The basket algo functionality has been available for some time now, but recently made the leap from the single dealer platform to a native integration with a selection of the multi-dealer platforms (MDPs). According to Donner, the offering itself is a uniquely native implementation, firstly in terms of the ease of use, with clients being to take the legs of the execution directly from the EMS screen on the MDP, batch them together and send them to the basket and then there is no further interaction needed. “Unlike some other more cumbersome workflows, our native implementation works off the bat,” he adds.
The reason why basket algo execution has been so successful also lies in the ability for clients to trade correlated pairs, which is also proving to be the case on the MDPs, Ralf adds. “Several of the users, hedge funds and real money clients, are running a systematic strategy in spot FX and do not believe the orders should be independently executed, especially given that the strategy is on the basket. It makes more sense for them to send us the entire rebalance.”
Other real money clients also have an issue of non-nettable accounts, where they must trade both legs of the order and simply cannot net the two, Donner adds. “However, our basket algo implementation ensures that if a buy order and a sell order are submitted to the basket algo, we will simply net those for the user at no additional cost,” he says. Further use cases have included more specialist algo executions, for example on China baskets or US Dollar Index (DXY) baskets. Donner adds that US based hedge funds have also started executing FX options portfolios or baskets using the basket algo on the MDPs. “This was driven by the need to efficiently delta hedge a basket of FX options, so it makes sense to use the basket algo to achieve this,” he adds. “We are encountering some very interesting use cases and the basket algos on MDPs is definitely turning into a fascinating business opportunity. The market was obviously more than ready for this product.”
At the same time, Goldman Sachs has been having particular success with its recently released EFP functionality on currency futures, which merges futures and FX into a single product. The product is available via a market leading MDP, with clients able to visit any landing page ie futures algo or cash equities algos, for example, and select how many lots to buy or sell of a currency future in the same workflow. “Customers can then opt to execute using our flagship dynamic hybrid algo, or Twap. We then convert that futures trade into an FX forward trade, then once it is done it is sent as a block trade to the exchange. So the order looks like a future all the way through, except that they are making use of OTC liquidity in the middle. This has been a very big growth business for us and once which may mark a significant shift in the nature of the FX algo market,” Donner says.
