1. Transaction Cost Analysis (TCA) is Coming …If we can work out what TCA really means in FX

Debate: “FX TCA is just a morality carwash”

Paul Aston, CEO, Tixall Global Advisors (“for”) & Isaac Lieberman, CEO & Founder, Aston Capital Management (“against”)

Isaac drew a sharp distinction between:

  • Third party TCA benchmarks (e.g. BestX, but he did not name them)
  • Tools that you run solely against your own data

“You need to be using the sources of data that are available to you, not those that are available to a third party,” said Isaac Lieberman.

Delegates I talked to after the debate felt both have a role, though they valued TCA using sources of data available to you to be the most important. This enables you to see if you are getting the most out of the sources of data available to you. Third parties reveal if you are missing important counterparties of credit relationships.

In separate sessions: 

  • Ian Daniels, Head of eFX sales EMEA, NatWest Market said TCA as a “very personal experience” implying he agreed with Isaac that one tool does not suit all needs.
  • Doug Cilento, Vice President, AQR Capital Management, said “the problem is that we don’t have enough data” to perform good TCA on our trades. He went on to say there is a role for solutions that takes data from many clients.
  • A participant praised Bank of America Merril Lynch TCA offering which, he said, uses data from many clients. 

NEX launched Nex Quant Analytics 

EBS launched their analytics product, Nex Quant Analytics. NEX does not use the term TCA, though the tools belong in that family.

Not just in Chicago: 

TCA came up several times at P&L Stockholm and TradeTech FX Barcelona two weeks ago. At P&L Stockholm, Colin Lambert, managing editor of P&L, asked a Swedish money manager why he does not hedge intra-day. The fund manager answered that “I do not have the TCA to prove it is worth my taking on intra-day risk. Show me the data and I’ll consider it.”

That answer and other similar comments from the buy-side imply that improved TCA would grow the FX market.

2. New Prime Broking Models on the Horizon


Gil Mandelsis’ new venture attempts to enable a prime broker (PB) to partner with a third party balance sheet rather than using the PB’s own balance sheet to face the customer, freeing up credit lines. In principle, this also could expand the FX market. Gil is former EBS CEO and previously Traiana CEO. His venture is backed by Sequoia Capital, as was Traiana.


This start-up was founded by Rosario Ingargiola formerly of FX One. Their immediate target is to disrupt the prime-of-prime business. A customer can raise small amounts of capital from a wide variety of sources online and pledge that capital to a custodian as collateral. OTCXN then manages the collateral and can connect the customer with parties that already have credit access to the market. The customer can then trade as if they had a prime broker. The trades are recorded on blockchain. Jan Bak, formerly of Saxo, is OTCXN’s Chief Commercial Officer

3. Regulation – Lack of Clarity

Colin Lambert interviewed Simon Potter, EVP, NY Federal Reserve. Simon’s comments included that central banks do not have enough data to analyze discontinuities and “flash rallies” as he called them. Simon said they need private sector help.

The FX Global Code of Conduct came up several times.

One of the round table discussions was on Regulation. It was clear that most attendees are unsure of the implications of Markets in Financial Instruments Directive (MiFID) II and that institutions had different interpretations of the rules.

There were few if any compliance people in the room, so the experts were not there.

Some participants were concerned that LPs have only recently, or not yet, released their MIFID II API changes and there is insufficient time for IT departments to test.

4. Liquidity: More Expensive, Less Depth

Several participants mentioned that “liquidity is more expensive in part because you have to connect to so many venues.”

Interestingly, several bank participants said that they are trading more on ECNs than they were a year ago because trading on an ECN is an easy way to prove you traded at the market price. Nonetheless, none of the participants said they would be reducing bilateral relationships. They need to price in times of stress and, at those times, they need to price their customers continuously and they rely heavily on single banks at such times.

Overall, participants felt that:

  • Liquidity is growing stronger in major currencies at top of book, but there is far less depth in the market than there was a year ago, on most venues.
  • Jeremy Smart of XTX said that clients often complain to banks that there is “no liquidity” but almost never true. Clients just don’t like the price.


Participants discussed discontinuities and “flash crashes” in several sessions. David Leigh of Deutsche Bank said he has analysis that shows that discontinuities are not becoming more frequent. What has changed is trader’s reaction to such events. Participants switch off trading far more readily than they did a few years ago. He also mentioned that flash crashes happen in other asset classes but participants in those asset classes may be more accustomed to them and handle them as a matter of routing business, whereas FX systems appear not to be as well-equipped.

How to measure liquidity 

Jeremy Smart described his framework for how to measure liquidity. There are three metrics that he uses and they can be combined in proportions to suit the situation:

  • Fill ratio
  • Response time of the venue
  • Market impact

If there was a shortcoming in liquidity discussions overall at P&L, it was that the discussion was overly focused on major currencies.

Best anecdote of the conference 

David Leigh of Deutsche Bank explained that when his first child was born, he decided to get into photography. He bought a manual camera, experimented with filters, shutter speeds and other settings on his camera. In the end, he realized that the purpose of all this was, of course, to get good photographs of his child. He decided it was more effective to outsource the details of how to take a great photo to his mobile phone. Today, the manual camera is in the cupboard but his mobile phone camera is at hand.

Best quotes

“When an online service is free, you’re not the customer, you’re the product.” – Phil Weisberg, former head of Thomson Reuters FX, quoting Tim Cook, CEO of Apple.

“Trades are like stars or snowflakes – they all look the same but they are actually all individuals and are each very different.” – Isaac Lieberman, CEO, Aston Capital Management explaining why one size doesn’t fit all in FX TCA

“All regulation is a tax.” – Dino Kos, Chief Regulatory Officer, CLS

“Who is the true arbiter of style? If I go out and buy $400 jeans, a $250 t-shirt and a $300 pork pie hat, when I get home my wife is going to laugh and my mates are going to think I’m stupid. External TCA used as checkbox can be like that: you’ll look great in the store, but once your investors see your performance, it may not be so funny.” – Paul Atkinson