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technology. “The new venues that enter the market tend based, FX trading technology developer TraderTools.
to use semantics closer to the likes of existing players “The bank choosing the solution has to have the
like FXAll and Currenex but it is the older venues that relationship with the sell-side banks so that they can
stick to their byzantine structure and require more get access to an API that they can use for the
work. If connectivity is becoming easier it is because of aggregation platform. This is a relationship-driven
the technology, not the venues. Unfortunately we are industry and not all companies have all of the
yet to see many FX venues really embrace the idea of appropriate connectors and banks are also becoming
standards. It would be helpful if customers demanded choosy about who they provide integration
standardisation but we haven’t really seen that pressure. capabilities to. There’s a lot of demand towards the
There’s too much incumbency. They prefer to just bring banks for the resources that are limited within the
in an extra layer of technology.” banks in terms of the connectivity capability. So as a
provider of aggregation, the more connectors you can
Lack of standards offer, the better the service.”
This lack of standardisation does have expensive Heidingsfeld goes on,“We endeavour to make sure
implications for the aggregators. “There’s a growing our customer (the liquidity taker) has the right sort
number of liquidity providers,” says Timothy James, of relationship with the liquidity providers. For
deployment manager at Aegisoft, a US-based supplier example, if the liquidity-taking bank does not have a
of aggregation platforms. “Physical connectivity is sophisticated enough API to prevent multiple
not the only concern; the cost of connecting directly executions from the same source of liquidity, we will
to each trading venue is another issue. There is also encourage them to turn off this price stream to the
the cost of establishing a relationship with the venue in question. You have to have the right
liquidity providers. As more traders get into technology infrastructure to provide the right service
aggregation services, the prices of the liquidity to liquidity-taking banks.”
destinations will have to come down in order to
compete and attract business.” Focus on core competencies
According to Heidingsfeld, the real question for any
prospective purchaser of aggregation services relates
to the core competencies of the various providers.
“On the pricing aggregation side there are the
vendors that can take raw pricing data and feed them
into a user interface for dealing. The real question is
can they make intelligent prices and whether the
prices can be pushed into an order management
system – not all of them can do that.”
“Then there are the various algorithmic trading
vendors. They tend to offer powerful tool kits but no
off-the-shelf solution to help solve some of these
issues. Some will have more adaptors than others but
you will have to spend money creating your solution
because they are technology vendors not finished
products so if you do not have the internal IT
resources, this is not the right approach.”
Timothy James
The next generation of aggregation products are“As more people get into aggregation services, the prices of
the software providers and the liquidity destinations will likely to rely increasingly on algorithmic and CEP
come down in order to compete.” technology in order to create automatic execution
and auto hedging based on the aggregated prices
coming from traders’ order books, says Heidingsfeld.
So is solving the connectivity issues simply a question “Previously algorithms were used for high frequency
of cost? “I think it is more about relationships,” says trading but in the last 18 months, firms have realised
Yaacov Heidingsfeld, chief operating officer at US- that CEP technology can be used to analyse huge
|100 october 2009 e -FOREX
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