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The Evolution of an Emerging Market Greater automation in emerging markets is widely seen to be merely a matter of time. Profit & Loss talks to Darryl Hooker, former co-head of EBS Brokertec Market and currently consultant at Capitolis about his experience in helping bring a larger ‘e’ focus to Russia and China. Profit & Loss: Can you give us an insight into the thinking that saw you focus on first Russian markets and then China when you were at EBS? What are the main signals that identify a frontier market ready to move into the mainstream of EM? Darryl Hooker: A common pitfall in emerging markets is to make the mistake of considering them collectively despite the fact that they have very particular and specific nuances.
How Will FinTech Shape Emerging Markets? Galen Stops quizzes Jon Vollemaere, CEO of R5FX, about whether fintech solutions will be used in China, and emerging markets more broadly, to effectively replicate existing FX markets or create an entirely new ecosystem. Galen Stops: How does the FX market in China compare to those in Europe and the US? Jon Vollemaere: A lot of the Chinese dealing rooms look like the Western FX markets of the late ‘90s in the way that they're set up and the lack of technology in them.
Eastern Promise: Asia as a Crypto Hub How have crypto markets in Asia evolved in comparison to those in the US and Europe? And will these markets look more or less different in the future? Galen Stops takes a look. T aking a glance at the biggest crypto exchanges by volume and a clear pattern emerges: according to data from coinmarketcap.com, a website that tracks crypto trading volumes, at least seven of the top 10 ranked exchanges are based in the APAC region. By contrast, some of the more better known US-based exchanges are found much further down the list.
A Well Trodden Path? Galen Stops examines the extent to which banks in different emerging markets face the same challenges when trying to build out their e-FX businesses, and questions the extent to which technology developments in these markets will follow a familiar pattern. Talking broadly about how firms in emerging markets operate is often misleading, given the diversity of these markets and how widely the demands and conditions vary within each one. And yet, when it comes to banks in emerging markets that are looking to build out their e-FX businesses, there are some common themes that can be identified. For starters, these banks actually tend to have a sizable and often fairly diverse customer base, although each of these clients tend to trade FX on a smaller scale in terms of transaction size compared to their counterparts in more developed countries.
FX in Asia: A Question of Risk and Reward The potential for Asian FX markets has long been talked about but has rarely been delivered, that may be changing, however, as Colin Lambert finds out. When, in the early morning of October 7, 2016, the FX market witnessed a flash crash in Cable, there was a collective metaphorical shrugging of the shoulders, as epitomised by one London-based trader who told Profit & Loss, “It’s Asia – that type of thing happens.” The perception is that institutions pay less attention to Asia, allocate fewer resources to the region generally and, as one global head of FX puts it, “Rely upon Asia not to drop the ball.”
NDFs – The New Model Market? Volumes in NDF markets have increased dramatically in recent years, but what is behind this accelerated activity and will it continue? More importantly, what role are the lessons learned from the G10 markets playing? Colin Lambert finds out. The biggest growth story in foreign exchange over the past two years since the Bank for International Settlements’ 2016 Triennial Survey of FX Turnover has largely taken place in the shadows, for while spot volumes have largely plateaued, activity in the non-deliverable forward segment has grown exponentially. NDF average daily volumes, as reported by the UK and US foreign exchange committees, is 50% in the two years from April 2016 – a pace of growth no other product can match.
A Question of Faith: Asset Managers and the Fix Benchmark fixes have been immersed in controversy for the past five years, but anecdotal evidence sees no shift in asset manager attitudes to them. Colin Lambert asks, will these firms ever desert the Fix? If there has been one lightning rod for controversy in what has been a pretty turbulent period for the foreign exchange industry it has been benchmark fixes. Banks have been fined, traders and managers have been dismissed, and some are facing legal sanctions, including jail, thanks to various activities all of which were centred on the WM and European Central Bank fixes.
A New Breed of FX Hedge Fund There is a new breed of hedge funds that are using artificial intelligence (AI) tools to trade the currency markets. Galen Stops takes a look at a few of these emerging funds. “AI has become a catch-all phrase, everybody and their grandma wants to use it now because it's a buzzword,” says Damien Loh, the CIO at Ensemble Capital, a Singapore-based hedge fund. With an academic background in computer science, Loh spent 15 years at JP Morgan before launching Ensemble Capital in 2017 alongside Atsuo Ogaki, the former head of FX at Nomura in Tokyo and 22-year veteran of JP Morgan.
The Buy Side and the Global Code: Patience Required Much has been made of the low buy side sign up to the FX Global Code, but as Colin Lambert finds out, it is likely only to be a matter of time. Talk to senior members of the Global FX Committee and one can discern a sense of exasperation when they are asked (probably for the tenth time that day) about the lack of buy side adoption of the FX Global Code. The exasperation stems from what is the thorn in the side of the GFXC that is low adoption rates.
Getting to Grips with FX Exposures For many corporate treasurers, deciding what products to use in order to hedge their FX exposures is the easy part of the job. The hard part is working out exactly what their FX exposures are. Galen Stops reports. When it comes to effectively hedging FX exposures, it seems that the biggest challenge facing corporate treasurers is simply getting an accurate view of what these exposures are. “Getting a centralised view of our FX exposures is very difficult. It’s always an issue, it’s something that we work on constantly and we’ll probably never get to the point where we have a perfect view on this,” says a source at one European corporate with revenues over $22 billion.