MEAG appointed Lydia Malakis head of institutional sales at MEAG. As part of the role, she will be responsible for MEAG’s institutional and wholesale sales. Before joining MEAG, Malakis held senior sales positions with international asset managers, including Generali Insurance, Vanguard International and Schroders.

Elsewhere, Alexander George assumed responsibility for institutional sales in Germany, Austria and Switzerland as head of institutional sales DACH. Before joining MEAG in 2021, George worked at the multi-family office Novethos and previously held positions at various banks and private banks.

Northern Trust Asset Management appointed Naoto Komoro to lead its asset management business in Japan. Komoro will also continue in his current role as head of institutional client group. He joined Northern Trust in 2007 and has since worked in senior roles across portfolio management, client management and sales. Before joining Northern Trust Asset Management, Komoro spent six years at Mizuho Trust & Banking Co. as a fund manager for the passive and quantitative investment management department.

Haitong Securities appointed Dipesh Sohani director of institutional equity sales. Sohani was promoted to the role after originally joining Haitong Securities in a senior institutional equity sales role in 2021. Elsewhere in his career, Sohani held positions at YES Securities, Edelweiss Financial Services, PhillipCapital and MF Global.

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Speaking to The TRADE at the TradeTech FX European conference in September, heads of trading said they intended to focus their attention on understanding how to best develop and adopt algorithmic offerings tailored to these instruments.

It is therefore unsurprising that the electronification of NDFs is being discussed on the main stage at this year’s TradeTech FX US conference in Miami. Key questions around market depth, liquidity and initiatives launched by institutions and vendors to innovate in this space in light of new demand are set to be explored.

NDFs are cash settled short term forwards – the notional amount is never exchanged – earning itself the title of non-delivered. The instruments can require significant documentation and mediation from both parties involved and historically, they have been more of a side-line market in the wider foreign exchange sphere, making them less liquid and less transparent, and also making it far easier to move markets.

It is these workflow factors combined that have meant NDFs have been slower to automate and algorithmically trade when compared against other FX instruments. There is a limited number of participants eager to trade in size algorithmically when comparing NDFs to the spot markets for example. Instead, many institutions still opt to trade by voice.

Read more – LSEG Singapore NDF matching platform goes live

“The limited number of market participants that have significant transaction sizes hinders the widespread use of NDF algorithms,” APG Asset Management’s senior trader Sunil Patil tells The TRADE. “While algorithms can be effective for smaller sizes, the maximum benefits are typically realised with larger transaction volumes. Notably, this dynamic shifts for systematic-only funds, where considerations and advantages associated with NDF algorithms may differ.”

NDFs have, until recently, represented a relatively small segment of the FX markets. The buy-side has subsequently chosen to opt for reliable counterparty relationships to maintain presence and research in different regions and has resulted in a muted desire for electronification, until recently. However, in the advent of market developments, such as Mifid II research unbundling rules in Europe, a greater number of non-bank participants have begun entering this landscape.

“Recent trends highlight an increasing demand from asset managers, fast money, and quant funds, expediting the transition toward electronification in NDF markets,” says Patil. “As liquidity improves, standardisation increases, and more market participants express interest, the eventual mainstream adoption of algo usage in NDFs becomes increasingly likely.”

Circumstances over the last few years have incentivised increased interest in NDFs trading across the buy-side. And while algorithmic adoption is by no means mainstream, the pace of growth in this market has been steady and slow.

Where there are volumes, automation will surely follow. Throughout the course of 2022, several regulatory deadlines came into play – namely the final phase of Uncleared Margin Rules (UMR) and the Standardised Approach for Counterparty Credit Risk (SA-CCR) – which have pushed participants into the arms of NDF clearing in order to optimise balance sheets.

This shifting backdrop, paired with a general push for automation where possible – particularly to cut costs and boost performance on smaller orders – from the street has encouraged a wave of development across the sell-side as firms look to cater to new demand for NDF algo offerings.

In research published at the end of 2022, Worldwide Business Research (WBR) found that while only 8% of FX trading desks had already adopted NDF algo execution, an additional 27% said they were planning to implement them in the following six months. Nearly half of the respondents were also evaluating NDF algos with their counterparties, but said they had no immediate plans to adopt them, indicating potential for future growth.

Read more – CME Group to establish unified global NDF trading venue

Progress was slowed over the last few years due to market conditions. The volatility and rates backdrop seen throughout 2023 somewhat stunted the formerly projected growth in NDFs algos, MEAG’s senior trader Nicholas Nellis tells The TRADE. While firms such as MEAG use NDF algos already, and despite the number of institutions like them growing, banks have not yet seen the uptake of their new NDF algorithmic offerings that they had previously expected.

