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
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www.buysideintel.com
October 2016