Learn more about FX Algo trading
Why are increasing numbers of buy side firms starting to look at algorithmic FX trading?
The buy side firms in Scandinavia are looking at algorithmic execution for a variety of reasons. It is a mix of need for transparency, interest of being in control of their execution, accessing directly new pools of liquidity and having information on how much of their execution is done on the various external or internal venues of the banks. The reporting in form of TCA (Trading Cost Analysis) is also key to some buy side firms and simplifies dialogues with their clients or their different control departments or management.
Why did we at SEB decide to start offering FX algos and how do they complement your existing market-making services?
Client demand is the main reason why we decided to start offering FX algos as a complement to our market making services. Some of our clients have been using algos for a long time and they were looking for superior algos in Scandi currencies from their Nordic provider. As a leading Scandi bank, it felt natural for us to offer algos using our vast experience in Scandies and taking advantage of our large Scandi franchise.
What is the key value propositions of FX algo execution and in what ways are we at SEB helping clients to become more comfortable with it?
The value proposition varies depending on the clients and their own challenges and interests. One of the key value propositions is about accessing venues that you would not have direct access to without an algo. It can also be getting a transparent reporting of how you executed providing easy documentation to show best execution practices.
Getting our clients comfortable with the whole algo execution also varies a lot depending on how experienced the clients are with algos. Sometimes the clients just need to know how our own offering differentiates from other algo providers, sometimes it is about explaining algos in general to clients that have never used one before. Giving the appropriate level of education on our product is key and SEB takes this as a serious responsibility.
Some leading banks have decided to offer a wide variety of different FX execution algos whilst others are focusing on providing just a few and making their workings more transparent and easier to understand. What route has SEB decided to take and why?
We focus on a few algos that are easy to understand. Most clients already have a wide variety of algos from several banks at their disposal and we believe that less is more in our specific case. We prefer focusing on fine tuning and improving our existing algo offering and putting significant consideration to netting effects and clients benefitting from our flow franchise.
What types of FX algo strategy are proving most popular with clients and what direct benefits are they getting from their use?
The two strategies that are most used from our clients is our Peg and our TWAP. The benefits they are getting from those are saving on cost of spread and reducing the market impact on very large orders. This is particularly the case in Scandies where the possibility to use our internal pool that is made from our franchise has had a very meaningful positive outcome for our clients. On top of this clients get valuable information on the execution from the TCA.
What steps has SEB taken to enable our clients to get easy access to our FX algos and place orders directly themselves?
The integration towards Bloomberg and FXall was key to meet the clients where they want to place their algo orders. Some of our clients like to place algo orders on our single bank platform Trading Station or direct APIs, but the majority access them via multibank portals.
Does SEB develop its algos in-house and, if so, how important has feedback from clients been in helping design, deploy and fine-tune our strategies?
We do develop our algos in-house and client feedback has been key to our journey. Clients are very good at giving us ideas and the challenge resides more in prioritizing that feedback rather than getting it. The feedback we got has helped us decide from what types of algos to start with to tiny details on the TCA report. It has been a strength to be able to quickly adjust our offering based on it.
What solutions to evaluate trade execution performance does SEB provide for clients who are using our FX algos?
We provide our own in house TCA report and we also provide child fills on demand that we can either send to independent TCA providers as we do for some clients today or that we send directly to the client when they want to use that data directly themselves.