THETRADETECHFX DAILY from the floor
Navigating the turbulent FX markets
How did the Russian sanctions impact your desk ? The sanctions imposed on Russia have cut off many Russian banks from the SWIFT global payments system and the global payments architecture and have limited the room for manoeuvres for all Russia-related market participants . For us at the trading desk , the most important thing was to always act in accordance with all sanctions . First , we had to have an overview of all our sanctionsrelated touch points in the back office and settlement processes in order to work off all transactions even under high pressure in a very restrictive environment . This included questions like : which account is set up at which custodian bank ? which counterparty and clearing house fits ? and which regulation applies to all participant in the chain ? The very close internal cooperation between our central trading desk , portfolio management , operations and legal and compliance helped us to master this task successfully , alongside the good relationship of trust with our longstanding counterparties .
In setting up and establishing the multi asset trading desk , the focus is on optimisation , electronification and automation . During this challenging time , it has proven invaulable to have senior trading specialists in our team , who are able to switch in volatile market phases to hightouch very quickly and who have very sound knowledge of market structures and their participants - thus ensuring a maximum of transaction flexibility while meeting all sanctions .
Elke Wenzler , head of trading at MEAG , sits down with ANNABEL SMITH to discuss the impact of Russian sanctions on the desk , the liquidity landscape for FX and what ’ s next for automation and technology .
What is the liquidity landscape like ? We have certainly seen an impact to liquidity conditions this year due to various geopolitical developments , impacts of regulation along with central bank developments .
Fragmentation of liquidity in the FX market is an important topic , that should not be underestimated – the drivers are regulation and electronification , accelerated by market disruptions in the wake of recent crises . Unlike in the past , when market access and information flow went through the market maker , we now have a very different set-up . The control , management and therefore quality of execution depends entirely on our decisions . Therefore , we need to ensure that we have optimal access to the sell-side and various liquidity pools . In addition , the analysis of execution performance is essential to manage our flows - in terms of liquidity and performance . We are steering considerable foreign exchange flows , so we have to have the ability to align our trading and analysis set-up to the benefit of our Group-internal as well as external mandates . Not having the right set-up would be a significant disadvantage , especially in the less liquid currency pairs .
How do you use algorithms ? We use algorithms to select liquidity pools and implement different trading strategies . While we do not develop our own algos , we do benchmark and analyse a changing set of sell-side algos that we use , and differentiate their use by market phase , benchmark / intention , and currency pairs . The responsibility of buy-side traders has changed significantly - algos are starting to take the place that voice used to dominate . When managed appropriately , they work really well because there is a lot of liquidity hidden even in tight markets . They allow traders to take direct control of order execution , and analysis during and after the trade provides insight into prevailing market conditions . Buy-side traders can use this information to adjust their future execution and improve the overall execution costs for our mandates . The volume we trade via algos has increased during the last two years and will further do so .
What ’ s your technology set-up like ? We use one OMS for all asset classes and multiple trading platforms . For FX , we use two platforms with different strengths for flow / cash and algos / FX options , but also to
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