Roundtable

Transforming FX Trading with Practitioner Insight

1 TRANSFORMING BEST EXECUTION IN FX TRADING WITH PRACTITIONER INSIGHT

Growing global exposures in investment Lou Maiuri, chief operating officer for portfolios and increased regulatory State Street, recently sat down with the scrutiny are transforming best founders of BestX, the new FX data and execution in foreign exchange (FX) analytics platform that in less than markets, which are experiencing the three years has become the transaction same rise in rapid-fire algorithmic cost analysis (TCA) platform of choice trading as equity markets. This for traders who value its practitioner transformation is happening at a time perspective and functionality. State when managers and owners are Street acquired BestX in 2018 to under intense pressure to reduce costs, enhance its FX Connect® and Fund increase investment process efficiency, Connect® trading capabilities within its and improve transparency. Until now, GlobalLink® business suite, all of which FX traders struggled to access the will be available on the industry’s first appropriate data and analytics that front-to-back, open architecture would help them optimize their investment servicing platform from a strategies and easily demonstrate best single provider, State Street. execution to clients and regulators.

2 ROUNDTABLE ROUNDTABLE DISCUSSION

Lou Maiuri Chief Operating Officer, State Street

Pete Eggleston Ollie Jerome Aman Thind BestX Co-Founder BestX Co-Founder BestX Co-Founder

3 Lou: Let’s talk about how FX trading practitioners, we used our experience is changing and why pre-trade and to build a data and analytics dashboard post-trade analysis is becoming that provides a level of visualization and so important. functionality that wasn’t available before, including peer-to-peer analysis. Pete: I would say there are at least three big changes in the last 20 years Lou: So how did BestX achieve its that are focusing more attention on TCA remarkably quick adoption by so for FX trading. First, investors are many large FX trading firms and increasing their exposures to foreign liquidity providers? markets, so the currency variable plays a bigger role in their investment For Traders, By Traders decision-making. At a time when institutional investors have to focus on Ollie: First of all, the BestX platform every aspect of costs, understanding was a practitioner- and client-led the FX implications of an investment innovation. All three of us had worked strategy has become more important. for years with FX traders and listened Every basis point counts. carefully to their frustrations with current TCA platforms; that iterative Second, regulators are demanding feedback was critical to how we were greater transparency around best able to fill what was clearly a gap in execution for end-investors, so buy-side the market. firms have been spending inordinate amounts of time and money to create Aman: Before BestX, most FX TCA the reporting required by new rules platforms had been developed for such as MiFID II in Europe. compliance teams, not FX execution desks. If the traders didn’t agree with Lastly, the rise of a hybrid market the analytics, they simply didn’t use structure, incorporating order-driven them, so there was no proactive, protocols such as algorithmic trading in qualitative progress for actual trading. FX markets, means that traders need a The other problem was that many of the more granular understanding of platforms were built as simply an liquidity conditions across the largest extension of equity TCA frameworks, so but also one of the most highly they were not appropriate for the fragmented and diverse markets in the nuances and complexities of FX as a world. As former FX market separate asset class.

4 ROUNDTABLE “We started from a blank piece of paper to design a platform for FX traders by FX traders.”

Pete Eggleston, BestX Co-Founder

Pete: You can’t just plug-and-play an better understand up front the right equity-type idea into FX. We started execution path — what product to use, from a blank piece of paper to design a the best time of day to execute, how to platform for FX traders by FX traders. size the trade — then you can have quite So we wanted to build functionality that a meaningful impact on reducing costs. would satisfy the needs of the execution Lou: Talk more about what traders like desk, adding measurable value to the about the dashboard. day-to-day processes, as well as the compliance and reporting teams. Ollie: The functionality is much richer than what was available before and the way of visualizing the data is far better. Embracing FX Data Complexity We have built a dashboard of analytics Aman: One of the key problems in that can help traders make the most FX is that it is an over-the-counter informed decision at the point of market and therefore there is very execution. For example, traders can little standardization, unlike in equity see a summary of the execution of a markets. Clients store their own data in large-spot FX trade — how quickly the different ways. We designed the data order was filled; the risk of signaling stack with built-in flexibility so that it the trade to other market participants; the actual and expected market impact; can ingest all of this very different, and how execution switches between non-standardized FX data, normalize passive and aggressive fills. it and present it back to traders in a way that is very digestible An important part of the analytics is and understandable. also an automated process to identify trades that are exceptions to each client’s best-execution policy. This Lower Costs Through Better exception reporting functionality is not Execution just for compliance purposes. It also Pete: Another key enhancement was provides a systematic way to identify linking pre-trade and post-trade particular trading algorithms that analysis, not just to satisfy reporting create significant market impact in a requirements, but also to help portfolio chosen group of currency pairs, managers build more cost-efficient for example. In this way, traders can investment strategies. Pre-trade better refine their selection process analysis is critical, because if you can for algorithms.

