FICC Digital Week – Buy Side Takeaways: NDF Liquidity, Electronification

Recently, we brought our community back together for our FICC APAC Digital week. Over the past two years the community has supported each other through screens and over the phone as heads of desk have navigated the most turbulent time for FICC markets. The digital week was a brilliant way to mark the beginning of a new and exciting era for FICC – as heads of desk combine hybrid working and the innovations and lessons learned over the past two years to continue to breach new frontiers in technology and market structure.

One of the main areas of discussion focussed around NDF liquidity, electronification and buy side best practice for trading in emerging and restricted markets. Our friends at 360T moderated the discussion together with Marko Stanojevic, Alpha Grep who shared some buy side best practice, and lessons learned.

We’ve shared some of the key takeaways from the discussion here:

  • Gaps in liquidity, illiquid markets and currencies are far harder to automate across the board, and NDFs are no different. Voice and RFQ remain the most applied means of execution when looking at less liquid currencies and pairs.

  • It’s hard for buy side to minimise market impact and information leakage when trading in less liquid, and especially emerging or restricted market currencies

  • The main challenge the buy side face with trading NDFs electronically is finding a platform that seamlessly integrates into workflows and does not require re-routing.

  • Many buy side members are still trading NDFs manually via voice or directly via the SEF. There is concern that there may be a difference between the price one bank displays via Bloomberg vs. electronically.

  • The buy side would like to have full transparency; to see the depth of the market, how much liquidity to source and when with NDF currencies.

  • For buy side members who stream NDFs electronically already, a big advantage has been the continued tightening of spreads, which reduces the work for traders on smaller ticket sizes.

  • Another advantage is access to deeper liquidity. The liquidity in the NDF space generally is less evolved and more limited than in G10. When trading electronically, you can gain access to diversified pools of liquidity from specialised counterparties where currencies are restricted as well as peer to peer formats.