“For a while, a lot of people were trading NDFs to try and pick up carries, especially in the low rates environment,” says Nellis. “In this environment now, with more volatility and the ability to get decent returns elsewhere, people that are traditionally in those markets have probably stepped back. People are a lot more comfortable still trading voice on the NDF side.”

A key hurdle for the mainstream adoption of algorithms in NDF trading has historically been the lack of opportunity for traders to interact with liquidity on an order book – hindering market depth and transparency. Previously, there were few platforms dedicated to the trading of NDFs. But in recent months, market headlines have been littered with a string of announcements as platform providers and venues announce new ventures, which Nellis confirms has improved algo performance.

“There isn’t that much liquidity so trying to trade it electronically over a platform is not as easy. You can move markets quite quickly. In that space, spreads tend to be a lot wider when you trade electronically for some of these markets,” he explains. “But we’ve seen more players come into the electronic/ECN market. They’re trying to provide more liquidity. There’s been a change in algo performance at least with these additional venues in place. It just takes time.”

CME Group was the latest firm to make such an announcement, confirming in December last year that it had established a global unified NDF trading network. The trading venue is set to combine its two non-deliverable forward (NDF) liquidity pools on the EBS Market platform onto a single trading venue in October, subject to regulatory approval.

The move will bring market participants across regulatory jurisdictions into a unified global trading environment, which CME Group claims will enhance market efficiency and improve EBS’ role as a source of centralised liquidity and price discovery in NDFs.

“Amid continued fragmentation and rising complexity within the global FX market, the need for a unified, globally accessible primary trading venue in NDFs is greater than ever,” said Paul Houston, global head of FX products at CME Group, at the time of the announcement.

“Combining our two leading NDF trading platforms will improve access for participants around the world while expanding liquidity, improving price discovery and providing operational efficiencies for the marketplace.”

Earlier in 2023, Trading Technologies confirmed it was also due to set up a new foreign exchange unit in early 2024, with plans to extend its offering to include liquidity from major banks, alongside the expansion of the product set to include forwards, NDFs and swaps.

Asia focus

Central to the recent growth and evolution seen in the NDF markets is Asia. Many of the new initiatives announced of late have a link to the Asian markets – home to a huge chunk of the world’s global foreign exchange activity. The Asia NDF markets trade throughout the day, making them a useful way to access these markets outside of market hours in other regions, while an overlap with European trading hours makes them appealing to institutions attempting to facilitate transactions across time zones.

Asian markets were early adopters of electronic trading platforms for NDFs in comparison with other markets and the continent now contains some of the most traded NDF currencies in the world, namely in Korea, Taiwan, Singapore, India, and Indonesia, making it a popular destination for those looking to set up new ventures.

Singapore in particular has made a huge push into positioning itself as trading hub across several asset classes – in particular global FX – by creating a favourable regulatory environment for new platforms coming to market. The Singapore Exchange (SGX) acquired a 20% stake in institutional FX trading platform BidFX in 2019, going on to acquire the remaining 80% stake in the company from TradingScreen for $128 million in 2020.

Many of the recent new launches have subsequently been centred in the region. Among the recent initiatives is a new NDF matching platform based in Singapore, launched by the London Stock Exchange Group (LSEG) in November 2023. Based in Singapore, and with the backing of the Monetary Authority of Singapore (MAS), the platform is the first phase of LSEG’s plans to implement NDF, spot matching and streaming relationship venues in Asia.

“NDFs are a growing part of the FX market, with limited customer options when it comes to execution on an order book,” LSEG’s head of foreign exchange, Neill Penny, told The TRADE.

“As such, there has been clear interest from customers for us to support NDFs as part of matching. There is also a lot of interest from customers in the cleared execution part of the venue which should result in improved liquidity, more efficient use of credit, and reduced administrative overheads.”

In the same month, LMAX Group subsidiary, LMAX Exchange Singapore, was granted regulatory approval by the Monetary Authority of Singapore (MAS) to offer NDF trading in both Singapore and London. LMAX said the launch would allow its clients to hedge their FX exposure against non-convertible currencies on a central limit order book (CLOB) and that it would leave to more transparent price discovery, deeper liquidity and efficient market structure in NDFs trading.

