10.27.2014
By Terry Flanagan

FX Market Lacks Benchmarks

The foreign exchange market’s reputation for opaqueness is largely due to a dearth of benchmarks to inform buy-side trading decisions.

“A lot of people, especially on the buy side, consider the foreign exchange market to be a non-transparent market,” said Franz Schmidpeter, managing director at Cürex Group, an institutional foreign exchange execution, product development and index data company. “It’s astonishing to think that literally the largest capital market in the world, which conservatively does $5 trillion a day, has had no executable indices nor third-party validated pricing.”

Schmidpeter is a 20-year FX markets veteran, having spent his career in all aspects of FX trading, including spot and forwards, proprietary trading and overseeing the global options book for HVB, a major European bank. He was a Country Manager for GMAC – RFC in Germany and most recently was a founding partner of BuysideFX, where he oversaw product development and client relations.

“My job as a domain expert and product development manager is to help bring transparency and clarity to the marketplace,” he said.

The issue for FX buy-side market participants has been the need for a benchmark against which to measure execution quality. “Everybody on the buy side, not only asset managers and pensions, but corporates as well, would appreciate having more transparent analytics,” Schmidpeter said. “The greatest challenge in the market right now in terms of TCA and other analytic is what you compare to, because every data analytic is only as good as the benchmark data that you compare it to.”

The FTSE Cürex FX Index Series, a joint venture of Cürex Group and the London Stock Exchange’s FTSE Group that provides a range of executable spot FX benchmarks, provides institutional foreign exchange liquidity for financial products tracking the Series.

The effect is to combine a functioning OTC market with the advantages of a regulated transparent exchange.

“You can use this index as a benchmark for every trade you do, or you can save yourself the time and effort of benchmarking your trades and just execute right at the index, which is completely auditable,” Schmidpeter said. “In all the discussions I have had with the buy side, the key component is being able to show, in hindsight, why did I do what I did.”

“This is the first and so far the only execution possibility which is as close as you would get to a real exchange-traded environment,” Schmidpeter said. “You’ve got proprietary technology, streaming executable quotes–not indications–but prices, and a third-party validator that has credibility around the world.”

Featured image via COSPV/Dollar Photo Club

Related articles

  1. Daily Email Feature

    Traders Seek Desktop Harmony 

    Buy-side and sell-side firms need to integrate applications to streamline traders' UX.

  2. ETF Issuers Welcome Deutsche Börse Initiative

    Passive funds represented nearly all U.S. equity inflows.

  3. J.P. Morgan is hiring senior bankers and traders as other firms cut

    President and chief executive officer of State Street Global Advisors will retire in 2022.

  4. The majority of US ETF issuers are either developing or planning to develop transparent active ETFs.

  5. BlackRock CEO says pandemic has turbocharged evolution in the operating environment for every company.