On 16 & 17 June, The Finance Hive hosted their inaugural FX Leaders Residential Meeting at sumptuous The Luton Hoo in Bedfordshire.
The two day meeting was jam-packed with interactive roundtable discussions, 1:1s, unstructured networking, educational masterclasses, technology user groups, an incredible game of golf, a competitive clay pigeon shooting competition, a gala dinner, a casino and networking drinks!
Through the casino night, The Finance Hive together with their members and partners managed to raise over £4.5k for Macmillan Cancer Support!
Over the course of two days, buy side members benchmarked and debated the most pressing industry concerns and trends – a few key takeaways are highlighted in this article to give a bit of insight on what was discussed.
How has best execution developed since its introduction in the wake of MIFID? And how to maximise FX TCA efficiencies and the building blocks of rules based automation?
Best Execution
The buy side felt that the very definition of best execution – and what this meant to the trader is dependent on the asset being traded as well as its execution path – manual versus electronic, RFQ versus stream and so on. Ultimately, the consensus was that the end goal of MIFID and best execution remains the same, but the metrics used to measure it and how this information is applied has developed considerably.
Members mentioned that best execution is no longer seen as a box ticking exercise, but instead as a means of adding real value to the desk with opportunities for alpha generation, offering better service to investors and allowing traders to add value through their interpretation of data and how to apply this to execution strategy.
Data as always underpins the process – without the right data inputs to TCA, it’s incredibly hard to truly measure best execution so firms should look if able to invest in these areas and preferably to work with multiple vendors and data inputs to maximise output.
TCA Efficiency
When it came to increasing TCA efficiency, the group agreed that post trade TCA showed that algo providers could beat risk transfer pricing consistently over 50% of the time. Post trade is considered crucial in being able to monitor and measure trade success, and allows an insight to historical precedent on broker panel selection and execution paths.
The group mentioned that they want to explore if TCA can broaden its scope to factor in measurements outside of price; such as margin, and more niche qualitative metrics that could come into play and allow for unparalleled levels of customisation for trade analysis. Also, they stressed the importance of the trader, especially during periods of extreme market volatility. TCA, data and general automation should always be seen as a compliment to, rather than a replacement of the trader and during periods of volatility a manual touch and human insight can be invaluable in execution decision making.
Automation
Most buy side members at the meeting mentioned that they are utilising some form of rules based automation with smaller, more vanilla trades being routed through low touch or automated execution channels, whilst larger more exotic trades – and especially those in emerging or restricted markets would continue to receive the high touch treatment.
The RFQ process remains the area which the buy side are focussing their automation efforts and also hoped in the future for greater levels of automation for NDFs as these still remain very high touch. Members agreed that the next step is to further ramp up automation efforts internally, which will continue to free up trader time from manual work on smaller or more liquid trades, and give more time to work on bigger ticket items which can generate more alpha.
In particular, FX buy side are currently evaluating algo wheels, straight through processing (STP), rules-based execution and utilising analytics to drive decision making as areas of investment. The group mentioned that this could go as far as data driven automated execution decisions for fixing flows on spot and swap streams, or looking at automated ways to rotate trades for low and middle sized deals with no human input needed before execution.
The meeting was a blast, and there are whispers that more residential meetings will follow, so keep your eyes peeled! The Finance Hive’s next in-person meeting will be the FX London Members Meeting on the 6th of December. Buy side leaders can register their interest here: