Managing foreign exchange (FX) spreads has been the biggest trading challenge for corporate treasurers since the pandemic and resulting lockdowns began, according to a survey released by Refinitiv.
In the global survey of over 1,000 FX trading clients, which included responses from 453 corporate treasurers, 35% percent of respondents felt spreads was the biggest challenge. Interestingly, 23% said that they have managed to overcome the pandemic with no issues. Some 18% of respondents cited access to liquidity as their biggest challenge.
“The changes to spreads during this period have been well documented," Jim Kwiatkowski, global head of Transaction Sales at Refinitiv. "Spreads widened as volatility increased and providers became concerned about client credit. This was clearly a market-wide impact, but one that was mitigated, at least partially, by the utilisation of trading tools to aggregate available relationship pricing and find that elusive ‘best price’. Many clients have taken advantage of auto execution capabilities for smaller orders so that they can focus on their larger, more difficult to execute orders.”
Reliability of execution methods
The survey also asked which execution method was the most reliable during the crisis period. The most popular answer by far was streaming risk transfer, which was selected by 71% of respondents. This was significantly higher than banks (56%) and hedge funds (41%). Send details polled at 14%.
“Given spreads, liquidity conditions and volatility, streaming risk transfer has the advantage of leveraging pricing from multiple relationship liquidity providers as well as the certainty of immediate risk transfer," said Kwiatkowski. “The increased use of send details, which allows trades to be agreed by voice, but then automates the booking through normal straight through processing, suggests that many clients opted for electronic trading tools, even for voice trades, to reduce the risk of booking errors and satisfy compliance concerns.”
Communication issues faced when transitioning to working from home
When asked about working from home, 35% of all respondents described communication with colleagues as the biggest challenge. This was followed by market conditions (18%) and communication with clients/dealers (14%).
“Difficulties in communicating could be part of the reason why electronic trading was found from the survey to be far more reliable for our participants than ‘voice risk transfer’," concluded Kwiatkowski. “It also shows that instead of reverting to old-world methods - voice - the market is now so far down the path of electronification that it pushed even further in this direction as the crisis evolved.”
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