Commerzbank unveils benefits of FXall collaboration for FX benchmark fixing algos

February 2023 in Provider Profiles

Commerzbank has an unrivalled record for innovation in the e-FX space and continues to lead the way in providing solutions which further enhance the client experience of using FX algos. Tibor Gergely, Head of e-FX Liquidity Provision at Commerzbank, shares further details about the latest collaboration with FXall’s new Forward First Fixing product and why this solves a significant challenge for FX benchmark fixing algo orders.

“Very often, customers trading FX benchmark fixing algo orders would need to eventually settle on a date that is different from the spot date, however popular fixings such as the WM/Refinitiv FX benchmark and the Bloomberg FX BFIX all provide spot rates”, says Gergely. “As a result, the customer would typically submit a fixing order to a bank, wait for the spot fixing to fill, then finally roll that trade to the desired settlement date by entering in a separate FX Swap transaction.”

“In most cases, the algo customer will ask the same bank that provided the fixing to roll the trade immediately straight afterwards, yet that FX Swap may not necessarily be done at the best price,” Gergely explains. “Firstly, another FX Swap liquidity provider could quote a better price and secondly, by constraining the timing of the FX Swap execution to the few seconds or minutes right after the benchmark fixing rate release, the customers expose themselves to any local liquidity gap due to heightened volatility around the benchmark fix window or other exogenous factors.”

The disadvantage for any FX benchmark fixing algo client who wants a non-spot settlement is that they need to bear the risk on the forward points while the fixing order is being executed, he adds. In response, FXall has developed a new product, Forward First Fixing (FFF), which will allow the liquidity consumers to put liquidity providers in competition for the FX Swap pricing and give the execution of the spot benchmark fixing to the bank that wins the FX Swap. Commerzbank have collaborated with FXall to be one of the first to deliver the new service to its clients.

“FXall FFF is a combination of an RFQ in competition for the forward points and spot fixing order,” says Gergely. “Clients can submit a FFF order on FXall well in advance of the fixing time, which gives customers ample time to request forward point quotes in favourable liquidity conditions. Depending on the currency pair and maturity, fees charged by banks for the spot fixing can be dwarfed by the bid-offer spread on the FX Swap. Hence the overall cost of the complete non-spot benchmark fixing transaction can be dominated by the FX Swap bid-offer. For any customer needing to settle a benchmark fixing trade on a non-spot date, FXall’s FFF eliminates the cost uncertainty associated with the roll from spot to another date by setting it ahead of the benchmark fixing window.”

“This collaboration between Commerzbank and FXall serves to further highlight our commitment to delivering market-leading innovations, reducing the risk and cost considerations for FX benchmark fixing algo clients, and continues to enhance the overall algo proposition for our clients,” Gergely says.