11.10.2017

Norway’s SWF: Improvements For FX Markets

In our new Asset Manager Perspective we suggest improvements to strengthen global foreign exchange markets.

Foreign exchange markets are critical to the functioning of the global economy, and provide robust solutions to the liquidity needs of both corporate and financial market participants.

The bilateral nature of foreign exchange markets naturally leads to significant informational asymmetries between dealers and clients. These asymmetries serve to limit the adverse price risk for dealers and ensure deep liquidity availability. However, they can also lead to excess intermediation profits and inefficient price discovery.

The recent release of the FX Global Code of Conduct is an opportunity to revisit common market practices in global foreign exchange markets. Norges Bank Investment Management has signed a statement of commitment to the FX Global Code.

In our new Asset Manager Perspective, we identify three foreign exchange market practices where informational asymmetries are particularly relevant: Last Look, the implementation of electronic algorithms and the linkages between request-for-quote (RFQ) feeds and inter dealer market prices.

Given the current foreign exchange market structure, and in the spirit of the FX Global Code, we suggest concrete improvements to these market practices. We believe that transparency and verifiability are key to mitigating the impact of informational advantages, without negatively affecting the liquidity of this important market.

Source: Norges Bank Investment Management

(Visited 23 times, 1 visits today)

Related articles

  1. Corporate Bonds to Benefit from European QE

    Challenges include illiquidity and fragmentation across borders.

  2. Hedge fund jobs are not as exciting as they seem: this is why I quit
    From The Markets

    IOSCO: Report On Hedge Funds

    The biannual survey enables regulators to share information and observe trends.

  3. All-to-All Trading Emerges in Fixed Income

    Fixed income managers need to show more evidence of best execution.

  4. 40% of survey respondents see similarity between digital currency and gold.

  5. HANetf looks to lower barriers to entry in European ETF market.