Standard terms for non-deliverable forwards on three Latin American currencies came into effect last week and dealers are hopeful they will boost trading. The terms for Chilean peso, Peruvian sol and Colombian peso NDFs were put together by a documentation working group of the Emerging Markets Trading Association, which consists predominately of dealers and asset managers.
Leslie Payton Jacobs, senior counsel at the EMTA, said the project came about in response to member demand, noting it had been on the association's to-do list for some time. She added the trade group has seen an increase in membership from Latin America, but declined to specify the size of the increase or its timing. "It's been creeping up gradually," she noted.
Most dealers were optimistic the standard terms would improve trading volumes by encouraging asset managers and corporate hedgers into the fx markets. One currency trader, however, said the key hurdle for active currency derivative markets in the region is political stability. While standard terms will reassure some investors, it is the political risk--particularly in Colombia or Peru--which is holding most back, he explained.
