FX MYTHBUSTERS
FX Mythbusters: Defending the value proposition of Single-Dealer Platforms
Patrick Myles, Chief Technology Officer at Caplin Systems answers some questions on the subject of Single Dealer Platforms.
We are uncertain about whether to go down the multi- dealer or SDP route. Does any recent research indicate whether global trends in FX (particularly with respect to Forwards and Swaps) are favouring one against the other as the buy-side continues to adopt e-trading channels?
It really depends who your clients are and where they trade. FX trading data from the Bank of England show that between April and October 2011 there was a marked decline in volume traded on MDPs by both the buy side and downstream banks. You also need to consider that trades on SDPs are typically more profitable than those on MDPs.
We are unclear about the overall benefits of channelling flow through a SDP rather than a MDP. Relationships and adding value for clients are certainly important but isn’t pricing equally vital for most FX providers like us?
Our customers have often found that trading on their SDP saved the commission costs of an MDP, so they were able to offer a better price to their clients and increase their own margins. Add that to the relationship benefits and the case for an SDP can quickly become compelling.
134 | april 2012 e-FOREX
As a bank operating a number of asset silo platforms we can see the benefits of achieving a unified and coherent point of contact with our customers by utilising a SDP but the legacy technology and internal political hurdles facing us will surely make this undertaking very difficult?
A well-designed SDP will normalise the data from a wide variety of sources and present it in a unified form to the front-end, returning trade data to the appropriate system, using a middle layer to keep the systems separate and the front-ends abstracted from the sources of data. One of our clients has connected their SDP to more than 80 internal systems, and a key enabler in doing this has been utilising a framework and set of common services that can interface to these systems without requiring possibly politically sensitive architectural integration of those systems.
Most firms have a head of e-Commerce for at least FICC who is above the silo-specific politics and who is empowered to implement systems that improve revenues and client relationships while reducing costs.
What options are available to us for creating a SDP and wouldn’t it be cheaper to build it from scratch rather than use an existing SDP framework?
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