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Q&A: FX Trading in Asia Pacific (Part 2)
Traders Magazine Online News, April 5, 2017
As regulators place more scrutiny on best execution policies and transparency in OTC markets, institutions trading foreign exchange in Asia Pacific are watching closely. Hedge funds and asset managers are facing indirect pressure from investors to monitor the performance of their brokers and venues in FX spot, forwards and NDFs.
In Part II of the Q&A: FX Trading in Asia Pacific, Vinay Trivedi, Senior Vice President, Strategic Initiatives and Head of FX Sales, APAC at FlexTrade Systems, discusses how the regulatory push for best execution is impacting FX trading in Asia, and why it’s driving demand for transaction cost analysis (TCA) through the execution management system (EMS). At the same time, hedge funds are gaining access to dark pools with anonymous trading. As electronic trading in FX evolves, institutions trading across multiple funds are also seeking tools that automate and streamline allocations.
Q: Given the regulatory focus on best execution and transparency into OTC markets like FX, what impact is this trend having on asset managers and their adoption of transaction costs analysis (TCA) for FX in Asia Pacific?
Vinay Trivedi
Trivedi: Because of the way regulation is progressing in America and Europe, it is important for asset managers in Asia to know what’s available in the market in terms of best execution. As such, they are getting more focused on benchmarking execution and conducting TCA. This is why there is an intent and a pressure to move FX trading away from the custodian. Under new circumstances either the custodian will start providing the best price in the market, or asset managers will be forced to look in the market for best execution.
Asset managers have a responsibility towards their investors to provide best execution. Traditionally, while asset managers have been focused on getting best execution for equities, they tend to leave money on the table in FX when trading with a custodian only. This is not in the best interest of the client. Hence asset managers have started trading with counterparties other than the custodian to hit FX dark pools to achieve best execution.
Q: What role are dark pools playing in currency trading on the buy side? And, how accessible are these venues to asset managers and hedge funds in Asia
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