GFXC set to focus on FX market data access

Costs of data needed for buy-side benchmarking exercises under spotlight


Fairer access to post-trade foreign exchange data could be the next top issue for the Global Foreign Exchange Committee (GFXC) to tackle, following concerns raised by market participants at its last meeting.

Debate about the cost of obtaining market data from foreign exchange venues has been ongoing for the past few months. Issues around data availability for different types of buy-side firms were raised at the last GFXC meeting held in Zurich on June 27 and 28, according to a meeting participant and confirmed by the minutes released on September 13.

The minutes said the group discussed whether the Global FX Code could strengthen its guidance around the topic, and a GFXC spokesperson confirms this is on the agenda.

“It has been brought to the GFXC for an exchange of views among various market participants on their access to high-quality market data in order to ensure a robust, fair, open, liquid and appropriately transparent FX market. The ensuing discussion showed that the issue should be discussed further as part of the next Code review,” says the spokesperson.

Market data has become increasingly valuable for trading firms looking to fuel investment decisions, conduct portfolio analysis and for portfolio rebalancing. But market participants are now worried about the cost of obtaining this data from foreign exchange venues to conduct transaction cost analysis of their FX trades.

Buy-side firms must provide transparency to end-investors about the rationale of investment decisions and why they traded at the price they were given. But as market data grows in importance, so does its costs.

Market participants say the situation in FX is similar to the fixed income market, where costs for data have skyrocketed. According to research published by the Association for Financial Markets in Europe in February this year, data costs have soared 50% over the past five years, exceeding price increases elsewhere in capital markets.

Primary trading venues such as EBS Market and Refinitiv Matching act as a key reference data source for FX spot prices and to assess the quality of execution of algorithms. However, access to data in real-time from these interdealer venues comes at a premium for non-customers, which some believe can often be too much for even the largest and most active buy-side firms.

“We do hundreds of executions a day and we need to check whether the algorithm does what it says on the tin. For that, you can buy data from EBS or Refinitiv, but it is prohibitively expensive. Even for someone of our size, it is difficult to make a business case to buy that data,” says the head of FX trading at a large European asset manager.

“There are data haves and have-nots when it comes to primary markets.”

EBS declined to comment. A spokesperson for Refinitiv’s parent, the London Stock Exchange Group, did not respond to a request for comment.

TCA of custodians

The issue is particularly acute for non-G10 currency pairs, where data is harder to access.

“This is where I think it’s fair for the GFXC to have a review to see if there is an issue, and if there is, how to tackle it,” says an FX executive at a European-based dealer.

For restricted markets, buy-side firms largely rely on their local custodians to execute their trades. However, the lack of timestamps for these trades and transaction data makes it very difficult for buy-side firms to assess when their executions took place, and reconcile what the market price was with the execution price.

“In emerging markets, not only is getting market data very difficult because only the primary venues have it, but the quality of the transaction data is also hard to access,” says the asset manager’s FX head.

“There is a line that needs to be shown on how custodians manage and trade FX.”

He says greater availability of this data would allow buy-side firms of any size to better scrutinise their counterparties and ultimately lead to an improved market.

“The quality of my interactions with my counterpart is increased because both of us have the same thing. Right now, I can call any counterparty and say ‘give me a print of everything that traded on Refinitiv in these 15 minutes’, and they’d give it to me. But I’m not sure that a $200 million fund somewhere in Jersey would have the same source.”

High frequency trading (HFT) firms and hedge funds are also among those calling for greater access to millisecond primary market data.

One solution could be a consolidated tape on transaction volumes or price quotes, but with such a fragmented market and so many different trading platforms, this could be difficult to implement.

“In FX, these discussions [around consolidated tape] are very nascent. From time-to-time we talk about this, but I haven’t seen anything moving in terms of centralised price or transaction data,” says the FX head at the European asset manager.

Some technology providers have launched pilots for the fixed income market, and regulators including the European Commission are planning to phase in their own consolidated tape for cash and OTC derivatives markets.

But greater transparency can be a double-edged sword – benefitting those with the technology to consume this data in real-time, such as HFT firms, rather than asset managers or corporates.

“The big winners of full transparency are the prop firms that use it to predict movements and buy ahead of the market. This is why real-time tape hasn’t worked in the past,” says Tim Cartledge, chief data officer at TradeFeedr.

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