JP Morgan FX Survey Highlights Data Concerns

Although the availability of liquidity remains the biggest daily concern for market participants, according to JP Morgan’s annual e-trading survey, the results also suggest growing concerns about the availability of data and an increased focus on data services.

The annual survey, now in its fourth year, invites institutional and professional traders to share their views on future and current trends. This year the research sample was expanded to non-clients in to provide a wider perspective, with over 650 traders taking part. According to the bank, the respondents to the survey primarily trade FX but are also covering as many as seven other products, including commodities, FX options, G10 and emerging market Rates, equity derivatives, cash equities and credit spreads. 55% of respondents traded FX “all the time”, while 34% traded “regularly” and the balance “occasionally” – within that number 60% traded primarily on G10 FX, versus 40% who traded primarily in emerging markets.

Much like in the 2019 survey and those before it, the availability of liquidity was cited as the top daily concern for traders, however, in last year’s survey 40% of people said this was their top concern, whereas in this year’s that number had declined to 33%. Likewise, other major concerns from the 2019 survey gathered less votes in percentage terms this time around. In the latest survey 19% of traders said that workflow efficiency is their number one daily concern, down from 25% in 2019, while price transparency and best execution requirements were each cited by 15% of respondents, down from 17% and 18% respectively.

Asked what the most important criteria is when selecting a liquidity source, and respondents were allowed to select more than one, 79% of respondents said price consistency, 70% said the availability of pricing during volatile markets, 47% said response times, and 40% said market impact. Of less concern were execution response rates, hit ratios and internalisation, which got 32%, 20% and 10% of votes, respectively.

Again this is broadly similar to the 2019 survey when 72% said price consistency was the most important criteria, 63% said it was the availability of pricing during volatile markets, 54% said execution quality and 37% said response times, 16% said execution ratios and 14% said internalisation.

It is significant to note that 15% of respondents in this year’s survey observed that the availability of data is their biggest daily concern, because as an issue this didn’t even register in the previous survey. Respondents were also asked to identify the three most important data services they accessed to support best execution and interestingly, in percentage terms, every single category increased substantially compared to last year’s survey.

In the latest survey 82% of respondents said access to real-time data was the most important, up from 72% last year; 59% cited pre-trade transparency, up from 38% last year; 52% said TCA/best execution support, up from 36% last year; 41% pointed to transaction data sharing, up from 25% in 2019; 33% said assisted reporting for post-trade transparency and 32% said that assisted reporting for transaction reporting was most important, up from 20% and 23% last year, respectively.

As with the whole survey, comparing the results with the previous survey could be skewed by the greater number of respondents and the presence of non-clients, especially as the greater number is likely to access a broader range of data services.

The most useful data tools cited by respondents were; predicted and real time market conditions (53%); pre-trade optimisers (33%); pre-trade expectations versus outcome of order (32%); venue performance (31%); trade type historical data (25%); key performance benchmarks (24%); and trade type performance comparison (20%).

Also in the data field, respondents were asked for their views on artificial intelligence (AI) and machine learning (ML). 71% of traders believe that artificial intelligence and machine learning provide deep data analytics for their daily trading activity, while 66% believe that artificial intelligence and machine learning optimises trade execution and 58% of respondents believe that artificial intelligence and machine learning represents an opportunity to hone their trading decisions.

Eddie Wen, global head of digital markets at JP Morgan is quoted in the report as saying, “With the proliferation of data and amount of information we are collecting across various digitised channels, the ability to digest that information using the new AI tools will be transformational.”

Chi Nzelu, head of macro e-trading at JP Morgan also says, “Through automation, we can capture more data – a problem previously unsolvable by algorithms. Machine learning allows us to improve the quality of services in our trading ecosystem, which also should gradually improve over time.”

More generally, respondents to the survey said that 74% of their FX trading volumes was going through e-trading channels in 2019 and they predicted that this number will increase to 79% in 2020 and 84% in 2021. They similarly expect an increase in commodities e-trading from the current 54%, to 58% in 2020 and 65% in 2021, and for Rates e-trading to increase from the current 49% to 56% and 67% respectively in 2020 and 2021, however the pace of increase in e-FX options trading was expected to grow at a slower pace, from the current 45% to 49% in 2020 and 54% in 2021. Credit trading is also expected to increase from 46% of current volumes to 56% in 2020 and 67% in 2021, while respondents said they expect to use single dealer platforms more in this market from the current 29% of volume to 41% in 2020 and 54% in 2021.

“From the results, traders are acknowledging that electronification is rapidly increasing,” says Scott Wacker, head of e-commerce sales at JP Morgan. “For dealers, developing the electronic market making and the algorithmic trading capabilities is paramount. The rising rate of anticipated electronic flow for credit and rates traders is particularly interesting, both increasing over 10% by 2021. More and more tools traditionally applied to equities and FX are being applied to credit and rates, driven by increasing available data and better understanding of how to use that data for post-trade analytics. In all asset classes, clients are saying they want more advanced tools to execute in a fashion harnessing the technology.”

In a finding that has played out in markets over the past month, the survey finds that Brexit will have a minimal impact on markets in 2020. When asked what would have the biggest impact only 4% cited Britain’s exit from the European Union, while 50% cited international trade tensions. Elsewhere, 20% highlighted US recession risk, 11% the growth of China, 8% equity volatility risk and 7% “other” impacts on markets.

Colin Lambert

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