurate FX Swaps prices along the curve has moved the industry towards a data-driven approach.

But the current market structure of voice brokers has meant that the interdealer FX Swaps market has largely maintained its manual nature and change has been slow for many years. However, increased regulation, better technology access via the cloud, and the need for transparency are driving change, while clients are trading more FX swaps.”

There have also been changes at DIGITEC, where we are now well placed to provide high levels of technical and customer support for this new service. We have client service and technical support in Hamburg, London and more recently Singapore, which opened earlier in 2023. FX Swaps volumes are dominated by London, Singapore, and Hong Kong, so it is vital that we support our clients trading in these centres.

We feel that the increased adoption of electronic interdealer trading will drive growth in the whole FX Swaps market, much like we saw with Spot FX trading, driving new levels of automation.

What are the benefits?

Electronification and automation result in better pricing along the curve, with more clients serviced, more currencies traded, and more quotes accurately auto-priced – leading to increased trading volumes and greater relevance with clients. For this evolution to develop further, the market requires an efficient and increasingly more automated interdealer FX Swaps market to help firms make markets to clients and efficiently risk manage their positions.

What feedback have you been getting?

We launched D3 OMS in early September, but we are already seeing a great deal of interest – being honest, its more than we expected at this stage. We are presenting to existing clients and new prospects, some of whom want to combine D3 pricing and D3 OMS, and others who have their own pricing tools but want an OMS. For clients with an existing FX Swaps infrastructure, we are flexible and can accommodate direct API integrations.

How do you expect the market to evolve?

This is a first but significant step in automating the interdealer FX Swaps market. By launching D3 OMS we are making trading workflows more efficient and flexible. As a result, we expect to see increased volumes on electronic interbank matching platforms, which 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.

This increased electronification of the FX Swaps market will lead to greater velocity of the underlying market and translates into a greater need for speed and lower latency, as the markets react more quickly to events. Trading firms need fast, scalable, and robust technology to manage this change.

e-Forex also spoke with 360T and LSEG to get their feedback on this new initiative.

Simon Jones, Chief Growth Officer at 360T – “We think this is a fantastic development for electronic trading in the FX Swaps market. 360T supports connectivity to our 360T SUN venue and facilitates automation of interdealer FX Swaps trading. We see this as a further confirmation that the demand for electronic hedging venues is growing.”

Simon Jones

Christopher Dudley, Director of FX Venues at LSEG – “We have recently launched new Commercial Incentives to encourage the adoption of automated trading. Clients are excited by the opportunity to use DIGITEC’s D3 OMS to provide a straightforward means of connecting directly to LSEG FX Forward Matching. Through this venue, we are able to offer a world leading inter-dealer Forwards market, covering more than 700 dealing sites across nearly 50 countries and regions. This is testament to the way we work with our clients to develop the solutions they need and continue to evolve the FX markets.”

Christopher Dudley