Growing number of FX Options platforms


Today BofA Merrill announced the launch of their new FX options platform, and joined a growing number of new FX options initiatives as shown below:

Single Bank Platforms:

BofA Merrill today announced their new FX Options offering integrated into their FX platform (here)

Credit Suisse, Merlin FX for i Phone (here)

Potential SEF Platforms

Multi Bank: Digital Vega (here) went live in Nov, and GFI rebranded their Fenics Trader as GFI Direct

Exchange model: SurfaceExchange launching SurfaceExchange (going live Q1, 2011)

No doubt more to follow.


New Bank consortium ‘bank only’ FX platform – Doomed to fail?


Recent press coverage (here) about top Global FX banks setting up a new ‘inter-bank’ only FX platform, dubbed “PureFX”.

At first glance, this looks like a repeat of ‘doomed’ BrokerTec Consortium (set up in 1999 by 14 top banks, and sold to ICAP in 2004), where top Fixed Income Primary Dealers, who were concerned about level of brokerage being paid, and ‘leakage’ of liquidity to the buy-side (some brokers allowed clients to anonymously access IDB liquidity), set up a primary dealer only bond trading platform.

Top banks wanted to prohibit buy-side access to the IDB markets, or at least control the rate of disintermediation, plus the dealers wanted to break Cantor’s then stranglehold of the US Treasury market.

Roll forward to the close of 2010 and FX, and a similar situation has developed, with buy side firms accessing interbank liquidity. Only this time, it’s not the brokers ‘cheating’, but the banks themselves who have granted the access – via their Prime Brokerage arrangements with top hedge funds, HFT, and other leveraged players – non-bank participants.

EBS being the case in point, where as noted in a recent post (here) buy-side high frequency trading firms now account for some 45% of EBS flows, compared to only 2% in 2004.

In theory, the top global FX banks could (if they acted in unison) re-direct liquidity provision through a new “PureFX” top bank platform, but the question is why would they?

Previous experience has showed that banks who are natural competitors, make poor co-shareholders, and perhaps the FX market is now too large, and too deep to control in such a way, and offers too great an incentive for one or two leading banks to ‘cheat’ on such a consortium, and continue to provide liquidity by taking up the slack.

Also, since these top banks are so efficient in terms of internalising flows, they have less need to access the interbank market themselves to unwind their risk positions.

Will be interesting to watch, but gut feeling is that this initiative will fail!

Top single dealer platform FX volumes up 200pc


Paul Caplin’s latest post on Finextra (http://www.finextra.com/community/fullblog.aspx?id=4813)   FX dealers and retail investors trading online. Is there a link between the dramatic change in client demographic and the huge growth in SDP volumes?

Top SDP FX vols up 200% according to latest BIS Data


Excellent analysis of the trends from the latest 2010 BIS Triennial FX Survey, much has been covered in this blog before, but lots to digest: (here)

A few picks from the data shows:

  • Top single-bank trading systems have increased by up to 200% over the past three years

The growth since 2007 is primarily due to the increased importance of single-bank trading systems.

  • Concentration of liquididty continuing in hands of top banks

The largest dealers have seen their FX business grow by investing heavily in their single-bank proprietary trading systems.

  • Internalisation of FX flows rises from 25% to over 80% in past three years for top dealers

See previous post on internalisation (here)

  • Increased volumes driven by algorithmic trading

Algo volumes on EBS now account for 45% of total spot compared to 2% in 2004. High Frequency Trading (HFT) may account for 25% of global daily FX volumes.

  • Retail FX estimated to account for 10% of FX flows, via retail aggregators

Importance of retail flows, and the use of the retail aggregators. Trading by households and small non-bank institutions has grown enormously, with market participants reporting that it now accounts for an estimated 8–10% of spot FX turnover globally ($125–150 billion per day).

Conclusion from report:

Electronic trading is transforming FX markets and encouraging greater trading by the category of “Other financial institutions”. This broad category includes smaller banks, mutual funds, money market funds, insurance companies, pension funds, hedge funds, currency funds and central banks, among others.

