Trading Viewpoints: To Intermediate or Not?

Foreign exchange markets pose unique challenges for emerging markets debt managers because most trading relies on bilateral credit relationships rather than a central guarantor. These arrangements embed both credit and execution costs into FX spreads, making it hard to see and optimize the true price of a trade.

Tools such as FX prime brokerage and FX clearing help separate these costs, allowing managers to access broader liquidity while paying transparent, negotiated fees for credit. By consolidating settlement through a single prime broker or clearinghouse, managers can reduce operational risk from multiple banking relationships and payment flows.

A blended approach that combines FXPB, clearing solutions and selective bilateral trading can lower costs, sharpen execution quality and better capture opportunities in structurally inefficient EM currency markets.