Why buy and sell-side are not prioritising FX swap algorithms - insights from 360T, Groupama, UBS and 24 Exchange

Buy and sell-side panellists at TradeTech FX 2023 revealed FX swaps algorithms are not currently a priority.

While they believe a much-needed evolution in the swaps market was underway, they agreed that they are not ready for widespread usage.

Speaking at the Palais De Congres in Paris Simon Jones, chief growth officer at 360T, said: “The electronification of pricing in swaps has been around for 25 years, the second wave of electronification came around risk management and the third wave is now focused on electronic hedging.”

360T is attempting to drive innovation in the FX swaps space with the launch of a new mid-book execution venue with visible bids and offers and API capabilities. Meanwhile, 24 Exchange are also launching a new swaps electronic streaming platform aimed at bringing greater electronification to the market.

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Paul Millward, head of product at 24 Exchange added: “There have been complexities around credit and holding a street price, but this is getting investment now.

“There has been a lack of infrastructure and demand has also held back development in this space. Divisions in responsibility between FX and STIRT have probably contributed to why electronification hasn’t happened in this market yet.”

Although panellists were unanimous in agreeing that electronification was positive for aspects such as access to axes and efficiency of trading, they are not interested in using algorithms for FX swaps at the moment.

Emmanuel Hurault, credit, rates and derivatives trader at Groupama Asset Management, said: “It’s not a main priority for us at the moment.

"It needs good TCA. We are currently 85% automated and do we want to go further? I don’t think so. We need good relationships and there is a human factor in that.

"We have specific problems that occur that you need a human to solve. The markets for G10 currencies are very liquid but for emerging markets not so much.

"I’m not convinced electronification will solves problems as related to liquidity. I need human contact.”

Ben Pearson, co-head of global G10 and PM STIRT at UBS agreed. He said: "Swaps algos are not at the forefront of our thoughts now. We don’t think it’s possible to build FX swaps algos to manage the STIRT franchise due to the market structure we find ourselves within.

“The world owns more US assets than the US owns the rest of the world. There is a constant US dollar supply mismatch. We have certain periods of very high monthly flow and if we want to get risk flat when this is happening things could unravel very fast.”

This article was originally published by our lead magazine partner, The Trade.