Key data insights from ACI Australia 2021 Conference

BidFX extract from expert panel ‘How data is changing the face of the FX markets’ at ACI Australia 2021 Conference, 30 November 2021.  On the #1 impact from data on doing business As an EMS sitting between buyside and sellside, the role of data is to facilitate a marketplace that works for both sides and highlight information around pricing, execution, rejects etc. Having the means to interpret the data is what makes the market work for both counterparties to trade. Has this reduced friction? Reducing the asymmetry of information improves communication; once both sides can communicate with each other (both having good valuable data in front of them and interpreted properly), it can help to reduce some friction. As examples, to reduce LPs getting flow they don’t want, clients getting frustrated with LPs turning around going to market quickly. However, there is still some work in helping to get the buyside to where sellside is, in terms of getting a better view of overall market.  How does an EMS provider play a role with pre-trade data?   The market tends to focus on post trade, which is a good first step. But how do you use that data to feed into pre-trade so it creates a feedback loop?  There are some ways to do that  

1. Curate your pool of liquidity – using post trade information to determine who it is you should be executing with
2. At points of execution decision making – also where it starts to get difficult to integrate and use

How is data changing client experience?  Biggest change is a move away than using it simply for box-ticking and regulatory purposes. There is a shift to value add ie. ‘we can improve execution and participate in market’ than just showing ‘we achieved best execution’. An example of that occurring is the move from looking at costs as overall benchmark – execution price vs benchmark, to looking at cost attributions – eg. spreads, market impact when you start executing, too much time when generating signal and going into market etc. Breaking down cost attributions is one evolution of TCA. The shift from TCA to liquidity provision analytics (LPA) – looking more at a client’s specific liquidity throughout the day, what its LPs’ liquidity look like, what its LP-specific decay looks like etc. Looking at execution cost is one thing and looking at why that is occurring and causing a slippage, is where the market is going. It is easy to misinterpret complex data that does not give a good outcome for a client  There should be a shift away from individual trade anecdotal analysis as there is no weight and value to it. We should be looking at things over periods of time, sample sizes to draw meaningful conclusions – rather than the tendency to look at outliers as it occurs and making decisions based on that. You will only just be constantly making changes to how you trade, and not what works best. Responses above were contributed by Daniel Chambers, Head of Data & Analytics, BidFX