Best broker for NDFs: EBS | CME Group

Amid a whirlwind of geopolitical and macroeconomic events, EBS saw a substantial pickup in non-deliverable forward trading activity on its central limit orderbook in 2022

Last year, a perfect storm of geopolitical and macro uncertainty – following the breakout of hostilities between Russia and Ukraine and central banks quickly raising interest rates to stem spiking inflation – saw the dramatic return of volatility to FX markets. EBS subsequently saw a significant pickup in trading activity on its platforms.  

Emerging markets currencies heavily traded via non-deliverable forwards (NDFs) – such as the Korean won and Taiwan dollar – were further affected by intensifying sabre-rattling between China and Taiwan last year.

“2022 was an interesting year,” says Jeff Ward, global head of EBS. “Geopolitical and macroeconomic events led to increased volatility from historical lows in the three years prior to 2022. Generally speaking, that meant greater trading and hedging activity. We saw clients turn to our platform as a primary FX marketplace and price discovery venue for NDFs, leading to increased trading volumes.

“We saw significant regional increases in trading and hedging activities in the face of some of those macro trends. For example, with rising tension in Asia‑Pacific there was a significant increase in volatility in the Korean and Taiwan currencies – certainly post the Russian action in the Ukraine. EBS volumes were up about 12% year-on-year in Asian currency NDF volumes.”

While Asian NDFs remain the backbone of that market on EBS’ central limit orderbook (Clob), Latin American NDFs – and particularly Andean pairs – continue to make significant inroads and maintain their growth, albeit from relatively low levels compared to their Asian counterparts. Trading in these pairs remains largely voice-driven, but electronic activity in these currencies is on the up. 2020 was an especially important year in that respect as the large numbers of traders at financial institutions working from home due to Covid-19 pandemic-related restrictions prompted some firms to adopt electronic trading via application programming interfaces rather than through voice channels.

“We’re still at the earlier stages of that market becoming fully electronic from a central limit order book perspective, but we continue to see progress in terms of overall trading activity on EBS – both in the number of clients trading and average daily volumes,” says Ward. “Both are still modest, but we’re starting to see broad-based interest and particularly strong interest from major participants, both bank and non-bank participants in Latin American NDF pairs.

“The Brazilian real is quite electronic already – at least from an onshore futures perspective – but, generally speaking, electronification onto a Clob like EBS seems to be the direction of travel. While it’s hard to predict precisely the inflection point, we certainly expect additional progress in 2023.”

Trading of NDFs worldwide is further buoyed by the greater convergence of NDF-specific regulation in different jurisdictions, making trading in the product more harmonious, which has prompted EBS to rethink how NDFs are traded on its platform. The top three FX trading centres – the US, Europe and Singapore – have already adopted such legislation and more are expected around the world. To this end, in September 2022 EBS migrated its Swiss-regulated off-swap execution facility (Sef) trading venue onto a multilateral trading facility (MTF) regulated by the UK’s Financial Conduct Authority. The move comes on the back of the migration of EBS onto CME Group’s Globex technology earlier that year. 

“The move onto an MTF allows us to future-proof our off-Sef Clob in terms of regulatory requirements in places like Singapore and Hong Kong and permits us to better respond to the evolving regulatory requirements in certain jurisdictions,” Ward says.

“With the migration of EBS onto the same technology as CME Group’s listed FX platform we will consider new features and products to offer in the NDF space in general and to support the Latin American focus we’ve had for the last few years.” 
 

EBS was voted Best broker for NDFs at the 2022 FX Markets Best Bank Awards.

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