e-Forex-Nov-23

Next generation FX analytics: Bringing transparency and more to the FX execution process
“TCA in combination with LPA gives a much more holistic
view on the trade performance of counterparties.”
volatility. Stakeholders have long been
interested in leveraging execution data
to dig deeper into them.
there is no guarantee that another
McGrath believes the pieces are in
LP would have filled them, especially
place for firms to break down this
in a volatile environment,” he says.
opacity. “Cost chains are complex,
“However, reject ratios, response
but with advanced data collation and
time and spread analysis can be easily
a deep understanding of customer
measured. It has traditionally been the
workflow, we can now start to address
role of the Liquidity Manager to look
these underlying components across
at these numbers in a holistic way and
the whole trade process,” he says.
make some sense of them.”
He explains that BidFX developed a
“Best Value” suite to allow the buyside
“A low fill ratio doesn’t immediately
to factor in costs in real-time. “This has
TRADING OPERATIONS
John McGrath
clients the ability to start evaluating
their counterpart selection based on
the wealth of data we could provide
whether that be average LP spreads,
skews, TOB, and market impact,”
he says. “I wouldn’t say people are
moving away from TCA. More that
in combination with LPA, it gives a
much more holistic view on the trade
performance of counterparties. Clients
now want to be able to affect their LP
selection in flight based on a feedback
loop on their LPA.”
Lambert agrees with McGrath’s views.
“At present, there is still plenty of
analysis to be done in the TCA space,”
he says. “The key to getting the best
outcome is to use all the relevant
information, and we believe that
does indeed mean using live analytics
around LPA, but it is still important to
understand how trading choices have
performed historically and how the
method of execution was affected by
the conditions in the market.”
Meanwhile, Paul Liew, Head of
Liquidity Management at TradAir, an
ION company, notes that quantitative
metrics are giving traders a great
view on the execution impact of
their decisions. “It’s difficult to put a
monetary cost on rejected orders as
mean that an LP is problematic,
when the orders arrive only at the
last minute just before the quote
is refreshed. TCA will still be an
important tool as PnL impact is more
easily calculated.”
Shevelenko thinks the utility of LPA
analytics is high enough for firms to
demand them as default parameters
in execution platforms, something
Bloomberg is acting on. “Recently,
Bloomberg released a new suite of
FX pricing quality tools that allow
price takers to investigate how often
a counterparty priced and won
the trade, were runner up with the
“Best Alternative” price or placed
somewhere in the pack,” he says.
“Price takers can also measure how
often a counterparty declined to
price, failed to pick up the request, or
rejected a request to deal. Using the
same analytical toolkit, price makers
can quickly identify when clients
traded away, or where opportunities
to price are being missed and
why, such as issues with internal
counterparty setup, enablement
issues, or internal credit rejects.”
REMOVING OPACITY IN
EXECUTION COST CHAINS
FX execution cost chains have plenty
of hidden costs within them, especially
when evaluating the impact of
counterparty liquidity and market
now been developed to allow clients
to start planning how they factor in
counterparty selection to the trade
process via a feedback loop.”
Shevelenko echoes these views.
“FX execution workflow resembles
a conveyor belt where orders are
moving through various stages such
as creation, validation, compliance
checks, eligible counterparty
assignments, netting, and
optimization,” he says. “Aggregated
analysis over a representative
timeframe could suggest various
actionable enhancements to the
workflow and trading process.”
Hopkins offers a few examples of
the questions execution analytics can
answer now. “What is the economic
impact of a valued counterparty
terminating a relationship?,” he says.
“How much does it cost to establish
a relationship that is capable of filling
the gap? Which liquidity providers
should a firm be trading with? These
are questions that firms have been
wrestling with since trading began, but
only now are technologies emerging
that can start to help firms answer
them on a systematic basis.”
New Change FX’s Lambert cautions
that examining the context behind
the data is critical. “By providing the
ability to capture, analyse and store
28 NOVEMBER 2023 e-FOREX