Optimising FX P&L: How Smart is Your Data?

It’s little secret that FX businesses in many banks are struggling for profitability and adequate ROC. Coupling this with increasing regulatory data management requirements further darkens the picture. However, as Jack Jeffery – Chairman of Mosaic Smart Data and Matthew Hodgson – Founder & CEO of Mosaic Smart Data – explain, there is actually a major opportunity implicit in this situation. If done well, compliance with data regulation can also be used to boost an FX business’s profitability and automation.

Regulation: drawing opportunity from necessity

The past few years have seen a raft of legislation, such as PSD2 and GDPR, that directly affects the banking industry. A significant proportion of this regulation includes regulatory requirements specific to data, with one example being the BCBS 239 standard within Basel IV, which requires banks to meet specific standards relating to risk data aggregation. However, despite the deadline of January 2019, progress has been slow – a point that has not been lost on regulators. The ECB’s May 2018 Thematic Review made clear its displeasure[1], while the BIS has encouraged national supervisors to apply more stringent measures, such as capital add-ons and restrictions on business activities, to banks that fail to comply[2].

Compliance with this (and other) data-related regulation is clearly not optional. However, if undertaken in the right way, it is also possible to derive major business benefits at the same time. This applies across the banking enterprise in general, but is particularly relevant in FX businesses, where extreme cost pressure is now the norm and profitability is depressed – both of which are driving a need for automation.

The critical point is how data is managed and stored. An ideal implementation is one where diverse data classes and formats become completely clean, consistent, normalised and enriched. In addition, this capability has to be channel-agnostic and apply (among others) across electronic, voice, direct, prime broking, retail and corporate activities.

Apart from achieving regulatory compliance, this opens the door to converting clean big data into smart data: in this case, smaller information subsets that are both valuable and actionable. This data will then be accessible from multiple perspectives, such as individual client activity by pair, by channel, by request, by deal, by instrument, by hit rate and so on.

Democratising knowledge in real time

Assuming a smart data solution with robust entitlement controls is implemented, it becomes possible to provide each user with access to precisely the data and analytics they need to execute their role more efficiently. Furthermore, if the solution is also structured to be open, then in addition to its own analytics it will also be possible to integrate proprietary analytics and tools developed in- house. Users will therefore potentially have access to best in class internal, external and alternative data sources and analytics.

The ability to integrate proprietary analytics makes it possible to disseminate quantitative expertise throughout the business extremely efficiently, in effect giving users access to a “desktop quant”. This not only helps users maximise profitability, it also maximises quants’ available time for further research. Finally, the combination of fine-grained data and best in class analytics also enables productive scenario modelling across multiple time frames, from very short-term tactics to long-term strategy.

More than human intelligence

A smart data solution that makes available a large repository of clean consistent transaction data represents a major opportunity for artificial as well as human intelligence. As mentioned earlier, data scientists and quants will also be able to work far more effectively in developing AI/ML tools if they are no longer hamstrung by deficient data sources.

While in many instances AI and ML have been seriously over-hyped, in the case of an FX business the immediate opportunities are genuine. One example is the extension from humans to machines of the fine tuning of counterparty relationships mentioned earlier. Other business sectors (e.g. online retail) have long been doing this by mining and analysing client transaction and interaction data and then using AI/ML to influence future client behaviour and hence profitability. This is equally applicable to FX (and FICC more generally). For instance, automated AI/ML identification of client business leakage and automated corrective responses – e.g. adjustment of pricing (within limits) is just one of many possibilities.

Smart data + smart analytics = smart outcomes

In the current market environment, many FX businesses need significant re-engineering to remain viable. While at first glance regulatory data requirements exacerbate this situation, the good news is that regulatory compliance can also act as the foundation for profitable transformation. While some may wish to supplement it with external sources, the bulk of the information needed for this transformation is already within the enterprise, so major and costly data acquisition is not needed.

Furthermore, investing in making existing data smart delivers a long-term return. Smart data and smart analytics can certainly be used to achieve profitable results in the immediate term, but equally (if not more) importantly they can also serve to future-proof the business. Responding to future change more effectively is only part of this opportunity; those who make optimal use of smart data and analytics will also be able to anticipate and prepare for change far more efficiently and profitably.

About Mosaic Smart Data

Our vision is to empower financial market professionals with usable, data-driven tools to ask the questions they need answered and to receive those results in a language they can understand.

Mosaic Smart Data understands that the true value of data comes not only from the intrinsic individual data streams themselves, but also from the correlations and inferences that can be drawn from the aggregated data from each client.

Our cutting-edge technology addresses the challenges facing institutions trading in todays FICC markets, including change management, productivity, efficiency, restructuring and the growing automation of trading processes.

Through our flagship MSX platform, Mosaic Smart Data provides real-time FICC data aggregation, normalisation and powerful data analytics fuelled by machine learning. The platform delivers actionable insights onto FICC professionals desks via a visually striking and intuitive dashboard.

For more information, please visit www.mosaicsmartdata.com.



[1] https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.BCBS_239_report_201805.pdf

“…the implementation status of the BCBS 239 principles within the sample of significant institutions is unsatisfactory…”

[2] https://www.bis.org/bcbs/publ/d443.pdf

Jack Jeffery is the former CEO of EBS and MTS and now Mosaic Smart Data Chairman; Matt Hodgson is CEO of Mosaic Smart Data