Emerging markets liquidity hit as banks pull back from risk warehousing
Difficulties of trading G10 currency positions exacerbated
Offloading emerging market (EM) currency risk in the interdealer market can take up to three times longer than in the past with significantly higher costs, as banks reduce their exposure to non-deliverable forwards (NDFs), traders say.
The pullback from risk warehousing comes ahead of the July 21 deadline for the kick-in of the Volcker rule, which will limit banks' ability to engage in proprietary trading, raising uncertainty and costs for US dealers.
"Generally speaking, if you get hit in a
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