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The need for a strategic approach to liquidity management

Posted: 5 February 2017 | Bryan Seegers, Director – Co-Head Global eFX Coverage at ADS Securities | No comments yet

Bryan Seegers, Director – Co-Head Global eFX Coverage at ADS Securities, tells FX-MM why it has never been as important as it is now for currency investors to take a strategic approach to liquidity management…

What has been the most significant change in FX liquidity provision in recent times?

Prime brokers are less willing to extend the amount of credit across multiple venues as they once were. Because of that, many participants in the market have been squeezed out and have to be much more selective if using a prime broker to access liquidity.

This has caused a lot of market participants to try to trade bilaterally, and that has created more pockets of liquidity, which aren’t always the best thing for the market. By concentrating liquidity in different places, many people no longer have the reach they once had.

There is also a major shift going on at the tier-one liquidity providers. Due to regulatory and risk changes they are no longer able to take the risk and manage flow as they once did, which has caused a ‘glut’ in available liquidity to the overall marketplace. This again has pushed many market participants to the periphery.

So with the market going in the direction that it is, it is no longer sufficient for market participants to just have access to the top five banks in order to source liquidity. It is no longer enough for that to be their liquidity pool. Market participants need to reach the periphery – to the non-banks, to the ECNs – in order to complement their liquidity pool so that at times of stress in the market, they are able to optimise their client’s experience and their own trading experience.

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