28 March 2015

eTrading Challenges

Paul Blank - Caplin Systems

24Posts 118,758Views 1Comments

New Bank consortium 'bank only' FX platform. Doomed to fail?

13 December 2010  |  6812 views  |  0

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 BIS data confirms that High Frequency Trading (HFT) firms now account for some 45% of EBS flows, compared to only 2% in 2004.

The latest BIS Triennial Survey data shows (here page 3/16), a continuing concentration of liquidity amongst the top tier banks,

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!

TagsDealing roomsTrade execution

Comments: (0)

Comment on this story (membership required)
Log in to receive notifications when someone posts a comment

Latest posts from Paul

Single-Dealer Platforms and SEFs

24 February 2014  |  1723 views  |  0  |  Recommends 0 TagsTrade executionWholesale bankingGroupInnovation in Financial Services

Can research drive execution, prove it?

15 April 2013  |  2054 views  |  0  |  Recommends 0 TagsTrade executionWholesale bankingGroupInnovation in Financial Services

Latest BofE FX Survey Data - surprising findings

06 February 2012  |  2944 views  |  0  |  Recommends 0 TagsDealing roomsTrade executionGroupInnovation in Financial Services

Optimising performance of single-dealer platforms

23 January 2012  |  3018 views  |  0  |  Recommends 0 TagsDealing roomsTrade executionGroupFinance 2.0

SEC and CFTC clarify Swap Definitions but FX still fuzzy

28 April 2011  |  5870 views  |  0  |  Recommends 0 TagsDealing roomsTrade execution

Paul's profile

job title Director of Product Marketing
location London
member since 2007
Summary profile See full profile »
As eTrading Solutions & Partner Program Product Director, my role is to ensure our technology addresses and solves real-world trading problems for our clients. Typ...

Paul's expertise

Who's commenting on Paul's posts