e-Forex-Nov-23

Next generation FX analytics: Bringing transparency and more to the FX execution process
TRADING OPERATIONS
“It is important to differentiate between independent
analysis and independent data”
Guy Hopkins
James Knoop, FX Back Office Solution
Specialist at ION, believes independent
data is critical for banks. “Banks
having their own independent data
is critical so that they have leverage
when interacting with their LPs,” he
says. “Being able to highlight areas
where LPs are struggling against
their peers or being deliberately toxic
with their flow can lead to a closer
collaboration between Bank and LP.
This in turn improves their execution
and profitability.” He cites a situation
as an example. “Toxic flow from clients
or toxic actions for LPs such as long
last look times or quote spamming
can impact the bank’s trade execution
outcomes. Having access to data to
identify these scenarios enables bank’s
to make informed decisions about how
to price clients and interact with their
LPs.”
Lambert stresses the importance of the
unbiased standard or ruler to ensure
the data firms receive is independent
and lacks biases. “If the ruler isn’t
independent, then you cannot trust
your results to be objective,” he says.
“For example, if you are using data
from inside your trading ecosystem
when LPs are skewing their prices, as
they often will to reflect their trading
view, your ruler is changing, and
you will embed bias. For unbiased
measurement, you need to use an
exchange rate that your activity isn’t
affecting.”
Phil Morris, CEO of Reactive Markets,
is extremely familiar with these biases
and the importance of ensuring high
quality independent data. When asked
about the effects of independent data
on the kind of analysis liquidity takers
can perform, he lists a scenario. “A
liquidity taker may have access to vast
amounts of market data from their LPs
on a specific platform,” he says. “This
allows them to analyse the relative
pricing and execution quality between
these participants. It does not answer
questions about how their LP pricing
may differ on other trading platforms,
or how a new LP may be able to
change the shape of their liquidity
pool. Adding independent data can
open up insights into how their LPs
or platform providers are performing
relative to the wider market.”
“Similarly,” he continues, “an LP will
only see its trades with a specific
liquidity taker and will have no context
about its relative performance or
what improvements it needs to make
to win more business. By accessing
independent anonymised datasets,
an LP can proactively optimise their
pricing on a client-by-client basis
resulting in better outcomes for both
the client and the LP. At Reactive
Markets, we offer complementary
liquidity management and data
services tools as a core part of our
offering,” he says. “On client request,
we capture and deliver their dataset
to several specialist data and analytics
companies where they can analyse this
alongside their larger, independent
datasets.”
FX execution workflow resembles a conveyor belt where orders are moving through various stages
Lambert explains how New Change FX
assists its clients. “The NCFX mid-feed
is designed to be the unbiased ruler
because it is not part of a trading
platform,” he says. “The possibilities
for measurement expand enormously
once you can triangulate your own
available spread and midrate, your
micro price, your available volume, and
prevailing market conditions (volatility,
update frequency, etc.) To measure
your outcomes, you need the data
from inside your system and measure
them against the independent
22 NOVEMBER 2023 e-FOREX