Demand for consolidating execution management systems (EMS) and bringing FX into broader multi-asset trading workflows continues to grow. New research conducted with dozens of buy-side market participants found that achieving a unified, real-time view of risk is the primary driver for firms considering the consolidation of their FX and listed derivatives EMS.
The findings detailed in the new white paper, Bringing in FX: EMS Consolidation in a Complex Trading Environment, are based on a survey of 65 hedge funds, proprietary trading firms and asset managers, conducted by management intelligence provider Acuiti on behalf of Trading Technologies International, Inc. (TT), a global capital markets technology provider.
The report examines how firms currently approach FX trading technology and their attitudes to consolidating FX with other asset classes, particularly listed derivatives.
Historically, FX has sat apart from other asset classes with its own front-office infrastructure. This is primarily a result of the fragmented, over-the-counter (OTC) structure of the market and its web of bilateral relationships and liquidity pools. However, the report found that firms running separate systems increasingly view this setup as a source of operational complexity, particularly with the rise of centralized execution desks, cross-asset trading desks and heightened pressure on achieving operational efficiencies.
Over two-thirds of firms in the survey (69%) currently run a separate order and execution management system (O/EMS) for FX and listed derivatives. For many, this is a result of a legacy of siloed trading operations and the distinct market structure of FX.
There is, however, a strong appetite among firms to achieve efficiencies across systems and to bring FX trading into the same workflows as other asset classes. The survey found this is not simply a cost-cutting exercise; when asked about the benefits of bringing FX and listed derivatives EMS platforms together, most survey respondents ranked cost savings behind other benefits.
A unified, real-time view of risk was the most frequently cited advantage, with 69% of survey participants ranking it as one of the top considerations. Respondents also pointed to improved execution quality (cited by 52%) and expanded algorithmic capabilities (46%) as key benefits, suggesting that firms are motivated as much by better decision-making and execution outcomes as by reducing operational expense. The report states: "...the ability to create a more unified view of trading positions can reduce timing gaps as well as [provide] more consistent order controls and routing logic."
Despite the benefits, migration risk remains the biggest single barrier to consolidation, cited by almost half of respondents as the biggest factor in any decision not to migrate to a unified technology workflow.
Tomo Tokuyama, EVP, Managing Director, FX of TT, said: "Sophisticated buy-side participants understand that risk management is one of the keys to their success, and this survey reinforced that it is a priority that goes beyond the obvious cost efficiencies of consolidation. Having a vendor they already know and trust manage this consolidation can go a long way toward reducing that migration risk while bringing new trading opportunities. It's therefore vital that any project to unify an EMS and/or OMS for multiple asset classes addresses the many trading and risk workflow nuances of each asset class. In our case, we have been extraordinarily deliberate about how to bring FX into the TT platform to optimize cross-trading opportunities while retaining the functionality and risk controls critical to FX trading participants."
"Firms across the buy side are increasingly rethinking their O/EMS strategy when it comes to FX and evaluating the potential to integrate it with other asset classes, particularly listed derivatives," said Ross Lancaster, Head of Research at Acuiti. "Our research found significant demand for a single, real-time view of risk across asset classes. However, there remain concerns about the transition and the migration risk. These can be mitigated by working with a vendor that understands the complexity of multi-asset execution."
The survey found that 28% of firms said that unifying the OMS and/or EMS of other asset classes with FX would make them more likely to trade FX.
The full white paper is available at http://tradingtechnologies.com/ttfx-whitepaper.