With new players entering the market and new platforms launching each quarter, greater liquidity in the NDFs sphere is almost certainly set to spark greater algorithmic trading capabilities for those looking to execute more efficiently. Gaps still exist, namely around broken dates and how to aggregate NDF liquidity into one system, and as FX algo providers look to attract further adoption of their NDF strategies, they will need to offer increasingly sophisticated data analytics, algo execution and liquidity management tools to mitigate this.

“The primary approach for engaging with NDF algorithms currently involves initiating trades on a one-month or IMM date basis and subsequently rolling positions to align with preferred non-standard maturity dates. However, this method presents challenges in estimating the all-in price ex-ante, as opting for a more favourable spot rate may result in less favourable forward points, influenced by market makers’ positioning,” says Patil.

“We still opt for NDF algorithms in markets where liquidity supports larger trades. Currently for us, the overall percentage of NDF volume traded via algorithms remains relatively low, given the decent OTC liquidity with sharper spreads, making it the preferred method for the majority of NDF trading. However, I anticipate a shift in this scenario as more participants enter the market, leading to the evolution of NDF trading practices.”

With infrastructure building out globally to accommodate new interest in NDFs, greater appetite for more automation must surely follow. A lack of transparency historically has hindered NDF algorithmic progress, but with the prospect of order book trading on multiple new competing venues on the horizon, that could all be about to change.

“What you will also see – and you can see this with NDFs – is that less liquid products are going to become more transparent, and the more transparent they are the more trading you get. The more trading you have, the more automation you can drive into it,” says LSEG’s head of FX sell-side trading, Bart Joris.

The post NDFs trading: If you build platforms, the algos will follow appeared first on The TRADE.

Putting the topic into context, John Rothstein, chief executive of Optiver UK highlighted the core differences in options as compared to spot, explaining that there are three key areas.

Firstly, the fact that options are very highly regulated as compared to spot was highlighted, with a second consideration being the fact that connectivity is still very high touch for things like expirations and negotiating prices.

The third point linked to data: “[…] the last thing is that the data that comes out of the options market is very light, sparse for everybody – which makes things like TCA and knowing where the market is and knowing who the liquidity providers are very difficult to come by.”

Elke Wenzler, head of trading at MEAG, agreed with Rothstein, asserting that having access to liquidity on the options side is very different and that the main consideration for swaps is to have access to the right liquidity.

Sana Horrich, senior FX trader at Banque de France, shared that from her perspective the next step is for FX swaps to move to a higher electronification.

In terms of the challenges facing FX swaps, she pointed to the risk of signalling for large amounts, further highlighting: “Today what we expect from the market is to have new tools, such as price streaming and algos for FX swaps to help us enhance our trading outcome.”

Paul Lambert, chief executive of New Change FX, suggested that when it comes to the electronification of the swaps market, you have to break it down into its parts: “Foreign exchange is a market where the price that you pay depends on where you are and who you ask.”

“With swaps this is even more true because of the credit element so you need to break it down into its elements for that market to really truly move forwards – what’s the neutral rate and what’s the credit element.”

Read more: FX swaps algorithms not currently a priority for buy and sell-side due to workflow preferences

Wenzler made clear that from her perspective, automating huge amounts of the swaps market is not the way forward, while Lambert asserted: “The worst thing you can do is automate a bad process – it’s like making a wonky wheel.” 

Importantly, Rothstein made sure to highlight that the issue of automation of vanilla FX options has already been solved by some exchanges, further adding that this is something for OTC players to keep in mind.

When asked to compare the tools which are used in spot and derivatives, panellists agreed that there were key differences and as a result bases that still need to be hit in order to facilitate use.

“We want to use the same tools but it’s a different set up you need to have the axes the same on the spot side, which needs a lot of involvement from other teams. A lot of problems you have to solve,” said Wenzler.

Rothstein highlighted the role that platforms and those with the tools can play, suggesting that the priority lies with these entities trying to connect as many dots as they can.

“They can’t necessarily solve all of the underlying problems in getting that access to credit, but they can at least allow some pass through of the requesting of price and the giving of price – which makes it so at least one or two of the steps for users accessing liquidity.”

The post TradeTech FX Europe 2023: FX derivatives trading can be streamlined through electronification, but data quality must be assured, say experts appeared first on The TRADE.

How did the Russian sanctions impact your desk?

The sanctions imposed on Russia have cut off many Russian banks from the SWIFT global payments system and the global payments architecture and have limited the room for manoeuvres for all Russia-related market participants. For us at the trading desk, the most important thing was to always act in accordance with all sanctions. First, we had to have an overview of all our sanctions-related touch points in the back office and settlement processes in order to work off all transactions even under high pressure in a very restrictive environment.

