FX Order Management: meeting the growing needs of clients
With FXall and the Royal Bank of Scotland.
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
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
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.
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