For any international market participant, there is arguably no more important task than to be able to access the right counterparties at the right time – easily, quickly, reliably and cost-efficiently. Any impediments to liquidity threaten not only bottom lines but also entire business models.
Of course, depending on which market segments a firm is targeting, there may be a number of viable liquidity strategies that satisfy business requirements. But developing a liquidity strategy is never straightforward because liquidity is constantly shifting and the changes are driven by diverse factors. Global trading trends, regional developments, regulatory changes, demand for different types of market products and technology all may play a role.
At BSO, we recognise the degree to which changing liquidity factors can impact market participants and how much they rely on working with their partners to navigate a landscape that is always in flux. We plan to discuss this changing liquidity environment at the upcoming Solarflare Next Generation Networking conference in Shanghai, but I’ll touch briefly here on a few of the ways these trends are affecting participants.
One of the most talked-about shifts of late has been the way that FX and derivative volumes have been increasing in Asia. We won’t know the extent of the growth until September, when the Bank for International Settlements (BIS) releases preliminary data from its recently launched triennial survey. But anecdotal evidence from banks and industry leaders suggests the region is continuing to outpace other parts of the world in terms of volume growth.
Meanwhile, crypto asset trading is constantly in the news. While the segment remains small compared with established markets, it is attracting increased interest, with volumes surging as new products come on stream. Most importantly, institutional investors are showing much more comfort with the sector.
Regulatory changes around the world are another factor affecting liquidity. Every market participant in the world is aware of the heavy stream of regulatory measures that have been introduced in recent years. So important is this factor that the BIS recently set up a database to help market participants understand the different macroeconomic impacts that various regulatory measures were having around the world.
Finally, there is technology. Artificial intelligence, automation, and blockchain are among some of the myriad ways that disruptive technology is changing the way financial services firms operate. That invariably has a knock-on effect on liquidity by shaping the strategies of sell-side firms and other participants.
All of these developments put pressure on network suppliers to deliver infrastructure and service that respond to trends and can move with the times. It’s as much a challenge for a company like BSO as it is for our clients and our partners, whether they are venues or technological suppliers.
Thankfully, we have 14 years of experience in low-latency networking, with more than 100 data and exchange locations, hundreds of customers around the world, and a large crew of engineers to serve them. So, we’re confident that we can meet the challenge and help our customers meet it too.