Top 3 liquidity provider joins DealHub’s new FX distribution offering

By:
Hamish RiskRussell J. Dinnage
Published on:

A top 3 liquidity provider is one of the eight banks providing spot liquidity to a new electronic price-distribution hub product launched by DealHub, according to sources familiar with the matter.

DealHub declined to comment on which banks – including a top-three market maker – are streaming pricing liquidity through its FX Distribution Hub to multi-dealer platforms (MDPs).

However, DealHub spokesman Mark Briant-Evans did say there are eight banks now using the product to distribute their FX liquidity, and he expects that number to grow to at least 10 by the first quarter of next year, based on the pipeline of banks lining up to use the service to distribute pricing to leading MDPs.

The distribution hub is set to address the growing cost concerns associated with the fragmentation of liquidity that is coming from the proliferation of MDP trading venues. At least 10 new venues were launched this year.

DealHub says the FX Distribution Hub will help liquidity providers reduce the cost of maintaining the growing number of connections.

"As the market fragments and there are more and more venues, the cost of managing the connections goes up while the number of customers hasn’t changed, putting real pressure on margins," says Briant-Evans.

"Hence it makes sense for someone like us to provide a service that manages all of that connectivity – we can do it once and apply it to all of our customers rather than them duplicating all of that work."

In effect, DealHub seeks to normalize the connectivity between liquidity providers and the multitude of venues.

With multiple trading venues comes multiple sets of trading rules – formats that banks need to understand to shape their liquidity to suit the venue and maximize their hit ratios. DealHub expects that its service will be in demand.

The product will stream bank currency pricing to the leading MDPs: Reuters Matching, EBS, FXall, 360T, Currenex, Bloomberg, the China Foreign Exchange Trade System and FX Connect.

"We work very closely with the banks and the pricing platforms to ensure the pricing reaches the platform seamlessly," says Briant-Evans. "As far as the platform user is concerned, they are unaware they are receiving pricing through the DealHub service. All they see is the additional liquidity."

As a vendor product, the positives of using the DealHub FX Distribution Hub are that banks are outsourcing IT spending normally needed to send FX liquidity into an MDP through use of the product.

However, there are still fees associated with the DealHub service.

Briant-Evans says DealHub charges banks that stream liquidity to MDPs through the FX Distribution Hub a licence fee for the use of the software that is part of the product. The fees are charged on either a five-year basis or on a monthly rental agreement, he says.

"Our customers have found that paying a fee for use of our product is more cost-effective than building the software to connect to the MDP, supporting that software and running it themselves," says Briant-Evans.

The DealHub usage fees charged to the banks for access to the distribution hub product vary depending on the number of end-points for each bank’s FX liquidity, as well as any spending on other DealHub systems, he says.