New FX trading standard sees slow adoption

By:
Paul Golden
Published on:

Despite its extension to FX last year, market participants acknowledge it is likely to be some time before they feel the full impact of the liquidity-enhancing trading enablement standardization initiative (TESI).

TESI was developed to promote an open standard for the enablement, permissioning or configuration of dealers and their clients across external electronic trading platforms and internal single-dealer platforms.

The initial focus was on fixed income, but attention later turned to FX and getting the multibank venues on board.

In July 2014, the FIX Trading Community – an industry-driven standards body established in 1998 to address the business and regulatory issues impacting multi-asset trading – extended TESI to include foreign-exchange client enablement for FX trades, including spot, forwards, swaps, options and NDFs.

According to Sassan Danesh, co-chair of the FIX Trading Community OTC products committee, the standard helps reduce errors and improve the user experience by standardizing the enablement process to make it more efficient.

"By using TESI, FX market participants can change pricing streams, map accounts, authorize new instruments or even suspend clients for trading, and a message will be automatically distributed to all relevant parties using a standard protocol," he says.

Market efficiency

In terms of market efficiency, TESI will automate the buy-side firm enablement request between trading venues and banks, creating operational efficiencies for both sides and thus reducing costs and bringing tighter integration and controls to the FX market, says Jack Utley, global head of electronic client solutions at BNP Paribas and a TESI board member.

"In the wake of increased regulatory checks at both the account and user level since Dodd Frank, EMIR and Mifid II, this kind of automation is a must to remain relevant," he says.

Like all transformational ideas, it will take time
for the benefits to be realized and for the
wider strategic implications to be understood

Jack Utley

However, Utley admits the initiative has so far had minimal impact on FX market efficiency.

"It is still largely in the adoption phase, both with the venues and the sell side," he says. "Like all transformational ideas, it will take time for the benefits to be realized and for the wider strategic implications to be understood."

Utley says BNP Paribas – along with other member banks of the TESI committee – is pushing adoption with the FX venues in 2015 and plans to deliver its first TESI-enabled interfaces in the second half of this year.

Lower costs

Lower operating costs for the sell side and the venues should ultimately result in a better-value service for the customer, he continues, adding it is difficult to say whether or not this will translate into reduced brokerage costs or margins.

"What customers should notice is improved turnaround times when they request access for new users or for the mapping of additional funds," says Utley. "We are driving the adoption of TESI to bring a better level of service to our clients and ultimately a tighter level of control around accessing our products electronically.

"As we straight-through process our enablement process, we aim to deliver real-time access for end-users and reduce errors in the human-mapping process."

Further reading
 
Financial regulation:
special focus

Paul Tivnann, global head of FX and commodity electronic trading at Bloomberg, observes that TESI has produced a set of standards to allow FX liquidity providers to centrally manage client configuration and on-boarding details in their respective internal systems, and push those updates to the trading venues electronically via APIs.

"Currently, liquidity providers use on-boarding tools provided by each trading venue to manage client configuration, including the type of liquidity and account mappings," he says.

"From that perspective, an initiative such as TESI has certainly introduced client on-boarding efficiencies and reduced the possibility of human errors and risk associated with bank on-boarding staff making a mistake."

When asked whether TESI has produced any improvements for users in terms of lower costs, for example, Tivnann states the main improvements are focused around operational processes and risk.

"The challenge is that liquidity platforms now need to offer access to their on-boarding via electronic APIs based on TESI standard and banks need the right code to implement those APIs," he says.

As a result, a large-scale implementation process such as this can take a considerable investment in time and resource to realize cost reduction and efficiency objectives, concludes Tivnann.

"In addition, investment on the operational side is often secondary to addressing pricing and liquidity issues for many sell-side institutions," he says. 

"This, coupled with the fact the improvements will be implemented on a venue-by-venue basis, means the industry will take some time to fully adopt the process and realize the cost benefits."