The Full FX Conversation – Talking Data with 360T

Following the latest Full FX Unfiltered video with 360T’s head of swaps strategy Gavin Wells, Colin Lambert sat down with Kate Massey, head of market data strategy at 360T to discuss the role data is playing in changing the FX swaps market.

Colin Lambert: Much of my conversation with Gavin [Wells] was about the evolution of the FX swaps market and 360T’s Swaps Data Feed (SDF) plays a big part in that, doesn’t it?

Kate Massey: Most definitely. It’s funny because it’s almost become a bit of a cliché talking about “data changing the world” but without doubt that is happening within foreign exchange. The SDF project we started with Digitec five or so years ago has really played a prominent part in the evolution of electronic swaps.

Although it is a relatively mature product, can you just remind everyone, what does the SDF do?

It’s an independent swaps feed sourced from traders direct from their pricing engines. We push these feeds into the D3 software, perform some magic and the resulting SDF is a curve out to 10 years across 43 currency pairs, including NDFs.

The USP of the SDF is the granularity in the curve. In addition to the standard tenors that you see from other data providers, like the standard months and IMMs, the SDF also provides monthly, quarterly and end-of-year turns, as well as the beginning and the end of the month dates. As if that wasn’t enough, we are particularly proud of the addition of the major central bank meetings, which are critical dates to all traders.

Since we started this, we have almost doubled the data points along the curve and that level of granularity and market intelligence has not been seen in the swaps market before. It is that effort and attention to what is important that has been so well received by the trading community.

To follow up on that theme then, can you describe how are clients using the Swaps Data Feed?

A number of ways, and it depends who you are. For some it’s acting as the guardrails in the execution process – reducing the chance of errors going out the door. For others it’s the best price source, or a rate reasonability measure, or a means of surveillance. At its purest level it’s simply for revaluation purposes.

It is made available via API and the 360T trading platform, as well as directly into the Digitec D3 platform. There is also a web version for informational purposes, plus a daily snapshot file that we can deliver via SFTP. In short, however you want it, we’ll find a way to get it to you.

I think that’s actually been one of the interesting evolutions for me, because you look at data and you think, okay, well, it’s great because it gives us TCA, then it gives us data to feed our pricing engines and our risk engines. But actually, we’re using it for much more than that now, aren’t we?

Absolutely. It isn’t just the front office who are finding use for it, middle offices and compliance are increasingly placing value on both its granularity and independence. I don’t necessarily think this should surprise us though, it’s a natural evolution of an electronic market – we’ve seen it before in other asset classes and in spot FX – more accuracy and visibility levelled the playing field, allowed new products to grow off the back of it and was ultimately good for both maker and taker.

And the buy side? You mentioned the buyside have this best execution capability. How else are they using the feed?

We talked about performance benchmarking but what I think is under-appreciated is how the most sophisticated of our clients have found use for it. No-touch trading wasn’t an option for a long time because while electronic pricing has been with us for an age, without a reference rate it is clearly problematic, so we built rate-checking capability into our EMS based upon the SDF.

This means clients can set their tolerance and allow trades to come off their OMS, go through a series of compliance checks inside our EMS, make the request to their basket of LPs, select best price, confirm that this is a market rate against the SDF, execute and book into their systems. Dealer intervention only occurring when an exception occurs. Pretty cool.

The reinvestment into the quantitative aspect of the product enables clients to confidently price a curve in a way that wasn’t there previously.

Other examples include the smaller bank who can provide continuous reference prices for their branch network to trade swaps and forwards, allow them to centralise activity into one book, giving both portfolio benefits and reducing their execution costs as they do more marketable amounts. A far cry from continuously attempting RFS requests to get a sense for where nine-month EUR/NOK is.

A question I asked Gavin that I think is just as relevant here is, data changed the spot market dramatically. Do you anticipate a similar sort of impact in FX swaps?

For us, it already is changing the swap market but I do think there are some differences with spot which suggest the end outcome will be different from what we see today. For one, tight spreads and increased balance sheet costs mean that prime brokerage for non-bank market makers is an unlikely outcome – this will certainly restrict new entrants.

What is key for us, now that things are moving, is continuing to be part of this changing narrative. The SDF Plus is the next stage of this story. With help from the quant power in the market data area at our parent company Deutsche Börse Group the next version of the product is about giving insight into the pricing distribution of the SDF. In other words, how wide is the pricing variance from our contributing banks, and what is the data saying about prevailing market conditions?

This is in its trial phase at the moment, but the feedback that we’re getting is really exciting, it appeals to the real technicians in the market. Again though, we think more insight will lead to more opportunities, so watch this space.

That is the next stage of the evolution, isn’t it? Using data to actually inform your decision- making at a business level rather than just at a market level.

Exactly that, and I think that’s really the strength of the SDF; the reinvestment back into the quantitative aspect of the product – this is currently enabling our clients to look at ways of being able to confidently price a curve in a way that wasn’t there previously.

CL: You mentioned a couple of times the partnerships and it seems to me that this is quite a partnership-driven model in terms of how you run it?

There are two partnerships here. One with Digitec whose experience is critical to the products’ existence and as importantly, the one we have with our contributors.

Those first few pioneering banks who shared our vision were key. Moving the boulder to start is the hardest part. Once we got rolling and had something to show, it became a little bit easier.

Last year, together with Digitec, we set about applying this model to the precious metals market and produced the Precious Metals Data Feed (PMF). Not exactly a copy and paste replica but certainly the lessons we learned from the SDF provide a blueprint to work off – just with a different set of data-contributing partners. The PMF shines a light on a previously opaque marketplace, helping market participants to enhance their precious metals trading capabilities.

Kate, thank you for your time today, it’s been great to talk to you, so close out, what’s next for 360T in market data?

SDF Plus is going to be a big thing for us this year, but we will continue to progress with the core SDF, which is integral to SUN.

We will also be re-vamping our spot product, the Essential Data Feed, in the coming months, so much more to come on that!