5 “Many of our clients have never been able to see all of their data amalgamated in this way.”

Aman Thind, BestX Co-Founder

Open Architecture, Reporting and Compliance Maximum Flexibility Transformation

Lou: What are some of the other Lou: How has the platform helped from a important aspects of how you reporting and compliance point of view? architected the platform that have Pete: In the past, firms would write resonated strongly with users? their best-execution policy and it would sit on a shelf gathering dust. Now they Aman: The fact that we built it as a have software that actually allows them totally open-architecture analytics to implement the policy. That is one of service, which operates autonomously the biggest impacts we have had from any liquidity provider or execution with BestX. venue, was very important to users, as Aman: All of the actions are audited was using cloud architecture. and recorded, so the software becomes Connectivity is a very important feature. a living document for compliance Many of our clients have never been teams. If there is an exception to a able to see all of their data trade, the software records who added amalgamated in this way. So we are a comment to the exception and who actually improving their own internal approved the exception. If the regulator comes in at the end of the year, users data intelligence by combining data can literally generate a report with just from 20 different systems and making a few clicks, demonstrating full that seamlessly available to them, adherence to their entire policy over helping to save them time and money. multiple years, print it, and hand it over. That is the future of these platforms. In the past, compliance teams could Users have also valued the segregation have spent weeks or even months of their data within their own container gathering similar information in a in the Amazon cloud. The level of completely non-systematic way. This has been a game-changer for many encryption, not only in transmission but firms seeking to adhere to the MiFID II also at rest, is another important requirements. It also greatly security feature. increases transparency for asset managers’ clients.

6 ROUNDTABLE Ollie: Yes, in Europe the ease of levels of complexity, so we have worked compliance reporting has been a closely with fixed-income traders with critical benefit in the post-MiFID II age. deep quantitative experience to Interestingly in North America, the incorporate that practitioner demand for our platform has been perspective as we have added driven by asset owners. Increasingly government bonds and futures to the platform. We are now working on they are asking asset managers in their integrating interest rate swaps. RFPs to specify the technology they are using to ensure best execution. In other Aman: The domain expertise is crucial words, they want to know from their for developing the proper analytics for asset managers: What technologies are other asset classes. But the way we you going to use to minimize the drag designed the BestX application allows on my returns through optimizing us to reuse large components from your execution? In a low-yield within the application itself, whether it environment, that is more important is the platform architecture or the than ever before. client-side interface. The new asset classes can be added as new modules, Building the Seamless Multi-Asset which will significantly speed our time TCA Platform of the Future to market.

Lou: So what is the BestX vision for Pete: That’s right. So users will the future? continue to see the same interface and the same workflows, but beneath the Pete: I think we have derived really surface we have effectively expanded important lessons from building the our analytics layer to cope with the FX functionality. First, you need to be specifics of fixed income. From a client user-led. You can have the best point of view, they get the same user software engineers in the world, but if experience. The future is definitely what they are building is not informed about incorporating all asset classes so by a practitioner perspective, the analytics will fall . Second, you clients can extend the same data need to be true to the idiosyncrasies of insights, cost savings and ease of a particular asset class, and not reporting across their entire trading assume that data and analytics for one operations. It’s an exciting time to be market are appropriate for another. building the new infrastructure to make Fixed income, for example, has many that happen.

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