Yaacov Heidingsfeld gets the viewpoints of both a leading foreign exchange bank and FX portal. He poses some questions to Martin Spurr, Head of Integrated Treasury Solutions ecommerce at The Royal Bank of Scotland and Mark Warms, global head of Sales and Marketing at FXall.

Gentlemen what characterizes a good FX order management system?

Spurr: An Order Management service aims to provide a structured way of trading based on profit targets and managed loss tolerances. In an OTC environment, like FX, such orders are of even greater importance. Users should have immediate and unrestricted access, dynamic control and management of their orders, a number of variables to choose from and customize their orders and the ability to build more complex structures, together with intelligent monitoring tools and real-market rates.

On the execution side, users need to be filled in the best possible way; fast, efficient and transparent auto execution should be available when the size of the order, the time zone and market conditions provide enough liquidity.The true test of an effective Orderbook is the quality and consistency of the liquidity behind it.

Warms: The most important characteristics of a good order management system are ease of use and connectivity. To deliver maximum efficiencies to clients, an order management system needs the ability to integrate to a variety of order generation systems and a variety of execution venues to cover all asset classes. In turn, the execution venues should be integrated to clients back office systems for automated post-trade processing. This makes it possible for clients to achieve end-to-end straight-through processing for the entire securities modeling and trading process, from identifying the FX requirements through to trading, confirmation and settlement.

Clients can choose from a wide range of order management tools and services offered by trading portals, banks or third-party vendors. FXalls clients, for example, might use FXalls QuickOMS, the order management component of their portfolio or treasury measurement system or a combination of the two. Because FXall interfaces seamlessly to these systems, users can enjoy the benefits of STP regardless of which method they choose.

Why has the order management space become such an important area of attention for FX providers?

Spurr: The demand has always been there for electronic order book functionality but the banks have been slow to respond. FX is rapidly growing as an asset class in it's own right and is being traded as such, with an increasing bias towards order based trading styles as clients apply their trading models and disciplines honed in the Futures and Equities markets. As such, clients expect the banks to provide the same tools that are available to them in other markets such as in Equities and Fixed Income, including the ability to place and monitor orders.

The increasing use of algorithms in trading and the sophistication of clients require intelligent order systems which can place and execute orders at target levels. These models rely on FX order management tools to help with their multi asset trading strategies, to get simultaneous and efficient execution across the board when their signals/ targets are reached.

Finally, RBS e-trading activities are entirely driven by a client relationship strategy and we have therefore invested in our electronic order book tool as a means by which we are able to reward the reciprocity of value and trust that exists within the environment of an order book service. We achieve this through delivering a much higher order of execution efficiency than may otherwise be possible in an environment in which banks are, on occasions, blindly supporting streaming liquidity.

Warms: The order management process offers significant opportunities for eFX providers to add value to clients. Order management can be a time-consuming, complex process and one that is open to errors, particularly for large asset management firms managing hundreds of individual accounts. By delivering tools that make it possible to net requirements across accounts and currencies while at the same time taking into consideration compliance factors such as which bank(s) each account can execute with FX providers can deliver further cost and efficiency gains to clients.

So why are people focusing on order management now? Historically, the equity markets were the first to automate, then fixed income and now foreign exchange. In any asset class, the road towards electronic trading follows a natural progression. The first task is to streamline and automate the trading process itself. Once that has been solved, the focus broadens to encompass other aspects, including order management and back office processes like confirmation and settlement.

Where are most of the current efforts to improve FX order management functionality being made?

Spurr: It is important to consider the client groups according to their underlying needs and requirements of their service providers. As mentioned above, the banks and portals have been slow to develop electronic order book capabilities though more recently we have seen an increasing level of activity which can be broadly categorized as follows;

- Workflow tools developed to service both corporate and institutional clients for their various FX needs and typically including very rich pre and post trade functionality and STP (splits, allocations and integration to treasury management and portfolio management tools.

- Investment and sophistication levels have been growing over recent years as both the banks and portals jockey to position themselves as lead service providers to the clients.

- Supporting client trading tools and models with complex, order based trading tools to continually improve the clients ability to manage efficient execution. These tools tend to have a high concentration of functionality on the trading functionality and a lower demand on the pre and post trade tools discussed above. The investment is directed towards delivering closer proximity to market and higher capacity both of which can ultimately only be delivered by electronic execution tools.

- It is this area where we have seen the greatest activity in the market, driven largely by the explosive growth of cross-asset and model based trading.

Warms: The importance of connectivity means that many providers, particularly those that serve the fund management community, are looking at FIX connectivity. Over the last year, we have completed a number of FIX integrations to leading OMS vendors, as well as clients in-house systems. As the adoption of FIX for FX increases, we expect to see further demand for custom FIX integrations.