One of the key areas of interest for the event was the development of CLOBs for swaps and what this might mean for the further electronification of the FX market and its potential impact. In a panel discussion, leading figures discussed how algo offering might potentially accelerate the electronification of the FX swaps market or if that was further down the line. The discussion, chaired by Stephane Malrait, Chairman, ACI FMA, was held with Emmanuel Hurault, FX, Credit, Rates and Derivatives Dealer, Groupama Asset Management; Ben Pearson, Co-Head Global G10 & PM STIR Trading, UBS; Simon Jones, Chief Growth Officer, 360T and Paul Milward, Head of Product at 24 Exchange.
360T have recently revealed that Deutsche Bank and ING had executed the first trade on 360T’s Swaps User Network (SUN), which allows streaming mid liquidity via API. The innovation is hailed as a paradigm shift for the industry. Commenting on the development, Jones explained that 360T was confident the move will mark a “fundamental change in how banks trade FX swaps, opening the door to auto-hedging, aggregation and even algorithmic execution”.
24 Exchange also shared further details about its own plans for a new swaps electronic streaming platform. Yet while the consensus was that while automation in the swaps space was welcomed, the need for FX swaps algos was not there yet. In order for swaps algos to be a more viable option, panellists highlighted the need for better TCA and that liquidity issues in certain currencies outside of G10, such as emerging markets pairs, still require a human touch. The current market structure was cited as another reason why the development of FX swaps algos was not at the “forefront” of future plans.
Liquidity access and market impact were a further primary topic covered during the event. A panel including business heads from JP Morgan, FX HedgePool, XTX Markets, UBS and SEB discussed the role of TCA and the imbalance between FX spot, where analytics are more developed, to other instruments where TCA is not at the same stage. According to one panellist, while TCA has come a long way, there is still a long way to go. The consensus was that TCA must provide more insights around the true market impact, a sentiment which was backed up an audience poll held during the discussion. When asked whether TCA models go far enough to explain market impact and the potential influence on the outcome of a trade from pre-hedging risk, some 83% said no while a mere 17% believed that it did.
Poll: Do current TCA models go far enough to explain market impact and the potential influence on the outcome of a trade from pre-hedging risk?
No – 83%
Yes – 17 %
The development of the swaps market, including a CLOB for swaps, was expected to lead to improved TCA offerings. Some buyside firms may also not being using TCA data to the best of their advantage, according to discussions. According to a panellist, many are not aware of the importance of looking at certain metrics, such as market impact or reversion. They added that when analytics users start asking for this data then they will be able to “know if an algo is smart”.
