State Street has recently modified its risk sharing mechanism within TruCross/FX to ensure that for the most liquid currencies, clients never get a rate outside of the published WM bid and ask rates. Moreover State Street is fully transparent on its costs. “Our fee for the TruCross most liquid currencies is half a basis point. But this could be less if the TruCross/FX algo driven management of the tail improves on the mid-rate, and while it could also be more, our YTD ratio is better than 2 to 1 in terms of commission reduction vs increase based on improvement relative to mid-rate,” says Chip Lowry, senior Managing Director and global head of Agency FX, State Street Global Markets.
TruCross was launched in the wake of the WM / Reuters Benchmark examination. It enables institutional investors with natural buy / sell characteristics to be matched off. It was the first and remains the only live FX crossing platform designed exclusively for the real money buy-side investment managers. State Street’s offering minimizes the cost and market exposure on the unmatched portion of trades. The problem that this tool addresses is what would otherwise be the pricing of this tail in the open market.
“No one is doing true mid rate anymore,” says Lowry “so what are the choices available for clients? Our concept is endorsed by the FSB and consequently people look at this as a potential tool to have in their tool kit. We can actually make a trading gain on the tail and we give that money back to clients. Any over performance we give back, any underperformance, we underwrite a portion of that and clients underwrite a portion as well. Overall, we have returned twice as much trading profit to clients as costs absorbed. So far the performance has been pretty good and our clients are happy with it.”