US stock changes push FX trades into Asia's 'twilight zone'
settlement window next week is expected to upend trading for Asian money managers, pushing some to secure funds in the early hours of their mornings when currency markets are at their thinnest and most jumpy.
From May 28, investors from Singapore, Tokyo or Seoul who buy U.S. shares during the Wall Street day will have just 24 hours to validate their trades and convert their funds into dollars to complete the deals, down from two days previously.
While the new U.S. rules are designed to reduce counterparty risks, dealers and regulators are watching to see if the changes ruffle prices or flows in the $7.5-trillion-a-day forex market.
In Asia, traders are all too familiar with the sudden moves that happen when big trades hit in low liquidity hours of their mornings, such as dives in sterling in 2016 or dollar/yen in 2019, which created global market ripples.
«That New York 5 p.m. to Tokyo, say, seven or eight, is usually what we refer to as a twilight zone,» said Bart Wakabayashi, Tokyo branch manager at State Street, a custodian bank involved in settling U.S. stock trades.
«There's not a lot of clients trading at that time...(and) not a lot of banks supplying liquidity,» he said.
«So if there's an imbalance, there could be an adverse impact on markets...bigger swings than traditionally.»
Under the changes, the deadline for affirming trades, where brokers, investors and custodians check and agree on all the details, moves from 12.30 p.m. New York time on the day after a trade to 9 p.m. on the day of the trade,
