The Finance Hive benchmarks US and European FX buy side’s automation levels and algo usage to determine how trading desks are balancing technology with the human touch, and where providers need to improve.
“The report is very interesting and is focusing on the most relevant question for FX trading desks.”
– Head of Trading Foreign Exchange, Swiss National Bank
52 leaders in FX trading across Europe and North America have contributed to the research, which uncovered:
- Large differences in levels of automation across respondents, with 60% of US firms automating part of their FX flow, while 80% of European firms surveyed were automating, with 55% of that group automating between 25-75% of their flow
- There’s a high level of satisfaction with algo providers overall, with an average rating of four out of five
- The most frequently used providers for executing FX flow via algo were JP Morgan, BNP Paribas, Morgan Stanley, and Goldman Sachs
- None of those surveyed agreed with the statement that more automation will result in lower headcount on the desk. 57% of all participants disagreed with the statement altogether, and the remaining 43% neither agreed nor disagreed showing a clear shift away from this mindset
The report, produced in partnership with Bloomberg, pulls together quantitative insights from survey responses from 52 buy side heads of desk which have been aggregated and analysed by The Finance Hive. Qualitative on-the-record interviews add depth and colour to the commentary.
The scope of enquiry of the survey was created by heads of trading from some of the largest firms in The Finance Hive network who outlined specifically where they wanted to benchmark and some of the insights they wanted to receive. All survey respondents are the key decision maker at their firms or a strong influencer in the decision-making process.
The report highlights large differences in levels of automation across respondents, with 60% of US firms automating part of their FX flow, while 80% of European firms surveyed were automating, with 55% of that group automating between 25-75% of their flow. The data also suggests a high level of satisfaction with algo providers overall, with an average rating of four out of five. The most frequently used providers for executing FX flow via algo were JP Morgan, BNP Paribas, Morgan Stanley, and Goldman Sachs.
“We keep our algo pool relatively tight so our bank panel is purposefully small. We look
to work with algo providers and tailor their strategies and their strengths to
our trading activities, leveraging them in the right situation based on their offerings.”
– Vice President, FX Electronic Trading and Market Structure Analyst, T. Rowe Price
More than 50% of participants believe that increased regulation and best execution standards have been the main drivers in their firms’ move toward greater levels of automation. They also believe that the level of granularity and transparency needed for reporting is not much more difficult without automated systems and sophisticated data analysis.
When selecting a platform, participants were asked to rank their top priorities from 17 criteria. The results showed that integration and support with existing order management systems was the most vital function an EMS platform could have (63% of respondents), followed by cost (31%) and market impact measurement and TCA provision (13%).
The report also found that 56% of participants utilize either a dark liquidity seeking or implementation shortfall algo, with only 13% making use of VWAP and TWAP algos. JP Morgan was noted as the most widely used algo provider, with its internalization capabilities being praised by Finance Hive members. A reduction in market impact was the most important consideration noted by those surveyed, with 57% selecting this as their most important area.
The Finance Hive’s report provides valuable insights into the state of automation and algo usage by the FX buy side. By understanding the priorities and challenges of the desks, providers can better tailor their services to meet the needs of the market.
Response from Liam Heraty, Head of Content at The Finance Hive –
“Within the FX Hive our buy side members have been on an automation journey. The drive for increased automation is spurred on by the ever-increasing need for belt-tightening, with trading desks under pressure to manage higher volumes in a more cost-efficient manner without increasing headcount.
As the scale shifts further and further toward low- and no-touch trading the ability to benchmark and draw shared conclusions from across the buy side is more important than ever.”
The Finance Hive brings buy side heads of trading together to soundboard, ask questions, benchmark and collaborate as a collective. They do this by providing safe, co-owned and curated environments for trading heads and partners to build meaningful relationships, give one another value, identify solutions, and promote best practice.
