Euromoney.com, by Joel Clark
Emerging-market foreign exchange (EMFX) has been overlooked in the drive towards electronic trading and there is widespread demand for a greater range of trading channels, according to newly launched platform R5FX.
“There hasn’t been much attention paid to EMFX in the past,” says Jon Vollemaere, chief executive of R5FX. “It is much smaller than the spot market and operates very differently in different parts of the world.”
“But as demand for EM exposure grows, and the focus shifts more and more to China, we expect these markets to become more electronic.” An area of focus for R5FX is the non-deliverable forward (NDF) market, which provides access to EM currencies that still have capital controls in place, as the trades are settled in US dollars – usually in a major trading centre – rather than being physically settled in the underlying currency.
“The market will ultimately benefit from having a choice of venues on which to trade, and we feel we bring something new to the table,” says Vollemaere.
Meanwhile, regulation could also provide a boost for the new business. While the FX market has so far avoided mandates for clearing or platform trading under either US or European regulations, it is widely expected that FX options and NDFs will ultimately have to be centrally cleared and traded on electronic platforms.
“Regulators have kicked the can down the road on clearing of NDFs, but the spectre of regulatory change is still hanging over the industry, so by building a transparent, regulatory friendly platform at this time, we are likely to attract greater interest than we might have done in the past,” says Vollemaere.
Beyond the impact of regulation and setting operating models and rulebooks appropriately, the success of R5FX depends fundamentally on the continued growth of EM currencies. It’s a point on which Vollemaere and his team are fairly bullish.
“The Brics are the largest countries today in terms of size, population and growth – half of the world is now Indian or Chinese,” he says. “As the world rebalances, greater profits can be made out of EMFX than G10 currencies, so there are clear opportunities here.”
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