Buy-side panellists speaking at the TradeTech FX Europe 2023 conference agreed that significant progress had been made to offer them a clear picture of the FX market in terms of TCA but that more work could be done to develop the in-flight monitoring of analytics.
All speakers on a panel exploring the market’s shift to liquidity provision analytics confirmed that buy-side trading desks have a better picture than ever when it comes to TCA. When asked what their core focus was going forwards, the answer was unanimously centred around better in-flight monitoring.
“There’s not enough transparency around what’s going on during the trade. There could be more around that,” said Bhavesh Trivedi, dealer at AustralianSuper.
“Banks are making advances but from a platform perspective it’s very different from a single bank platform that is using proprietary data. We have a good idea of how much is done and where it was filled but we’d like to understand more around where and how something is internalised for example or who would do X% at what level.”
This view was corroborated by BidFX’s head of data and analytics, Daniel Chambers, who agreed in-flight was a core focus for the firm, in particular with how the relationship between monitoring liquidity and how that relates to incurred execution costs could be improved.
LPA is the new TCA
The morning’s panel was focused on liquidity provision analytics as the next stage for TCA and speakers confirmed that its use offers traders more of an understanding around “why” costs have been incurred whether that be due to market impact, timing, method or the use of a particular liquidity provider, for example.
Buy-side speakers from AustrailianSuper and Brown Brothers Harriman (BBH) confirmed they were now using LPA as an additional tool to feed into their TCA models.
“It’s trying to build a picture around the prices that liquidity providers give us, what they show us and how reliable they are. We will use that going forward in a circular fashion where we feed it into our engine before we trade,” said Joseph Forde, trader at BBH.
LPA is contributing to a “feedback post-loop” Chambers agreed. “It’s a way to curate liquidity. You make a decision much earlier than the point of execution and at the point of execution you can make improvements as well. It helps to direct execution flow to LPs based on previous performance.”
Liquidity provision analytics is mutually beneficial for both parties on both sides of a trade, the panel confirmed, and is an important tool for relationship building.
“When you go into a trade you have an expectation of what you want to happen. That all feeds into liquidity provision analysis and how to trade that trade in the most effective way,” said Trivedi.