Despina Savvidou, our Chief Risk Officer, took part in the discussion “A Story of Tailwinds & Headwinds Liquidity in APAC” during the iFX EXPO Asia which took place in Bangkok last month.
Along with Despina, other experts took part in the panel, including Mohammad Isbeer, the Global Head of Brokerage Sales at Equiti Capital, Phil Kim- Head of Sales Asia at ISAM Securities, Finalto Asia CEO – Alex Mackinnon, Anya Aratovskaya, the VP of Institutional Sales Advanced Markets and Wael Hammad, the Chief Commercial Officer at XS.com.
During this discussion, these interesting topics were raised:
- APAC liquidity scene, its challenges & opportunities
- Finding the right liquidity and multi-currency management strategy
- Solutions to manage challenges, currency risk & drive efficiencies
- Impact of Asia zero-COVID policies
Watch the whole panel, or read the summary below.
Liquidity in Asia
Mohammad Isbeer, the moderator, started the discussion by asking about the essence of liquidity in Asia. The Asian market was compared with Europe, attention was paid to the large fragmentation of the latter market and differences in its regulations. While in Europe, and even only within the European Union itself, there are many respected regulators, such as CySEC (Cyprus Securities and Exchange Commission), each with slightly different specifics and restrictions, there are not many regulators in Asia. The panellists decided that it is certainly a great facilitation for those who want to develop their business in this region. It was also noted that existing entities, such as MAS (Monetary Authority of Singapore), are doing a great job of promoting Asian liquidity execution. The topic of prime brokerages specific to each market was also discussed – while in Europe we have a whole range of them, such as NatWest or BNP, there are also their counterparts on the Asian market, such as Standard Chatered or HSBC.
The specifics of the Asian flow
The discussion also delved into the question of whether there are distinct differences between the flow originating in Asia and the flow originating in other regions. The panellists were unanimous in their opinion that such a phenomenon actually takes place. Despina Savvidou stated that the different behaviour of Asian traders was a differentiating factor. In her opinion, those traders have different habits from their counterparts from other regions of the world and tend to trade in different types of products, mainly on FX and metals. They have different strategies, often opt for high-frequency trading, and relatively rarely use long-term strategies on equities. These differences, of course, can generate problems for Liquidity Providers unfamiliar with the specifics of the market. The solution to this problem is to create different liquidity pools according to the products, flow and specific region. LP’s should also pay special attention to the Dealing Team’s analyses and follow special risk frameworks. Another problematic issue, in this case, is the type of business for which liquidity is created. Family offices and funds have completely different needs than retail brokers because the latter are dealing with smaller size clients, so they do not need a depth of market on such a scale as businesses dealing with larger clients.
In advertisements addressed to individual clients, great emphasis is placed on technical solutions – tight spreads, liquidity depth, top of the book size. This is part of a broader process of educating the client, showing him alternative possibilities of diversifying investments. Particularly when working with individual clients, attention should be paid to volatility and liquidity, as well as the consequences of these concepts, such as opportunities for profit and loss. Another important topic was the quality of execution, which according to the panellists, is a key element of the offer for brokers.
Although forex is basically available all over the world, it is natural that centres offering this type of service are created. In their opinion, the panellists indicated the most important of them, such as London, which is to be the undisputed leader, followed by New York, Singapore, Hong Kong, and Tokyo. It was also pointed out that the case looks different from the perspective of retail brokers, who should be close to their clients. The division was also discussed, taking into account regulations and their adaptation to different types of business, as well as typical geographical factors, such as proximity to the most developing markets, e.c. Malaysia and other Southeast Asian countries. The impact of technology on the location of these centres, including the placement of servers, was also discussed.