Exchanging ideas
Christian Schoeppe, head of FX trading EMEA
at Deutsche Asset Management
Asset management houses are
changing the way they organise
their business as the asset class is
transformed by new technologies
and regulations. That means an
emphasis on best execution, as well
as the technologies to go with it as
FX evolves into more of an actively
traded asset class for our portfolio
management.
“We face regulatory
adverse impacts on
liquidity and fragmentation,
on the other hand it’s been
major central bank policy
diversion that contributed
to higher volatility since
last year,” Schoeppe told
the Buy-side Perspectives.
“Therefore modernising
best execution concepts
has been a focus theme
in the asset management
industry: how can we
get the best result from
liquidity providers for our
investors?”
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The Buy-side Perspectives | Issue 3 | April 2016
Deutsche Asset Management has
reformed its FX trading in recent years.
At one time, the firm didn’t have a
dedicated FX desk. Then the asset
management house began to automate
FX positions arising from securities
trades. Such Treasury FX trades were
collected and executed at 10.00 and
at 16.00 daily.
As the market becomes increasingly
electronic and sophisticated,
Deutsche Asset Management has
increased the proportion of its FX
flows that are traded in an automated
manner from zero to between 30-40%
- a percentage that is expected to rise
as the firm continues to automate in
the coming months and years.
“This era of market structure changes
continuously leads to electronic
routes taking major shares of FX
trading, meaning systematic data
access and handling has become
increasingly important for asset
managers in the light of MiFID II
regulations,” said Schoeppe.
“Technology continues to be the
most important factor in this
electronic migration: leveraging an
EMS/OMS suite for the asset class
FX to become most efficiently
traded is key.”
Historically, FX has been traded
bilaterally on an OTC basis. A host
of new platforms have emerged in
recent years where FX can be traded
in a more electronic exchange-style
execution environment. Examples
include FXall and LMAX. At the same
time, other tools such as BlackRock’s
Aladdin order management system
have emerged, which combine risk
analytics with portfolio management,
trading and settlement tools on a
single hosted platform.
“One key aspect involves
active counterparty
management and
enhanced communication:
our traders need to
continuously assess and
monitor what areas of the
business liquidity providers
are committed to, which
impacts how and where
our business is executed,”
said Schoeppe.
For Deutsche Asset Management,
tools such as Aladdin are useful
because they remove the problem
of reliance on numerous different IT
interfaces. They are also better suited
to non-equity asset classes than some
of the older technology platforms,
which in some cases were originally
designed for equities only then
simply ported across to FX and other
asset classes, with the result that
their abilities were not always ideally
designed for OTC products.
While undeniably important,
technology is not everything in FX,
however. A more holistic perspective
is one of the key areas that Schoeppe
likes to emphasise when it comes
to achieving best execution in FX.