We recently attended TradeTech FX in Miami, the biggest yet, with over 200 buy-side delegates plus a strong contingent of sell-side and non-bank providers. We were kept busy talking with the Regional banks, which wanted to know more about our new OMS Cloud product.
We were encouraged to hear that MiFID II and the Global Code are getting banks to think more about how they manage FX Orders, particularly adopting a defined, transparent process.
Here’s what we heard on the panels and from discussions during the breaks –
Conduct, Culture and The Code
This was an excellent panel, with Adrian Boehler (BNP Paribas), Subodh Karnik (BNP Paribas) and David Puth (CLS and Global Foreign Exchange Committee).
At the moment most major market participants are working towards adherence, with the market looking to the sell-side for leadership. One reason is that adherence is being seen as a commercial opportunity, as a participant’s Conduct Rating is expected to be as important as Credit.
FX Orders are a key component of the Code:
– Order flow needs to be segregated and automated
– Those managing orders need to structurally address potential conflicts of interest
– There must be a “non-permeable information barrier”
Best Execution and TCA
TCA is now considered to be only one element of achieving, and perhaps more important, demonstrating Best Execution. There are many other considerations including fill rates, response times (accept and rejects), the cost of rejects, market impact, spread and price variation.
Interesting to hear that MiFID II is still taking up significant time and resource. Also, it is having an impact outside Europe, as it is becoming the de facto standard globally (including for FX trading).
Data, Data, Data
There is an abundance of data from multiple sources, which is getting richer and more frequently available. Data is now arguably more valuable than trading. But due to the amount of available data, the increasing frequency of updates, reduced hold times and the fragmentation of market, all technology platforms are coming under severe strain – resulting, in some cases, in gapping markets and publishing stale prices. Are technology platforms robust enough and fast enough to manage the on-going explosion in market data?
Prime Brokerage Vs Central Clearing
The FX PB business is rebounding, mainly due to POP, institutions consolidating portfolios, margin reform regulation and best execution. Exchange traded FX is still growing due to cross margining, netting risk and reducing the capital costs. FX Clearing is growing, as institutions trading cross asset classes adopt one process for all products. It’s not a case of one or the other – there is room for both….for now
Overall, there was a very positive feeling about the health of the FX industry (probably due to the return of volatility). But for the market to continue its evolution there are opportunities that need to be captured, specifically aligned with regulation, automation (and reducing human intervention), and the continued drive for efficiency.