When Citi took the bold step of cutting 90% of its ties to a number of spot FX providers in 2020, many expected it would lead to an industry-wide cull of platforms by banks.
In the past, merchants have been willing to connect to any platform where there is some customer demand, but this is largely done out of reluctance. The rise in brokerage fees charged by these trading venues, as well as the costs of connecting to the myriad services, has led to fierce resistance from some banks as they try to persuade buy-side customers to trade on fewer platforms – or on their own instead Single dealer platforms.
Additionally, many believed that there would eventually be a consolidation of platforms after years of fragmented liquidity caused by so many spot trading venues.
But instead of seeing FX Providers are closing their doors, more and more interbank platforms, dark pool matching platforms, liquidity aggregators and buy-side execution management systems are emerging at a rapid pace.
Since Citi’s decision TP Icap has launched an electronic spot FX suitable trading venue to compete with the primary trading venues, while Reactive Markets has built its list of liquidity providers as a competitor FX Spotstream. Last year also saw the go-live of the Singapore Exchange’s new electronic communications network (ECN) CurrencyNode for spot and non-deliverable futures trading in Asia Pacific, while Refinitiv will launch its own interbank sales venue/secondary ECN following its re-platforming in 2024.
The youngest participant comes from an Abu Dhabi-based provider T3 Technologies, which went live with a central limit order book that also enables peer-to-peer trading.
Some estimate that the number of FX The trading venues available to companies could now number over 75, with the potential for even more if fintech companies specialize in them API-based trading and artificial intelligence want to expand their solutions FX.
This means customers have more choice than ever when it comes to the liquidity pools they access. The challenge lies with the retailers. The problem is that the slow fragmentation of liquidity pools will only accelerate, and with so many new providers emerging, trying to absorb them could prove overwhelming for some traders.
In a speech by the Bank of England’s Andrew Hauser in 2019, he put the costs of maintaining this network of platforms into context. Reference to a blog post XTX According to Hauser, Markets’ computing power – which at the time reportedly had access to 42 petabytes of data storage – cost around $10 million per year on Amazon Web Services at the base rate.
A demanding company like XTXthat has the resources to connect to a range of different liquidity pools and determine the best trading route in real time can easily absorb such costs, but others would only have a fraction of the resources to do so.
This could lead to retailers cherry-picking venues even more as they only connect to the platforms they deem necessary for their end customers. There may also be a greater reliance on transaction cost analysis providers, which can show liquidity providers and buy-side customers which platforms are most effective to trade on.
Although the new platforms see high trading volumes even during periods of volatility, their challenge is to maintain this activity when markets are calmer.
But technology is certainly facilitating the adoption of platforms and the dominance of electronic spot trading FX could see a new type of venues in other instruments such as: FX Options.
So could there be 100 active platforms in five years? Quite possible. Will they all be a success? I doubt it.
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