FEATURE


>>> Traditional versus equity import model


Tese two broad trends reflect the fact that there are two models in the FX world. Te traditional model that is relationship-oriented and interbank-based and the equities import model. “Five years ago the thought was that the equities import model was going to take over the FX world but the price of credit has affected this. So the traditional model has been reinvigorated by structural change and this has led to a higher demand for aggregation services focused on interbank liquidity.”


“As a CEP provider we can provide platforms for both styles. Te quants provide the aggregation rules, and we provide the CEP platform with a wide range of connectivity options. Customers incorporate their quantitative rules into their systems to gain competitive edge. We give them full flexibility to construct their aggregation anyway they want to. We also make it flexible enough to allow firms to change their style - from ECN to interbank – without having to change the platform. People are


looking for a system that is flexible rather than a system they will have to throw away after a few years and build another one.”


“We are also truly at the next generation stage where we are starting to see people replace their first generation systems which were either internally built or bought from a third party provider but are no longer meeting their needs. Now, by using a platform based on continuous development, maybe that replacement cycle can be broken. Tere will always be situations such as M&As that necessitate system replacements but platforms based on continuous


36 | october 2011 e-FOREX


development should allow firms to stay ahead of the technology or at least keep up with their competitors.”


Such is the prominence of FX aggregation services, without which Tibbetts cannot imagine anyone electronically trading FX. “Tose firms that are not aware of aggregation will probably see the quality of their execution erode. On the dealing side, they are more aware of customer behavior and can tune their prices to the trends that they see. So it is a bit of an arms race, even on the relationship-based side of the business, and will be increasingly so.”


Integration and re- engineering issues


For Harry Gozlan, chief executive and founder of smartTrade, many of the first generation aggregation services require re-engineering to address both functioning and non-functioning concerns. “In terms of non-functioning concerns, the challenge has been to address how the aggregation platform is integrated into the firms’ other systems, namely its overall FX liquidity management system.”


Te big change here has


been the increasing use of hosting services for not just aggregation platforms but a whole host of services contained within an FX liquidity management system. “Because it has to integrate with so many other systems, it is important that it is open and flexible.”


Low latency and increased throughput have also become more important, especially with the popularity of the hosted service model where both pre and post- trade data has to be sent to systems managed outside of the clients’ own infrastructure. “Te data has to be cleaned and sent to the client as efficiently as possible. Not all aggregation systems are capable of this.”


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