J.P. Morgan brings greater transparency to the | Forex News

In a difficult surroundings, demand for J.P. Morgan’s FX overlay market companies has risen considerably as market members search to navigate the hedging and execution complexities of the FX market

The storm of geopolitical, financial and regulatory occasions that has rocked the FX market over the previous few years has made managing currency risk a troublesome proposition. Wars in Ukraine and the Center East, heightened volatility stemming from diverging rate of interest regimes, and the impression from the introduction of the standardised strategy to counterparty credit risk have prompted many institutional managers to re-evaluate their hedging methods and general currency risk. Many have turned to FX companies suppliers equivalent to J.P. Morgan to handle that risk.

As one of the world’s largest tier one FX banks, J.P. Morgan has a vary of FX execution methodologies and the information‑sourcing infrastructure to deal with advanced portfolios.

“In the current environment, market participants are particularly keen to have firms that are FX experts facilitate their currency risk management functions,” says Sashin Chander, J.P. Morgan’s international head of currency overlay options.

“J.P. Morgan is the logical partner. We have one of the most complete suites of FX execution capabilities on the Street. Whether pricing, cost-effectiveness, credit risk or any other objective, we have an execution capability.”

“Beyond our suite of execution capabilities, our data insight is also impactful,” Chander provides. “As one of the biggest FX banks¹, we generate a lot of data, but what makes it worthwhile for our clients is how we use that data to fine-tune the outcome of their workflows: by optimising the process of calculating FX risk and executing their hedges.”

J.P. Morgan’s FX Companies knowledge strategy gives shoppers with larger market transparency, enabling a view of the price of liquidity and the price of capital the place liquidity within the competitors execution model is chosen, incomes the bank recognition during the awards course of.

Whereas J.P. Morgan gives a rules-based answer to managing its shoppers’ FX overlay methods, the bank additionally stories on the efficiency of shoppers’ hedging portfolios utilizing the information it has gathered. Evaluation of the components contributing to the FX hedge’s under- or over-performance – equivalent to price of carry, bid/offer unfold and time delay – can then be used to recalibrate shoppers’ hedging methods to improve financial outcomes.

This consists of the use of FX heat maps that enable shoppers to visualise liquidity patterns, FX spreads and trading volumes – which helps shoppers establish alternatives to improve the execution high quality of their FX orders – utilizing the execution methodology that best matches their goal. Moreover, the bank can analyse shoppers’ particular currency overlay knowledge and previous actions with them, delivering tailor-made insights and empowering shoppers to optimise their hedging methods and make knowledgeable choices to improve outcomes.

Shoppers are additionally given entry to a suite of customisable trade stories supported by downstream integration with industry‑broad systems, or different client-specific platforms, enabling a detailed view of the companies J.P. Morgan is offering them. With this oversight, shoppers can measure the execution high quality of processed trades, which may help with environment friendly cashflow management.

On the execution aspect, J.P. Morgan addresses its shoppers’ wants by means of a rules-based strategy that permits them to outline their own bespoke execution methods throughout a full suite of methodologies. This consists of @marketexecution, the place all trades are despatched to J.P. Morgan’s inside market-making desks for speedy pricing. Alternatively, consumer orders will be executed referencing a supported public benchmark or, if most popular, by means of the bank’s suite of algorithmic execution methods.

The final different is a hybrid model that mixes the operational ease of principal trading with the aggressive pricing advantages that company execution can present. Dubbed Liquidity in Competitors (LiC), this hybrid answer gives pricing throughout a pool of most popular liquidity suppliers with the benefit of dealing with J.P. Morgan as the one counterparty. As a end result, members keep away from the operational work of sustaining pre- and post-trade workflows with a number of banks.

One other benefit is that the aggressive nature of pricing by means of LiC can help in satisfying shoppers’ best execution obligations and, with trades channelled by means of J.P. Morgan, data leakage to the market is minimised, which may end up in a higher end result. When shoppers search liquidity underneath their own ticker/fund title, particulars are revealed as to which fund is searching for a price during which currency and dimension, and so forth.

“Since dealers compete for trades, client costs are reduced, but they still benefit from J.P. Morgan’s credit standing to secure the best price available on their panel of predefined banks,” says Chander. “Our dedicated FX Services desk sits separately from the market-making business and is not judged on profit and loss but rather on the quality of execution and minimising market impact.”

“With central banks adjusting interest rates at different paces, the biggest likely cost for clients is the interest rate differential,” he notes. “While they cannot control the cost of carry, LiC allows them to control the cost and quality of execution. Clients benefit from the breadth of access to liquidity, lower costs and market impact for asset managers and owners that routinely roll large, passive hedges.”

Including granularity to hedging fashions

Because the portfolio hedging market turns into more mature, Chander expects shoppers will need to add larger granularity and optionality into their overlay methods, whereas sustaining some type of tactical control to direct the result of their hedges.

“Asset owners, such as Australian superannuation funds, have complex currency hedging needs, and many of the enhancements to our portfolio hedging currency overlay offering have been built with these in mind,” says Megan Jones, head of Asia-Pacific FX Companies gross sales at J.P. Morgan. “One enhancement, as institutional investors continue to internalise investment management functions, is the ability to automatically adjust the accompanying hedge in line with the trading of the underlying security for asset classes such as fixed income. This will mitigate risk arising from a delay between the trading of the asset and adjusting the accompanying hedge, allowing the portfolio manager to focus on managing the underlying asset class.”

“We are investing heavily in our portfolio hedging capabilities to create a lot of flexibility in our platform,” says Chander. “I want to create a platform that is so flexible and so intuitive that, to a portfolio manager, it feels like we are sitting on the other side of their desk. And, with that flexibility, we’re going to see more proliferation in the delegation of portfolio currency risk management.”

“The key to achieving any level of granularity in portfolio optimisation is large quantities of correctly targeted data,” he factors out – with out which, actionable insights can’t be delivered. “But there has to be the right balance in the amount of data we deliver. It should not be excessively complex, but just enough that clients can hold us to account while being straightforward enough that they can fine-tune their strategies every so often to focus on their core businesses.”

J.P. Morgan was voted Finest FX overlay supervisor, Finest liquidity supplier for FX spot, Finest liquidity supplier for FX choices, Finest liquidity supplier for financial establishments and Finest single-dealer platform on the FX Markets e-FX Awards 2024.