Morgan Stanley has released Morgan Stanley Fix, a new algorithmic trading product that provides institutional clients with flow-weighted average execution (F-WAP) in currencies. Similar to volume-weighted average pricing (V-WAP) in exchange traded markets, F-WAP minimises the chance of trading on extreme prices over an execution window.
“Institutional investors can incur significant additional cost if currency transactions are not carefully managed,” says Paul Aston, executive director at Morgan Stanley. “By using Morgan Stanley Fix, clients can achieve efficiency improvements in FX execution which can improve portfolio performance.”
Because currency markets, unlike equity markets, trade over-the-counter, dealers do not officially report transaction volume. To provide V-WAP for currencies, Morgan Stanley’s Quantitative Solutions and Innovations (QSI) Group devised the Morgan Stanley Fix methodology which estimates FX volumes using a proprietary liquidity analysis framework that takes into account intra-day liquidity cycles. Morgan Stanley will publish the intra-day liquidity cycles that are used as a basis for the F-WAP.
The bank says it introduced Morgan Stanley Fix to address institutional investor demand for transaction cost analysis (TCA) and currency execution benchmarking.
“Products that address transaction costs in FX are a necessary tool for international investment managers and traders seeking best execution in the foreign exchange markets,” says Aston.
Morgan Stanley Fix is supported by other TCA pricing tools developed by the QSI Group. These include the pre-published intra-day liquidity cycles used to proportionately slice Morgan Stanley Fix orders over the execution window; a transaction cost calculator to assess spread cost and potential market impact pre-trade using observable factors; historical time-series of daily F-WAP prices for back testing; and TCA execution reports.