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Latin America: Embracing electronic FX trading

Bart Joris
Bart Joris
Head of FX Sell-Side Trading, Refinitiv

How has electronic FX trading expanded in Latin America in recent years, and what benefits does it bring to banks and buy-side trading firms that choose to adopt it?

  1. Electronic FX trading is becoming more widespread in Latin America, as trading firms strive to become more client-focused, cut costs and enhance operational efficiencies.
  2. Refinitiv’s electronic FX trading solutions deliver straight through processing, providing trading firms with a host of benefits in the areas of costs, risk and operations, while also helping traders assess best-execution and regulatory requirements.
  3. The use of algos is increasing in Brazil and Mexico among banks and large corporate firms.

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The adoption of electronic FX trading has varied greatly across Latin America, with local market trends and nuances differing hugely from country to country.

While banks, large asset managers and pension funds in the region recognise the benefits that electronic trading brings, smaller buy-side firms have been relatively slow to adapt, often preferring to continue to trade by telephone.

In general, however, adoption of electronic trading across Latin America has accelerated over the past three years, with the developed markets like Brazil and Mexico leading the way.

Get access to deep liquidity in hundreds of currency pairs, efficient and effective execution, and full insight into your trade decisions with FX Trading

Adopting electronic FX trading

Regulation is driving market transparency and also increasing costs for regional banks. This has promoted a more client-focused approach, combined with cutting costs and the need to improve operational efficiencies, throughout the trade lifecycle.

Trading firms in Latin America are under increasing pressure to prove best execution. An important component of this is transaction cost analysis (TCA). But accessing accurate data can be a challenge in illiquid markets where trading is dominated by voice.

A robust set of data has become essential for buy-side institutions in the FX market in order for them to better evaluate liquidity providers and market opportunities.

The benefits of electronic trading are becoming more widely understood in Latin America as banks and the buy-side demand increased efficiency in the front-, middle- and back-office.

The right technology

Refinitiv’s electronic trading solution delivers straight through processing (STP) by enabling efficient end-to-end workflows, from pre-trade analytics, trade execution, confirmation and settlement, and post-trade compliance and archiving support.

Many banks and buy-side firms run pan-Latin American businesses. Using one platform for internal processes and external trading provides an efficient and cost-effective solution.

Refinitiv FX Trading allows users to trade directly from a Refinitiv desktop, eliminating the need for in-house infrastructure and resources.

Moving all FX flow to one electronic trading platform can offer considerable savings. Migrating to an end-to-end FX platform such as Refinitiv FXall offers a number of benefits, including cost savings, risk management and operational efficiency.

The platform also helps traders to address best execution and regulatory requirements that vary according to jurisdiction.

Liquidity access

Different Latin American countries have different liquidity requirements.

In markets with few liquidity providers (LPs) Refinitiv FXall provides request for quote (RFQ) functionality which puts LPs in competition and enables buy-side firms to demonstrate best price.

For those buy-side firms requiring more automation, FXall Price Stream provides request for stream (RFS) functionality, which streams real-time prices from multiple liquidity providers simultaneously and allows users to trade on the highlighted best price in a disclosed relationship.

In Mexico’s highly fragmented market, with a large number of LPs, trading firms can benefit from Refinitiv’s aggregation services, allowing for greater access to liquidity and transparency. In a region where currency volatility is high, pension funds and large corporations recognise that use of an aggregation service can help to mitigate market risk.

FX Aggregator, available as part of Refinitiv FX Trading, gives all clients the same access to high-quality liquidity across spot FX, allowing local market participants to trade on par with larger global banks, leading to business and market growth.

With plans to extend the Refinitiv FX Aggregator offering to include NDFs in 2021, Refinitiv will further enhance liquidity provision in Latin America.

Refinitiv FX Aggregator also enables traders to trade on B3 in Brazil. This provides access to a larger pool of BRL liquidity, from local providers.

Algo trading

While not widely used to trade in Latin America, adoption of algos is gaining traction in Mexico and Brazil among major banks and large corporates.

Access to increasingly sophisticated execution strategies enables firms to save costs, minimise the market impact of larger trades and improve transparency and operational efficiencies.

FX trading is changing

Businesses in the region are increasingly recognising the value of electronic trading. Banks wishing to better serve their customers and meet local and global regulatory requirements are investing in electronic trading solutions like those offered by Refinitiv to ensure that they remain competitive in the global FX markets.

Similarly, buy-side firms, under pressure to achieve best execution and greater transparency are embracing electronic trading.

As the Latin American market continues to evolve, Refinitiv is committed to the development and enhancement of high-quality solutions tailored to the requirements of the region.

Get access to deep liquidity in hundreds of currency pairs, efficient and effective execution, and full insight into your trade decisions with FX Trading