Higher trading by other financial institutions is responsible for 85% of the increase in daily average turnover between 2007 and 2010. Within this category, the main contribution appears to come from high-frequency traders, banks trading as clients of the biggest FX dealers and retail investors trading online.

While the top dealers report that in April 2007
less than 25% of trades were internalised in this way, by April 2010 they were
matching 80% or more of customer trades internally. These

FX Markets Lobby US Treasury to exempt FX from Dodd-Frank


The “Global FX Division” of AFME, SIFMA and ASIFMA (three global FX Trade bodies)  have written to the US Treasury setting out clearly, why FX Swaps and Forwards should be exempt from Dodd Frank legislation (full letter here)

Wall Street Journal carries the story today (may need to subscribe) on the letter, citing an extract in which the trade lobby;

warned that pushing currency swaps and forwards onto exchange-type trading systems would be unnecessary, of little benefit and potentially “catastrophic.”

The Global  FX Division site the following key reasons to exempt FX:

  1. The Foreign Exchange Market, Including FX Forwards and FX Swaps, Is Qualitatively Different From Derivatives Markets and Should Be Overseen by Central Banks, Including the Federal Reserve as the U.S. Central Bank
  2. The FX Market Is a Global Payment System with a Well-Developed Settlement System That Has Effectively Mitigated Systemic Risk.
  3. Imposing Mandatory Trading and Clearing on the FX Market Would IncreaseSystemic Risk and Threaten Financial Stability.
  4. Central Banks Actively Oversee and Are the Appropriate Primary Regulators ofthe FX Market.
  5. The Federal Reserve Has Authority to Regulate “Systemically Important” Payment Activities and Designated Activities by Financial Institutions Under Title VIII of the Dodd-Frank Act.
  6. Regulators Have Ample Tools to Address Any Potential Abuses of the Exemption to Evade Otherwise Applicable Regulatory Requirements.

They further state:

Mandatory exchange or SEF trading is unnecessary and would decrease liquidity in the FX market.

The letter is well worth reading for all participants in the FX market, and especially those involved in electronic trading and eFX.

Global FX daily turnover reaches $4trillion up 20% according to BIS Triennial Survey


The Bank of International Settlements (BIS), has just released the latest 2010 Triennial Survey survey of global FX market volumes (the most authoritative survey of global FX market activity)

Headline items from the survey are: (full  report available here)

  • Global FX turnover was 20% higher in April 2010 than in April 2007, with average daily turnover of $4.0 trillion compared to $3.3 trillion
  • Surge in Spot Activity: The increase was driven by the 48% growth in turnover of spot transactions, which represent 37% of foreign exchange market turnover. Spot turnover rose to $1.5 trillion in April 2010 from $1.0 trillion in April 2007
  • Bank to client volumes exceeded Bank to Bank volumes For the first time: Activity of reporting dealers with other financial institutions surpassed inter-dealer transactions (ie transactions between reporting dealers). Other Financial Institutions, a category that includes non-reporting banks, hedge funds, pension funds, mutual funds, insurance companies and central banks, grew by 42%

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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

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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FX Liquidity Mirage


Interesting comment in today’s FX week (sorry password required) about the problems with some banks FX feeds… “Banks must improve their foreign exchange pricing and trading infrastructure or risk losing order flow, according to currency traders….”

My take on the article, is that some banks are still streaming the illusion of ‘robust’ deep liquidity to clients, when in reality, the liquidity is not deep, and will disappear after the first client ‘hits them’, additional clients are then unlikely to be filled, and due to slippage (the price has now moved) the trade is rejected – this does not make for a happy client!

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Euromoney FX survey 2010: The chasing pack narrows (password required)


Very interesting article about the move toward foreign exchange markets becoming fully electronic. Comments from Deutsche Bank, UBS, Cit and HSBC. The article also comments about single-dealer platforms and internalization. Click here to view the full article on Euromoney.