RBC Capital Markets enhances FX algo suite

November 2020 in Top Stories

Neil McClements, eFX Sales EMEA and Zachary Felshman, eFX Sales Americas explain why the focus on transparency and ensuring the client is in control is increasingly important given the current market conditions.

The new FX algo strategies and enhancements were made in response to RBC Capital Markets’ clients, who have been expressing their interest in increased trading participation and speed of execution inside the arrival price and at specific price levels, Felshman says. They are available now through the API, multi-dealer platforms and third party technology vendors.

Among the new additions to the existing FX algo suite is the RBC LimitPlus algorithm, which seeks liquidity optimally across multiple venues at a price no worse than a specified limit price. “The algorithm will cross spread if the current market price is better than the limit price. RBC LimitPlus will post passively when the market has passed the limit price, being careful to not exceed the configured display size, and re-post upon a fill,” Felshman explains.

It joins the RBC VWAP, a new trajectory based algorithm that targets the volume-weighted average price benchmark by trading according to a historical volume pattern trajectory over the specified time horizon.

Felshman says that this algorithm spreads the order along a volume-weighted trajectory, executing a larger portion of the order when the market is more liquid and conversely a smaller portion of the order when the market is less liquid. In turn, RBC IS is a trajectory based algo designed to minimise the shortfall from arrival rate.

“This algorithm determines its schedule based on a volume-weighted trajectory, but modifies the schedule to minimize the shortfall against the arrival price by speeding up or slowing down relative to the arrival price,” Felshman adds.

RBC Capital Markets’ algorithmic trading suite uses consolidated market liquidity and smart order routing
combined with a simple and easy-to-use set of orders to meet client’s needs.

The new set of FX algos are in addition to the existing suite of execution strategies: SmartTake, Strike, TWAP and Provide. McClements explains that although all algo strategies can execute in auto-pilot mode, clients ultimately need to be in control and RBC Capital Markets have recently added the ability for clients to switch between algo strategies on-the-fly.

“Having the ability to dynamically amend the algo strategy in real-time is a key component of having that control, especially if there are any changes in urgency or market conditions,” he says. “For example, a client may start with the Provide algo strategy which is 100% passive but subsequently there is a requirement to urgently fill the balance and therefore they can seamlessly amend to SmartTake which is our sweep-to-fill strategy.”

McClements also notes the increased demand from clients for greater transparency around execution logic. He explains that clients should have complete awareness in knowing what the algo strategy is doing and why, in order to then be able to confidently explain it to their own stakeholders. “Something we feel very strongly about at RBC Capital Markets is providing complete transparency on both the passive and aggressive execution logic, the liquidity that the algo strategies interact with and how that liquidity is curated,” he adds.

Looking ahead, Felshman believes that FX algos will continue to play a central role for FX providers with a renewed focus around strategy configuration, refining liquidity solutions, execution reporting and analytics. McClements agrees, adding that this year, electronic execution and algos have come into their own. “The ability to efficiently execute whilst minimizing operational risk and improving transparency and oversight, all naturally led to the increased adoption of electronic execution and algos. This direction of travel is only going to continue, especially when you include the additional benefits of post-trade TCA which in turn should feed into your pre-trade TCA enabling your execution decision process to constantly evolve and improve. To this end, we have also developed an aggregated TCA report with key benchmarks so clients can look at algo performance across their entire portfolio of trades,” he adds.