Conference Dailys TRADETech FX Daily 2018 Wrap-up | Page 11

THETRADETECHFX DA I LY
in-depth
TRADING VENUES
FX players remain unconvinced
by algo wheels for accessing
best possible liquidity
TRADETECH FX PANEL POURS COLD WATER ON ORDER ROUTING AUTOMATION.
Foreign exchange (FX) market participants re-
main unconvinced as to the merits of using tools
that automate orders to access specific pools of
liquidity for FX markets..
Despite having seen significant traction in
the equities markets as the use of algo trading
has proliferated, panellists examining how to
measure the performance of liquidity providers in
order to establish the best possible partnerships
were sceptical on the use of algo wheels.
“The most reliable and robust framework is for
the buy-side themselves to assess the best algo
providers; that can be done on the basis of the
size and liquidity of the franchise, their ability to
internalise risk, their performance versus their
benchmark – that’s their chosen benchmark on
average, not just on a single execution but many
hundreds of executions over a long period and
some of the post-trade TCA providers can help
with assessing that,” said Ralf Donner, global head
of client FX algo execution at Goldman Sachs.
“There are some sort of algo wheel-type tools
making the rounds and I’m not quite convinced
that this is the way forward.”
Of more concern to panellists was the quality
of liquidity that these algo wheels are routing
orders towards and if they are using the best
venues possible for execution, according to Kevin
Kimmel, global head of eFX at Citadel Securities.
“You can study the data to see where the
lowest impact is among venues A, B and C, but
if those venues are not optimal, i.e. they are just
central and mid-order books, primary markets or
an anonymous ECN with lots of different liquidity
providers, it’s not even looking at the space
where there could be better execution provided,”
said Kimmel.
As such, the onus is on buy-side firms to keep
in dialogue with their sell-side counterparts to
examine the end points of liquidity that these
algorithms are accessing in order to improve the
efficiency of the algo wheel for execution quality.
What was more evident to the panel was the
shifting relationships between the sell-side and
the buy-side, whereby execution risk has moved
back onto the buy-side in recent years, possibly
as a result of historic regulatory infringements by
banks in the FX space and the recent introduction
of the FX Global Code of Conduct.
“That has been a pretty dramatic shift over the
last few years and it’s very difficult to measure
this accurately,” said Jeremy Smart, head of distri-
bution at XTX Markets. “There is less risk taking
and less appetite for risk among the sell-side.”
The official newspaper of TradeTech FX Europe 2018
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