Investment Themes Currency Management Solutions

Currency Management Solutions

Ever more important

Are you ready for the changes in FX markets?

From January 2018, major new regulations brought about by the Markets in Financial Instruments Directive (MiFID) II will affect everyone trading on foreign exchange (Forex) markets across Europe. While the general aim of the new requirements is to promote competition and transparency across financial markets, they could also add additional costs and complexity for investors seeking to comply with their own fiduciary obligations.

What does MiFID II mean for investors?

The increasing importance of international investing means that effective currency management is no longer optional. While the new regulations are meant to benefit all investors, for some market participants, their desire to demonstrate best execution could result in additional costs and operational challenges. For example, new collateral requirements could translate into both direct and indirect costs for investment portfolios. Similarly, the potential spreading of liquidity across different jurisdictions and the increased use of electronic venues could lead to a further decline in market depth and functionality. This could have consequences for both market risk and the effectiveness of the hedging strategies used by investors. As a result, the ability to continuously monitor and access the USD 5 tn a day Forex markets as efficiently as possible is becoming ever more important.

Why delegate currency management?

A separate currency overlay can provide significant cost-saving synergies for most international investors while also eliminating operational risks. A delegated currency management solution also offers direct access to experienced specialists with extensive global knowledge, in-depth local-market expertise, and state-of-the-art systems and processes. The design and implementation of a best-practice currency management solution and execution setup that is tailored to investors’ individual needs and circumstances will enable them to make the most of the new and changing world of currency risk management.