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Foreign Exchange

Euromoney FX Survey 2011: Buyside Q&A – Execution: multi or single dealer?

Over the past few weeks EuromoneyFXNews has spoken numerous buy side participants about how they choose to execute foreign exchange. A fifth of all forex trades are now executed on multi-dealer platforms (MDPs), compared with fewer than 10% in pre-crisis days. What’s driving the trend?

Interviewees:

Mark Hewlett, partner, Anello Asset Management
Adrian Lee, president and CIO, Lee Overlay Partners
Stefan Nobel, chief dealer, SKF Treasury Centre
Lee Sanders, head of FX and fixed income execution, Axa Investment Managers
Bhav Trivedi, senior trader, Record Currency Management

Euromoney: Why trade on an MDP rather than a bank’s internal network?

Mark Hewlett: You can’t really get better pricing than on multi-dealer platforms. I’ve sat down with plenty of banks who say, ‘we can give you a better fill’, but I’ve yet to find one who can deliver.

The only problem with many of the platforms is the lack of phone broking, so you might get some slippage. But it’s not really a problem during busy US sessions and peak times.

Euromoney: How is MDP execution affecting client relationships?

Bhav Trivedi: Historically, good clients will get a better price. But we’re putting increasing amounts through the multi- platforms.

We only use FXall. They're one of the frontrunners. But others are catching up; 360T is very good for streaming options prices and multiple dates.

I don’t think [bank relationships] will ever disappear though. Sometimes you’re better off by phone, and sometimes the online platforms can’t cope with complex pricing on deals. And you can always get banks to work a deal.

Euromoney: Which banks do you use for options and non-deliverable forwards (NDFs)?

BT: Barx is very good at streaming NDFs. So is Citi’s Velocity. That’s a good indication of where the market is. Otherwise, you're stuck with Bloomberg, which is not as good.

Euromoney: As a corporate, what determines whether you put orders through an MDP?

Stefan Nobel: We use FXall and 360T. They’re given to us on a free basis. The pricing on MDPs is as good as pricing can get, really. We can filter which banks we see prices from, so we limit quotes from our preferred banks. You can go back through the audit trail very easily and look at flow distribution.

But relationships are still extremely important to us. We trade 90% of our volumes with our core banks – those who will lend us money when we need it. So a fairly small number.

Euromoney: What other benefits do the MDPs offer buyers?

Lee Sanders: FXall’s been a major result for us, particularly the straight-through processing side. It lets us process huge volumes with decreased settlement risk. Pricing and execution have been better too.

Euromoney: Do the benefits of e-trading – single or multi-dealer – depend on which end of the market you're trading at?

Adrian Lee: We do everything over the phone. You’ll always get a better price the old fashioned way. It can be operationally nicer too. If you’re doing 1,000 tickets or less a day as we do, you’ll get as good, or better price, than from the online platforms. It takes a degree of skill on the part of our traders to get those prices.

But you can’t make five phone calls. These guys talk to each other constantly. We tend to have things pre-negotiated before we make a call.

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