Electronic FX trading hits tipping point in Asian emerging markets
Falling costs, increasing transparency requirements and the advent of new technological solutions are encouraging traders in key Asian markets to make the switch from voice to electronic FX trading
Three of Asia’s emerging markets have become the latest to make the leap from voice-based FX trading to electronic execution, according to Thomson Reuters.
Market participants in Taiwan, Indonesia and the Philippines are showing an increasing readiness to opt for technological solutions, says Luke Elliott, FX director, Asia. “We have seen considerable take-up of our FX trading platform in these markets over the past 12 months. We have definitely passed the tipping point as far as electronic trading is concerned.”
Recent reductions in the cost of providing such services have been key to persuading a new cohort of Asian clients to shift away from voice.“Previously, even the cheapest electronic services could work out quite expensive,” explains Elliott. “We are now offering entry level models that can be incorporated into our desktop platform, which represents a considerable cost saving for clients.”
In many cases, banks have been among the earliest adopters of the technology in all three markets. “Some of our bank clients in countries such as Indonesia have extensive branch networks, so it makes sense for them to use an automated system that provides real-time FX pricing across the network rather than relying on a phone-based system,” says Elliott.
As well as offering opportunities for internal cost reduction, electronic trading also allows banks to get ahead of the curve in terms of compliance. “Regulators are increasingly looking at how banks are making FX prices and providing them to their clients,” says Elliott. “Electronic trading gives banks themselves increased oversight of the process and also makes it easier for them to fulfil new regulatory requirements.”
For corporate treasurers, the switch from voice to electronic has been facilitated and encouraged by the recent launch in Asia of Thomson Reuters’ ground-breaking integrated electronic trading platform. The upgraded system combines the firm’s standalone FXall trading platform with its premium Eikon information service, allowing users to enable FX transactions from a single log-in on the Eikon desktop offering.
“Having data and execution incorporated into one product is definitely resonating with corporate treasurers in Taiwan, Indonesia and the Philippines,” says Elliott. “Many of these institutions already have our Eikon service so they can utilise our electronic trading capabilities within their current package.”
Thomson Reuters position as a trusted supplier of information and data via its technology platforms has help market participants embrace that electronic trading need not signal an end to or replacement of long-standing broker-client relationships.
“Electronic trading does not mean traditional FX brokers will disappear — it just means that technology will facilitate clients’ business by improving efficiency, oversight and flexibility.”
Other factors that can accelerate the transition to electronic in maturing markets include an increase in international experience and expertise among local market professionals. “Where senior traders have worked offshore and become familiar with technological solutions, it becomes much easier to work through the process with that institution,” says Elliott.
At present, he adds, the stand-out market in terms of appetite for technology is Taiwan. “We have recently seen a significant shift in take-up of electronic trading there,” he says. “What is more, we are also seeing traders there engage across other parts of the FX business as well — there’s considerable interest in options in Taiwan, along with other more complex FX products.”
Thomson Reuters is also finding work to do in several other Asian markets, some of which have yet to fully make the switch to electronic trading. “We are currently working very closely in Malaysia,” says Elliott. “Korea is also interesting — we work with all the participants there but on the trading side voice remains dominant despite the size and sophistication of the market.”
As momentum builds for electronic trading, however, such hold-outs are becoming increasingly rare. “Over the last couple of years, the benefits of technology have really started to resonate with clients in Asian emerging markets,” says Elliott. “We have seen strong growth and adoption of electronic trading over the past 12 months.”