Our monthly FX insights
Hello from FX Markets,
Recently in the FX industry, banks have been facing challenges due to the growth in multi-manager funds, requiring more coverage without burdening sales teams. Additionally, operating single-dealer platforms is proving costly, especially when trade volume is limited to a few providers. Finally, traders have seen increased activity in US dollar/Chinese renminbi (CNH) after low volatility, with hedge funds profiting from exotic options, causing higher volatility and changing risk dynamics.
All-powerful pods test dealers
Headcount and assets under management at multi-manager funds have shot up in recent years. The challenge for banks lies in how to expand their coverage for these firms without adding pressure on their sales and relationship management teams. Banks may also have to treat these multi-pod funds – many of which have hired former market-makers and electronic traders – as both client and competitor.
Banks predict SDP consolidation
Running and upgrading a single-dealer platform is an expensive business. Moreover, the volume of trades executed through SDPs is becoming increasingly concentrated among the top four or five providers. Banks that see only a few billion notional traded on their SDP each day face a tough choice: keep the platform ticking over in the background, or commit to it fully?
RMB volatility makes a welcome – albeit brief – return
After coming off near-record low volatility levels, traders saw a much welcomed, though short-lived, uptick in activity for US dollar/Chinese renminbi (CNH) at the end of last month as many hedge funds took profits on their exotic options positions. The unwinds saw vol jump 72%, with a sharp flip in risk reversals following a surge in interest for calls on USD/CNH.
Key dates for your diary
FX Markets Leaders: "Prime status – Could FX futures exchanges rival the primary spot market?" - May 2024
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Sign up now for our webinar to discover the implications of the shift away from traditional 'primary' interdealer markets, and whether futures could step up as the new benchmark in the evolving spot FX market. Hear our panel's insights on the future of these currency market pillars.
Explore our full events schedule for 2024 here.
Thanks for reading,
FX Markets
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