e-Forex-May-23

Improving Execution Outcomes: How bright ideas and cutting edge technology are powering the evolution of P2P FX
MARKET COMMENTARY
“Just as algos have become a standard tool for today’s
traders, P2P is emerging as a standard “first stop” for much of
tomorrow’s liquidity,”
Jay Moore
captured in the “point-in-time” TCA
that the market currently relies on to
demonstrate best execution.”
“Peer-to-peer takes the market
impact challenge off the table by
removing all information leakage and
the hazard of pre-hedging from the
equation entirely,” he continues. “This
makes P2P a tool that every buy-side
trader should have in their tool kit,
particularly for predictable trades, like
rolling passive hedges.”
Singleton concurs with this view
and notes that match rates cannot
be manipulated since traders can
compare them to benchmarks. In
essence, Moore and Singleton say, P2P
is changing the conversation around
best execution.
In addition, P2P is also impacting
operational workflows in FX
significantly. Moore highlights the
issues traders face with swaps tied to
passive hedge positions and how FX
HedgePool’s P2P community is solving
them.
“These trades are considered
routine, non-alpha generating and,
by definition, create predictability,
operational risk, and cost,” he says.
“A buy-side trader’s job is to minimize
each of these effects by being discreet,
efficient, and diligent with their LPs.
All of this effort simply to survive
another day and do it all again the
next month. By joining our community
of passive hedgers, they can find
dependable, natural offsets for their
routine hedging needs.”
He explains that traders can
consistently and anonymously
book jumbo swap trades on a
single ticket against a community
of peers, ensuring zero market
impact. FX HedgePool participants
match at mid-market rates at
fixed fees, eliminating any tedious
negotiation for routine trades while
avoiding volatile spreads they might
otherwise receive from LPs.
“Routine, passive trades detract from
the strategic benefits of the buy- to
sell-side relationship where market
risk management is so essential. Our
goal is to create more space for traders
to focus on the trades where their
expertise is needed most,” Moore
concludes.
INCREASING ACCESS AND UNIQUE
SERVICES
While P2P’s benefits offer compelling
use cases, ease of onboarding and
access are critical to greater adoption.
To this end, Singleton and Moore
highlight their efforts in minimizing
any disruptions traders might face
when incorporating P2P in their trade
workflows.
“When Cürex was designing its
peer-to-peer matching platform,
we consulted with our largest
buy-side customers to make sure
we were building a product that
addressed their principal concerns,”
Singleton says. “We worked with
those institutions’ banks to address
credit issues related to P2P matching.
Our solution, which also addressed
important workflow concerns, relied
on the algo providing banks to access
our P2P platform on behalf of those
buy-side institutions.”
Singleton notes that Cürex is working
on expanding beyond the seven
participating algo banks it currently
has on board. “We view this as a winwin
situation where we bring more
customer access to our P2P platform
and the participating algo banks
provide an additional and attractive
liquidity pool for the same fee they are
charging their clients,” he says.
FX HedgePool, Moore says, has
focused on workflow automation and
integration over the past year. “Our
efforts have led to fully integrated and
automated access to FX HedgePool
via the primary Order Management
Systems used by the vast majority
of the buy-side today – including
Blackrock’s Aladdin and Charles River
Development (CRD),” he explains.
“These integrations allow traders
to direct orders to FX HedgePool in
a familiar workflow to their typical
trading process, which has been a
game changer for onboarding new
clients.”
Increasing pool diversity is not a
priority for either FX HedgePool or
Cürex. Singleton explains, “Candidly,
we don’t believe the buy side needs
more liquidity pools. P2P liquidity is
a potential additional liquidity source
with tremendous benefits. Adding
other layers of liquidity pools beyond
the myriad that already exists probably
provides no additional benefit,
especially when buy-side traders
typically execute with the same top
five liquidity providers.”
18 MAY 2023 e-FOREX