The pace of change, resultant demands and opportunities in FX technology today mean it is more important than ever to work with expert partners who understand the business. Explore the regulatory, technology and business challenges facing the FX Order industry today, and how Barracuda FX is helping our clients stay ahead.
Regulation & Control
Regulatory initiatives have directly and indirectly impacted FX Orders, including the FX Global Code of Conduct, MiFID II and Best EX. Best practice recommendations mean that Banks must invest in significant improvements to systems and processes – both to comply and to be seen to comply. Competition for the best clients is fierce – a major factor in Buy-side firms’ decisions regarding their Bank panel is the extent to which they meet and exceed the regulatory obligations.
Key areas where Banks must maximise compliance include:
To what extent are banks’ contracted service levels baked into the rules and configurations of their systems? Can the resultant service be proven and demonstrated through complete audit trails? Many legacy systems do not provide adequate functionality here.
There has always been inter-desk conflict of interest in large trading rooms. Banks need tight controls to serve and protect client interests. Channels and data must be ring-fenced , visible by permission. Handling multi-channel while enforcing segregation and privacy will help minimise costs and maximise efficiencies.
Banks need to ensure that multi-channel service levels are consistently provided. This means robust pricing, mark up and delivery systems as well as post-trade service measurement (Best Execution). Banks need robust multi-channel systems, key stroke level audit and data to meet such demands.
The FX market’s DNA is complex, multi-channel and fragmented – making it complex and costly for banks to manage.
The increase in venues and exchanges, growth in the FX community and the number of products (e.g. algorithmic orders), is driving up the number of connections that need to be integrated, monitored and audited. Aggregating this market complexity into a single, centralised Order Book delivers significant operational, risk management and control benefits to Banks.
Working with efficient solutions and expert service providers can help banks stay in control.
Algo, HFT and electronic trading are on the rise in FX markets. Inter-dealer trading now spans across trading venues. High volumes, small order sizes, low margins, low latency and short risk-holding periods increase the complexity and dependency on supporting Technology and Ops – driving demand for solutions that can keep pace with the markets’ speed and sophistication.
Clients demand transparency, accuracy, execution quality and a full audit trail. Technology enables different execution styles and greater sophistication in taking, managing and executing orders – all helping to minimise market impact, reduce transaction cost and meet these demands. Placing even more challenges on firms to make this service available to their clients.
Banks are reducing their cost base while increasing business efficiency. Some have invested in single-dealer platforms, with an increasing trend among major liquidity providers to internalise flow, matching buyers and sellers and warehousing risk. This technology advance increases automation and auditability, while the shift to electronic helps address key regulatory risks.