This is undoubtedly the most competitive section in these awards, even more so given the efforts made across the board to enhance the client execution experience over the past year or two. The best execution experience is about much more than the actual trade of course, it starts with decision making, goes through the flexibility of execution options and ends with the (often independent) post-trade TCA.
Behind those top level themes are the areas in which a bank can make a critical difference – what is the liquidity pool like into which each strategy executes? How does this fit with the client’s desired outcome (bearing in mind some clients like market impact)? How good is the ‘what if’ framework to allow the client to accurately predict the outcome? How easy is it for the client to switch strategies (including fill and kill) during execution? How robust are the controls?
On top of these there is another subservice to which only now are several banks waking up to the possibility – and that is better use of their own TCA tools. Yes, we understand that independent TCA providers offer a comfort blanket to compliance, but there is also a lot more that can be done with a bank’s own data.
The pioneer for this has been BNP Paribas, which is – and this is a perennial story in these awards for some reason – unlucky to miss out on this award. BNP developed its first generation TCA analytics about two years years ago, but has enhanced it to be best of breed – as we shall discuss later. BNP also offers what can only be termed in-flight commentary on the execution through a series of alerts on its execution manager platform, and it is soon to push the boundaries further in this area.
A big mover in this space over the past year has been Deutsche Bank with its market colour app and the rolling out of its Pi and eBest orders. The first is a principal interest algo that aligns the bank’s execution methodology with the client, the second is a similar offering that is very simple and allows a client to execute leveraging the bank’s execution framework.
As noted, Citi has seriously enhanced its execution experience over the past year, so too has Credit Suisse with AES, which has added more adaptive techniques to its algos and built more bespoke liquidity pools for certain algo strategies that take into account LP performance as well as other metrics such as last look and miss rate percentages.
With Barclays and, perhaps a little further behind, HSBC, building out their capabilities in this space competition will intensify, which means that two other long-term stand outs in this space – Goldman Sachs and Morgan Stanley – will have to be on their toes and ready to respond. Luckily for both institutions, they are well aware of this and over the past year have rolled out excellent products.
Last year we noted how Goldman was revamping its algo suite of products, well the work is complete and very impressive it is. A hybrid NDF algo strategy has been rolled out but the really impressive work has been in the algo execution framework – specifically its portfolio style execution offering – something we shall discuss later.
At Morgan Stanley, the always excellent QSI team has continued to enhance its offering, this year with QSI React (again, more on this later) to sit alongside the very popular Fusion Edge execution service.
The choice for clients in terms of execution has come full circle from the last century. Whereas a decade ago there were probably two or three players with a full range of execution tools (including algos) and the pricing capabilities to offer risk transfer efficiently in good amounts, nowadays it is a ‘must have’. There are still choices available – for example NatWest’s segregated order desk – but generally speaking if a bank doesn’t have pre-trade TCA and the ability to interact with the order during execution then it is, frankly, nowhere.
Ultimately, we would not be surprised if the next shift in the balance of power is also a somewhat retro step – clients will soon start analysing their bank providers based upon the quality of the execution experience but also the broader quality of the liquidity services they can offer. As we noted in our introduction, this means a carefully curated liquidity pool for important clients and the development of a foreign exchange version of the ‘trustless network’ in that if the data shows you are not maintaining adequate standards then you will be thrown out.
What does this mean for clients? An even better experience should result and the enhanced data and analytics, some of them independent, is likely to mean a further increase in the use of algos.
Of course, to end on a cynical note, a bank could offer the best service by a mile compared to anyone else, but if it goes missing during a liquidity event, the valuable client will – and should – boot it! Ultimately the real definition of best execution is being able to get your trade done reasonably in all market conditions, not just the easy ones.
Winner – JP Morgan
For the client seeking the full execution experience – excellent analytics, flexibility choice, excellent liquidity, independent verification and the ability to slice and dice the results to enhance the next trade – then look no further than JP Morgan.
