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 20<strong>23</strong> e-FOREX
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