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Why ION MarketFactory is focussed on Transaction Cost Analysis (TCA)

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The implementation of MiFID II in Europe was a big challenge for the industry to overcome. With the eurozone presenting a large part of the global FX picture, global reporting patterns were forced to adjust. One of the most challenging areas covered by MiFID II is transaction reporting. Under MiFID II, transaction reporting is applicable to a wider range of financial instruments and requires the disclosure of additional mandatory data.

MiFIR / MiFID II commenced on 3 January 2018 and replaced MiFID I. Their aim is to enhance the efficiency and integrity of the financial markets across Europe.

Obligations for reporting transactions under MiFID I were focused on financial instruments traded on a regulated market and derivatives linked to such financial instruments. MiFID II, however, featured a significant increase in the scope of firms’ reporting obligations by expanding the reporting requirement to cover nearly all instruments traded on trading venues – Regulated Markets (RMs), Multilateral Trading Facilities (MTFs) and Organised Trading Facilities (OTFs) – even when these instruments are traded off-venue like OTC.

The above now means that banks and brokers in Europe have a fiduciary duty to prove best execution, which they report quarterly.

In the case of listed derivatives or bonds. Today, German or UK bond portfolio traders receive analytics locally for Europe but will also trade U.S. treasury bonds. So, even though the U.S. is not actually in the EU, they must be reported in the EU as well. Meaning that ‘transaction cost analysis’ reporting, or TCA, has created a wave into other asset classes and regions globally.

Who needs to worry about TCA reporting?

TCA is an essential ingredient for the buy-side who need to reduce execution costs. By reducing execution costs, they can boost fund performance. When it comes to the sell-side, it’s a good way of improving co-operation with clients. At the end of the quarter sales traders can show clients what they achieved and ask for an increase in fees. Compliance is also happy as they can properly reconcile the execution process that the trading floor has completed. And ensure it’s consistent with the message they report when pitching for buy-side mandates.

The key to the whole puzzle revolves around the need to have clean data and consistent results. However, on the sell-side, there are also challenges that have continued after implementation of MiFID II:

MiFID II might be a European regulation, however, when it comes to the U.S., many buy-side and sell-side firms are following the same line due to the push for ‘best practice’.  Which means that whether you are in Frankfurt, Tokyo or Chicago, lowering execution costs should still be a priority.

Ultimately, MiFID II should provide an efficiency boost to the industry. It should help better understand which brokers give superior execution performance. More importantly, though, is the accountability and transparency it brings. Which in turn increases trust in financial markets. Something that one can never have enough of.

There are several firms who can help provide TCA solutions. One of the leaders in this space is ION MarketFactory, a part of ION Markets, who recently announced their new partnership with Tradefeedr:

#DisruptionBanking caught up with ION MarketFactory to discuss the partnership and how their solution works to help clients in the FX space.

ION MarketFactory’s partnership with TradeFeedr

Eugene Markman, CEO at ION MarketFactory has been at the firm since 2014, prior to which he worked in fixed income at Credit Suisse in New York. Having overseen the partnership with Tradefeedr he shared some insights into both the market and their recent partnership.

“We have been working with Tradefeedr for almost two years discussing the different ways we could work together more closely, to add value to our clients,” Eugene explained. “In today’s market, our clients have a need for greater analytics, and normalised data is essential to power this. Working together enables us to deliver these services, therefore a partnership seemed the best approach.”

ION MarketFactory is a new addition to ION group, having been acquired in late 2019. Eugene continued as CEO after the acquisition. ION MarketFactory is a financial technology company focused on providing software solutions to the foreign exchange industry. They connect 85+ foreign exchange markets and partner with over 100 global banks, funds and ECNs/brokers/exchanges. Not just Tokyo, Sydney, London and New York.

“The partnership will benefit the entire FX market, both the buy- and sell-side,” Eugene continued. “Tradefeedr’s unified framework for sharing and analyzing data, provides a much clearer picture of the whole market’s data and analytics than currently exists. This will allow market participants across the sell-side, buy-side, regional banks, hedge funds, brokers and central banks to connect, analyse their trading data and collaborate. The entire foreign exchange market will gain the most from our partnership.”

On ION MarketFactory’s website, the main message proudly claims how: ‘We’re changing the biggest market in the world’, referring to the FX market. With well over $6 trillion being traded daily around the world, keeping this industry ‘transparent’ is a mammoth task. Eugene is confident that the partnership will help promote real-time data-driven decision-making across the industry. He further shared how he believed: “access to ION MarketFactory’s data and connectivity. And Tradefeedr’s analytics tools. Will prove key to improving the transparency and efficiency of the FX markets – not just to our clients, but customers across the industry.”

In June 2021, Tradefeedr launched its ground-breaking FX data analytics platform with more than 15 leading sell-side and 20 major buy-side firms onboarding and another 20 in the pipeline. Together, Tradefeedr and ION MarketFactory are even stronger.

With markets, be they FX or any other, speed is of the essence. Speed of execution, speed of internet connection, speed of software, speed of analytics. But not only speed. Quality of data is the other element that is critical. By merging these two abilities, what the new partnership is offering the FX market is ahead of the curve.

But ION MarketFactory aren’t just prominent in the FX space. They have previously partnered with QuantHouse who focus on equities.

ION MarketFactory’s partnership with QuantHouse

Eugene is a finance professional, but he has also worked at the U.S. interest rates product desk at Credit Suisse, in both New York and Switzerland. He has enjoyed extensive exposure to the FX market during his career.

Commenting on how the partnership with QuantHouse is very similar to the one ION MarketFactory just struck with TradeFeedr, Eugene added how “it provides yet another high-level distribution channel for our FX connectivity product, MarketFactory Whisperer. For QuantHouse, the partnership makes it easier for their clients to access the FX markets in addition to Equities, allowing them to become multi-class participants without having to onboard additional vendors.”

QuantHouse themselves successfully partnered with Brave New Coin in June. A ‘brave’ step into cryptocurrencies as many would have commented at the time. The potential addition of what ION MarketFactory and TradeFeedr could offer to the crypto and DeFi industries, may also be something to consider in the future as regulations tighten around these new ecosystems.

Eugene, however, is more interested in how the traditional markets are striving to improve their aging technology stacks. He recently commented on EBS Markets, whom CME bought in 2018, who are rolling out new technology solutions for their clients.  

Change is afoot across the entire trading marketplace. New asset classes are being welcomed, whilst quality of data, speed and connectivity continue to improve. ION MarketFactory will be in a strong position to help increase the transparency that many market participants have been striving for. With the openness to partner that often separates successful players on the market from those less successful, this is a winning recipe for the future.

With this growth of transparency, ION MarketFactory and Tradefeedr are ensuring that FX market participants have all the tools they need. Tools they will need in order to best prepare themselves for the next years. Years which promise further disruption and change.

Author: Andy Samu

#BuySide #SellSide #FXMarket #TransactionCostAnalysis #MiFID #MiFIR #DataAnalytics #Connectivity #Transparency #Forex #TradeFeedr #IONMarketFactory #IONGroup #QuantHouse

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