Buy Side Warms to FX TCA

Terry Flanagan

As FX trading continues to move from manual to electronic methods, more attention is being paid to monitoring the cost of execution, closing out positions intraday to drive real-time trading and hedging of FX risk, and utilizing transaction cost analysis (TCA) to evaluate performance while maintaining better control over pricing, according to Minor Huffman, senior vice president for FX trading at SunGard.

“We see customers taking a closer look at their transaction cost in FX, where the costs are bundled into the bid offer spreads that customers pay, and they’re looking for transparency around that,” Huffman told Markets Media. “We’re also seeing a loss of confidence in some of the traditional execution methods such as custody banks. Customers want to start to evaluate new ways of trading FX.”

SunGard has launched a real-time transaction cost analysis (TCA) system for FX to help traders, corporate treasurers and portfolio managers understand the quality of their FX executions.

“We have a wide base of existing SunGard customers; corporate treasurers, long-only pension funds, asset managers, who all have the need to understand how they’re trading FX, and how can they systematically evaluate it,” Huffman said.

SunGard’s FX TCA analyzes FX transactions and shows the relative performance of the customer’s FX trading activity, the company said.

“With growing adoption of electronic FX trading, including algorithmic order routing, becoming an integral part of the daily workflows of real asset managers, hedge funds, and corporate treasury departments’ end-users alike, the resulting demand for FX TCA services of all types ¾ post-trade, pre-trade, and real-time analysis ¾ will continue to grow healthily into the foreseeable future,” Howard Tai, senior analyst at Aite Group, said in a release.

Huffmann, who joined SunGard earlier this year to lead its FX trading initiative, has twenty-five years’ experience in the financial services industry working across a wide range of asset classes: FX, interest rates, credit, commodities, equities, and the building and supporting and trading analytic and risk management systems. Prior to joining SunGard, he was chief technology officer at FXall and head of rates technology at Credit Suisse.

As banks implement Basel III, they are having to reduce the amount of trading capital available and sharply curtail their FX market making activity, resulting in a shift from aprincipal- based model in FX trading to more of an agency model. This has put additional pressure on buy-side firms to review their execution costs.

“That’s what led us to build this tool,” Huffman said. “It’s a real time, foreign exchange, transaction cost analysis tool with a lot of data visualizations. We cover about 50 major pairs and precious metals, and the product integrates into our existing SunGard trading systems. So if you’re a customer of SunGard the trades are up in the portal where you can integrate with files or with FIX sessions.”

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