No data. No advantage.
There is no shortage of FX counter-parties, venues and products in the market, each claiming to offer some form of ‘unique’ value.
Firms are disadvantaged by a lack of access to reliable, independent market data, analytical tools and expert advice to evaluate FX offerings fairly, make informed decisions and address key challenges.
Without the ability to consistently monitor execution costs, it becomes impossible to make fair comparisons between different offerings and quantifiy improvements to execution quality. Firms without FX TCA tools typically suffer from inconsistent, uncompetitive pricing.
Given the highly fragmented and often significantly overestimated liquidity, executing large FX orders can prove costly. Executing parties also incur the risk of leaking information about the intent, urgency or size of any order which may negatively affect pricing.
Post the 2008 financial crisis, there is increased emphasis on reviewing the credibility of counterparts, particularly when entering into OTC FX derivative contracts where there is default risk. Monitoring counterparty credit risk can be time consuming and requires access to expensive data sources.
Clients often have a requirement to post initial and variation margin on derivative instruments. Finance professionals can therefore face unexpected liquidity impacts when having to post collateral with their counterparties. This is capital which could be better used for other operational or investment needs.
MiFID II and Dodd-Frank regulations require investment firms to define, achieve and demonstrate best execution. Without complying, firms can face significant fines.
If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it.
H. James Harrington