UBS unveils FX algo liquidity enhancements

November 2022 in Top Stories

Which strategic initiatives are important to the UBS FX algo business?

Our FX algo product is an iterative product and liquidity is a critical factor when it comes to FX algo performance. UBS regularly reviews and optimises the venues which we route orders to in order to create a highly curated pool of liquidity. In addition to providing a unique liquidity network, UBS has a smart order router (SOR) which uses machine learning based techniques to incorporate aspects of fill quality into our execution logic. This helps our algos to improve hit rates and intelligently navigate liquidity. Our SOR is co-located with liquidity sources and also contains a dynamic order synchronisation algorithm to lower the risk of latency arbitrage when executing across multiple liquidity sources. By looking at fill rates and assigning a value to both firm and non-firm venues, we can offer outstanding potential for spread cost savings and increased speed of execution.

You mentioned liquidity is a critical factor when it comes to FX algo performance. What recent enhancements has UBS made to its algo suite as a result?

A year and a half ago we launched a mid-matching venue which allows FX algo orders to execute against anonymous, risk reducing hedging flow from the UBS eFX principal franchise. Our passive Float algo has access to this mid-price crossing engine and benefits from internalisation, leading to less signalling and market impact. Client algo orders have the opportunity to match at mid versus our eFX hedging flow, which is one of the largest on the street. In fact, we see almost 40% of our Float volumes executed via the mid matching engine. This is achieving terrific results versus risk transfer and arrival price benchmarks due to mid-point fills and reduced information leakage.

Looking ahead to 2023, we have plans to empower our clients to further tap into our UBS eFX principal franchise liquidity, which was ranked #1 in electronic spot and forward outrights in Euromoney’s 2022 annual ranking of global market share. To facilitate this, we’re building a new liquidity solution which will allow our clients to blend aggregated FX algo order interest and anonymously skew the UBS eFX principal stream to attract passive liquidity from our robust UBS client franchise. This new additive, aggregated and anonymized liquidity source will help our clients further reduce information leakage and improve both spread capture and speed of execution.

The UBS smart order router uses advanced ML based techniques

Aside from liquidity optimisation, what other significant trends or changes in the FX algo space are you watching closely and how will your offering evolve in response?

We continue to evolve and enhance our FX algo offering to respond to client needs and to adapt to market trends. One key theme that’s gaining momentum is the growing adoption of algo wheels in the FX space. At UBS, our unique algo customisation framework has enabled us to excel in cross-asset algo wheels and we are currently focused on delivering that same innovation to our FX algo offering.

On the data side, we’ve seen increased client demand for in flight TCA and, as a result, we recently launched real-time algo analytics on Neo, which won Best Single Dealer Platform in the FX Markets eFX Awards 2022. This new tool gives clients increased visibility of how and where their algo orders are executing against relevant benchmarks and helps to guide and optimise trading decisions. This intra-trade TCA rounds out our pre-trade and post-trade algo analytics suite and provides our clients with execution insights throughout the entire life of their order.

In addition, UBS plays an important role in promoting a robust, fair and transparent global FX ecosystem. To this end, we’ve worked closely with the UBS eFX principal franchise to become an early mover in only offering FX Global Code compliant liquidity pools to our clients. We’ve seen improvement in fill ratios and no deterioration in execution quality of our algorithms through our carefully curated selection of code compliant liquidity providers. We look forward to continuing to partner with our clients to create more sustainable solutions in 2023 and beyond.

*2018 FX Week – eFX awards Bank algo trading technology of the year