Staying ahead of the competition
Every institution must differentiate itself in the market, even more so for broker-dealers and banks offering comparable services to end customers. Rapidly changing dynamics around regulation, credit requirements and new technologies make the focus on operational efficiency as important as supporting customer needs. Making the most of limited resources through strategic decisions about how to scale your business, where to invest and whether to outsource or build in-house can make or break the bottom line. Powerful new tools made possible with A.I. and machine learning represent an opportunity for brokerages to automate and streamline operations in ways that provide an edge.
Mining data insights for competitive advantage was previously the purview mainly of global banks with solid capital bases, diverse resources, and long-standing client relationships. Retail brokers were required to specialize in certain areas and prioritize their focus and more limited capabilities–until now.
Every broker currently has the opportunity to leverage data analytics to drive their business. Beyond KYC automation, transaction cost analysis (TCA) and execution quality analysis, the democratization of large-scale data analytics is beginning to fundamentally change the dynamics between brokers, liquidity providers and traders.
The ability to effectively analyze large-scale time-series datasets (for full order books alongside time series quote data, not just trade-by-trade data) was historically only possible through cost-prohibitive technologies and methodologies used mainly by institutional players in the industry. These sophisticated data processing capabilities were previously beyond the resources of retail firms, but are now accessible to smaller brokers as costs have come down, due in large part to cloud-enabled services delivered by Amazon, Microsoft and Google.
Increased access to data and the additional insights this will offer will bring a new level of transparency to the industry. Technology providers are now evolving to bridge this gap.
Business growth opportunities
There are multiple ways that data-driven decisions can maximize profitability, minimize risk and provide a competitive advantage. Having access to granular data can transform multiple aspects of a retail broker’s business.
Brokers can manage client relationships by differentiating themselves through their front-end interfaces and the tools they provide, like charting packages and projections to help end-users make better trading decisions that enhance performance. As everyone expects their technology to be as user-friendly as an iPhone, brokerage customers will look to accomplish their investment and trading goals through a single solution. Customers will increasingly consider advanced data analytics tools among the selection criteria used to distinguish brokers, so incorporating these into offerings will help institutions to attract new users and remain competitive. Client data can also be leveraged to enhance internal marketing, risk management and support practices to remain relevant. Every firm should position itself to meet the needs of its customers and evolve with the market.
Ongoing regulation of FX trading, from ESMA and other initiatives such as MiFID II to RTS 27 reporting, requires forward-thinking brokers to enhance their regulatory compliance and transparency. Investments in technology infrastructure will need to accommodate advanced data and in turn will enable brokers to better anticipate future compliance requirements, particularly as regulators increasingly demand benchmark data. Brokers will be expected to demonstrate execution quality and provide market state information which will only be possible through next-generation data platforms.
As brokers are empowered with better time-series data analytics tools, they will get first-hand access to the data required to improve transparency with their liquidity provider relationships. Access to reports on response time and transaction flow will give brokers a reference source within their own systems to discuss not only alpha, but delta-based metrics with their liquidity providers. Reports like these will give brokers more accurate information to inform their liquidity and routing decisions, and context to discuss the delicate balance between price quality (spread) and the impact of flow (toxicity).
Brokers can now optimize trading operations across price-making, trade execution, and risk management with advanced data analysis like never before. As retail brokers have effectively scaled their workflows to handle high ticket volumes, the next challenge is to develop sophisticated, enterprise-grade data analytics to compete with institutions, enhance client relationships and manage liquidity provider interactions more effectively. Brokers will be more capable of understanding the unique characteristics of their clients, and the impact their hedging flow has on the broader market.
Making the right investments
Most front-end technology platforms currently include standard off-the-shelf data analytics tools. However, these are often not as sophisticated as enterprise-grade offerings. Brokers using advanced trading platforms with back-end technology providers can now increasingly offer end-users more advanced data tools without developing proprietary software.
All brokers can and must position themselves for success in the future of the OTC brokerage market by strategically partnering with technology providers who can surface these capabilities to them. Value-added services enable brokers to unlock big data and machine learning insights about their OTC market data without the need for in-house data scientists. Brokers benefit from this by improving trading operations, client and LP relationships, risk management and regulatory compliance.
oneZero Data Source Advantages
oneZero delivers powerful business intelligence to clients through its enterprise-grade technology solutions. Data Source is a suite of next-generation, cloud-based business intelligence tools that enable analyses of key business drivers across customer flow, liquidity provider relationships and the market. These advanced reporting and analytics capabilities and market data insights are accessible in multiple formats: raw data feed, standardized reporting, advanced analytics for customized requirements and industry benchmarking. Data Source provides multiple ways for brokers to meet constantly changing FX market demands.