P&L Report Card

Although the algo is taking on more importance in terms of order management, the relatively slow take up, allied to more short term bursts of volatility, means that customers are refocusing their attention on basic order management.

The trust issues that drove a wedge between some clients and the banking industry appear to be on the way to being, if not totally, solved, not least thanks to sometimes draconian oversight at the banks. Thus an old friend, the order, is making a comeback. Of course, if we were to be cynical we would say it is doing so because leaving an “at best” order neatly shifts the best execution emphasis back onto the bank!

So without doubt, there is still a role for good functionality that serves the basic needs of the majority of customers. Equally, we feel obliged to point out that P&L’s managing editor has learnt, over the years and grudgingly, to accept that there is more to the FX market than spot – and as such order functionality in outrights, swaps and options has become more important.

The bare minimum required for a good order management system is the display of orders in a blotter by proximity to market (preferably colour coded) or on a chart.

We are seeing more banks integrating their vanilla order services with their algos and this trend will continue – we also foresee more banks providing hybrid order types that trigger an algo at a certain level. The leading group is already there, the rest will inevitably follow.

Another area that could see development is the linking of axes to orders. This is a sensitive area given the regulatory requirement to provide a mid, or to prove best execution, but there are plenty of axes out there so we feel that clients with orders live in a currency pair should, when the market is close enough, be able to be alerted to the axe so they can decide whether to execute early and take advantage of the liquidity on offer.

Winner – NatWest Markets

L ast year we welcomed the return of one of the great market names in Natwest during our awards write up – this year we can celebrate the return of the name to the winners’ circle – in fact this will be the first time the name Natwest has been etched onto one of our trophies.

Of course this is largely cosmetic, for a great deal of the functionality we are so keen on was developed under the name Royal Bank of Scotland, but the bank’s symbolic and, hopefully, financial recovery from its troubles post-2008 will continue and we will see more of Natwest.

The Agile Markets platform has won before in these awards of course and it remains an excellent offering with particularly good order management functionality.

It was noticeable taking feedback from market participants how many banks in particular appeared to use Natwest for their overnight orders, if that is not an endorsement of its excellence, nothing is.

The bank has also developed a segregated orders desk which specialises in managing orders, meaning clients get a high touch experience backed up by excellent technology.

Whilst the idea of segregating orders is not new, two or three banks decided to have their agency algo businesses handle them a few years ago, having specialists in place is a differentiator, assuming they have some discretion. Obviously mention the word “discretion” to compliance and they go into a cold swoon, but if the desk is segregated and the dealing desk or e-FX trading teams cannot see the orders, we see nothing wrong with it.

The segregated desk is a solution to the new Global Code world, while the bank’s algo suite is very much targeted at the modern technology world. With some adaptive algos and internal ECN-like functionality, Natwest has created a true order book in which all participants can engage on equal terms.

The bank provides liquidity analysis tools for pre-trade decision making, as well as a liquidity index so clients can easily discern market conditions before drilling down into the details.

One other thing we really like about Natwest’s order offering is actually an old favourite of Profit & Loss’ managing editor – the Gamma trading tool.

This enables non-options traders to become options traders as it can be used as a simple OCO order management system, and also provide clients with the ability to drop their own profile in and let the system do what it does best.

It executes within parameters and using auto-hedging calculators, but we say again that the real beauty of the system is its graphical nature – it is very easy to see where a user needs to trade by different profiles such as Gamma or P&L. Not only can the Gamma trading tool take an entire Gamma profile, clients are able to drop their own profile into the system.

If clients are not able to use options, they can gain exposure to the product as Agile can act as something of a canned option trading tool, clients are able to trade according to a volatility profile based upon spot and time by dropping orders into Agile on the server side and letting it run a Gamma hedging strategy for them.

This means the system can replicate volatility swaps with different fixings, allowing clients to trade, for instance, hourly Gamma against daily Gamma.

Users are also able to net trades, which considerably eases the burden on back offices of those institutions with large option books, as well as plug into the STP channels of their choice.

It should be noted that users are able to execute, monitor and interact with their vanilla orders on a graph of the market as well. As fills progress, this too is highlighted on the screen. Natwest has done the best job yet of bringing together algo and limit orders and deploying the best of both in one product, something we think will grow in importance. Throw in a dedicated and segregated order management desk and you have the complete solution.

Galen Stops

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