Buy-side Perspectives Issue 4 - Page 19

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!