FX Trading: Yesterday, Today and Tomorrow

Jason Fromer, Manulife Investment Management

With Jason Fromer, Managing Director, Head of US FICC Trading, Manulife Investment Management

  1. Briefly describe your role and responsibilities at Manulife? 

I am the head of US FICC trading.  I am also the lead FX trader.

  1. How has the buy-side trading desk evolved over the course of your career?

Buy-side desks have changed dramatically from the start of my career.  Like society in general, technology has transformed the trading desk.  Quote refreshes were not instantaneous like now, so market pricing information was opaque.  As technology evolved, pricing became faster and tighter.  Communication with sell-side sales desks used to be all voice, but now is primarily chat based.  Dealing has obviously been moving at breakneck speed.  Introduction of E-FX trading has revolutionized the way the buy-side deals.  Streaming prices, algos, and Straight Through Processing (STP) have helped to improve pricing while increasing productivity on buy and sell-side desks alike.

  1. What is the state of the buy side / sell side relationship? What is the sell side good at providing in terms of technology and services, and conversely where are the gaps?

The strength of the sell-side is two fold.  First, each counter party on the buy side has different inflection points they use to pivot their respective strategies through various cycles in a given market.  The sell side does a fantastic job of identifying those inflection points and making sure the buy side community is kept informed on potential opportunities when they develop.  Secondly, most sell-side firms take risk.  This helps the buy-side to lay off blocks of risks at acceptable levels, helping to protect clients from adverse moves.  This can be achieved through the voice desk or on electronic platforms. 

Most buy-side firms take advantage of sell-side algos through multiple venues.  There are certainly gaps in quality of algos bank-to-bank. Sell-side firms need to keep pace in this market providing algos with as much flexibility as possible.

  1. How is the human touch / relationships still important in a largely electronic marketplace?

I believe the human touch is vitally important in markets.  We have been in a low volatility environment for many years now.  Machines are great at executing in these markets.  They can price blocks very tight to the screen.  Where machines don’t do well is in volatile markets.  This is where you need humans to step up and take risk.  Our experience has also been that electronic platforms are not as competitive in some crosses.  It is not an either/or proposition.  The best sell-side firms have strong voice desks as well as solid electronic offerings. 

  1. What are your trading desk’s main initiatives currently in terms of optimizing efficiency?

Electronic options trading has been something we have diligently been working on.  After reviewing multiple platforms, we have finally begun to implement this process.  Trading options electronically should turn a cumbersome voice process into a streamlined technology one.  Our expectation is that we will get tighter pricing, leave less of a footprint, and reduce overall risk to the portfolios.  

  1. How would you characterize liquidity in FX markets. Where are the gaps?

On normal days, liquidity in the FX markets is good.  An issue does persist with electronic platforms in sub optimal markets such as US/Asia crossover.  We have seen the effects of E-FX platforms pulling liquidity, thus causing “flash” crashes.  One example would be the almost 4% move in USDJPY on January 3, 2019.  As the market drives deeper in E-FX trading, these could become a more common occurrence. 

  1. How do you envision the FX trading desk of the future? 

The buy-side trading desk is constantly evolving.  In the future, there will be more automation and AI to help with price and liquidity discovery.  Traders will need to add skills such as data manipulation and coding to stay relevant with all the available information.  While there are people who believe that humans will not be necessary, I am not one of them.  We will always need someone to decide the best method to execute during times of stress.

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