As the global foreign exchange market evolves and desks aim to enhance trade execution, data and workflow management have become the cornerstone of investments aimed at reaching this goal, says Coalition Greenwich.
Investments are being made with efficiency in mind, with ambitious targets set out across the market. The study found that of the top five overall investment priorities for FX desks, three relate to the theme of data and two to workflow.
In terms of data considerations, according to 62 respondents ‘improving execution management and analytics’ is the top FX investment priority, while ‘enhancing data acquisition and analysis’ was highlighted by 40 of those surveyed, and ‘improving pre trade analytics’ pinpointed by 36.
From an operational perspective, ‘workflow optimisation’ was also a main priority – 49 respondents highlighted that ‘optimising the pre-to-post trade workflow’ was the main priority while ‘improving post trade processes’ was underlined by 45 of those surveyed.
The report emphasised the link between these two areas, explaining that “data and workflow go hand in hand; without a systematic workflow, it is difficult to actually get the data.”
The FX landscape is undergoing significant change, with the market structure developing constantly.
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In terms of the top trends affecting FX market structure, the report pinpoints ‘higher cost of accessing credit’, with 59% of respondents agreeing it was a significant change. This was closely followed by ‘more electronification of trade execution’ and ‘changing credit provision by banks’ with 58% of respondents highlighting those factors as a top trend respectively.
Increased use of cleared FX derivates was also a key consideration according to 37% of respondents. Speaking in an announcement, Coalition Greenwich asserted that “for the buy-side, the ability to calculate the cost difference between executing a cleared and an uncleared FX derivative could impact portfolio performance”.
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Stephen Bruel, senior analyst at Coalition Greenwich market structure and technology, said: “As FX market structure evolves, FX trading desks need to enhance their execution management strategies to keep pace […] The foundation of that effort will be the ability to effectively acquire, process and analyse data.”
Around 57% of surveyed FX professionals agreed that their own data management efforts in FX execution need improvement, according to the study, while 42% described their data programs as effective.
Delving deeper, 24% of respondents shared that their pre-trade analytics program is not effective, compared to 35% who believe it is. As these analytics seep into trade execution decision-making, it is conceivable that potential deficiencies can affect trades overall.
“For the clients trading FX and the brokers facilitating those transactions, the ability to minimise credit, capital, and margin costs is enabled by data; both pre-trade and post-trade data must be incorporated into execution,” said Coalition Greenwich.
Coalition Greenwich’s recent study included responses from over 120 senior FX professionals across the globe.