FX Week interview: Doing more with less in a post-Mifid II environment

David Vincent, CEO, smartTrade Technologies, explains to FX Week how in their quest to reduce costs, market participants look to automate more processes in 2019

With the bulk of regulatory reporting behind them, banks are finding they are once again able to focus on their core business and what sets them apart from their competitors. But, with disappointing 2018 revenues, many of them will be looking to innovate and roll out new offerings that will also help them to reduce costs.

David Vincent, chief executive of smartTrade, says that for the FX industry, this means those banks that would traditionally have built their own infrastructure will consider whether it makes more sense to outsource that side of the business.

“After a period of extreme regulatory activity, banks are finding they have bandwidth to focus on their business, looking at how they can expedite new offerings and differentiate themselves from their competitors,” he says.

However, in their drive for differentiation, Vincent says banks are cognisant that living in a post-Mifid II (second Markets in Financial Instruments Directive) world means they need to monitor and control their trading activities to meet current rules on market surveillance.

“This spirit of mitigating risk through better surveillance and controls will dominate participants’ operating modes in 2019,” he says.

The FX industry’s determination to do more with less plays well with smartTrade’s cross-asset trading technology, says Vincent, since market participants can build on the core elements of the firm’s trading infrastructure and differentiate their offering by adding their ‘secret sauce’ to the service.

By using software-as-a-service, firms can not only reduce their on-site technology footprint and minimise costs, but also add functions easily as the need arises.

Vincent thinks automation will also feature largely this year, because automating an increasingly complex set of processes inevitably leads to greater cost savings.

Some of these processes will be carried out by algorithms, including smart and auto-hedging algos, which offer clients enhanced execution by taking into account the classic parameters with more exotic ones to decide how to execute or automatically adjust order-routing rules, based on the trading history with a liquidity provider.

In time, these algos will be customised further as new technology, such as artificial intelligence (AI), is increasingly integrated.

“Our research and development teams are actively working on multiple projects combining the fields of big data and AI to provide an additional edge by fine-tuning algos to automatically take a global view of all transactions and data feeds,” says Vincent. “This combination of big data analytics and intelligent feedback delivered by AI brings tangible improvements in real time.”

And, as Mifid II and other regulations impose requirements on market participants to keep detailed records of their order flows and execution, some are using that data to enhance their trading efficiency.

“Our clients have been proactively leveraging this data-recording obligation to analyse and spot patterns and correlations in their trading to improve their execution efficiency,” says Vincent.

Many clients have taken advantage of smartTrade’s trading and analytics suites to electronify their business, and to capture, store and archive their trading records, as well as analysing how they can improve trade execution.

“The implementation brings positive returns in a low interest rate world, competition from indexed and algo-driven funds, and digital transformation,” he says.

“The market is moving fast and so it is important to innovate rapidly in order to stay ahead. As a result, we have been early adopters of blockchain, distributed-ledger technologies, machine learning and AI technologies, where it can offer value to clients,” Vincent concludes.