The days when large banks were the only institutions capable of delivering tier 1 liquidity to the market are long gone. In many cases, the technology and pricing that non-bank market makers use and the risk parameters they have in place are on a par with the largest financial institutions.
The extreme market dislocation that occurred in March and April 2020 caused many traditional liquidity providers to reassess their business and operating models – and be more selective.
“This allowed a number of non-bank players with significant in-house flows to be more effective as a provider of secondary liquidity to market participants who require access to the wholesale currency markets,” says Henry Wilkes, from Currency Solutions & Services. “Technology played a key role in helping the industry cope with the crisis and many non-bank providers have superior technology infrastructure.”
Market participants recognize that bank and non-bank liquidity sources are complementary and that it is essential that both groups continue to provide pricing. Different institutions have different models, serve different types of clients and specialize in specific currencies and regions.
Gavin White, CEO of Invast Global, observes that in the very earliest days of the crisis there was a huge dislocation in the gold/dollar spot market, with spreads from all liquidity providers widening more than tenfold in a matter of minutes.
