Access to markets, fee compression top watch list for FX trading heads

Buy-side heads of FX trading at Vanguard and First Quadrant also highlighted the useful role of TCA data for pre- and post-trade.

Heads of FX trading highlighted their desire for greater direct access to markets and fee compression as top of their watch lists during a keynote interview at TradeTech FX US.

When considering what the FX trading desks at their firms required to move forward, the two issues were raised alongside a discussion around the merits of transaction cost analysis (TCA) use both for pre- and post-trade reasons.

“For us it is really around access to some of the restricted markets, especially when hedging, so trying to get away from using the Non-Deliverable Forwards where possible and getting access direct to on-shore markets,” said Andrew Maack, head of FX trading at Vanguard.

“We follow the benchmarks which typically follow the on-shore rates to value an index, so if we are in a region like Indonesia, and we are trying to hedge that using off-shore, any deviation from the off-shore rate shows up in the portfolios. So trying to get access to those markets is important for us.”

Meanwhile, Tomo Tokuyama, head of trading at First Quadrant – a quant trading house based out of California – stated his concern over growing fee compression in the future.

“As fees continue to get compressed, firms will look anywhere to gain an edge and they will look internally. They are going to look at where they can gain efficiencies, which is something we are tasked to do daily,” he commented.

Data was another key issue for both Maack and Tokoyuma, particularly around the usage of TCA, for both pre- and post-trade.

Maack said that he places greater importance on post-trade data for trading activity at Vanguard to “evaluate the way we are actually executing; we have a sense of the pre-trade already in terms of accessing liquidity and when to execute.”

First Quadrant’s Tokuyama was of the opinion that it was “about even”, with post-trade data only having real value if benchmarks are set at the right level, while pre-trade provided  “a little bit of a map or justifies what we are trying to do. Pre-trade can help us at least justify or make us change our minds in terms of what we are doing.”