This included questions like: which account is set up at which custodian bank? which counterparty and clearing house fits? and which regulation applies to all participant in the chain?  The very close internal cooperation between our central trading desk, portfolio management, operations and legal and compliance helped us to master this task successfully, alongside the good relationship of trust with our long-standing counterparties. 

In setting up and establishing the multi asset trading desk, the focus is on optimisation, electronification and automation. During this challenging time, it has proven invaulable to have senior trading specialists in our team, who are able to switch in volatile market phases to high-touch very quickly and who have very sound knowledge of market structures and their participants – thus ensuring a maximum of transaction flexibility while meeting all sanctions.   

What is the liquidity landscape like?

We have certainly seen an impact to liquidity conditions this year due to various geopolitical developments, impacts of regulation along with central bank developments. 

Fragmentation of liquidity in the FX market is an important topic, that should not be underestimated – the drivers are regulation and electronification, accelerated by market disruptions in the wake of recent crises. Unlike in the past, when market access and information flow went through the market maker, we now have a very different set-up.  The control, management and therefore quality of execution depends entirely on our decisions. Therefore, we need to ensure that we have optimal access to the sell-side and various liquidity pools. In addition, the analysis of execution performance is essential to manage our flows – in terms of liquidity and performance. We are steering considerable foreign exchange flows, so we have to have the ability to align our trading and analysis set-up to the benefit of our Group-internal as well as external mandates. Not having the right set-up would be a significant disadvantage, especially in the less liquid currency pairs. 

How do you use algorithms?

We use algorithms to select liquidity pools and implement different trading strategies. While we do not develop our own algos, we do benchmark and analyse a changing set of sell-side algos that we use, and differentiate their use by market phase, benchmark/ intention, and currency pairs. The responsibility of buy-side traders has changed significantly – algos are starting to take the place that voice used to dominate. When managed appropriately, they work really well because there is a lot of liquidity hidden even in tight markets. They allow traders to take direct control of order execution, and analysis during and after the trade provides insight into prevailing market conditions. Buy-side traders can use this information to adjust their future execution and improve the overall execution costs for our mandates. The volume we trade via algos has increased during the last two years and will further do so. 

What’s your technology set-up like?

We use one OMS for all asset classes and multiple trading platforms. For FX, we use two platforms with different strengths for flow/cash and algos/FX options, but also to have a back-up in place. Improving market access is also an important and ongoing issue on the buy-side, new internal and external specifications, as well as scarce IT resources, can be an obstacle here in the desired flexibility. For this reason, we have also initiated an adjustment of the system architecture with the establishment of the multi asset trading desk. This will allow us to be more flexible in connecting relevant trading venues and information systems in the future, despite the higher hurdles (IT, interfaces, compliance gates). In addition, I see a great advantage in our set-up – to have one system or cockpit – with which all multi-asset traders have the same information available and easy access to all asset markets. This makes automation and low-touch trading easier to scale and leaves sufficient space for the significant amount of high-touch trades we have to carry out deriving from our core business.

How has automation developed in FX, for example in NDFs?

For G10 currencies – FX spot, forwards and swaps – we trade almost exclusively electronically via the trading platforms – the use of algos is well established and has proven itself in various market phases. Rule-based trading is an option for small volumes, depending on the cross. On the NDF side, we still trade a much larger portion via voice. But we also see the benefits of using algo in NDFs – however, the ability to tap internal liquidity or flows in NDFs is lower compared to G10 spot trading.  Algo development in this area is still ongoing but has improved significantly over the past year. 

Being able to efficiently trade even broken data is a significant advantage. Other obstacles such as contractual requirements, confirmations and determination procedures are well established on our side. We are also very well prepared for Phase 6 in UMR.  Looking at the efforts made here, I assume that participants with lower trading volumes probably do not place the highest priority on electronification of NDFs. Generally, when talking about automation – aside from the major currencies – the liquidity landscape needs to be very well understood and kept in mind. It can dry up all of a sudden, making a fixed ticket amount approach for fully automated trading far too large. We have started to look at how we can improve our trading rules using machine learning to make sure that the system takes different factors into account and does not trade a position automatically that is too big.

The post Elke Wenzler: Navigating the turbulent FX markets appeared first on The TRADE.

The Scorable analytics will be used by the global credit research teams in Munich and New York at MEAG to support its credit exposure decisions during periods of market volatility.

