e-Forex-Nov-23

TRADING OPERATIONS
market risk back to the client. It is
therefore crucial that analysis supports
an auditable decision-making process
to manage that risk.”
Vivek Shankar
Electronification has steadily increased
in FX over the years, and has spawned
new stakeholder needs. Proving
commercial viability and increasing
efficiency are two examples that have
led to data analysis becoming a critical
portion of the FX execution workflow.
With more data at firms’ disposal
than ever before TCA is playing an
important role in helping them finetune
their strategies. Guy Hopkins,
CEO and Founder of FairXchange,
believes this need underlies recent
developments in execution analytics.
“Regulatory drivers such as MiFID II
have certainly increased adoption of
data analysis,” he says, “however there
is a much deeper commercial need to
understand the impact of technology
on the execution process.”
Whilst Paul Lambert, Chief Executive
Officer, New Change FX, adds that
the shift towards algo execution has
also had an effect. “The pandemic
was key in driving adoption as traders
were unable to use ‘old’ approaches
to execution,” he says. “The realisation
that passing an algo order is effectively
the same as passing an ‘at best’ order
to a bank has simultaneously driven
the realisation that analysis is vital
to ensure best execution. The risk for
buyside traders that they might be
making poor execution choices now
poses a direct threat to the trader’s
job. The effect of algos is to transfer
PREPPING FOR DATA ANALYSIS
Given the twin needs of justifying
trade decisions and demonstrating
their value to firms, data quality is
playing a key role. Lambert lists a
few different datasets traders look
at from a high level. “Traders need
to understand all aspects of the
behaviour of their LPs,” he says. “The
historical approach of simply adding
LPs via an EMS is no longer adequate
because each LP and their effect on
the pool needs to be understood.”
“Similarly, algo execution details like
LP prioritisation and selection, reject
rates, market impact, etc, need to
be understood at a granular level
rather than on a generalised, posttrade
basis,” he continues. “The
most important aspect remains
the recording of a decision-making
process that justifies execution
methodology using real-time data.
Static TCA is of little use in that
process.”
Meanwhile, Oleg Shevelenko, FX
Product Manager, Bloomberg, echoes
Lambert’s point about algos breeding
new data analysis needs. “Automation
and algorithmic trading require
participants to have a much deeper
understanding of their execution
performance and how it can be
incorporated into execution strategies
that realise the most benefit,” he
says. “Unbiased data is fundamental
to the objective evaluation of trading
performance,” he continues. “Liquidity
providers are turning to third-party
independent data providers to help
them demonstrate the quality of their
execution algorithms to their clients,
while clients are also looking for
independent data to benchmark their
execution decisions and showcase
their value to investors.”
NOVEMBER 2023 e-FOREX 21