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 31 times, 1 visits today)

Related articles

  1. Investment managers direct more money towards data and analytics.

  2. Live Blockchain Platforms in 2017

    Distributed ledger technology is disrupting the legacy siloed approach to assets.

  3. ICAP Preps for 'Industrial Revolution' in Fintech

    VeloCity will accelerate fintech tailored to asset management.

  4. The firm has hired two from Schroders.

  5. Hedge Funds Eye JOBS Act

    Investors plans to grow their allocation to hedge funds in the next 12 months.