FX Data Management Needs Improvement: Survey
Posted by Colin Lambert. Last updated: September 27, 2023
A new report from Coalition Greenwich, based upon a recent survey, finds that 57% of the 120 FX professionals surveyed believe their data management efforts in FX execution need improvement.
The survey finds that for market participants, the ability to minimise credit, capital, and margin costs is enabled by data. It also observes that both pre-trade and post-trade data must be incorporated into execution. For the buy side, Coalition Greenwich says the ability to calculate the cost difference between executing a cleared and an uncleared FX derivative could impact portfolio performance. That decision will be informed by a diverse set of information, such as current positions, internal rate of return on collateral, margin costs from a central counterparty, and more.
“These decisions cannot be made quickly and accurately if someone needs to access data from multiple systems, link the data, run the results, then make the decision,” says Stephen Bruel, senior analyst at Coalition Greenwich’s market structure and technology team. “The data needs to be accessible in near-real time.”
The report continues by noting that to stay ahead of the “rapid evolution of market structure”, FX market participants are planning ambitious investments. The top targets for increased spending are execution management and analytics, pre-to-post-trade workflows, operations and analytics, and data acquisition and analysis. Workflow improvements are being driven by settlement risk, and initiatives in the US equity market.
“The move in the US to T+1 for equity settlements will put pressure on FX operations to settle their trades in a timely manner,” says Bruel. “Automation efforts in the back office that will help equities settlement will ultimately also yield benefits for the front office as well.”
The report also comes to the less-than-revelatory conclusion that the global FX market’s evolution “continues to necessitate a wave of investments by market participants who are focused on improving the sophistication and effectiveness of the trading” and that “more data is constantly being created [that] can signal that relevant data is harder to find and use”.
It also finds that the proliferation of FX trading venues (which is nothing new it has to be pointed out) and increasingly complex portfolio management strategies make the problem more difficult and expensive. As an example, Coalition Greenwich says its research into the market data industry broadly indicates that 80% of the buy side will increase their market data budgets over the next 12 months.
Increasing spend is one consequence of data proliferation, the firm adds, observing that firms are implementing multiple initiatives to manage FX data to help improve performance. “FX desk’s investments are aimed at enhancing trade execution and workflow management, and data will be a key lynchpin across those different areas of investment,” it states.