December 2nd, 2021 marked ‘back to live’ for The Finance Hive, as they hosted the first in person members meeting for their FX community for nearly two years. Held at the Royal Institute of British Architects, London, The FX London meeting celebrated bringing the FX community back together, as well as ushering in the beginning of the festive season with mulled wine and mince pies aplenty. The meeting was supported by Curex Group, 360T, CME Group, LCH, LSEG, Northern Trust and FX Connect – who helped facilitate a day of benchmarking, networking, and celebrating the achievements of the FX community in the time they’ve been apart.
The opening address from Toby Baker, Head of FX Trading at T. Rowe Price set the scene as he spoke on building a best-in-class hybrid trading desk and shared his insights as to how he sees the FX market developing into 2022. Throughout the day heads of desk joined roundtable discussions based on their top priorities and challenges with topics ranging from liquidity curation to NDF electronification, and the future of the trader.
The top four takeaways from the meeting were:
- FX uptake of algos is on the rise
- Buy side are hungry for NDF electronification
- The FX industry is poised for a shake-up in 2022
- Automation is here to complement the human skill-set
- FX Algos – Bridging The Gap
While the quality of FX data and analytics lags behind that in equity trading, FX algos are still viewed as critical and represent the direction in which FX trading is headed. The buy side acknowledged during the discussion that liquidity remains fragmented and it can be difficult to access liquidity at certain times or during market stress. As such, this has acted as a catapult for FX algo uptake on the buy side. Buy side desks are on a continual journey to find the sweet spot between risk and best execution, a challenge made even more complex on the back of a highly volatile year for FX. Of the buy side members at the meeting, 50% were currently active users of algos, with an additional 30% looking to utilise algo trading over the next 12 months.
For those using them, FX algos were most commonly supplied by either BNP Paribas or Morgan Stanley, with buy side agreeing that reducing market impact and improving transparency were the two main benefits of trading via algo, but also that existing solutions lacked fill data value analysis and customisation options. With algos becoming such a core driver in FX, The Finance Hive have announced they will be releasing a Global FX Algo Pulse Report in 2022, assessing the uptake, usage and buy sides views on algo offerings.
- NDF Electronification – New Horizons In 2022
The group were particularly interested in the development of NDF electronification, agreeing that the buy side need to collectively push for changes to be made, and vendors to react. NDF streaming has experienced a major upswing in the last 24 months, based on a market shift toward electronic channels and assisted by remarkable growth in particular local emerging markets (EM). In particular, many members noted NDFs have offered considerable benefits for emerging markets (EM) execution and have helped to drive uptake.
As it stands, NDF execution still remains primarily voice traded, however expectations for development centre around NDF algos and increased streaming options, which are expected to further drive efficiencies for the buy side. With these changes it will be necessary for adjustments to be made to market infrastructure, and any on-the-desk developments will need to be underpinned by high-performance technology.
- FX Trading – A New Beginning?
Following a disruptive 18 months, the future of the industry as we shape up for a new way of working was at the top of buy side members’ minds. Members agreed that the trading desk of the future will be fully focussed on automation, with centralised platforms allowing access to multiple 3rd party algos and other solutions. In addition, the buy side are now considering the option to create decentralised technology stacks and solution wheels to best fit trading circumstances at the time of trading.
On the horizon, Peer to Peer, pre-trade TCA and technology containerisation were also discussed. In addition, it appears institutional interest in cryptocurrencies and digital assets has finally found its way to the buy side desk, with several attendees sharing their intention to establish a crypto trading desk over the coming year. The meeting included advice from Jean-Marc Bonnefous, Managing Partner at Tellurian Capital as to what the make-up of an institutional crypto desk should look like.
- Automation – Humans And Machines Will Always Go Hand-In-Hand
There were concerns that automation would fundamentally alter the role of the FX trader. Will there be a necessary shift in the focus of a trader from execution toward viewing and interpreting markets? Ultimately, it remains to be seen how roles will change, but it’s clear that the skill sets needed for the future trader will be very different from those today and this is already under consideration as members consider new hires on the desk.
The view of automation and the human trader is that they go hand-in-hand. So while the human trader is still vital, their role is shifting towards an advisory role, with some firms desiring skill sets of data and coding.
The Finance Hive next look forward to meeting with their global FX community in person in Boston on March 8th, and Singapore on the 22nd March. To learn more about The Finance Hive and becoming a member of this private buy side community visit https://www.thehive-network.com/the-finance-hive-about-fx/
“Great format, with discussions being so open. The added aspect that service providers are in attendance to join in discussions rather than to promote or sales pitch products is very refreshing”FX DEALER, COLCHESTER GLOBAL INVESTORS