FX Traders Seek Market Transparency

Terry Flanagan

Traders in FX welcome innovations, especially automation, but want more transparency about market conditions, such as exists for other asset classes.

“In my role as head of a long-only asset management desk that trades across asset classes, I want as much market transparency and trade information as possible,” said Richard Coulstock, director and head of dealing at Eastspring Investments, Prudential’s asset management business in Asia with $97 billion in assets under management. “This information allows me to compare our execution quality against the market and determine whether we, or our counterparties, can make process improvements with a view to improving performance for our underlying clients.”

In the equity world, analytical processes have been in place for a number of years. “Equity markets are transparent and a comparison is relatively straightforward,” Coulstock said. “In the FX world, however, you do not have the benefit of exchange traded currencies with a full transaction record in terms of price and volume. This makes analysis problematic and more market participants are paying attention to this issue.”

Richard Coulstock, Eastspring Investments

Richard Coulstock, Eastspring Investments

Electronic trading increases efficiency and speed, reduces the chance of manual errors and once trades are executed through an electronic platform you can subsequently access the trade information and access certain metrics that may be useful in terms of analyzing and improving execution quality.

“The FX market is a strong, vibrant market that continually evolves,” said Matt O’Hara, head of capital markets, market development, financial & risk at Thomson Reuters. “Technology will play a key role in the continuing expansion of the FX market. Regulations will play a significant role, especially OTC derivatives.”

NDFs (non-deliverable forwards), an instrument that is typically traded by developing markets where their currency is not convertible, will become electronic in order to comply with regulations.

“Options will continue to become more electronic,” said O’Hara. “Typically, the adoption of electronic trading directly correlates with the complexity of the underlying instrument, which is why historically the more vanilla instruments become electronic first, and in the future we will the more complex instrument become electronic, such as options.”

The main FX trading platforms have been around for a number of years. “In essence they allow us to simultaneously contact multiple counterparties and execute on the best quoted price,” said Coulstock. “Recent changes have been in the shape of more counterparties offering algorithmic trading suites, some of which Eastspring Investments has adopted. Going forward I would like to see electronic trading capabilities built into our OMS or EMS rather than requiring a separate platform for this type of execution.”

Thomson Reuters Matching is an anonymous electronic trade matching system offering access to real-time executable prices on 54 spot currency pairs.

Thomson Reuters has published a new proposed Matching Rule Book, designed to encourage behaviors that sustain primary markets. These include encouraging genuine interest at top of book, maintaining high certainty of execution, and provide a fair and orderly trading experience for all market participants.

“We take our responsibility to maintain a fair and orderly trading experience for all spot matching market participants seriously, and are adopting a leadership position in defining a higher standard for acceptable trading behaviors in FX,” said Phil Weisberg, global head of FX at Thomson Reuters, in a statement. “These proposed changes will benefit our customers by not only providing transparency in acceptable trading behaviors, but also transparency in the intentions behind our rule book changes.”

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