LEADER


establish which are the most efficient routes to market for their trading activity and which aspects of their business it would be more effective to outsource.


Market intermediaries


Market intermediaries are under pressure to capture flow, and the best way to do this is to make their market place responsive to the needs of their particular user-types. Broking, clearing and settlement intermediaries need to demonstrate value-add by improving likelihood of fills (liquidity on venues) allied to facilitating tools, both at point of trade and for ancillary functions (reporting, credit, clearing and risk management, confirmation and settlement) in order to remain valuable to clients. Keeping everybody happy is a balancing act, sometimes involving the protection of the more vulnerable by the careful management of the most aggressive high frequency algorithmic traders; an example of this would be to set a minimum time for quotes to be offered. A further consideration for them is to ensure their venue is protected from unexpected and non-transparent liquidity management practices.


Te smart market-place operators will make it their business to maintain a constant dialogue, arbitrating and arbitraging between the needs of their different users. Te penalty for not doing so will be that liquidity will shift from one venue to another. Te existence of the present array of venues forces operators to respond to these needs while ensuring that liquidity is not so fragmented that venues do not have adequate flow and time to respond constructively to the needs of their customers.


Conclusion


Te most important aspects of a venue for any user are liquidity (and that the action is real – not spoofed) and the probability that they will be able to be filled when, and at the price they expect. Orderly markets require the presence of that liquidity, the ancillary services that facilitate market access and proper management of the marketplace. Tey also require that market users themselves adapt to the liquidity in those venues and the facilities offered by those venues to facilitate equitable access. Tere is a significant responsibility on operators and traders both in this respect. Provided they accept and act on those responsibilities, we see no reason to upset the current balance of fragmentation in FX. Users are best served by accessing their liquidity where most liquidity is; that is, in existing marketplaces properly managed.


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