What are the current key themes in Asia?
In recent years trading volumes in Asia have grown significantly. Earlier in 2024 the results of semi-annual FX volume surveys were published, where the Singapore average daily volume (ADV) was recorded as $1.085 trillion. This has nearly doubled in only five years. Hong Kong hit a new high at $852.2 billion per day, an increase of 31.7% year-on-year, and Japan’s ADV was $449.5 billion, an increase of 5.2%.
Much of this growth has come from the FX Swaps market, which continues to dominate global volumes. There has also been impressive growth in Asian NDF markets, with Korea, Taiwan, India, and Indonesia some of the most traded NDFs globally. Although NDF volumes are currently skewed towards voice, we are seeing a strong push by the bigger NDF participants in the region to move more flow to electronic channels.
Singapore continues to position itself as Asia’s FX hub, with LSEG’s NDF matching platform launching a year ago, and LMAX Exchange Singapore recently being granted approval by MAS.
Growing volumes, new trading venues, market fragmentation, increased electronic trading and market velocity, have all combined with growing client demand for FX Swaps. These themes are driving the evolution of the market and prompting banks of all sizes in Asia to look at whether their FX Swaps technology is fit for purpose.
DIGITEC recently set up a Singapore office. Why was that?
Approximately 70% of ADV is attributed to FX Swaps and Outrights and these are the products we serve. The decision to have an office in Singapore was driven by growing regional volumes in these products and the continued migration of FX Swaps to electronic platforms for interdealer and client trades.
Having an accurate and robust pricing engine has become essential for all but the smallest banks, which means that there is growing interest in D3, our pricing engine, D3 OMS, and Swaps Data Feed (SDF), our market data product developed in collaboration with 360T.
An office in Asia also allows us to have a client support team located in the region to support global clients. FX Swaps volumes are dominated by London, Singapore and Hong Kong, so it is vital that we support our clients trading in all these centres.
What changes have you seen in Asia over the last 12 months?
In the past, many regional banks in Asia could not justify the investment in technology, and instead used Excel to price FX Swaps, supported by high levels of manual intervention. This is now changing, as more international banks have started to aggressively price FX Swaps and NDFs. To compete effectively for client business regional banks’ pricing needs to be more automated and accurate, and response times faster. In addition, it is now the norm for clients to analyse quote quality, either directly or via trading venues, and for banks to keep their share of client business, speed and accuracy are essential.
Over the past year much of our growth in Asia has come from these regional banks, which have implemented our fully customisable D3 pricing engine, or D3 Lite, to enable them to move away from Excel towards a more efficient, automated and scalable technology solution to price FX Swaps, Forwards, NDFs, Precious Metals, and Money Markets. All services are SaaS, making implementation quick and cost-effective.
Market velocity in FX Swaps has increased, driven by e-trading, automated workflows and the growth of matching platforms. E-trading has enhanced access and transparency, which has driven spread compression. This has compelled many banks to establish more accurate and sophisticated pricing engines, which can price along the forward curve in multiple currencies, and update automatically as market data updates.
We have also seen more banks in the region using the SDF. For banks and traders to build and maintain their own curves, the SDF allows them to improve pricing accuracy and extend currency coverage.
Market fragmentation has increased in the region, with some of the smaller trading and market data venues growing steadily over the last year. This has led to numerous discussions about clients and banks needing better connectivity to more of these venues.
Have you seen any changes in how interdealer FX Swaps are traded in Asia?
There is growing interest in interdealer FX Swaps moving onto electronic venues. A year ago, we launched D3 OMS, an order management system which automates interdealer FX Swaps workflows and connects to trading venues like 360T SUN and LSEG FX Forwards Matching. Since then, we have seen billions of dollars transacted in Asia using OMS and trading across all timezones.
In the Interdealer FX Swaps market there are still manual workflows, especially when the Spot price changes and traders need to manually update their orders. We designed D3 OMS so that when a price changes the orders are automatically updated on trading venues. Not only does this stop being hit on an off price, but it also reduces keying error and allows the trader to have an overview of all their orders across venues. We expect adoption in Asia to scale over the next year.
How do you think the market in Asia will evolve in the future?
Workflow automation will continue to be a key requirement for all firms, as they look to improve pricing accuracy and efficiency, reduce errors, improve data and analytics, and ultimately provide better customer service.
We also expect to see NDFs migrate slowly to electronic channels, driving the need for more pricing automation and treating NDFs in a similar manner to FX Swaps, while acknowledging their uniqueness. Part of this will be more monitoring, automated checks, and the mixing of different data sources.
The Asia market is maturing rapidly, with banks capturing more and more market data, which needs to be modelled to improve pricing accuracy. This is essential as we expect increased competition, not just in G10 currencies, but also in other currencies where central bank effects play a significant role.
The FX Swaps market is already advanced, and for many market participants in Asia the trend is clear – faced with increased competition, growing market volumes, more data, increased e-trading and velocity, implementing the right technology solution is needed to increase efficiency and speed while improving pricing accuracy.
