Onboarding liquidity providers biggest FX operational challenge

Onboarding new liquidity providers is one of the biggest FX operational challenges GPs are facing, according to MillTechFX’s North America CFO FX Report 2023. It was ranked the largest obstacle, with 34% voting it the biggest impediment.

Other operational challenges include securing credit lines (33%), cost calculation (32%), getting comparative quotes (31%), forecasting exposure (31%), fragmented service provision (30%), benchmarking providers (30%), demonstrating best execution (26%) and the existence of manual processes (24%).

The obstacles recorded in the report include the long onboarding process and the need to place margins if credit lines are not secured, which decreases the amount of available investable capital.

Notably, fund managers are beginning to leverage technology to help digitalise FX processes – according to the report, 78% of respondents are looking to automate FX operations.

Examples given in the report of automation techniques include creating a price comparison marketplace, digitalising post-trade execution processes, real-time reporting and transaction cost analysis.

These challenges have been identified as part of the report's wider findings that 81% of fund managers want to diversify FX counterparties as a consequence of the banking crisis.

In addition, very few fund managers felt that their FX setups were of optimal standard (8%) and a third (33%) found their setups to be below average. 

Eric Huttman, CEO of MillTechFX, comments further on this finding: “That such a small minority of fund managers felt their FX setups were best in class is testament to the fact that many see significant room for improvement, especially in light of the fact that the vast majority stated FX was important to their business. Fund managers should look towards tech-enabled, automated solutions to help improve their FX processes.”

Censuswide conducted the research on behalf of MilltechFX, surveying 250 senior finance decision makers at North America-based asset management firms with AUM between $500m and $20bn.

You can read more about common FX mistakes in The Drawdown’s discussion with Alpha Group.