Compliance not the only driver for FX firms to beef up comms technology
Regulatory requirements are driving the development of more sophisticated monitoring software, but FX market participants also have much to gain commercially from ensuring their communications systems are technologically robust.
Meeting regulatory requirements has been a major driver of investment in new communications infrastructure in all markets, including foreign exchange.
The UK’s Financial Conduct Authority, for instance, has recently proposed that discretionary investment managers should be subject to a requirement to record conversations.
However, there are also commercial benefits for buy-side and sell-side firms that invest in cutting-edge technology.
As the authors of the McKinsey Global Institute report ‘Digital globalization: The new era of global flows’ observe, the near-zero marginal cost of communications opens new possibilities for conducting international business on a massive scale, allowing firms to connect with customers in any country.
Brad Bailey, Celent
Yet Brad Bailey, a research director with Celent’s securities and investments practice, describes the current state of communications in the FX market as a hodge-podge of chat, email, legacy telecommunication systems and software-based communication tools.
The aspiration of a more unified communication infrastructure with powerful collaboration, data capture and analytics across myriad systems remains an elusive goal, he suggests.
“At the same time, human voice interaction with machines is becoming a greater reality by the day and will leverage new technology – such as machine learning, cognitive computing and artificial intelligence – and other tools to merge human and machine abilities.”
Bailey refers to a desire among FX market participants for the development of an ecosystem where voice communications can be integrated more holistically with other channels such as chat and instant messaging for better order processing.
“Tools for creating intelligent engagement by traders with liquidity, markets, brokers and clients are allowing the voice channel to engage more closely with the electronic and algorithmic channels,” he says.
Best in class
For a long time, voice and data were captured using archived recordings and write once, read many (Worm) storage of chat and email communications and trade records, mainly by the sell-side, explains David Weiss, senior analyst at research and advisory firm Aite Group. Worm is a data storage technology where data cannot be erased once written.
Investment in new systems means many FX firms can claim to have best-in-class communications technology.
Ken Jinks, Corvil
However, Ken Jinks, product manager at Corvil – which provides voice analytics solutions to electronic trading businesses – observes that deployment of leading-edge communications analytics technology is more sporadic.
The advantage for trading companies using this technology is the ability to track specific data points such as call volumes, failed calls, call errors and call quality.
They can also improve client service by capturing all voice-over-internet-protocol calls, and locating the call record and export packets for call replay to reduce the time needed to fix issues, while the ability to access detailed call reports makes it easier to hold service providers accountable for problems with call quality.
Jinks suggests using the right analytics platform will enable FX traders to operate at increased efficiency and thus provide faster responses to client-support queries.
Investment in communications technology can provide valuable insights into the behaviour of traders, counterparties and algorithms, according to Wolfgang Fabisch, CEO of capital markets surveillance software vendor b-next.
“The ability to analyse vast quantities of data incredibly quickly can give you a competitive advantage in terms of response and access times and can also help you to strengthen your market position and avoid unwanted risks,” says Fabisch.
Behavox, a compliance software firm, has developed software that can search and interrogate vast quantities of employee-generated data, including voice calls.
Alex Viall, the firm’s head of regulatory intelligence, says buy-side and sell-side firms have much to gain from the insights that can be garnered from this type of analysis.
One example is embodied in interaction between buy-side and sell-side, where the former is using technology to quantify scientifically the value of research relationships so they are able to properly assess who should be receiving research payments.
“Access to data from voice communications in real time not only has extreme benefits for relations with clients and regulators, it is also an essential tool for internal management and for immediate analysis of a particular situation,” concludes Viall.