September 26, 2023 | Stamford, CT — The global foreign exchange market evolution continues to necessitate a wave of investments by market participants who are focused on improving the sophistication and effectiveness of the trading.
Among the major changes affecting FX market structure are rising credit costs, the potential increased use of cleared FX derivatives, electronification, advances in data and analytics, and improvements in execution algorithms.
“As FX market structure evolves, FX trading desks need to enhance their execution management strategies to keep pace,” says Stephen Bruel, Senior Analyst at Coalition Greenwich Market Structure & Technology and author of Data and Workflow Improvements Drive FX Markets Forward. “The foundation of that effort will be the ability to effectively acquire, process and analyze data.”
Harnessing the Power of Data
Approximately 57% of the senior FX professionals participating in a recent global study from Coalition Greenwich acknowledge that their data management efforts in FX execution need improvement.
For the clients trading FX and the brokers facilitating those transactions, the ability to minimize credit, capital, and margin costs is enabled by data; both pre-trade and post-trade data must be incorporated into execution. For the buy side, the ability to calculate the cost difference between executing a cleared and an uncleared FX derivative could impact portfolio performance. That decision will be informed by a diverse set of information, such as current positions, internal rate of return on collateral, margin costs from a central counterparty, and more.
“These decisions cannot be made quickly and accurately if someone needs to access data from multiple systems, link the data, run the results, then make the decision,” says Stephen Bruel. “The data needs to be accessible in near-real time.”
Investments in Data and Workflows
To stay ahead of the rapid evolution of market structure, FX market participants are planning ambitious investments. The top targets for increased spending are execution management and analytics, pre-to-post-trade workflows, operations and analytics, and data acquisition and analysis. Workflow improvements are being driven by settlement risk, and initiatives in the U.S. equity market.
“The move in the U.S. to T+1 for equity settlements will put pressure on FX operations to settle their trades in a timely manner,” says Stephen Bruel. “Automation efforts in the back office that will help equities settlement will ultimately also yield benefits for the front office as well.”
Data and Workflow Improvements Drive FX Markets Forward documents the many changes affecting FX market structure and analyzes adjustments and investments market participants are making to keep pace. The report provides a detailed analysis of top investment priorities among various types of market participants and examines the effectiveness of current data management processes from pre-trade analytics and trade-execution decision-making to post-trade processes and TCA.