One reason why competition in this space will increase is because of the work being done across the board by banks on their pricing infrastructure – as we have already noted – but JP Morgan did this work four or five years ago and continues to enhance its capabilities, meaning not only has it stayed at the top of the table in terms of pricing ability, it has also had the resources to develop intuitive and flexible execution tools that are still ahead of the pack.
Algo Central is, quite simply, the best product available on the street and while take up may be slower than anticipated, we are likely to see a swell of adoption over the coming year as momentum towards algo execution grows further. It is hard to avoid the conclusion that at a time when more clients are looking at using algos to execute, JP Morgan is the best positioned to provide the service they need.
In addition to Algo Central – to which we will return – the bank has also rolled out StratX – its own solution for portfolio execution. Users can execute up to 10 legs in a basket and allocate certain percentages to each, as well as create quick trade tiles allowing them to execute around events. As we noted earlier, eventbased execution was pioneered by Morgan Stanley three years ago and is clearly becoming a popular solution for active trading clients, but it should not be forgotten that JP Morgan itself pioneered basket style execution with one of its strategies in early iterations of AlgoX, the forerunner to Algo Central.
An innovation delivered by JPM last year was the addition of an insight window into the dealing tile. In this, clients can see their daily P&L and active orders in the currency pair (it can also show total P&L and this can be expanded if the client uploads non-JPM traded positions). Though simple, this does provide more information at the fingertips of the client that could help them, perhaps, adjust the discretion or limits they place on their orders. Hedge fund users find this small enhancement useful, we would imagine that retail aggregators may also.
It is in Algo Central, however, that JPM has the star of the show. Built in a way that it can provide the single-dealer experience in a third party environment (although this is likely to be less of an advantage as more banks take advantage of the ability to deliver full functionality via a Bloomberg app for example), Algo Central offers a single entry point to the bank’s algos and analytics that are aimed at traders, and not quants as such (they can still get their kicks, we are sure, by delving into the details).
Algo Insights is a new product rolled out by JPM to deliver more content to users, probably the best way to describe it is as a market colour service for e-FX traders. Aside from analytical research on execution topics, the bank has rolled out an interactive chat app that gives the clientreal-time updates on the performance of their order. This means the user is alerted to higher or lower than expected flows in the market as well as the overall performance of the algo compared to expectations. Delivered by the bank’s excellent alerts framework – which itself has been enhanced this year to include more personalised alerting – the platform delivers a similar sort of commentary from the e-FX desk to that offered by voice desks in years gone by.
Responding to clients’ seemingly unending appetite for data, eXecute now also offers ECN estimation data that clients can access and use to complete their own analysis to create their strategies and, equally importantly in this compliance heavy world, justify past strategy decisions.
In terms of the execution experience itself JP Morgan offers unparalleled flexibility, allowing clients easily and intuitively to break parent orders down across execution styles. Market data analytics are delivered alongside the execution path screen, meaning visually it is easy to track executions as well as react to changing market conditions (which of course has been further enhanced by the in-flight alerts).
Clients can select their own mix of algos, or hand it over to the Aqua strategy that the bank rolled out in 2017 – its adaptive strategy that can front or rear load the order depending upon its analytics. Elsewhere the bank has rolled out NDF algos, a smart IOC order type and gamma trading strategy. Interestingly in this conduct-obsessed world, it also offers clients the option of executing into liquidity provided by LPs that have attested to the FX Global Code of Conduct. We have already mentioned how banks are looking to ensure those pools of liquidity accessed by their clients are as clean as possible, this is a nod in that direction.
In the post-trade space, JPM has gone down the route pioneered by BNP Paribas a few years ago by using its own data for more in-depth analysis of client execution styles. Using TCA data to educate clients may not be new, but we believe it is a vital aspect in the struggle to build confidence levels to the degree that more clients become comfortable executing in this fashion.
It is hard to find fault with the execution experience offered by JP Morgan and as its migration to HTML5 continues, thereby allowing it to unbundle Algo Central and deliver more componentised products, this will only improve it further. That may not be good news for JP Morgan’s competitors but it is excellent tidings for the bank’s customers.