Blogs

Due to liquidity constraints, are buy-side fixed income traders prepared to play a more active role as price- makers on electronic trading platforms? FlexTrade’s Ivy Schmerken investigates.

It’s no secret that institutional traders are utilizing transaction cost analysis (TCA) for equities trading as a tool for measuring execution quality and reducing slippage against trading benchmarks. But now that TCA has matured in equities, the question is where is TCA moving next?

Senators conducting a hearing on U.S. equity market structure earlier this month vented their frustrations at the slow pace of regulatory change in equity market structure reforms. At the March 3 hearing, lawmakers repeatedly cited delays in developing the consolidated audit trail, or CAT system, for market-wide surveillance, questioning to what extent progress has been made.

Transaction cost analysis has been the Holy Grail of best execution in equities trading, but the evolution of TCA in foreign exchange trading must consider the OTC nature of currency markets.

The debate over ‘last look’ in foreign exchange trading has resurfaced in 2016 as regulators continue to eye the practice and investors worry about slippage and potential market abuse. Regulators are said to be scrutinizing FX dealing platforms that contain last look, a controversial practice that enables market makers to delay or reject trades from customers after they’ve agreed to a quoted price.

As European regulators eye the FX market, the onus is falling on buy-side firms to develop best execution FX standards and take more control over their trades.

The SEC’s new proposed rules on transparency in alternative trading systems are going to shine a light on the operations of dark pools, ensuring fair access to information for all market participants.

Change is accelerating in the electronic foreign exchange markets. With the fixing scandal and the currency rigging cases resulting in multi-billion dollar bank fines, investors are choosing a mix of liquidity providers or venues in an FX ecosystem that has become more complex.

Buy side firms have shown signs of impatience with U.S. equity market structure. While they are leery of radical reforms, institutions have seeded a number of trading venues lately.

Buy side traders debating the pros and cons of the U.S. equity market structure recently gave high marks to the computerized stock trading landscape, though it didn’t take long for concerns to surface.