Emerging FX takes off online

"Emerging markets are extremely important to us," said Tom Roche, global head of e-commerce and agency treasury services at the Royal Bank of Scotland in London. "We have seen a lot more business coming online in the past few months, and I expect that to grow significantly because of the unique offerings we’ve got."

Vince O’Sullivan, director of UK and European FX sales at Barclays Capital in London, agreed: "Corporates do the whole range of EM currencies and are very comfortable trading online," he said. "Hedge funds are also increasingly using the online service."

Deutsche Bank last week confirmed that it has recently added 28 new currencies to its e-FX offering in response to "continued sharp growth" in e-volumes and client demand for electronic liquidity in less-liquid currencies. The new currencies are available both to direct customers and to white-label partners for distribution to their own client base.

RBS, which has offered emerging markets trading online for about two years, has been expanding its offerings across its range of e-FX products over the past 15 months to cater for increasing client demand, said Roche.

The bank’s FMET (Financial Markets Electronic Trading) platform for mid-corporate clients currently provides pricing for 20 emerging market currencies. FiX, a benchmark engine for spot and forwards FX rates powered by EBS data launched last year, now provides online pricing for 40 emerging market currencies. The platform is seeing a strong demand for its emerging markets capability, particularly from the North American and UK client bases, he added.

"In what is predominantly a very volatile market, it gives our clients a sense of transparency, and, because the rate feed is from EBS and all the well-known data providers, it gives them greater independence," he said.

FiX currently has about 150 large corporate and institutional users, and RBS expects that figure to grow over the next few months. There is an increasing awareness of the product among the hedge fund community, as well as among the real-money asset manager client base, he added. "At the moment we’ve got a hedge fund looking actively at the product for very large trade sizes, and we are confident they will be using it from next week."

Barclays Capital had already incorporated some emerging currencies on the launch of its single-dealer platform in 2000, but added about 25 more on a staged basis over the course of 2003, said O’Sullivan.

Liquidity in emerging markets can vary considerably, so getting the liquidity right -- and therefore setting the auto-quote limits -- is very important, explained O’Sullivan. BarCap might give an auto-quote limit of $50,000 for one currency and $10 million for another, he said. For example, it allows a bigger amount to be auto-quoted in South African rand and Mexican peso than in the Tanzanian shilling.

RBS’s Roche agreed: "Auto-pricing depends on the currency and the client -- depending on the currency and the client we will have a higher threshold in terms of what we will do without reversion to dealer intervention, but for the more volatile currencies where there’s less liquidity we have to be a bit more cautious and will have lower auto-quoting limits."

Emerging markets specialist Standard Chartered currently supports liquid currencies, such as Singapore dollar and Hong Kong dollar, online, but also plans to add more during the course of this year, said Nick Beecroft, Standard Chartered’s global head of FX trading in London.

HSBC has also mooted its plans to increase its emerging currencies offering online during the course of this year.