As we look forward to 2022 we spoke with DIGITEC about what to expect over the next 12 months.

The FX industry continues to evolve

In the past, pricing NDFs and FX Swaps was a manual process and highly inefficient, due to an absence of industry reference rates and the complexity of accurately pricing forward curves. However, as regulation has increased compliance obligations and costs, FICC trading firms have responded by demanding increased efficiency and reduced costs in pre-trade, trade, and post-trade workflows.

Increased electronification, automation and the use of sophisticated tools allow all banks to increase their product range and, ultimately, their market making and trading volumes. Electronification improves the availability of data and workflow efficiency, enabling Traders to diversify trading books and manage multiple instruments effectively. This is particularly relevant for regional and local banks, many of which are now adopting electronic trading for FX Swaps and NDFs for the first time, and where pricing as many client requests as possible is an important internal benchmark.

DIGITEC clients typically double the number of instruments they price once they are live – a clear indication of the benefits of electronification and automated workflows this brings.

Changing attitudes to Cloud adoption

Attitudes towards the Cloud have changed for good. Those firms (and regulators) that didn’t buy into the idea of Cloud technologies, citing security and latency as barriers to adoption, have seen the FX market continue to operate efficiently during Covid, even during periods of extreme market volatility. There is now a consensus in the market that despite the obvious challenges of Covid, the Cloud has passed the test.

Many firms now have staff working in the Cloud while their technology remains on-premise, which makes little sense. We predict that 2022 will see more firms announcing Cloud adoption for significant parts of their businesses, including their wider financial markets and electronic trading businesses. Use of the Cloud, whether private ,public or hybrid enables technology firms to deliver against different client requirements and improve accessibility at scale.

The private cloud is particularly flexible, allowing organisations to customise the cloud environment and offers improved security and high scalability. For DIGITEC, deploying our D3 pricing engine in the Cloud has meant that our services (as both dedicated as well as multi-tenant solutions) have been available to smaller banks which could not previously justify the investment in on-premise technology. Asset Managers (and other trading firms) are also starting to use D3 as their technology requirements evolve, and additional users mean an improvement in the quality and amount of data, which drives additional services.

Since DIGITEC’s adoption of Cloud technology, 100% of new clients have connected to the range of hosted services, indicating that flexible technology and investing in innovation are essential to the evolution of the FX Swaps and NDF market.

The next step – Specialised Industry Clouds

As NDF and FX Swaps volumes continue to grow and markets move towards greater automation driven by more electronic trading, the need for better and flexible infrastructure will become increasingly important. This will drive further development of industry-dedicated cloud solutions which can be built as collaborative efforts based on shared best practices.

Industry Clouds can be heavily customised to accommodate specific business, operational, legal, regulatory and security considerations and provide firms with a menu of available services from which to build their technology, making sourcing, implementation, and integration processes much easier to manage.

As we approach 2022, DIGITEC is well placed to service its clients in the Cloud as the market evolves and moves towards Specialised Industry Clouds.