Marek Robertson, Managing Director, head of eFX sales at Barclays, discusses the role of pre-trade analytics within the banks’ e-FX platform Barx.
Profit & Loss: What do clients want from a pre-trade analytics suite?
MR: The concerns from clients are that liquidity is becoming more scarce, that it will continue to be fragmented, so they want to get a sense of how it is delivered and what type of participants are on various venues.
Clients want help to understand the dynamics of what they’re trading, when to trade and then increasingly they need to be able to explain it themselves to their investors, portfolio managers, or compliance officers.
P&L: Is market impact a growing concern for clients?
MR: Some clients focus completely on minimising transaction cost and market impact, but for others it is more about underlying price movement and getting filled. There is a trade-off between these two dimensions: passive management and low market impact versus active management and immediate trade location. As service providers we aim to cater across that spectrum as it evolves with the overall usage of algos.
P&L: So is the growth of algo usage by clients inevitable?
MR: I think in aggregate there’s a growth in usage of slow algos that disperse execution through the trading day. But again, it varies between clients. Some have been early adopters and have moved over entirely to that method and others pull-back and conclude that, in times of lower observed liquidity or of competition with other trading participants who play for speed, they find perhaps that risk transfer is what suits them.
Our role as providers is to make a range of services available. If you want risk transfer, this is the part of Barx that you trade on, if you want risk transfer distributed over time then use this algo. If you want to access external liquidity as well and trade fast, here’s a Gator keypad, if you want to disperse those trades over time here’s another range of slow algos. All of these services need to have common workflows, measurement tools and we can help clients navigate markets with pre-trade tools.
P&L: Are pre-trade analytics tools a differentiating factor for an e-FX platform? Or does where clients trade really just come down to pricing and liquidity?
MR: It’s comes down to a combination of factors. This is an area where we seek to differentiate and one of the ways that we can do this is by presenting the world as we see it. We have a vast array of data that we process and we can do things with this data that create value for our clients.
We also try to differentiate our pre-trade offering by being particularly visual, so that clients can absorb the information at a glance rather than being faced with grids and grids of numbers. So yes, I think clients value the tools, but of course you still have to have a compelling offering in terms of risk transfer pricing and hybrid agency market access.
P&L: Do these pre-trade tools have greater value to clients trading across different asset classes?
MR: Yes, we think they’re especially valuable in less liquid pairs, and to clients who are trading multiple asset classes across multiple risk horizons.
For example, some clients are themselves an inch wide and a mile deep in FX, by which I mean that they trade say only EUR/USD themselves. Now there’s a certain amount of value for them in a pre-trade tool, but they’re in that market all day long and so they have a feel for it already.
But other clients are trading futures or rates markets as well as FX, or they might be trading in a market that they’re not used to trading. For them, our pre-trade tools can offer a snapshot that is a real- time education on market conditions that they can use to help make a decision, and also to explain that decision to someone else.
P&L: So what’s next in terms of building out the tool set from here?
MR: I think we’ll continue to add content widgets, rearrange them and then get feedback and evolve that. But we’ll also look at how we deliver pre- and post-trade. At the moment it’s on demand for clients and sales people, but some clients are saying they want automated TCA emails that show batches of trades, for example after month-end summarised by currency pair. So, going forward it’s going to be a mix of experimenting with the content and then making the delivery of that content as easy as possible for clients.