FX: The rise of quality execution analysis
A combination of regulatory requirements and commercial imperatives are driving interest in quality execution analysis (QEA), a subset of transaction cost analysis (TCA) that is a vital component in measuring FX best execution.
The rise in electronic FX trading activity and adoption of pre-trade and real-time analytics tools has placed increasing importance on QEA, suggests a recent report by Forex Datasource.
QEA is defined as the process of analysing pre-trade liquidity, at-trade market impact and on-the-fly strategy-change implications of FX orders executed via exchange-like market environments.
Many observers refer to Mifid II’s best-execution mandate as the main factor behind increased use of QEA, although third-party consultants and TCA providers are also stimulating demand by pushing products that help financial institutions analyse their executions and trading alternatives, according to Curex CEO James Singleton.
“Financial institutions recognise the benefits that come with the pre- and post-trade analytical loop, albeit at different speeds based on their size, sophistication and legacy practices,” he says.
Guy Hopkins, founder of FairXchange, says using QEA is as much a commercial decision given the range of options available to trade FX, observing that there is a high degree of scrutiny into execution quality by asset owners to the extent that it is a notable factor in the allocation of mandates.