Ollie Jerome, who was Morgan Stanley’s head of FX and emerging markets for Europe, and Pete Eggleston, who ran the highly regarded quantitative solutions and innovations team, took voluntary redundancy from the bank in December 2015.
The pair went on to found FX analytics outfit BestX in London earlier this year and the company plans to launch its first post-trade tool on September 5.
The product will provide independent analysis of the quality and cost of FX transactions, and has been in testing with a group of 20 clients over summer, Eggleston and Jerome told FN.
The service had originally been aimed at buyside firms that will be required to better demonstrate they have achieved best execution under a revised version of the EU’s trading rulebook, the Market in Financial Instruments Directive, after it comes into force in 2018. But BestX has also found unexpected demand on the sellside, from both banks and non-banks.
Eggleston said: “Non-bank liquidity providers are becoming a very significant part of the FX market and some are looking to TCA (transaction cost analysis) for independent validation of the quality of their execution and to prove that they should be taken seriously.”
Eggleston added that banks were also interested in hosting the service on their single-dealer platforms “to validate the quality of the execution they are providing and potentially thereby increase their market share”.
While BestX will compete with a host of much larger, established TCA providers including ITG, Abel/Noser and Elkins McSherry, Jerome and Eggleston believe there is demand for an independent service tailored directly to the unique attributes of the forex market, rather than one adapted from an equity-based TCA service.
Jerome said: “We are trying to position the technology as a utility for all market participants to help measure, monitor, record and justify best execution.’
Unlike the equity market, FX has no central exchange-based record of trades that can be used as a benchmark for execution quality. But BestX has arranged to source real-time data from several providers, including NewChangeFX, which gathers live market prices to create an objective mid-point reference price, and Interactive Data Corporation. It will also use the proprietary data it gathers to calibrate and refine its TCA models as the service evolves.
Eggleston said: “Having a reliable data set is the key to delivering informed analysis, so we are making sure we have the most extensive and representative data set possible. A lack of data has been one of the biggest challenges associated with FX TCA in the past.”
After next week’s launch of its new service, BestX is planning a series of upgrades to enhance functionality over the coming months. It will start by providing analysis only on a post-trade basis for spot, swaps, forwards and non-deliverable forwards, but plans to add FX options, as well as extending coverage to pre-trade analytics.
The team itself may also grow, depending on the speed of client onboarding. Since incorporating the company in January, Jerome and Eggleston have hired former Morgan Stanley colleagues Shoshana Wainer as general counsel and Aman Thind as chief technology officer, as well as three additional technologists.
Eggleston said: “We will look to grow a little bigger if things go well, and one obvious area would be sales and client coverage in Europe and the US. The client pipeline looks strong at the moment, but it’s a lengthy sales process so difficult to predict exactly when we might expand further.”