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 20<strong>23</strong> e-FOREX
Welcome to the next generation of bilateral FX trading. Ultra-low latency, 25+ global liquidity providers, Zero cost to trade. Book a demo at reactivemarkets.com NOVEMBER 20<strong>23</strong> e-FOREX <strong>23</strong>