Volatility may come with the territory for financial technology companies, but the seismic events of 2016 have shaken even seasoned observers. From Brexit to Trump, and with ongoing concerns around security, it has been a year of great upheaval in many markets.
R5 CEO Jon Vollemaere believes we can expect more of the same in 2017. “Emerging market FX will become more accessible and as a result volumes are likely to increase. The new US president will undoubtedly cause volatility in the dollar and this will most likely impact emerging market currencies – we have already seen significant volatility in USD/MXN with an 11% move on election night and we could see similar volatility again as an unknown quantity becomes the biggest tweeter in Washington.”
Earlier this year R5 received authorisation from the Monetary Authority of Singapore, which was a significant development given the city-state’s status as the Asian centre for emerging market FX.
“The narrowing of spreads in G10 currencies and the flattening of volumes has made emerging markets look more attractive to a lot of clients,” says Vollemaere. “The ongoing internationalisation of the renminbi has also validated our model – trading organisations are keeping a watchful eye on developments in China and we are spending a lot of time there discussing how we can help to increase access.”
Clearing and settlement initiatives will benefit R5’s clients and the company is likely to benefit from CLSNet and LCH NDF Clearing providing a choice in how clients process their FX trades. Plans for 2017 include developing emerging market data products.
While consolidation in the venues supporting FX trading can be expected to result in exchanges becoming more involved in the FX space, Greenwich Associates’ Head of Market Structure and Technology Research, Kevin McPartland, believes that discussion of migration from OTC to exchange fails to take account of some of the nuances of the FX market and that the future lies in venues that support multiple trading models.
He observes that there are a host of non-exchange electronic trading venues that allow clients to trade with each other in a variety of ways.
The LMAX Exchange report, ‘Restoring trust in global FX markets,’ notes that trading models such as multilateral trading facilities (MTFs), swap execution facilities (SEFs) and organised trading facilities (OTFs) have brought elements of exchange-style trading into the traditional OTC model. MTFs have introduced regulated trading, transparent price discovery, a public rulebook and no ‘last look’ in the spot FX market, while SEFs and OTFs have pushed less liquid FX products (such as NDFs and FX swaps) onto regulated trading facilities with centralised clearing and reporting.
According to Vollemaere, market participants are becoming increasingly interested in centralised clearing and hybrid credit models. “When we established R5, we realised that emerging markets were often illiquid and so we needed to offer a marketplace that combined OTC and exchange flows. We believed that the market would gradually move to a hybrid model, where clients could choose whether or not to clear trades.”
To see the complete article visit www.fx-mm.com/54029/fx-mm-magazine/past-issues/december-2016/2017-ones-watch-fintech-space-year/