One of the things that makes FX a truly unique market is both its scale and the diversity of the market participants that operate within it. Asset managers, corporates, international banks, regional and mid-tier banks, hedge funds and prop trading firms from all around the world have a real need to access the wholesale FX market. In many cases though, today, this access occurs via credit intermediaries. This intermediary model places fundamental constraints on the credit available to clients and, subsequently, on the counterparties that they can access.

Retirement plan fiduciaries, who themselves or through a third party, engage in foreign exchange transactions on behalf of the plan, should be aware of the new FX Global Code (Code). The Code is a noble effort to repair the reputation of the wholesale FX market in the wake of scandals and controversies. Though it does not have the force of law, it can serve as a useful springboard for fiduciaries to buttress risk controls and fiduciary awareness over an industry that seems obscure to some. The Code can catalyse a change from disengagement and insufficient understanding of common (and, in certain instances, controversial) FX practices to engagement and a deeper understanding of a market whose products are in so many investment policy statements and mandates of retirement plans.

There’s a wave of change sweeping across non-equity markets driven by regulatory initiatives and the rise of non-bank liquidity providers. Other factors driving buy-side adoption of Transaction Cost Analysis (TCA) in FX are the need to generate alpha on investment returns, and regulatory scrutiny
 of trading practices in over-the-counter (OTC) instruments. TCA is a broad term which doesn’t describe the actual analysis to be carried out. Asset managers who rely on custodian banks to execute currency trades have a compliance obligation to analyze these FX trading costs. By monitoring fill rates, TCA tools can help traders determine if ‘last look’ is occurring, and then decide whether or not to shift their trades to other venues.

Viewpoint from Andrew Cromie, Global Head of Product Management for Institutional Investors, 360T Group In 2003 I was invited to a meeting with a large global asset manager to discuss an electronic trading solution for their FX business. In that meeting ...