TradeTech FX US - Conference Round-up
Last week, Worldwide Business Research (WBR) hosted its annual TradeTech FX USA symposium dedicated to all things foreign exchange. Rather than feeling the calming Miami breeze blowing through one’s hair, this year’s event brought industry professionals together in a virtual setting – a sign of the times as the global pandemic rages on. During the event, panelists brought a range of foreign exchange (FX) topics to light. Discussions were centered on what attendees might expect from the markets and technology in the future once Covid-19 subsides.
During the event, analysts from Aite Group, and independent research and consultancy firm, used a series of polls to gauge market sentiment across a number of subjects including the use of advanced technology in trading and data analytics. This report focuses on key takeaways from TradeTech FX USA through the lens of attendee survey responses. A total of 773 attendees logged into Zoom from February 9th to February 10th. Of that total figure, 211 were from the buy-side and the remaining 562 were other market participants from sell-side firms, the vendor community, media outlets, and research firms.
KEY TAKEAWAYS
Market participants attending this year’s TradeTech FX USA virtual symposium were inundated with rich discussions highlighting numerous developments in FX. The following section focuses on these topics and survey responses to Aite Group’s polling questions.
Keeping up with technology proves to be more difficult than keeping up with the Kardashians. As attendees readied themselves for the first day of the event, industry challenges were clearly on everyone’s mind and were certainly the focus of several panels. When asked which concern was most pressing, industry experts overwhelmingly pointed to the need to keep up with technology (Figure 1). Other items that go bump in the night included the lack of adequate data and regulations. Although still important, market volatility – an area the FX market navigated fairly well in early 2020 – and market fragmentation were lower on the list.
Figure 1: FX Challenges Abound
Finding smarter ways to interact with liquidity is the only way to interact with liquidity. There is much debate over what the trading desk of the future might look like. For instance, some traders believe their relationships with sell-side banks that can internalize trades are the key to unearthing liquidity, particularly in times of market stress and volatility. On the other hand, proponents of electronic execution via electronic communication networks (ECNs) and automated trading look to central limit order books (CLOBs), algos, and various trading protocols to find the liquidity they need when they need it.
Most often, traders are keen to adopt improved pre-trade analytics to make better execution decisions regardless of the execution method chosen (Figure 2). Industry participants desire more robust algos, particularly beyond the trading of spot FX. Non-deliverable forwards (NDFs) certainly could use more love. The adoption of trade cost analysis (TCA) continues to motivate the development of more robust solutions to better identify optimal trading conditions and liquidity. Lastly, the emergence of peer-to-peer trading and the development of an FX tape are areas attendees believe will also lead to the improved sourcing of liquidity.
Figure 2: Sourcing of Liquidity
What does the buy-side really, really want? FX is on the move from a quote-driven market to an order-driven market. As a result, relationships are at the heart of this shift. Knowing which counterparty a buy-side firm can trust orders with in unpredictable markets has become a paramount consideration. Investors are tasked to find out if banks are doing the “right thing” or simply showing phantom liquidity. Meanwhile, banks desire high internalization rates and must prove the way they manage client flows is better than whatever their peers are up to. In all of this, the sell-side has continued to find ways to add value by providing liquidity, transparency, and analytics.
Customers want more price transparency across FX products from the sell-side (Figure 3). However, other demands were nearly as important. For example, investors desired instant liquidity and market microstructure influencing trade execution. Stronger connections with counterparties to control information leakage was also held in high regard as the early days of the pandemic put relationships to the test. Unsurprisingly, with increased demand for data across capital markets, requests for more data-centric solutions tied to liquidity analytics and macro data are on the rise. Lastly, on-demand tools to aid in the search for liquidity, such as pretrade analytics, continue to gain popularity and have shifted from nice-to-have to must-have status.