The mispricing of foreign exchange transactions costs the European fund management industry and underlying clients approximately EUR 1.5 billion per year. So says a paper published by The New City Initiative (NCI), a think tank representing the interests of asset managers.
The Changing Face of Foreign Exchange estimates that US$590 billion of institutional investor FX transactions are at risk of being mispriced on a daily basis. It highlights the notion that institutional investors and their fund managers have an obligation to ensure they are obtaining the best FX pricing and execution from their banks.
The paper also advises institutions to use independent FX transaction cost analysis (TCA) during the investment process as a means by which to “improve trading strategies and practices and reduce trading costs.”