Why are increasing numbers of SEB’s clients considering algorithmic FX execution and what attributes does the bank have that put it in a good position to meet this demand?
Clients are in general getting more comfortable with algos. Many algo users use them as a completely integrated part of their workflow. We are also seeing more interest from clients that had previously not used algos at all and we have been involved in getting them up the curve from an early stage. Some clients feel more in control of their execution using algos while others are more willing to carry risk over a longer period in order to reduce their market impact. The fact that our algos are built in-house give us a great flexibility in tweaking and improving them to cater to customer feedback. As clients get more confident with algos they also start to use them for a wider range of currency pairs including Scandies.
What types of client are showing interest in your FX algos and what key benefits do they get from using them?
Mostly large corporate treasuries and financial institutions are using or enquiring about our algos. The main benefit is getting access to our internal pool of liquidity made up of our unique client franchise. Our internal pool is available in all offered currencies but our global edge is in Scandies. The simplicity of our algos is also something that our clients appreciate.
What steps are you taking to enhance your FX algo suite and optimise the availability of the strategies you offer?
We base our improvements on both customer feedback and our own trading experience. Usually the additional functionality requests come from our clients, while the optimization and refining often come from our quant and trading teams who use the same algos intensively. They constantly work on incremental improvements to provide the best possible product. The next functionality we are looking to offer is to send algo orders as outrights. Our algos are today available on FXall and Bloomberg as well as on our own proprietary platform, Trading Station. We are looking to set up algos on FX Connect in the near future due to customer demand.
NAME OF THE STRATEGY: TWAP
DESCRIPTION & CAPABILITIES
- A Time Weighted Average Price (TWAP)
- It will slice the order into even-sized passive orders that track the market and it will cross the spread when passive fills have not been achieved at the rate necessary to stay on schedule (according to the specified duration of the order).
- The TWAP spreads the execution of an order over a period of time in order to reduce market impact and track against the time average.
- It will also strive to minimize spread costs.
WHEN TO USE IT
- When clients want to execute large amounts while minimizing the cost of execution and the market impact. As long as the client is within the set limit price, the order will be filled at the end time.
- The longer the client leaves the order, the more likely it is to be filled in our internal pool with minimal information leakage.
KEY PARAMETERS & FEATURES
- It will access both external venues selected by SEB based on pricing and performance and our own internal venue.
- There is a time randomization for