Foreign
exchange
The results of K&KGC’s 2016 Organising the FX trading
desk survey indicate that the buy side continues to
spread liquidity across a number of different venues.
The main attractions of such platforms are their
connectivity to counterparties and multi-bank RFQ
features. Notably, the buy-side is also increasing the
number of counterparties in an effort to increase
access to liquidity.
Despite a gradual shift towards a more multi-asset world
with increasingly correlated asset classes, the foreign
exchange specialist continues to be in demand. Some
of the wish-list items the buy-side have highlighted
as part of recent K&KGC’s survey include moving of
custodian-directed auto-FX to agency or matched
principle solutions, and in-house tech development.
The main push factors for the use of new technologies
in FX include increased focus on FX best execution,
regulation, technology, hidden vendor transaction
charges passed on to the buy-side by brokers, and
access to liquidity.
Regulation looks set to play an increased role in FX
trading in the near future. In Europe under MiFID II,
certain FX instruments may under certain conditions be
considered financial instruments and could therefore
be subject to collateralisation.
In Asia, the buy-side shares many key concerns with
their European peers. The key FX concerns include
dissatisfaction with custodians and the service they
provide, how to use FX TCA and what benchmark to
use, as well as how to use customised algos and pretrade controls. Some buy-side houses are now using
FX algos for smaller orders, although this is still in its
early stages. Some firms are even looking to outsource
passive trades to reduce costs. Access to adequate
data remains a challenge.
The latest K&KGC FX interim report is currently available
for those who filled in the FX: Organising the trading
desk survey. Make sure to check you filled it in to get
your copy of the report!