The algo offering was engineered from the ground up specifically with the NDF market in mind, says Asif Razaq, global head of FX algo execution at BNP Paribas. “In recent years, we have seen marked growth in in electronic trading volumes for NDFs, particularly in KRW and INR,” he explains. “As such, we decided to look at building a solution for NDF currency pairs.”
Yet according to Razaq, building an algo offering for NDFs is much more of a challenge than developing algos for regular deliverable currencies as the NDF market is less fragmented in terms of the number of venues where you can source liquidity. In the case of BNP Paribas however, the bank is already integrated into nearly all of the venues which offer NDF liquidity today.
Razaq continues: “The algorithm that we decided to build would access liquidity in a hybrid fashion, looking to access liquidity from both external markets and internal liquidity, as we are a market maker in that currency. BNP Paribas is also registered on both SEF and non-SEF venues, so we are able to aggregate both sources of liquidity.” In addition, the new offering incorporates mid-matching technology and BNP Paribas says it is planning to source mid-matching in the interbank market in the near future.
The majority of NDF algo launches to date have consisted of very simple TWAP algorithms, Razaq says. “The standout feature of BNPs algos is their ability to react to the market in real time and self-adapt. This technology lends itself really well to the NDF market because the liquidity in this market is unpredictable. However our algos can self-adapt to varying market conditions, that ensures optimal execution for the end client.”
The development of the NDF offering was the direct result of client demand, Razaq adds, with many users now much more comfortable in executing FX algos and have a better understanding of their ability to help access liquidity in very low liquid, volatile markets. “NDFs have always been an area where our clients felt they had limited choices as to how they trade those currencies and they were seeking an NDF algo offering,” he says. “There has been significant client demand, particularly from the real money asset manager space and pension funds, although we now expect the uptake will quickly spread to other client categories as well.”
In addition, BNP Paribas is now in the process of deploying its fourth generation of interactive algos which will be released in the latter half of the year. The new algo offering will be able to read markets and provide more market colour in real-time, whilst allowing clients to adapt their strategy to optimise execution.