Jay Moore is CEO and Co-Founder of FX HedgePool, a matching engine for the mid-market execution of FX swaps.
How has FX HedgePool delivered on its mission to transform the FX market for the benefit of all in 2021?
In January 2020, we created the first centralized marketplace for peer-to-peer matching of FX swaps. This is creating a better exchange – one that optimizes trading costs for good, built on agility, scale and simplicity.
In the past year, total matched volume on FX HedgePool has more than doubled, with monthly volumes exceeding $200 billion and a cumulative $3.3trn matched since inception through mid-December. We achieved these major milestones with the support and trust of our growing community, which rose to 17 institutions in 2021 – with every new member amplifying the network effect for the whole community.
Our breakthrough innovation is the unbundling of liquidity from credit. This is unlocking vast potential for buy-side institutions to trade directly with their peers. Not only does this remove unnecessary costs and improve performance for underlying investors, such as ordinary savers, retirees, and investors; it also offers the sell-side the ability to better use their balance sheet through credit provision.
By reducing costs and risks to both sides, FX HedgePool is creating a ‘win-win-win’ – a win for the asset managers, a win for the banks, and a win for end investors.
As FX markets continue to evolve, how important will technology and innovation be for participants in 2022?
The FX industry hasn’t kept pace with the rapid technological developments that other markets have benefited from over the past decade, which is ultimately detrimental to investors. For this to change, new firms with an innovative mindset like FX HedgePool must come to the fore and approach industry challenges differently. This leads to higher rates of productivity and attracts enthusiastic collaboration from clients and industry experts to solve market inefficiencies.
Cloud technology is now indispensable and adoption will continue to grow in 2022. It is also critical for meeting the rising demand for accelerated delivery and streamlined implementation. The longtime players in the FX industry typically manage an average of three product releases – i.e. those that deliver deep, meaningful value to users – per year. In stark contrast, FX HedgePool’s “10x innovation velocity” approach allows us to release around 30 updates per year, enabling us to drive real, transformational change.
Macroeconomic factors in the weeks leading up to the end of 2021 resulted in uncertainty and volatility in FX markets. How can market participants prepare for future challenges?
Every year towards the end of November and start of December, there is typically heightened volatility in FX swaps, as participants rush to hold US dollars on their balance sheets – causing a spike in interest rate basis for major currencies against the dollar – and FX market makers closely manage the size of their risk-weighted assets to stay within their G-SIB tiers.
Traders know that this heightened, year-end volatility is coming. But as passive volumes continue to grow and more regulations come into play, it is becoming increasingly challenging to mitigate the potential year-end risks on portfolio performance without looking to peer-to-peer networks.
FX HedgePool is helping to alleviate the build-up of pressure and volatility by allowing buy side firms to match off naturally offsetting flow with each other rather than needing to rely on the banks that are most impacted by market conditions. By enabling asset managers to roll their FX hedges at a fixed, predetermined cost, it removes the uncertainty that comes with trading in the market, especially during times of heightened volatility, while eliminating market impact entirely.
