Asian currency trading gathers pace on EBS

Recent growth in Asian currency trading has been driven by new regional players entering the space. EBS explores how its trading platform has adapted to service this influx of traders – one factor that won it the best emerging market FX trading platform award in Asia at the FX Week Asia FX Awards 2019.

Emerging market currencies, particularly in Asia, have grown considerably on EBS’s trading platforms as the nearly three-decade-long period of low FX volatility levels in major currency pairs has driven market participants to follow the growth in economic activity enjoyed by countries in the Asia‑Pacific region. 

As a result, the scale of Asian non-deliverable forwards (NDFs) traded across all EBS trading platforms – EBS Market and EBS Direct – has grown significantly in recent years. Between April  2016 and April 2019, average daily volumes increased by 80% across those venues.

Asian spot trading has also performed well on EBS – notably the offshore yuan (CNH) against the dollar, which has become the third most widely traded currency pair on the EBS platforms. While CNH still most actively traded in the Asian time zone, it is also actively traded in London and the US. 

Another pair – the US dollar and the Hong Kong dollar – have also done particularly well this year, growing 20% in the nine months to September alone.

“Asian currencies are an attractive and growing area of the FX space,” says Jeff Ward, global head of EBS, adding that “generally speaking, there’s more of a focus on emerging markets from a real economy perspective. That has been a key area of growth for EBS in recent years.”

EBS was voted as the best emerging market FX trading platform in Asia at the FX Week Asia FX Awards 2019.

The growth of Asian currency trading activity on EBS has been driven by new counterparties entering the space spurred by the extreme low FX volatility environment and the geopolitical landscape dominated by the trade tensions between the US and China.

Regional banks from China, Singapore, Australia, Hong Kong and Taiwan have become increasingly active in trading Asian NDFs and offshore yuan, and now represent about 15% of trading activity on EBS.

“We like to see that,” says Ward, “because a good healthy market has a diverse set of counterparties.”

“We also like to see that some of the non-bank market-makers continue to be important and active players in Asian NDFs, and over the period of 2016 to 2019 they’ve actually increased their proportion of NDF trading on our platform. Their presence has helped extend pricing and liquidity throughout the trading day.”

And, as market-moving news events occurring outside of European and US trading hours increasingly take place in the early parts of the Asian trading session, it is critical for market participants to have trading and risk management infrastructure to respond to these events in Asian time zones.

“Ensuring there is a healthy ecology around our NDF business and operating that business to maintain our position as a key risk transfer venue for Asian NDFs and CNH is a priority for us. As such, we continue to develop new products to ensure we best support the needs of our clients, such as the recent launch of our CNH benchmark which is now used as a reference for Shanghai Gold Exchange contracts.”

Asian counterparties now make up 40% of the volume on EBS Direct, the relationship-based trading platform launched five years ago. The platform is currently being revamped to better support these counterparties and allow EBS to service other types of client active in Asian time zones, be they retail aggregators in Tokyo or the more latency-sensitive Asian hedge funds and proprietary trading firms.

“Replatforming will enable us to expand our client footprint and those clients we service in the Asian time zone effectively,” says Ward. “We also are focused on our FX swaps business in Asia and are working with our clients to launch a peer-to-peer trading offering based on our current FX swaps EBS direct forward’s platform.” 

Following CME’s acquisition of EBS in late 2018, a key focus for the combined entity is to migrate EBS technology onto CME’s Globex platform, which is expected to be carried out over the next two to three years.

Once the integration is complete, the aim is to bring additional products to market that leverage the combined capabilities of CME and EBS in Asia.

“CME futures serve as the reference market for FX futures, and EBS is the reference market for over-the-counter cash spot and NDFs,” Ward explains.

“The idea is, in time, to enable clients to trade cash and futures and move between those instruments. There’s a lot of value in having a strong emerging markets offering across both of those businesses.

“The vision is to make both markets easily accessible to the EBS and CME client set through a single front end and application programming interface to leverage both of those major liquidity pools.”

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