SGX FX, the Singapore Exchange (SGX) Group’s over-the-counter (OTC) foreign exchange business, provides electronic trading infrastructure in more than ten cities worldwide, centered on its buy-side platform BidFX, its sell-side platform MaxxTrader, and SGX CurrencyNode, an anonymous ECN based in Singapore. CEO Jean-Philippe Malé has spent more than two decades building electronic trading systems across asset classes, including equities, listed derivatives, fixed income, and foreign exchange. How has electronification changed the structure of the FX market, and what will AI bring? We spoke with him about the future of trading infrastructure as it evolves from “FX” to “macro.”

Structural Change Brought About by Electronification

Looking across electronic trading as a whole, what changes have taken place over the past 20 years?

My own career has almost completely overlapped with the history of electronification across the various asset classes. I entered the world of electronic trading in London in 2004. Since then, while moving Europe, to America and Asia, I have built systems across both regions and asset classes, beginning with equities, followed by listed derivatives and fixed income, and finally foreign exchange. At that time, many markets were still not fully electronic, so I was able to observe from the front line how electronification progressed in each region and asset class.

One phenomenon that can be observed consistently is that when a market becomes electronic, both the speed and the number of transactions accelerate dramatically.

In the early stages of electronification, a small percentage of the overall market was traded electronically, and the main objective was to achieve STP, or straight-through processing, which links trade execution through settlement automatically without manual intervention. As electronification advances, however, trading turnover becomes faster and the number of transactions increases exponentially. At the same time, the size of each individual transaction tends to become smaller.

This trend was supported by the development of algorithmic trading, in which computers execute transactions automatically according to predetermined conditions. In the FX market, however, there have also been periods when not only the number of transactions but also the size of individual trades increased as the overall market expanded.

How has electronification changed the cost structure of the FX market?

The biggest change has been the compression of transaction costs. Twenty years ago, even for G10 currencies, bid-offer spreads were several pips wide, with a pip being the smallest unit of movement in an exchange rate, and rates were quoted to four decimal places. As electronification progressed, the cost borne by investors steadily declined, and EUR/USD is now quoted to five or six decimal places.

This finer quoting precision is directly linked not only to lower costs but also to greater market speed. As price increments become smaller, prices are updated more frequently and in finer units. In addition, because electronification has dramatically increased the number of transactions, the pace of market movement has accelerated further. The FX market has become more responsive than ever before.

As a result, the FX market now reacts instantaneously not only to central bank intervention, but also to external factors such as economic data releases, geopolitical events such as wars, and sharp moves in the gold market over the weekend. In the past, it was not always necessary to trade electronically. Today, however, it has become almost impossible to access the FX market without using an electronic trading system. This trend is likely irreversible.

The Next Frontier: FX Swaps, Data, and AI

Where do you see the next areas of technological innovation?

The FX market is already highly mature. Both banks and the buy side trade electronically, and the market is no longer limited to spot transactions or G10 currencies. Many transaction types have been electronified and automated, including emerging-market currencies, deliverable forwards, which involve the actual delivery of currencies, and non-deliverable forwards, or NDFs, which are settled in cash without physical currency delivery and are widely used for emerging-market currencies subject to capital controls.

Within this landscape, FX swaps are the area in which electronification has lagged the most. We are therefore making the automation of FX swaps one of our next priorities. It will probably take a few more years, but we expect electronification in this field to advance significantly over the coming years.

What roles will data and AI play in advancing automation?

Much of automation requires data. Since our founding nearly nine years ago, we have accumulated data in our core systems, much of it with the aim of achieving better automation. In some cases, relatively simple statistical models support automation, but we have now begun using AI for some of the functions that are critical to it. Liquidity management is one specific area in which we are expanding the use of AI.

Unlike an exchange-traded market, where the same price is shown to everyone, the FX market is a world in which prices are determined through bilateral arrangements between participants. Even for the same currency, the price quoted differs by counterparty depending on creditworthiness and the broader trading relationship with that counterparty. Moreover, price quality is not static. It changes from moment to moment, whether because of market volatility unrelated to the bilateral relationship or because of changes in the counterparty’s trading style. This is precisely why relationships with liquidity providers must be managed proactively.

From the perspective of an investor as a price taker, it is necessary to understand what prices liquidity providers are showing and how their spreads change over time. By using AI, we aim to engage liquidity providers proactively and ensure strong coverage across currency pairs, transaction types, and price quality.

From “FX” to “Macro”

SGX FX has set out an evolution “from an FX platform to a macro platform.”

The basic idea of a “macro platform” is to build a trading system that handles, on a single infrastructure, not only foreign exchange but also a group of products linked to the macroeconomy, or macro products, such as fixed income, equity indices, and commodities. We also treat digital assets, represented by Bitcoin, as part of the macro product universe.

Whether we like it or not, every market influences and moves the FX market. With electronic platforms serving as connecting nodes, markets are becoming increasingly interconnected.

In the past, it took several seconds or even minutes for the FX market to react after a move in the bond market. Today, that happens in milliseconds. Trading platforms have not changed market dynamics; they have made them dramatically faster. That is why it is becoming so important to build sophisticated platforms that can understand all markets across asset classes and make decisions quickly.

Is connecting OTC markets with exchange-traded markets, including futures, part of that effort?

Yes. We began with OTC FX trading, but in recent years we have also incorporated listed-derivatives functionality, including FX futures, into our systems. Market participants can no longer focus solely on the OTC FX market. Deep liquidity has developed in futures markets as well, and participants must take it into account.

This is happening at many exchanges, including within our parent company, SGX. SGX’s CNH futures, based on the renminbi traded in the offshore market, have grown over the past seven to ten years and have now become a very large contract. They are important not only as a source of liquidity but also as a source of market data that contributes to price discovery, the process through which an appropriate price level is formed by trading.

