BestX Unveils Pre-Trade Functionality

Eight months after releasing
its first post-trade execution analysis product
, BestX has rolled out its
much-anticipated pre-trade execution analysis functionality.

The release helps the firm, which was co-founded by Pete
Eggleston, Oliver Jerome and Aman Thind in early 2016, deliver on its vision of
an end-to-end best execution service, as Eggleston explains. “We look at best
execution as a lifecycle event where you can look at a trade or portfolio of
trades throughout the cycle.

“The architecture of the BestX platform was designed with
the pre-trade functionality very much in mind – the post-trade functionality
now feeds directly into the pre-trade service, so it is properly connected
throughout the cycle and creates a holistic solution,” he adds.

Key to the pre-trade release is how it allows the user to
select their trading objective. “This is not something that many offer as far
as we are aware, but it is a vital element in achieving best execution,” says
Eggleston. “A characteristic of the FX market, one that differentiates it from
many other assets classes, is there are so many different motives for trading.
Some may be concerned about the spread they pay away on the order, others are
concerned with market impact.

“Our pre-trade functionality allows the user to select their
objective and all subsequent analysis is based upon that,” he continues. “The
objective is more important in FX than other asset classes, because there are
so many reasons to trade. A provider can’t be too generic in their offering, it
can’t just be something from the equities business for example – it needs to be
more flexible.”

As is the case with the post-trade tool, several different
analyses are available. One is the Empirical Analysis window, which accesses –
once the client has entered the order details – the post-trade piece of the
BestX product suite to deliver previous orders of a similar nature executed by
that client.

These orders are then analysed and provide users with the
historical performance of different execution strategies. “This allows the
client to include previous experience in their decision making process,” says
Eggleston. “They get a good feel for how different strategies have worked on
orders of a similar nature.”

Further analysis by execution channel and counterparty is
also available, something that is likely to be highly appreciated by BestX’s
buy side clients as they become increasingly concerned about signalling risk in
foreign exchange markets.A top 10 leader board of trade executions with the
same objective are also displayed – as is a bottom 10. –

The other core functionality is provided by the BestX
analytics suite, delivering “what if?” analysis for individual trades or groups
of trades. This section includes expected cost measures and intraday volume
analysis.

The data for the volume analysis is derived from Thomson
Reuters as part of BestX’s link up with that firm, and the scenario analysis
provides users with the ability to analyse any potential netting advantages
that may arise during a day. If a client has two orders that match at least in
part at two different times of the day, BestX provides four predicted outcomes
from four different approaches.

“The scenario analysis tool studies the benefits or
otherwise of netting the orders,” explains Eggleston. “If a client has two
competing orders we study the duration risk as well as spread and opportunity
cost. It looks at no netting and risk transfer execution, no netting and a TWAP
execution, and then both risk transfer and TWAP execution after netting. By
doing this the platform suggests the optimum time and method of execution.”

As is also the case with the post-trade functionality, all
data is available in graphical or tabular format. The new product suite was
launched on July 3 and all clients using it had their trade data pre-populated
from the post-trade service so were able to use it immediately. “We have been
really pleased with the response and the great feedback we have received,” says
Eggleston.

Looking ahead, Eggleston says BestX will continue with what
seems to be a crowded product rollout and enhancement plan. “From here it will
probably evolve very quickly, and  it
could develop into something very powerful,” he says. “We have lots of research
work underway, it’s a big job but the boundaries are unlimited.

“We will be adding event data that will show potential
impacts on the execution,” he continues. “This will also allow us to deliver
analysis of trade executions on, for example, non-farm payroll days only.”

BestX’s new service new tool provides users with the ability
at the point of trade to make important decisions based upon a combination of
scenarios. It also helps provide evidence for an execution team or agent if
they are asked for their thinking at a later date. “A PDF can be generated of
the pre-trade analysis and saved to a folder for access later on,” explains
Eggleston. “This is the real beauty of the platform – how it links together. Put
a trade in the favourites and it is delivered to our Trade Inspector tool in
the post-trade platform. This means you can always access the analysis and show
oversight for example, all your pre-trade thinking and the data upon which you
made your decision.”

With MiFID II an ever-looming challenge for buy side firms,
the timing would appear good for the BestX roll out of its pre-trade tool. With
exception reporting alreadyrolled out, and RTS28 reporting requirements now in
development, the firm will be able to provide the full regulatory/compliance
piece around execution – effectively delivering automated MiFID II reporting.

That said, the most powerful aspect of the new pre-trade
tool remains how it allows the user to set an objective and then effectively
measure themself against that. “We believe it is important that you can compare
different strategies according to your objective – the objective is the key to
everything, which is why it’s important to select that,” reiterates Eggleston.
“Best execution analysis is all about measuring your success in achieving your
goal.

Colin Lambert

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