How to tap liquidity in non-deliverable forwards (NDFs) has been exercising the minds of FX houses this year. In February, Goldman Sachs introduced a smart algo for accessing internal and external liquidity NDFs. Four months later, BNP Paribas went live with its first NDF algo currency pairs (USD/INR and USD/KRW).
According to Ralf Donner, head of client FX algos at Goldman Sachs, there has been a consistent demand from clients – particularly in Asia – to trade NDFs in the same way as deliverable currencies.
“The most commonly traded currencies are USD/KRW and USD/INR to the 1-month date, with USD/TWD and USD/IDR also offered,” he says. “Our focus is extending the product range to provide all algo styles from TWAP [time-weighted average price], to sweep-to-fill, to the most passive execution.”
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Asif Razaq, BNP Paribas |
Asif Razaq, BNP Paribas’s global head of FX algorithmic execution, says that clients can see the cost benefits of using execution algos for deliverable currencies compared to trading against a traditional risk transfer price. Unsurprisingly, therefore, they want to be able to trade non-deliverable currencies the same way.
“The electronification of the NDF inter-bank market has created an ideal environment for the introduction of an NDF algo,” he explains.