No Longer Possible by Hand

What benefits does a macro platform offer to different market participants?

I believe it benefits both the buy side and the sell side. On the sell side, banks are already organized around “macro” desks that cover assets such as foreign exchange, interest rates, equity indices, and commodities. Some desks focus only on sales, while others integrate sales and trading. In organizational terms, it has already become standard for a single team to oversee multiple asset classes.

The systems supporting those teams, however, have not caught up with the organizational model. Many banks still use separate technology infrastructures for pricing and market access in each asset class, including listed derivatives, fixed income, foreign exchange, and equities. Even though a single salesperson or trader may oversee the entire macro landscape, the systems at their fingertips remain divided by asset class in disconnected “silos.”

The significance of a macro platform lies in bridging this gap between the organization and its systems, enabling front-line teams to complete the cross-macro work they already perform on a single infrastructure.

That said, progress varies. Some banks have already completed system integration, while others continue to use siloed systems. Because implementing or replacing these core systems takes several years, integration cannot happen overnight. Nevertheless, there is no doubt that this is a clear direction of evolution over the coming years.

What are the benefits for the buy side?

The situation on the buy side is more diverse. For asset managers that do not treat foreign exchange as a primary investment asset, FX is mainly used for overlay or hedging programs. An overlay is a hedging approach that separates risks such as foreign exchange from the management of the underlying assets and manages them collectively. For this type of investor, other macro factors, such as interest-rate movements and changes in commodity markets, are already incorporated into the way FX exposure is hedged.

By contrast, asset managers and hedge funds that trade foreign exchange as a core asset already trade across the full range of macro products. There are many strategies that cannot be implemented unless multiple asset classes are available within a single system. For such participants, a structure like a macro platform is becoming indispensable.

For example, when trading multiple assets simultaneously in a basis strategy, which seeks to capture price differences between two related products, a sophisticated system is needed to understand both assets and make investment decisions according to programmed rules. The era in which such strategies could be executed manually is coming to an end.

On our platform, users can define programs for a portfolio spanning 25 or more currencies and numerous settlement dates along the term structure, or curve, such as executing the entire portfolio at once when a proprietary index reaches a specified level. This is no longer possible to do manually. Systems are becoming increasingly complex and increasingly multi-asset.

Among Japanese institutional investors, interest is growing in overlays and other more sophisticated hedging methods, partly against the backdrop of persistently high hedging costs.

The overlay and FX hedging markets are expanding very rapidly worldwide. Japan is probably following the same trend. In countries I observe frequently, such as Germany and Switzerland, a growing number of asset managers operate their own overlay programs.

There are two important points. First, when people hear “overlay,” they tend to think of currency overlay, but hedging programs are not limited to foreign exchange. Overlay programs can be built across a variety of asset segments, including interest rates and commodities. FX is only one of them. Within overlays, moreover, there are many different types of mandates.

Second, when taken to its logical conclusion, the decision of whether or not to hedge is itself an investment decision. A company may decide not to hedge, provided that this is understood by its asset owners or clients. However, choosing not to hedge means taking a position, or expressing a view, in the FX market and inherently involves risk.

Japan Strategy and the Future of the Market

Please tell us about SGX FX’s approach to the Japanese market and the services it provides.

Our Japan strategy has existed since the company’s inception. In 2017, the year we founded our predecessor, BidFX, we established a foothold in Tokyo, and since opening a physical office there in 2019, we have continued to build our business on that foundation. By definition, the FX market is the most deeply connected and most global of all markets.

We expect our presence in Japan to continue expanding. Our Japanese client base is broad and includes banks, brokers, hedge funds, and traditional asset managers using our systems. Our team in Japan also continues to grow, and our commitment remains unwavering.

Our business consists of four pillars. The first is BidFX, our buy-side platform, and the second is MaxxTrader, our sell-side platform. SGX acquired both BidFX and MaxxTrader, and SGX FX was created by integrating the two. As mentioned earlier, these platforms are evolving from FX to macro.

The third pillar is CurrencyNode, a marketplace where participants can trade anonymously. It is an ECN, or electronic communication network, regulated in Singapore as a Recognised Market Operator, or RMO, and provides price discovery and anonymous trading functionality.

The fourth pillar is TickNode, our market data product. It is relatively new but is already available in Japan. Its purpose is to enhance transparency in price formation across regions. After launching in London, we introduced the service in New York, Singapore, and Tokyo.

Finally, what is your outlook for the future?

I would like to emphasize once again the evolution “from FX to macro.” One development that cannot be overlooked is that digital assets are becoming part of the macro product universe as stablecoins and electronic gold trading expand. Unlike traditional markets, digital assets trade continuously over the weekend. As I mentioned earlier, movements in all macro products are connected to the FX market. In other words, if assets linked to FX begin moving over the weekend, demand will also emerge in the FX market to hedge the associated risks during the weekend.

This changes market operating hours themselves. The FX market already operates 24 hours a day, five days a week, from the opening in New Zealand, early Monday morning through the close of the New York market on Friday. However, as electronification progresses and various assets move into digital form, I believe markets will move toward operating 24 hours a day, seven days a week.

Looking two to three years, or even five years, into the future, these markets are likely to be even more tightly interconnected, and the technology used to access them should also have improved. Electronic trading over the weekend will probably spread gradually.

That will bring certain challenges, but the essence of those challenges is not technology. Technologically, we are already prepared. The issue is operations, meaning the human side. When markets never stop, people still need holidays and rest. As one element of our preparation, we have begun introducing an AI-enabled support desk.