The dramatic impact of the Swiss National Bank’s sudden removal of its floor on EUR/CHF in January is driving increased use of algorithmic execution tools among corporates and systematic hedge funds, according to BNP Paribas.
“In the wake of January 15, many non-bank market makers pulled their liquidity and spreads have widened significantly in G-10 currencies. For some clients that hadn’t historically considered algos because their risk transfer pricing was already competitive, this new dynamic has prompted a rethink,” says Asif Razaq, global head of FX algo execution at BNP Paribas. Using algos enables corporates to cut their execution costs, with a stronger chance of trading inside the bid-offer spread quoted by banks, while for hedge funds that previously used their own algorithms, using bank algos now gives them access to deeper liquidity from across the market, Razaq adds. “Our algo execution volumes rose by 33% in February and a further 50% in the first half of March. There is a large swathe of virgin users that previously found it hard to justify using algos, but the combination of the SNB volatility and the changes to the WM/Reuters fix on February 15 has created a drive to improve execution,” he says.