Mostly… fixed income and cross product eTrading

February 17, 2009

What lies ahead for e-trading?

Filed under: etrading, Nuts and Bolts, STP — holky @ 7:48 pm

Well, I liked the sentiment of the headline from Icubic “talking their book” (and indeed mine too) via “Electronic Trading: Visibility and Agility in a Fragmented Market”, stating-

With liquidity continuing to decrease, as the financial crisis unfolds further in 2009, it is widely accepted that electronic trading will play a pivotal role in ensuring banks can stay abreast of market developments, capitalise on fleeting opportunities and ultimately retain an advantage in a highly competitive landscape.

…but the Aite group report“The Next Challenge in FX – Creating a New Post-Trade Paradigm in an Electronic Reality” struck a particular chord with me. Yes, this is partly because I’ve been blinkers-on in the end-to-end FX space for the past couple of months and realise how painfully manual everything still is, but it’s also because I’ve always felt the spotlight was always on the execution-related bells-and-whistles arms race, at the expense of the far more more mundane requirements of actually sorting out the operational side of the dramatically increasing levels of trading being done [because the front ends got so much better to use].

We’ve all done plenty to exploit those “fleeting” singledealer opportunities, but perhaps our opportunity now really is to build real STP; the collective, cooperative processing that will move us from the (all Aite quoted) FX ticket price for non-top-100-banks of $10-25, to something that compares far better to per-ticket costs of fixed income $12, futures $1.25, equity options $0.75, and equity $0.05 (… though a question on these; are you really only paying 5c per trade for equity processing? ..processing not including clearing?).

Electronic trading in FX has become the norm, and the emergence of high-frequency trading shops and the burgeoning retail market have driven trading volumes into uncharted territories. However, beyond the front office, where most of the innovations have taken place over the last decade, cracks are appearing that might derail the growth of the FX market in the long run. Growing trading volume has had a negative impact on the back-office, post-trade infrastructure of most active FX firms. Today, FX has one of the highest processing cost structures when compared to other popular financial instruments. Industry-wide efforts aimed at easing the post-trade challenge have been met with limited success due to the lack of both coordination and an overarching strategy.

Sure, old habits will die hard – banks still obviously seeking competitive edge will continue to focus on helping their customers trade with them rather than their competitors, full stop. But perhaps the bigger picture is to build those collaborative foundations that will help enable more of your customers to trade more, and do so more frequently, in turn gaining even more value from those wonderful tools you’re offering? .. So shouldn’t we all collectively create the wave first, then we can have the competitive surfing competition once buyside and sellside are at the beach and ready to enjoy it?

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5 Comments »

  1. Trianna, Dealhub are in this space but I suspect that the problem for most banks is the underinvestment in their own MO/BO systems.

    Comment by tj — February 20, 2009 @ 8:36 pm

  2. I think the other critical issue is how much fails cost. Not so much an issue for FX but certainly something to consider as a real cost of business for FI & equity.

    Comment by Scott — February 23, 2009 @ 12:53 am

  3. open door for vendors to come rushing to offer a solutions no doubt for fx operations…?

    having worked in the credit ops space its amazing how overcomplicated people make out the problem to be and how many vendors operate in this space – each trying to justify their existence …

    Comment by monkeydust — February 25, 2009 @ 3:28 pm

  4. Hi, I’m working on a new book on electronic trading, would be interested in a fixed income perspective – mail me if interested in seeing the draft

    Comment by b — September 4, 2009 @ 9:42 pm

    • whats your email b?

      Comment by monkeydust — September 8, 2009 @ 8:17 am


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