Changing Analysis Of FX

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With Brigitte Le Bris, Head of Emerging Markets Debt and Currencies, Natixis Asset Management
I am from the fund management side of our business, and when we give the trading desk orders, fundamentally, we are asking for best execution. The trading desk is in charge of the process of improving the quality of the execution and they have been working hard on that by exploring new methods of transaction cost analysis (TCA). Our head of trading is now in the process of implementing FX TCA tools. While this is not strictly a requirement yet, it is definitely becoming something that more clients are asking for, and it won’t be long before it is the norm. There is a definite regulatory element to this drive as well, and while it is not explicitly on the radar of the regulators at the moment, we believe that it will not be far away, and we would like to get ahead of that curve by ensuring that we have proper systems and analysis in place.
At the moment approximately 80-85% of our trades go via electronic platforms and the rest remains being traded by voice. I think this percentage is about the maximum amount that we are going to achieve through electronic trading, just because there will always be certain orders and pairs that require more attention and specific contact with brokers.
The difficulty with TCA is to define which benchmark you want to use, but as soon as we have that, it will be very interesting for us to crunch the data. As a fund manager, I can see major consequences of this shift towards more analytics for our trading desk. It will help us to see which bank is providing us with the best price, and also it will help us to know how good the trading desk is, how quickly they enact our trades, how well they implement them and then how good a broker or bank is so that we can better delegate our flows.
From the perspective of the trading desk it will help them to check how good the price they receive is from the various counterparties and where there are areas they can improve upon to access better prices and liquidity. There are therefore two distinct areas – one quantitative, and one qualitative.
The fundamental idea would really be to implement exactly what has already been implemented on equities. The systems and processes there have changed as a result of increased electronic trading and platforms use. FX markets need to evolve in the same way that equities trading has.
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