Single-Dealer Platforms: In depth coverage in e-Forex magazine

The July 2010 edition of e-FOREX magazine includes an excellent article “Special FX – building a new breed of trade execution platforms” – this touches on a whole variety of areas including multi-asset trading, increasing product complexity, connectivity and STP issues, whether lower latency is relevant or even achievable, the change in the relative use of multi-dealer and single-dealer platforms and the adoption of Web technologies and rich internet applications (RIAs) in single-dealer platforms.

All in eight pages – a really good read.

If you have a print copy of e-FOREX then turn to page 112 (page 114 of the digital edition and page 59 of the full PDF edition) and you’ll find that journalist Nicholas Pratt has encouraged Continue reading

Dodd-Frank Act and SDPs

I have been following the new legislation in the US with great interest. It seems clear that Europe intends to follow some of the rationale behind the Dodd-Frank Act (summary here). And I’m sure that regulators in Asia/Asia-Pac are following these developments closely.

I had thought the thrust of Dodds was to establish some form of central clearing facility for CDS. This would (theoretically) remove the counterparty risk which, when concentrated, can lead to scenarios like the recent crisis. This does not equate to an execution facility, so CDS deals would still be done with the bank, but the clearing facility would ensure that the counterparty risk is mitigated through margin calls on each party. Of course, the concentration risk is not mitigated but the idea is that the periodic margin calls will remove (some/most) market risk.

When we see the act itself (full text here), it mandates that cleared swaps trade via either an exchange or a Swap Execution Facility (SEF). A SEF is:

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Research and Trading converge to make SDPs ‘Stickier’

In the past, perceived wisdom had been that bank trading platforms are for trading, whilst their research portals were for in-depth research – and never the twain shall meet.

And whilst many banks pay lip service to integrating pre-trade research with execution within their trading platforms, few get round to actually doing it, and fewer still do it well.

Many banks (and certainly our clients) produce world class proprietary research, across all global markets including FX, Rates, Fixed Income, Credits, Equities, Commodities and many other markets. This research combines fundamental, technical and quantitative data and in the case of large custodial banks seeing real-time capital flows via their platforms to produce in-depth research, intuitive trading ideas, and event driven market strategies.

Typically research has been provided to institutional clients via a separate research portal, where comprehensive research and analytical tools enabled clients to customise the bank’s in-house proprietary analytics and carry out ‘what-if’ analysis as part of the pre-trade intelligence and strategy formulation process.

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Exchange-based products emerging on SDPs

Caplin’s Xaqua platform has been used as a framework for building a variety of SDPs in recent years but the majority of these have been for OTC products in FX, Interest Rates and Bonds.

Equity and exchange based electronic trading has a well established infrastructure, built up over many years, which has not really needed to use the Internet or web technologies for product distribution in the institutional space. However, this looks set to change as banks seek to combine various combinations of asset class into their SDPs along with pre-trade, analytics and post-trade services either side of trade execution.

We have noticed a few other factors that appear to be helping drive this change, including banks providing some liquidity, offering their own inventory of exchange products on the SDP and to help increase the volume of internally crossed trades from the OMSs. However the main driver seems to be the banks’ customer wanting a single place to interact and deal, irrespective of product or stage of the trade life cycle.

Of course it is very early days and many people still do not see the need for combining the main OTC and exchange traded products in the SDP yet or in the near future. We’ll be on the look out to see if what we’re seeing a bit of now turns into more of a trend and would be interested in hearing comments on possible other drivers.

Are compliance concerns delaying banks from offering iPhone trading to Institutional Clients?

While many banks talk of providing trading via the iPhone or other mobile devices to institutional clients, so far very few have done so.

In the non-professional (retail) market, most spread betting firms and retail brokers already offer quite sophisticated mobile trading solutions.

So, what’s stopping the banks from offering similar solutions to their top tier institutional clients?

Major banks have well defined e-commerce strategies for their single dealer platform (SDPs) across various client segments – combining pre-trade, trade and post trade offerings to meet specific segment requirements. Yet many seem unclear exactly what to deliver to those same segments using mobile devices.

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