THETRADETECHFX DAILY from the floor
When it comes to NDFs, futures, forwards swaps and options, where are the key opportunities? Since the global financial crisis, market participants have actively debated how to promote greater structure and resilience in FX markets. The most immediate opportunity for meaningful structural change lies in the FX non-deliverable forward( NDF) market, where the role of central clearing has been a recurring focus. NDFs are already subject to collateralisation requirements, which materially reduces the operational and behavioral barriers for the investment management community to transition toward central clearing.
However, another area with meaningful growth potential is the FX futures market. We increasingly see brokers promote FX futures as a liquid alternative, supported by their ability to economically replicate forward exposures through forward-to-futures conversion. The absence of ISDA documentation and other complex bilateral contractual requirements makes FX futures particularly attractive from an operational and onboarding perspective.
But while FX futures offer efficiency and accessibility, their standardised nature limits the degree of customisation available to more sophisticated funds employing complex FX hedging strategies. Despite the growth opportunities in futures, I continue to believe that clearing FX NDFs offers greater longterm potential for adoption and expansion, particularly among institutional investors with more nuanced risk-management requirements.
This said, we’ re unlikely to see meaningful adoption this year. Experience from UMRdriven changes suggests limited immediate impact. Nonetheless, I believe clearing FX NDFs represents the most tangible near-term opportunity.
What are the consequences set to come from the market shifting towards exchange-traded derivatives? A broader shift toward exchange-traded derivatives would carry meaningful implications for the investment management community, particularly through the loss of customisation that many managers require to implement bespoke FX strategies. Exchange-traded instruments impose standardised structures, requiring managers to adapt their FX exposures to predefined contract specifications rather than tailoring instruments to precise portfolio needs. This constraint risks reducing hedge efficiency and strategic flexibility.
From a cost perspective, this standardisation may also prove additive rather than neutral. Increased roll frequency driven by fixed maturities, combined with liquidity constraints dependent on market participant timing, can introduce additional transaction costs. Margining requirements further compound this consideration as FX forwards in many jurisdictions do not currently require
Technology essential for the broader shift toward exchangetraded derivative instruments in FX
Natsumi Matsuba, head of FX trading at Russell Investments, sits down with The TRADE to unpack the key opportunities across NDFs, futures, forwards swaps and options and what’ s front of mind for FX desks across 2026, and beyond.
it, making the transition to margined listed instruments a potential balance sheet and liquidity burden for some investors.
For banks and liquidity providers, the consequences are equally material. Enhanced transparency inherent in exchangetraded markets limits the ability to apply differentiated pricing or spreads, compressing margins and reducing flexibility in risk warehousing. While transparency delivers clear benefits to end users, it fundamentally alters the economics for liquidity providers that have historically supported the OTC FX market.
Taken together, while exchange-traded FX derivatives offer advantages in terms of transparency, standardisation, and risk reduction, these benefits must be weighed carefully against the loss of customisation, potential cost increases, and structural shifts in market economics for both investors and liquidity providers.
From your perspective, what’ s front of mind for 2026 on the FX desk? Several themes have emerged recently as focal points of market discussion. Among them is the growing interest in coin-based trading models, particularly in the context of reducing settlement cycles without materially increasing settlement risk. Coin-based trading is increasingly being cited as a potential replacement formore efficient post-trade processes.
In parallel, there has been renewed focus on shortening settlement cycles more broadly, driven by the desire to improve capital efficiency while maintaining robust risk controls. This shortening in settlement, especially across different time zones, has naturally led to greater scrutiny of existing market infrastructure and alternative settlement mechanisms that could support faster settlement without compromising operational risk.
Finally, market participants are revisiting the ability to trade more esoteric or currently restricted currencies without opening new risk and settlement failures. The objective in doing so is primarily to reduce overall trading costs and improve execution outcomes to preserve alpha in fund performance, particularly for global portfolios with large emerging market currency exposures.
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