Single Dealer Platforms vs Multi Dealer at Forex Canada


At the recent Forex Canada event, I found myself sitting on a panel with Phil Harris, CEO of 360T America. The panel was at the Caplin-sponsored breakfast event, and the subject was the balance between single-dealer and multi-dealer platforms as channels to market.

Given that 360T is a prominent multi-dealer platform, and that a large part of Caplin’s business involves providing banks with the tools build advanced single-dealer platforms, I anticipated that Phil and I might find ourselves disagreeing about many aspects of banks’ FX channel strategy. But the surprising thing was how much we agreed about, and what similar conclusions we had reached about current practice and likely future trends. Continue reading

FXall Q3 results (some thoughts)


FXall Q3 results out, and covered here by LeapRate, including an updated IPO registration. LeapRate highlight the continuing decline in margins, as shown here.

FXall Operating Margins – under pressure (charts from LeapRate)

FXall Corp_margins                       FXall ECN_margins


FXall SEF: Separately, the NFA will provide regulatory services for FXall’s SEF offering, in preparation for when rules have been formally completed.

My view: Although, as previously mentioned,  we see single dealer platforms continuing as preferred channel through which buy-side firms access liquidity, whether provided by banks directly, or routed to SEFs where mandated. To date, 99% of FXall volume consists FX spot, fwds and swaps, all of which are exempt from SEF mandates.

Bank ownership: Under SEF rules, bank ownership is limited to under 25%, so will be interesting to see whether the current FXall bank shareholders each of which hold 5.1% (BNP, Citi, Credit Agricole, CS, Goldman, HSBC, MS, RBS – although the top three FX banks, Deutsche, UBS and BarCap are not shareholders in FXall) will cash in, or stay onboard to have a stronger influence on possible intermediation of their bank-client relationships, as mentioned here in could FXall become too big.

BNY introduces FX Benchmark Pricing for custody clients


BNY Mellon will introduce a new FX pricing model based on ‘agreed fixed margin‘ over benchmark fixing for custodian client FX transactions, according to reports.

This move to greater transparency is a logical response to the legal action from The State and City of New York, who sued BNY Mellon for using “fraudulent rates” in collecting $2 billion of fees from public and private pension funds in foreign currency transactions, as discussed in Another Leading Custodian Bank sued over FX rates.

BNY had till now executed FX trades based on standard instructions as detailed here.

Whilst FX falls outside the Dodd Frank regulations, the general regulatory move towards greater pre-trade transparency, and the buy-side requirement to ‘demonstrate’ performance, should be viewed by banks as an opportunity to differentiate their service offerings to clients by incorporating TCA tools within their SDP, as discussed in Single-dealer platforms and TCA and further in my review of the EuroMoney 2011 FX Poll – some thoughts.

Tom Glocer to leave Reuters!


Thomson Reuters CEO Tom Glocer is stepping down, replaced by chief operating officer James Smith, following a tough few months for the firm’s markets division and a steady decline in its stock price.

Says Glocer:

“By the end of this year, the organisational, strategy and budget work I have been leading will be complete, and the transition plan I launched last summer will have achieved its objectives. Jim Smith is a very talented executive with whom I have worked closely over the past four years; he is ready to lead Thomson Reuters.”

More on BBC news here  and Fin Extra here

Celent on SEFs and OTFs & SDPs


Celent hosted an interesting WebEx yesterday on Dodd-Frank and EMIR Regulation, Derivatives Reforms and IT Impact.

They presented a risk analysis based on three potential scenarios that could develop, depending on how the final SEF and OTF rules fall out.

Amongst the key characteristics of the market structure they see developing include:

  • Two tier model for SEFs with separation between an interdealer and dealer-to-client SEFs
  • Single Dealer Platforms qualifying as OTFs/SEFs (due to loose definitions)

My view:

I certainly agree that SDPs can qualifying as OTFs, although according to an item in today’s FT, German and French regulators are questioning the need for OTFs .

However, I can’t see how Celent could imagine (under any scenario) that SDPs could also qualify as SEFs, as the 25% ownership limitation for SEFs would by definition preclude bank SDPs from becoming SEFs. Our view is that SDPs will become a major channel through which clients access SEF liquidity, through the use of SEF aggregation.

Below is one of the more interesting slides, which looks at possible market structures. Celent’s view is that scenario 2 is the most likely outcome.

Celent state that:

In a new report, Swap Execution Facilities and Organised Trading Facilities: A New Market Structure Emerges, Celent offers key insights into the likely future direction of SEF/OTF markets and critical factors setting this direction. Based on these insights, Celent believes that there are multiple scenarios for the market structure to reach the SEF/OTF future state. However, because of fragile liquidity, industry feedback, and cautious regulators, a dominant scenario emerges as the most likely outcome.

Celent report here

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