FX Algos - the smartest new kids on the block? >>>
execution problems you have to solve in the FX market are more difficult than in other asset classes,” says Green. “It is a hybrid market with limited information. But the algos in all asset classes do very similar things and high-level algo design can carry over well. From a market-making perspective, the FX algos are as sophisticated as any others and from a client- facing perspective, we want to offer a consistent level of sophistication for all asset classes.”
In terms of new developments for 2012, Green highlights the fact that the FX market is increasingly competitive with more and more firms offering liquidity, characteristics that are likely to spur the developers of algo services into greater commercial activity. “Much of our focus for 2012 will be on providing consistent liquidity to clients in a more hybridised market place. Te key themes are deepening our liquidity partnerships and continuing to stay on the forefront of quantitative technology for market-making. We are also looking to focus on FX options and the emergence of SEF-like venues.”
“As a firm, we like e-trading and we put out a lot of prices across a lot of asset classes so we want to be on the leading edge in terms of responding to the emergence of SEFs. Tese kinds of market development suit Credit Suisse. We did well when the equities market moved to agency trading, we did well when FX options became electronically traded and we have done well in spot FX as more of the market has been shaped by non-traditional liquidity providers.”
Credit Suisse is not alone in targeting FX as a marketplace for its algo offerings. “As a provider of execution services in general, we have to accommodate the business processes that our customers are faced with,” says Ed Mount, head of FX Technology Based Trading in the Global Banking & Markets division
of RBS. “We provide liquidity to the high frequency trading space and we accommodate our own customer flow so we need to understand what the pure macro arbitrage machines are doing because we are on the other side of those trades as liquidity providers. We also have to understand what we call redeveloped tools for structured order management which although is in the algo space it is not necessarily for high frequency trading.”
Algorithmic trading is not just high frequency trading, says Mount. “It’s also a rules-based system that depends on the execution and simultaneous interaction with the market. Tere are systems in the market being offered by banks that are designed as basic algo trading toolsets (such as Credit Suisse’s AES). What we are developing is more customised than that.”
Calibrating trading objectives
Te idea, says Mount, is to work closely with the client in terms of calibrating their trading objectives, defining their market behaviour and replicating their business processes – the end result being that execution can be automated to each client’s specific needs. “Te clients aren’t uniform so
that’s the challenge we have at the bank,” says Tim Carrington, global head of foreign exchange at RBS. “Te ways that they go about executing can be compartmentalised into fairly standard sets of order management and then there is the more specific part which can sit alongside and interact with those standards. Te market standard TWAP and VWAP methodologies can be combined with the specific rules-based systems that clients have. Tis sits on the clients’ desktop and allows them to develop the tools themselves.”
In September 2011, RBS launched its FX automated trading system, RBS Agile, which is principally
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