EMS survey highlights FX traders’ platform predicament

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By:
Paul Golden
Published on:

A reluctance to dispense with legacy technology, combined with heightened regulatory oversight and changing liquidity provision from banks, has seriously complicated the execution management system (EMS) selection process for FX traders.

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A survey published in August by the Finance Hive offered an opportunity for FX traders to outline what they want from vendors of EMS platforms.

Among their priorities was more front-to-back and multi-asset integration in the next generation of platforms, as well as more open architecture.

Vendors of platforms play an important role given the trend towards buy rather than build on the buy side. Only 7% of respondents to the survey Global Pulse: FX Platforms reported using an in-house platform.

Front-to-back and multi-asset integration would clearly be useful, but is not without complications.

The use of a single system would be likely to increase the number of workarounds and daily operational challenges faced by traders and middle office due to technological compromises made in trying to be a one-size-fits-all solution.


The risks of implementing a replacement front-to-back infrastructure in a ‘big bang’ manner are just too high for most businesses to contemplate 
 - Simon Wilson-Taylor, EBS Institutional

It is difficult for any vendor to be best of breed across the whole investment lifecycle from front to back, or across all asset classes horizontally.

While it is possible to build front-to-back systems, it is often difficult to buy and implement such systems, and almost every firm instead tends to buy components that they replace or upgrade one at a time, explains Simon Wilson-Taylor, head of EBS Institutional.

“The risks of implementing a replacement front-to-back infrastructure in a ‘big bang’ manner are just too high for most businesses to contemplate,” he says. “There has been more work done in the multi-asset class arena.

“There is often still a dilution of functionality, but for many firms the compromise is worthwhile if the system is best of breed in their core asset class.”

Front-to-back workflow has been an area of focus in recent years for FlexTrade, an execution management firm, which has translated into connectivity to new order management system (OMS) providers, added functionality and a new middle-office tool to facilitate post-trade requirements.

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Vikas Srivastava,
Integral

Given the ever-increasing need to do more with less, even at the largest asset management firms, an EMS provider’s ability to provide end-to-end workflow solutions is vital, according to Vikas Srivastava, chief revenue officer at Integral, an FX technology firm.

“This approach has produced some innovative front-to-back solutions, such as automated batching of orders and automated execution cycles for the buy side,” he says.

The platform at Virtu, another financial technology firm, combines multi-asset EMS and transaction cost analysis (TCA) with algo wheel – an automated routing process that assigns a broker algo to orders from a pre-configured list – conditional block trading, RFQ-hub (a multi-asset platform for global listed and OTC assets), best execution tools and commission management.

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Mike Loggia,
Virtu

Mike Loggia, the firm’s head of workflow technology, says he sympathizes with buy-side clients struggling to achieve multi-asset integration.

“Our EMS is different because we are able to leverage our in-house global FIX connectivity network,” he adds.

Respondents to the Finance Hive survey also asked for improved open architecture to support customization and ease of integration. This is already a feature of FlexTrade’s platform, says Vinay Trivedi, head of FX for Asia-Pacific.

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Vinay Trivedi,
FlexTrade

“We offer EMS, OMS and TCA solutions with the flexibility to connect to a third-party service of the client’s choice,” he adds. “This helps clients create an eco-system to manage flows and achieve best execution.”

The report notes that the integration of trading systems is sometimes constrained more by business interests than by technology and that asset managers can help their cause by working with current and potential technology partners to identify potential obstacles as early as possible.

Wilson-Taylor at EBS Institutional adds: “The most successful integration projects occur when the asset manager takes an active role in bringing all parties together.”

TCA challenge

According to Finance Hive’s research, platforms frequently fall short when it comes to TCA and their ability to host algos.

When they were built, the main technology challenge these platforms had to solve was messaging – in a pre-FIX era. As a result, infrastructure is often mostly based around messaging and does not inherently collect data very well, while the limited data in the proprietary messaging protocol is hard to extract.

“Those platforms will always be behind in this area until they completely re-architect themselves, as their current models simply do not collect the necessary data,” concludes Wilson-Taylor.

“Bolting on other TCA providers – through acquisition or otherwise – will not solve the problem.”

FX Connect and FXall were the most widely used platforms, according to the survey, with more than 50% of respondents having at least one of these platforms on their desk. The next most widely used platform was Bloomberg FXGO, which was used on 11% of desks, followed by FlexTrade with 9%.

The traders surveyed said FXall and FX Connect lagged behind other systems when it came to TCA provision and their ability to host algos, but scored strongly on integration and cost, with FX Connect also performing well on post-integration support.

FlexTrade scored well on provision of TCA and ability to host algos, but less so on integration and post-integration support.