Trading platforms: The beginning of the end for the ECN?

Just over three years ago, Bank of England chief dealer Martin Mallet described a phenomenon he termed the "liquidity mirage" in a speech he made to delegates at an Association Cambiste International congress held in London. Since then, the issue of liquidity management has remained a hot topic in the FX market, particularly to the leading banks that stream prices to various trading venues.

Mallett’s comments specifically referred to the way multiple platforms showed the same price. Aggregating these created an impression that the market’s liquidity was far deeper than it was, as ultimately all the different prices stemmed from a single source. To the chagrin of the market’s big liquidity providers, some aggressive participants started to take advantage of this. Their ability to profit further accelerated when they were allowed access to EBS and Reuters, the market’s effective liquidity hubs. In addition, some technologically advanced market participants started to...