Technology is transforming FX trading and strengthening client access for Deutsche Bank’s Emerging Markets business

Deutsche Bank’s Global Emerging Markets (EM) business has built unrivalled onshore market access over decades in many of Asia’s emerging markets, and the model developed in Asia Pacific is bearing fruit in other EM regions like LATAM and CEMEA.

Technology is playing a leading role in improving client retention and transforming Emerging Markets currency trading from spot by voice, to restricted currency* forwards by digital workflow. 

Commenting on the role these platforms play in expanding the bank’s EM business, Head of Global Emerging Markets Sameen Farooqui said: “Digitisation for EM FX in the near term offers improved efficiency, and adds more value to clients. Long term, it is an important initiative with tremendous value to both clients and the bank, and leverages our inherent strengths in the Asia Pacific region.” 

Head of Client Access & Flow Execution FIC in Asia Pacific, Gordon Alexander, talks about the drivers of digital platform development and what it means for the FIC trading business in Global Emerging Markets.  

Q. How are electronic FX platforms evolving to cater for a broader universe of EM currencies and related instruments?

Over the last five years, continued investment by financial institutions in digital solutions for trading platforms has extended from G10 currency pairs to Emerging Markets currencies. One of the structural drivers for digitising EM FX markets, particularly Asia, is securities denominated in those currencies are increasingly being more weighted in emerging market indices and exchange-traded funds. 

Advances in algorithms and AI technology are sharpening the tools available on e-platforms for traders and corporate clients alike. The key differentiator in EM markets is the need for workflow to augment the platform’s capabilities in addition to providing pricing in local markets.

Q. What steps are being taken to minimise the operational complexity and manual intervention that can be prevalent in EM FX processes?

Institutions are increasingly using Application Programming Interfaces (API) to develop direct client connectivity and automation solutions, such as robots, to reduce manual intervention and to improve the lifecycle timing of a trade. 

In July, Deutsche Bank and BNY Mellon introduced a new jointly developed API-enabled FX solution that dramatically improves confirmation times for restricted emerging-market currency trades. Initially for custody FX transactions in Korean won, it aims to reduce the pre-trade lifecycle to seconds from hours, minimizing the operational burden and manual intervention.

Q. In what ways is the use of electronic NDF trading evolving and how is liquidity in these instruments being adapted for algorithmic trading?

The use of electronic platforms for Non-Deliverable Forwards (NDF)** trading has evolved in a number of areas. Volume growth in electronically traded NDFs has been steady. Brokers such as EBS have increased the currency offering and institutions are increasingly offering more electronic NDF pairs and NDF algorithms to allow clients multiple electronic execution methods and increased transparency. 

Algorithms are focusing on improving execution around broken dates and market events by using other tools to augment liquidity such as FX Futures to improve electronic price creation. 

Q. How are platforms like Autobahn reducing the operational risks that are potentially greater in EMs where liquidity is thinner and volatility is greater? 

Deutsche Bank’s strength in Emerging Markets fixed income and FX goes back decades. It is reflected in our number two ranking in Emerging Markets FX in the Euromoney Survey 2020, which also ranked Deutsche Bank number four globally for FX.  

Our continued investment across multiple markets has driven the strength and evolution of our onshore trading platforms. Our digital workflows enable onshore access for clients within often complex local regulatory frameworks, even in markets which experience liquidity gaps.

The ability to handle the transfer of risk for our clients is a key differentiator. Having an ability to track and manage client orders transparently across time zones and being able to perform fixed income and FX execution electronically removes the uncertainty which can result in voice executed trading. If clients are looking to execute transactions in markets which are inherently volatile and across time zones and products, electronic workflow creates confidence that a bank will consistently facilitate client business and be able to provide ease of execution and efficient workflows.

Q. What can we expect to see in terms of digital workflow innovation in EM FX platforms?

The ability of banks such as Deutsche to navigate onshore regulation, coupled with automated workflow, AI and algorithms to track liquidity and the capability to facilitate bookings and utilise digital data will be the key innovation areas in EM trading. 

*A restricted currency is one that is subject to government controls.

**A non-deliverable forward is a short-term cash-settled forward where the notional amount is never exchanged.