Edgewater’s executives state what matters in EM FX: tech, credit, execution

North America’s biggest FX gathering of the year took place on February 22-24 at The Diplomat Beach Resort in Florida, USA.

More than 600 executives – including key regulators, buy-side, sell-side, and technology vendors – attended the conference this year for the panel discussions, hands-on workshops, and to network.

FinanceFeeds was there covering the event. Editor-in-Chief Nikolai Isayev had the opportunity for a quick chat with Matt Kassel and Brian Andreyko, respectively Chief Operating Officer and Chief Product Officer at Edgewater Markets, the FX trading and liquidity aggregation solutions provider that aims to connect the world of finance.

The attendance at TradeTech FX follows the firm’s recent opening of its São Paulo, Brazil office, expansion of their office in Singapore, and the launch of a new brand, aligning its public persona with its emergence as a tech-forward solutions provider.

FX trading and liquidity aggregation solutions with “boots on the ground”

With the new São Paulo office, Edgewater takes another step in consolidating its position as the technology and liquidity partner for FX trading in Latin America, a sub-continent that stands as an amazing opportunity for the firm as it develops and rolls out new products. Edgewater already has a large presence from Mexico to Chile, covering the Andes top to bottom, where it caters to a network of clients that need technology and credit intermediation. “Boots on the ground”, Kassel said about the firm’s approach to business.

Edgewater facilitates foreign exchange trading for financial institutions around the world, including the top 5 LatAm currencies: the Chilean Peso (CLP), the Mexican Peso (MXN), the Brazilian Real (BRL), the Colombian Peso (COP) and the Peruvian Sol (PEN). The company recently added several new local providers for MXN and BRL to its roster.

Throughout the entire interview, Brian Andreyko made clear that the key takeaway is that Edgewater takes care of technology, credit, and the execution service that connects the onshore market to the offshore market.

Brazil’s new FX law is first step toward truly free-floating currency 

The opening of the Brazil office coincides with the country’s new FX law, liberalizing regulations on currency movements and FX accounts. Matt Kassel answered, “FX regulation in Brazil is step one. All countries in the world that have currencies trading as NDFs have designed it to prevent large outflows from the countries. For a more free market free-floating currency, you have to deregulate the entire market. It’s a big step. In the coming years, you’ll see more activity, investment into Brazil and also, at times, out of Brazil. It’s with those periods of investment and pullback that you see the importance of the free flow of capital to support emerging markets.”

Talk of Brazil prompted a question about the country’s plans with Argentina to launch a common currency, Sur, that could onboard more LatAm countries in the future. “It’s something to keep an eye on”, Kassel said, while admitting that it’s a very difficult and long process. “Monetary union without political union is pretty difficult. We’ll see how policies are”, he continued, reminding that as with the Euro, larger economic zones provide leverage and stability during the good times, but when hardship comes, the problem becomes larger as well. “Size is protective and also very scary when it goes off the rails”, Kassel concluded, to which Andreyko replied there’s a “chance of increased volatility and political problems. It will be on them to sort it out.”

Edgewater helps Asia’s algo trading operations scale 

Last month, Edgewater Markets appointed industry veteran Chan Chong San as Managing Director of Asia Pacific, out of the Singapore office, as the firm follows through with its new approach to Non-Deliverable Forward (NDF) trading, covering eight FX NDF pairs from APAC.

All NDF pairs in world have somewhat similar mechanics behind them (rolling in 1 month, 3 month or various broking dates), Matt Kassel explained, adding that the Asian NDF market is huge, with the USD/KRW and the USD/INR being two of the largest FX NDF pairs globally.

Algo trading has grown quite popular in Asia and Edgewater Markets holds the piece that has been missing in these markets: a one-stop-shop for tech, credit, and execution. The solution empowers locals onshore. “They have control and ownership of the market share of their currency. Our tech empowers them, offering broader liquidity, more efficient markets, which grows their market share.”

Edgewater has seen growing demand for NDFs, with trading volumes nearly doubling in the last two to three years, but the firm’s expanding business is not dependent on the rising interest rates as they “grew quite heavily during the zero rate period”.

The focus remains on Emerging Markets, which are less efficient, by providing local market participants with technology, relationships, and onshore-offshore facilitation, in order to help scale their businesses. “These guys are used to one relationship with one global bank. Asset managers and pension funds were doing this onshore. Now they can do this offshore in their currency pair, where they have an edge.”

Interconnectivity like Amazon of FX industry

In a past FinanceFeeds interview with Matt Kassel and Brian Andreyko, they said interconnectivity is the future of global FX and commodity markets: replacing middlemen with direct price transmission and execution, utilizing direct disclosed and direct anonymous trading relationships globally.

Both executives now reiterated that position and offered Amazon as an example of bringing more people to the marketplace and reducing the middlemen. “FX is same thing in another industry”.

That is the mission of Edgewater Markets: interconnecting people who never traded with one another before, traders from Tokyo, Peru, North Africa, Middle East, Vietnam, etc, all connected in one larger sandbox.

“It’s efficient, lowers the cost of trading and creates more trading. It’s very transformative”, Matt Kassel explained, adding that the electronic FX space saw ECNs and exchanges building products in the last few years and now the it is about connecting regions of the world which don’t have ECNs or exchanges, and don’t have access to amazing technology, or access to credit. “To bring them into one marketplace.”

No widening pricing no matter what

The firm also stands out from the competition by being the n.1 liquidity provider in times of stress, which is when liquidity becomes much more precious.

“You’re only as good as your liquidity” seems to be their motto as Edgewater Markets promises never to widen pricing during periods of increased volatility. “When nothing is going on, anybody can provide tight spreads, but when people really need it and the cost of execution is higher, we will be there for our clients.”

In EM FX, it is all about the owner of the local currency being able to access liquidity in times of volatility for their pair. Edgewater makes it happen and more as they help local institutions scale. Brian Andreyko summed it up: “They want control over their currency pairs. They want to scale on a global level. For that, you need the tech, you need the credit, you need the execution service. We bring that together and help them trade.”