Jeremy Smart Managing Director, Head of Fixed Income Electronic Distribution at RBS Markets & International Banking
Jeremy Smart Managing Director, Head of Fixed Income Electronic Distribution at RBS Markets & International Banking

Agile and next generation algo trading and execution

Algorithmic trading was originally about gaining best price and accessing liquidity but the market has moved on.

Our clients are definitely interested in best price but their definition of best execution has expanded. They now seek a platform that provides transparency, reliability of the system and of the algos themselves and operational processing capability. Straight through processing (STP) that fits with their workflow is a vital aspect of clients’ requirements. 

So algorithms must now work harder to automate workflow and also transaction cost analysis (TCA) has become a key part of increased transparency and processing efficiency. Although TCA has been a feature of equity markets for some time it is still relatively new in foreign exchange. 

RBS Agile global trading and execution engine incorporates live pre-trade, trade and post trade analytics. This enables clients to provide stakeholders with benchmark information to assess best performance. Moreover they select which benchmark to use as their reference, we do not dictate it. 

Within Agile the client can chose whether to trade on a principal basis or on an agency one. They decide whether they wish to trade on RBS liquidity on top of market liquidity or just on market liquidity alone. Importantly as RBS is a market maker, we contribute into our internal pool of liquidity as well as offering clients the ability to trade with each other and with other liquidity providers through our internal liquidity Crossmatch platform. 

Reducing risk

Roughly 85% of RBS’s EUR/USD Algorithmic trade flow is internalised, meaning that clients reduce the signalling risk to the market. This is particularly important to clients who are keen to achieve best price by keeping their orders discreet from the core market. While Agile’s algos will enable spot trading across any currency pair, the discreet features of the system are particularly relevant in less liquid markets where fewer transactions may move pricing.

Using Agile the client can currently choose from 34 different trading strategies. The client sets the parameters that they want the algo to run to and initiates the trade. They can watch and monitor the progress and performance as the algo executes its instructions. When the trade is finished they can run TCA and benchmark it.

Crossmatch offers clients access to a unique pool of liquidity. This is unique for two reasons. Firstly, the sheer breadth of our client franchise which includes a wide spread of corporates, real money, funds and institutions and is extensive in terms of both client segment and geography. This diversity of order flow together with RBS’s own orders from its swaps, options and other internal transactions create a deep book of diverse natural interest that allows clients to access liquidity from sources that would otherwise be unavailable to them.

Secondly, we augment our own liquidity provision with that of other financial institutions with whom we work on a reciprocal basis. This enhances liquidity in currencies that are peripheral to our natural franchises.

Moving to the next level

Agile is moving algo trading to the next level and at the same time we have built in plenty of forward agility too. We are now at a staging post en route to future developments and Agile is ready to rapidly lead and embrace those as they evolve.