e-Forex-Nov-23

Next generation FX analytics: Bringing transparency and more to the FX execution process
TRADING OPERATIONS
“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.”
benchmark from outside the system. It
is from this information that the trader
can create an execution methodology
for each trade.”
FairXchange’s Hopkins acknowledges
the importance of independent data
sources but stresses that analysis is
just as critical. “It is important to
differentiate between independent
analysis and independent data,” he
says. “Independent data analytics firms
like FairXchange provide objective,
neutral analysis of trading firms’ data.
This gives firms valuable insights into
their trading business that they might
otherwise miss, and it also removes
the perception of “marking your
homework”. Indeed certain types of
analysis only make sense when based
on a particular firm’s data – their
unique liquidity, for example,” he
states.
Paul Lambert
When does incorporating a benchmark
or ruler (as Lambert explained)
hold water? “There are times when
it is helpful to combine this with
independent data sources,” Hopkins
responds. “Particularly when the
analysis is intended for third parties,
such as clients, counterparties, or
regulators. This gives a useful degree
of standardisation, and can remove
the potential for a given firm’s trading
activity to leave a signature on the
reference data against which trades are
measured. It is also helpful for creating
a level playing field, using objective
data that counterparties can agree
on.”
COMBINING DATA WITH
ANALYTICS TOOLS FOR MORE
TRANSPARENCY
“Data alone is quite useless without
analytics,” Bloomberg’s Shevelenko
says, “as analytics are a vehicle that
make sense of your data and uncover
meaningful conclusions. Therefore, data
and analytics go hand in hand helping
to constantly reshape the execution
process, making it clearer and more
transparent.”
Hopkins believes data standardisation
is a critical first step firms must invest
time into. “Standardise the data into a
format that permits firms to compare
across different venues, trading
platforms, and counterparties,” he
says. “The analytics then need to be
powerful enough to allow firms to
quickly identify areas of interest, in real
time if possible. This now extends to
using AI to detect anomalies or issues
that require attention.”
He also points out that these analytics
must be accessible to as broad a
constituency of users as possible.
“Data and data analysis are now part
of everyone’s daily working life, it is no
longer the province of a small number
of highly qualified specialists,” he notes.
Lambert counters that firms must
look earlier in the cycle and focus
on sourcing enough data. “Almost
no buyside users can consume and
analyse their available liquidity,”
he says. “They are shooting in the
dark without the data to understand
their feeds and act accordingly. Most
analysis available today is based on
‘dead’ data, which offers little in terms
of live execution problems.”
He explains that using such data with
algos doesn’t make sense. “The use of
a historic database of algo executions
to guess which algo to use now is like
driving from A to B using last week’s
traffic conditions when roadworks
may have moved, and the weather
may have changed. This challenge is
what led New Change to build its
Data Processing as a Service (DPaaS)
offering. NCFX, under an ordinary
platform agreement, can take feeds
from banks and process them to
produce live analytics for its clients.
Clients can create their live midrate,
see how a trade or algo execution
with a bank affects the prices at every
other institution, and triangulate their
midrate with the independent midrate
from NCFX and their own micro-price.”
Lambert adds that while these feeds
are built on live data, clients can store
James Knoop
“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.”
24 NOVEMBER 2023 e-FOREX