By Vikas Srivastava, Chief Revenue Officer, Integral
Settlement issues are capturing the limelight in FX right now, especially the hurdles in post-trade execution for cross-border trades with the shift to T+1 for US equities and bonds a matter of months away now. However, there are several other factors on the agenda for FX desks. The latest J.P. Morgan eTrading survey provides valuable insights on what else is going on.
Unsurprisingly, volatility and access to liquidity were the top 2 challenges followed by workflow efficiency. The growing fragmentation of the FX markets, a trend observed by the Bank of International Settlements back in 2019 which has continued to this day, is a primary driver of the concerns about accessing liquidity which many banks continue to grapple with.
The findings do show that FX market participants expect the percentage of their trading volumes executed electronically in FX in 2025 to increase, jumping 7% versus 2023 to 73% of the overall total. This is positive as e-trading provides the best means of navigating the fragmented liquidity environment that phone execution cannot achieve. But a higher proportion of electronic trading is not automatically the answer without solid technology foundations.
Market participants need tools that provide customizable liquidity strategies which enable them to aggregate liquidity from multiple different providers and data sources. With this they can configure different liquidity pools to suit their trading needs and optimize execution to minimize overall costs of trading.
While important, accessing liquidity is not the only concern of the market. Reducing brokerage and execution fees also feature as a cause for concern among the J.P Morgan survey respondents. For this issue, a shift in mindset to a fixed cost SaaS model is needed.
The two issues highlighted in the survey impact differently but require a similar change in mindset and a corresponding change in approach with technology. Solutions which are easily implemented through SaaS technology providers are available. Now is the time to make that investment in solutions that connect across the entire value chain of pre-trade, trade and risk management activities in a wholly electronic trading environment.
As a result, these prominent challenges of market structure and technology can be overcome in a way that lowers the total cost of ownership of the technology stack while crucially reducing the brokerage and execution costs of the desk. By following a fixed cost SaaS technology approach, next year’s J.P Morgan study should look quite different, with far less concern on accessing liquidity and no concern with brokerage costs.
