Matt Kassel is Chief Operating Officer at Edgewater Markets.
What were the key theme(s) for your business in 2022?
Industry-wide, the big story in 2022 was an uptick in volatility as FX returned to more normal numbers, coming off of historic lows. For us this meant considerable growth; we saw 140% growth in overall trading volumes over the past year.
This was also the year that tech adoption by emerging markets took a huge leap, and we’re proud to be leading the way in these regions. With Edgewater technology, a new paradigm is developing as emerging market participants are taking control of their own currencies and facing the world without middlemen intervening.
Onshore banks, with the right technology partner, can now participate directly in markets that were previously unavailable to them, an optionality that allows them to hedge/manage risk to a game-changing degree.
What are your expectations for 2023?
We expect the new year to bring further adoption of technology in FX by regional, emerging and developing market participants.
This is an important development in its own right, but it’s especially welcome with the potential for a very volatile interest rate environment around the world. For years, these markets have borrowed at zero and near-zero rates; that debt has been accumulated and needs to be reupped now with new bond issuances.
By all indications, we’re on a course for a legitimate recession in February or March. The market will start pricing in interest rate cuts which we believe is the wrong thing to do.
What trends are getting underway that people may not know about but will be important?
Emerging markets in particular face a conundrum as they look to refinance their debt amid higher interest rates.
That said, these markets know their bond issuances well in advance. The ability to manage their local currency forward positions is something that has never been available before, and it now presents a significant opportunity. Instead of only interacting with each other, or trading offshore on a limited basis through middlemen, onshore banks are going to be able to connect directly with sovereign wealth funds, leading hedge funds and the largest bond managers in the world.
Our clients are employing cutting-edge technology that adds to their existing onshore liquidity and market making tools, turning that onshore liquidity into an NDF and distributing it to the world. The ability to move exposure from a local stance to a global stance is going to be transformational for FX markets and we’re excited to be playing a part.