Scorable analyses over 250 data variables as well as translates raw data from financial statements, fundamentals and capital market data into actionable insights for investors, enabling them to identify opportunities and risks ahead of the market.  

According to BondIT, Scorable leverages machine learning and explainable-AI (XAI) to predict changes in the credit risk profiles and rating transition probabilities of almost 3,000 corporate issuers.

“Working with BondIT is another important step in driving technological progress across our organisation,” said Prashant Sharma, chief investment officer, public markets at MEAG. “We aim to continuously increase the quality and efficiency of our investment process, and technology plays a crucial part in this.”

Several credit risk focused products have been launched in the last six months as participants seek to mitigate volatile market conditions.

Most recent was Bloomberg which rolled out its daily credit risk indicator in July aimed at providing firms with early warnings on rating downgrades and defaults ahead of traditional analysis.

“Better data drives better performance but translating the ever-growing amount of raw data into actionable insights can put a huge strain on resources. This is where our Explainable-AI can offer real added value in supporting analysts and asset managers in their investment decision-making”, said Dr. David Curtis, head of global client business for BondIT and Scorable. 

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All three partners said the move marks a further step in examining the potential and scope of distributed ledger technology (DLT) in the post-trade space, reflecting a delivery-versus-payment transaction and the transfer of tokenised cash.

Digital tokens generated using bank money and securities were simultaneously swapped as final and binding settlement using DLT, with Commerzbank also using tokenised cash credit as coverage of margin requirements at Eurex Clearing.

“This is an important joint effort in further exploring the potential of distributed ledger technology for the financial services industry. By combining multiple use cases within these transactions, we have broadened the scope of applications where the market can benefit from possible standards in this new technology. Our goal is to foster our role as financial infrastructure provider of choice,” Jens Hachmeister, head of new markets at Deutsche Börse Group, commented.

The transaction saw Eurex act as the tokeniser of cash, MEAG as the buyer of securities, and Commerzbank as the seller and custodian of the securities tokens. Commerzbank’s research and development unit also provided the blockchain platform.

“By reducing the need for intermediaries, the transaction process of securities is going to accelerate furthermore. The involvement of tokens representing securities and money will facilitate network efficiencies and build a foundation for the creation of standards. This is important for the buy side as standards lead to broader market acceptance and thus create liquidity on DLT platforms in general,” Dr Frank Wellhöfer, member of the board of management at MEAG, added.

The concept of the transaction has been shared regulatory and oversight authorities, with further products based on the test subject to approval and compliance with requirements and processes. Commerzbank and Deutsche Börse completed a legally binding repo transaction under similar conditions earlier this year, as part of the firms’ ongoing work with blockchain and DLT.

The post Commerzbank, Deutsche Börse and MEAG use blockchain for settlement process appeared first on The TRADE.

Asset management firms MEAG and Union Investment are the first buy-side clients to connect to CDSClear via Deutsche Bank, clearing European and US credit default swaps at LCH, according to the UK clearinghouse.

“We’re delighted that Deutsche Bank is the latest clearing broker to join our growing network of firms offering their clients the ability to clear credit derivatives at LCH. The German market is a major hub for credit derivatives, and we are pleased to welcome additional clients from Germany as our customer base continues to expand,” said Frank Soussan, global head of CDSClear at LCH.

Jan Reher, senior portfolio manager for fixed income at MEAG, added that central clearing allows MEAG to better manage risk for its credit derivatives trading and connecting to LCH provides access to a broad range of cleared US and European credit default swaps products.

Christoph Hock, head of multi-asset trading at Union Investment, stated that transparency is an important element of risk management, and LCH CDSClear allows Union Investment to trade and clear credit derivatives in a standardised manner.

“Within the European CCP landscape LCH has a wide range of credit derivatives available. On these grounds we are happy to have set-up the business relationship to LCH CDSClear to enhance delivering highest quality standards of best execution to our clients,” Hock concluded.

Earlier this month, LCH announced it has implemented three workflow automation tools from trading software provider genesis across its foreign exchange, swaps and credit defaults swaps segments. genesis worked with LCH to build a suite of complementary solutions including a credit default swaps option electronic exercise platform for CDSClear to help to support business growth.

“We are committed to the derivatives clearing business and continuously review our offering to evolve and grow in line with the demands of our clients. Offering clients access to LCH CDSClear will provide them with more choice, and we are delighted to have completed this milestone,” Nic Maalouf, global head of listed derivatives and clearing at Deutsche Bank, also commented.

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