Why are people building single-dealer platforms anyway?

We are seeing plenty of new comments, and blog posts regarding who is building single-dealer platforms (SDPs), although there don’t seem to be many posts that take things back to basics and explain the actual reasons SDP’s are being built. For those of you looking for a brief, straightforward explanation, here you go:

When built by an experienced team, single-dealer platforms are a fast, low cost and low risk way to service highly differentiated client segments, delivering unique relationship pricing in commoditised vanilla flow products, and adding stickiness through enhanced compelling and more complex services.

There are no restrictions on what can be built on top of a single-dealer platform. Top players tend to build their platforms in-house, leveraging their huge internal core competences for strategic competitive advantage.

Other benefits to banks include:

  • Improved margins, through delivering unique per using relationship pricing
  • Better customer retention, through delivering highly segmented workflow solutions
  • Reduced transaction costs, by providing low touch, low cost price discovery and execution, with full STP
  • Cross-selling capabilities
  • Escape from commoditization, by offering customised solutions, and aditional value added services such as research, analytics, and other client focused services
  • Internalisation of flow

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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What’s so great about internalising FX flows?

What’s so great about internalising FX flows?

In an earlier blog article separating the men from the boys in global FX I touched on internalisation of FX flow. It’s worth looking again at why this is so important to banks that are building an eFX business.

By internalising flows, banks seek to internally match (uncorrelated) flows originating from clients, branches, internal prop desks, and market making hedge positions. Previously such positions would either have been auto hedged through an external venue, left as residual market maker risk positions, or dealt on another platform (lost business).

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