Electronic platforms: Single portals of discovery predicted for multiple assets


Lee Oliver
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There’s widespread agreement that there are too many portals providing FX prices but consolidation has been slow. Is the market going to stop waiting and roll out multi-asset platforms instead?

John Eley, Hotspot FXJohn Eley, Hotspot FX: confidence is key
A recently released Barclays Capital survey of 800 of the bank’s e-commerce clients suggests that the days of providing a one-product platform may be numbered. Among its other findings, the survey concluded that most e-trading users want to have multiple assets available on a single trading platform.

To an extent, more sophisticated players in the market can create virtual multi-asset platforms. Vince O’Sullivan, director, European e-commerce at Barclays Capital, says that the bank is already delivering multiple product lines to its clients through FIX APIs. However, as he points out, many clients do not have the IT resources to do this.

BarCap sees value in doing it for them, so it is now planning on adding other products to its Barx platform, which at the moment has FX, metals, money markets and liquidity funds from Barclays Global Investors. According to O’Sullivan, fixed income products will be available on Barx this summer, with other products loaded up as end user demand builds.

O’Sullivan points out that as well as meeting the desire for a multi-asset platform, having a wide range of products on a single platform also delivers cost savings to the bank. “Around 80% of the functionality is common [for different trading platforms],” he says. “We can allocate tech resources quickly to areas where we see the next big push coming from and we can look at what’s happening in other markets to anticipate how things will develop in different assets. It allows us to innovate further.”

According to John Eley, president of Hotspot FX, currency trading now plays two roles in what he describes as the multi-asset equation. It is increasingly seen as a source of outright return, as well as the unavoidable medium of exchange to fund international securities transactions and other cross-border activities.

“Most leading hedge funds, CTAs, and other alpha managers have integrated FX ECNs into their portfolio of execution venues to gain price improvement,” he says. Eley adds that Hotspot has also been integrated recently into 10 leading equities, futures, and algorithmic trading and order management systems.

“In this multi-asset environment, when alpha is being generated primarily in FX or in another asset class, traders want to execute related FX transactions in a venue where they are confident they can get their orders done quickly at highly competitive prices,” says Eley.

Kevin Bourne, global head of execution trading, global equities, at HSBC, also broadly agrees with Barclays’ findings but adds a slightly different interpretation. He says the present FX market mirrors the situation in the equity markets about 10 years ago. “Before FIX was accepted as a protocol that allowed end-users to connect to any system, the whole [equity] industry was proliferated with single-broker platforms,” he says. “FIX allowed the market to go multi-broker.”

He adds: “FIX is completely asset-class agnostic. The only thing slowing it [adoption] down is the systems that the banks are using. But clients are starting to handle their own orders and banks are in effect becoming almost technology providers. We’ve already got clients with just one FIX connection trading FX, futures, and equities.”

Bourne agrees that it is clear clients now want multi-asset class trading functionality, but not just on a single-bank portal. “Some banks have bought GUIs to try to get stickiness,” he says. But Bourne adds that the market has moved on and that multi-provider, multi-asset platforms are what is now in demand.

“The buy side will force the sell side to respond,” he says. “One or two banks have a vision for the future but most don’t. The industry needs an attack of common sense. We don’t want prices excluded and we want them available to anyone we have a relationship with and credit line for. We don’t mind how they do that (access the prices). We are comfortable enabling all our prices to be on a single portal, and lots of customers do use them and will continue to do so. But we will also look to distribute all our products through other means as well,” says Bourne.

If Bourne’s predictions prove true, the days of the single-product portal might well be numbered. But then again, provided they continue to deliver liquidity and in some cases pre-trade and post-trade services, they might well continue to survive and even thrive

What is clear is that many buy-side players do not want to be dictated to as to which platform they trade on by the silos that exist in their sell-side counterparties. It might seem far fetched but perhaps the ideal execution venue of the future is a place where multiple users place their bids and offers for all classes of products and where open positions can be cross-margined against each other. A bit like one of the big, regulated exchanges in fact.