CEP Technology Provider StreamBase has recently released the findings of its 2012 FX Trading and Technology Trends Survey. The survey includes responses from 246 Institutional Traders from around the world. In addition to the findings of the survey, StreamBase conducted a roundtable discussion about the results with leading executives in the space with their comments incorporated within the report.
Some of the key findings of the report include:
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- A significant 17% increase in the usage of multi-bank platforms, and a 7% increase in the usage of single-bank platforms. Participants though were slightly more pleased with pricing from single-bank platforms.
- The top five most used multi-bank platforms are Thomson Reuters, ICAP’s EBS, Hotspot, Currenex and Bloomberg. The top five most used single-bank platforms are Barclays Capital, Deutsche Bank, Citi, JPMorgan and UBS.
- Reducing latency, connecting to more venues, better relationships and algorithms are mentioned most frequently when participants were asked how they could secure better prices.
- Both buy and sell sides believe that minimizing the market impact with the lowest implicit cost of execution is the most important criteria when it comes to best execution. However there is still a lack of generally accepted benchmarks.
- In terms of satisfaction ratings, participants are most satisfied with their current liquidity aggregation systems and least satisfied with their current auto-hedging and risk management capabilities.
- About 54% of sell-side firms plan to improve or add real-time liquidity management capabilities to optimize liquidity for customers and to mange risk more efficiently.
- Regulatory requirements and the growth of emerging markets will continue to play significant roles in how sell-side firms manage their FX business. (Among Sell Side participants, emerging markets was listed as having the second largest impact on their FX business
Among the details of the findings, a few areas that Forex Magnates found interesting:
- Hotspot was reported to be used by 31% of respondents and was the third most used MDP. Although their market share is well below Thomson Reuters and EBS which were being used by 35% and 33% of responders respectively, Hotspot has developed a reputation as a technology advanced venue which apparently has led it to be widely adopted liquidity choice, even though on a percentage basis less order flow is reaching them.
- The high satisfaction with liquidity aggregation supports discussions of Forex Magnates with market participants that they are generally pleased with aggregation solutions.
- Relationships matter. Buy side respondents answered that they preferred more transparency in their trading which would favor MDPs. However, there was a general consensus that creating relationships with sell side banks had allowed them to gain better pricing.
- In the incorporated roundtable remarks, mobile solutions were mentioned “On the single-bank front, with the proliferation of mobile devices, many electronic trading platforms are now able to provide customized user interfaces that transcend desktops, allowing real-time notifications and alerts on mobile phones and tablets that also allow actions to be taken in a timely manner.” If this trend takes off it could lead to more SDP providers copying Caplin Trading Systems move in creating an HTML5 based front end interface.
- Not surprising pending regulatory framework was highlighted as a concern going forward. However, very few respondents were worried about the effects of new laws on their HFT businesses.
- Although overall use of algorithm use for trades was higher in 2012, the percentage of buy side firms creating their systems in house dropped to 75% from 92% in 2012. This is most likely the combination of better solutions being offered from third part providers as well as buy side users developing more trust in outside technology.