Over half of asset managers are using multiple foreign exchange (FX) platforms to ensure resiliency in the case of system failure, a report by EBS Institutional and The Finance Hive has found.
Of the 168 portfolio managers across Europe, the Middle East and Africa (EMEA), North America and Asia Pacific, 55% said they were using multiple FX platforms.
Asset managers attributed this need for greater resiliency to changing regulations and the need for better risk management in non-financial areas such as operations and business continuity. They also cited the pandemic as a driver as not all platforms were able to be accessed remotely.
“Aside from pricing, liquidity and best execution – which are always primary factors when selecting a system – there was a very strong emphasis on the need to have backup systems and resilience. There has been a strong move away from just having a primary system,” Hugh Whelan, head of EBS direct trading platforms, told The TRADE.
“There is a larger amount of business continuity planning going on within most of these larger organisations where they are realising that they need to have a stronger trading resilience. These secondary platforms are not only used when the other primary is down, firms will do their business across multiple platforms. The reason being that they don’t want to be caught with their back against the wall, particularly when there’s platform instability.”
However, the report also found that operational challenges and the implications of selecting an unreliable or inadequate provider were hindering asset managers’ ability to quickly adopt new FX trading systems.
“There are a lot of mandates that are required to be observed either for regulatory purposes or just because of the investor mandate. These are known as broker restrictions and will define within a particular fund what currencies/tenors/what liquidity providers they can trade in order to meet and ensure that they don’t break any of their mandates,” added Whelan.
“If asset managers are hesitant about moving trading systems, it is because they are not confident there is one solution that supports the entire FX workflow from order generation and order management to the execution and reporting of the order.”
EBS launched its next generation direct platform that aims to improve latency and execution for foreign exchange traders last month. Societe Generale also became one of the first users of the new platform last month with additional API customers expected to be on boarded throughout this year.