Buy-side Perspectives Issue 6 | Page 28

Foreign exchange Best execution and TCA As Q4 gets underway this October, it’s time for a roundup of some of the FX highlights that you may have missed from earlier this year. “TCA supports achieving the best overall result of trading - which does not only consist of the best price though. For example it’s no use having one counterparty at the top of the pricing list if the same one fails in every second trade matching, or for example provides no market colour/ research to us. Liquidity analysis is key for point-in-time or automated execution which continue to play a major part of the daily basket of modern buy-side FX traders adapting to change and enhancing their trading style – they must understand how our liquidity providers handle our orders and confirm their intention for best execution.” “Our biggest duty in the FX industry is to strive for more transparency and the infrastructure needed to keep up with the growing volumes of data. We have to elaborate best execution across the whole firm, and therefore not just performing internal TCA but also evaluating what specialized providers can offer including multiple benchmarking. The challenge remains that FX is an overthe-counter product and no official mid-market reference point currently exists. But we are getting there with the right mix of indicative and tradeable reference prices which both have their value in existence.” Christian Schoeppe Head of FX trading EMEA Deutsche Asset Management “Best execution is a must, but not everybody agrees what it means. If I ask three brokers for a price and take the cheapest one, I could say that’s best execution. But that’s too simple. To really offer best execution it’s not enough to only offer the best price right now in this moment, you also have to offer best price execution over longer time periods, such as the whole day or a whole week.” “A permanent TCA is a necessity for FX and it should be part of best execution. The challenge now is data. Increasing the quality of TCA would involve seeing not only the price but also volume, which is nearly impossible. When you look at equities you can see volume and price, but not FX right now. Because it is OTC, I don’t know if it is possible. But I would like to see it." Achim Walde Senior FX risk manager/currency overlay Metzler 28 www.buysideintel.com October 2016