What are the benefits of outsourced execution?

The long list of potential counterparties, advisors and electronic trading platforms in foreign exchange (FX) execution means that it can be a confusing landscape for CFOs at corporates and asset managers to navigate.

Implementing a robust FX framework that enables best execution can involve numerous operational hurdles. Setting up and onboarding new FX counterparties, centralising price discovery and navigating the post-execution phase (to name a few!) often have their own complications and can be a headache for the finance function.

As a result, we’re seeing an increasing number of firms looking to outsource not only the onboarding of multiple FX counterparties but also the complete end-to-end FX workflow, from calculating the FX position, to execution, margining and settlement.

A growing demand

The demand for third party services has significantly grown over the past 12 months. With Covid-19 and other macroeconomic and geopolitical factors putting a strain on firms’ bottom lines, clients are increasingly turning to outsourced execution to benefit from the know-how of external experts and improve efficiency with limited resources.

According to HSBC and Acuris, 44% of CFOs in larger companies^[1] have outsourced some of their day-to-day functions due to increased processes automation and/or digitisation.

There is a growing recognition that outsourcing does not necessarily mean a loss of control, less transparency or reduced quality of FX activities. Instead, it can save firms’ time and resources and, when using the right partner, can actually improve governance, transparency and execution quality.

Research from Russell Investments, for example, found that for an average $1 billion fund, savings of $330,000 per annum would be achievable from the adoption of an agency approach where FX trading is outsourced to a third-party specialist. In some cases, funds could have saved much more.

Notably, the study from Russell Investments explicitly suggested an ‘agency’ model - whereby a third-party specialist is appointed to manage FX trades as a means of achieving best execution. The report says, “this third party then ‘shops around’ for the best deal for each set of FX trades using competition between possible counterparties to ensure that the prices achieved are as attractive as possible.”

What to look for in a service provider

There are a number of features that forward-thinking businesses should look for in an potential outsourcing partner:

• Full transparency at each stage of the execution process
• Real-time reporting
• Independent TCA
• Complete visibility of execution costs
• The ability to demonstrate best execution

At MillTechFX, we’re leading the charge on outsourced execution in FX. By combining multibank execution, independent advisory and operational program management with strong governance and full transparency, we’re helping firms significantly reduce both FX costs and operational burdens, while enabling them to maintain control and oversight of their FX execution.

If you’re interested in learning more about MillTechFX and our outsourced execution services, get in touch today.

[1] With revenues over $5bn.