Foreign exchange is no magic number ,” he said . “ But we stay prudent and keep it on the low side . We want to avoid a formulaic number , e . g . 25 brokers ; we review our brokers quarterly .” “ Day to day we have questions and want to talk to them . If we have a liquidity provider who is under providing in a currency pair , we can go to them , show them charts that show the performance and they really appreciate that . To evidence it is much better than shouting at the trader or using arguments which ultimately come down to anecdotal evidence . We find using hard data is something the banks really appreciate and it makes them hungry to do business with us .” If there are areas where the services provided by the sell side could improve , David believes these can be around NDF liquidity and being more responsive to the buy-side ’ s feedback on the broker ’ s performance . The firm has an emerging markets book which includes NDFs , in which liquidity can be variable and streaming sizes can be quite small . One challenge Ketley has found is that banks may not be able to stream pricing in less liquid products in the sizes the trading desk would like – although he acknowledges that this has improved in recent years as the market has shifted towards more electronic trading . “ We have a challenge in that our trades are spread-based so we have generally more than one currency to trade at a time , and our models have to change their views at the same time of day , so we need to find periods of liquidity through the day where we can adjust the models ,” said Ketley . “ For example , we trade dollar versus Korean won . We need to change our views in our EM book at the same time together . Korea is an obvious challenge . The Seoul hours are at night . We also have some Latin American currencies in the same book so finding a time of day is a challenge and the window is quite narrow . This is where the liquidity providers review process has paid off . Years ago we would be met with raised eyebrows trading KRW in the afternoon but through sharing appropriate data and transparent relationships , we can get decent pricing on say a Friday afternoon due to good relationships with the brokers .”
March 2017 www . buysideintel . com
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