Conference Dailys TRADETech FX Daily 2019: Wrap-up | Page 11

THETRADETECHFX DA I LY
T
in-depth
he depth and breadth of innovation
around algos in the FX space is a
source of both simplicity and com-
plexity for the buy-side, although some are
not convinced that the industry is going in the
right direction, according to panellists at this
year’s TradeTech FX Europe conference.
A discussion on the use of algos in FX mar-
kets featured both buy- and sell-side institu-
tions and there were numerous opinions as to
the progress the industry is making, particu-
larly where the issue of access to liquidity via
algorithmic trading was concerned.
“There are almost two separate threads
that sound like they are contradictory; are
algos getting smarter and more complex, or
are they getting simpler and more accessi-
ble? Our view is that it is both and those two
things are not incompatible,” said Allan Guild,
global head of alternative execution services
at HSBC.
“It’s about making sure that our clients un-
derstand the algos and the strategies, in terms
of the inputs and how they are choosing to
execute, which can be straightforward. The
complexity and the smart comes into the
execution of the individual child orders.”
Meanwhile, Ralf Donner, global head of cli-
ent FX algo execution at Goldman Sachs, said
that while the accessibility of liquidity and
the management of liquidity providers should
be considered important, it represents just
one side of the algo innovation debate.
“The other side of the equation is actual
product innovation, which has taken a step
back in recent years, but it’s coming back to
the fore, and this is concerning things like
how do you executive portfolios effectively,
how can you provide tools to options traders
to executive that are useful for them, how do
executive things that in past couldn’t be done
on algos such as NDFs or outright forwards,
maybe one day swaps; there are is a lot of
product innovation that is actually coming
online now or will be soon,” said Donner.
“Maybe then the liquidity side of the argu-
ment will reach a certain maturity and we
will be able to put it behind us.”
When buy-side firms choose to use algos to
execute orders, they take on the risk of those
orders themselves, and using algos that they
perhaps are not familiar with or are not suit-
able for a particular strategy means that some
firms are hesitant to use technology from
outside sources to achieve the best execution
outcome.
“Although we keep trying sell-side algos,
because there is nothing more I like than to
just retire a technology stack and outsource it
so that I can take that development resource
and apply it to alpha generation, we keep
going back to our own algos,” said Hasan
Amjad, head of algorithmic trading at GAM
Systematic Cantab.
“We may be partially biased towards our
own technology, but also possibly because our
own algos tend to do much better, perhaps
because we are tapping into the internal
order books of all these liquidity providers,
which a single provider simply doesn’t have
access to.”
There is also the issue of the buy-side fully
handing over control of execution orders to
algos, with many traders still keen to take
control of orders “mid-flight”, although this
does run the risk of muddying the data that is
then used to analyse trades after completion.
“It is, after all, empowering to be able to
change your algo mid-execution and make
adjustments as you see market conditions
either deteriorating or improving, and it par-
ticularly allows, because it’s at the child order
level so you have a very clear view of the
breakdown of liquidity, the scope for internal-
isation,” said Donner.
“For post-trade analysis there is no doubt
that any tinkering around with algos during
execution removes that clean picture, but
realistically we can’t experiment and deploy
laboratory conditions for algos, that’s not
going to work.”
APG’s Patil said that it is now “the nature of
modern algos” that traders can step in during
execution to make changes if required and
that systems, in some cases, are advanced
enough where any changes made can be
tagged and post-trade analysis will factor in
such elements.
Another issue of contention for the buy-side
panellists was the lack of standardisation
among third-party TCA providers, with data
and analytics often supplied in disparate
formats. Amjad said that the buy-side require
more data from the sell-side, particularly
firms that run systematic strategies, but re-
ceiving TCA reports and graphs in PDFs from
various providers only caused more problems
than they solved.
“It is, after all, empowering to be able to change your
algo mid-execution and make adjustments as you see
market conditions either deteriorating or improving.”
RALF DONNER, GOLDMAN SACHS
The official newspaper of TradeTech FX Europe 2019
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