Multi-Dealer Platforms Pose Quandary

Terry Flanagan

Sell-side institutions have promulgated a standard for on-boarding clients to trading venues for OTC products such as foreign exchange and fixed income, and for keeping track of individual customer preferences such as pricing streams.

The Trading Enablement Standard Initiative was recently extended to include FX transactions, enabling bank clients to use execution platforms for FX spot, forwards, swaps, FX options and non-deliverable forwards. Last year, TESI designed and implemented a FIX-based standard to manage the process of enabling clients on Fixed Income trading platforms.

“TESI is about improving productivity,” said Stephane Malrait, global head of e-commerce at Societe Generale. “In FX and fixed income we have a lot of electronic venues that our clients need to be connected to. We need to do a lot of manual administration in terms of connecting clients to a specific venue. We want to automate this workflow.”

A lot of banks have a similar problem of connecting to all these platforms. “We could each have our own trade enablement protocol, and try to convince every platform to connect to that,” said Malrait. “Or we could all agree on a unified protocol, and push these platforms to adopt this unified protocol.”

TESI helps reduce errors and improve the user experience by standardizing the enablement process to make it more efficient. By using TESI, FX market participants can change pricing streams, map accounts, authorize new instruments or suspend clients for trading and a message will be automatically distributed to all relevant parties using a standard protocol.

“TESI is a set of standards for how banks can utilize multi-dealer platforms in the OTC market for enabling their clients,” Sassan Danesh, co-chair FIX Trading Community OTC Products Committee and managing partner, told Markets Media. “Especially in the FX markets, the bank single-dealer platforms have a fair amount of the flow in the electronic FX transactions.”

Although the FX markets are probably more electronic than the other OTC markets, a sizable chunk of the FX market is still voice-based. The electronic FX market is divided between single-dealer platforms and multi-dealer platforms.

Historically, banks would on-board their clients on to a multi-dealer platform such as Currenex, FXall, or Hotspot by manually entering all the information about their clients on to the multi-dealer platforms or the platform itself would do that on behalf of the sell-side dealer.

The challenge with that is the potential for the client information to be incorrectly prepared.

“A classic example is if a client is trading non-deliverable forwards in currency where they are only allowed to go long and not short, that has to be captured as part of the client’s configuration and the client’s setup,” said Danesh. “The information might exist in the customer relationship management systems of the dealer. The challenge is how to get that information without any errors into the multi-dealer platforms’ client setup.”

Danesh continued, “I look at it as a positive sign. A lot of the trading side is pretty low touch now, or can be, because the systems are in place. What’s not low touch are the various administrative functions by which you manage the client configuration. The focus is now shifting on these areas as well.”

Within the OTC market, a client might get different streams of prices, depending on what type of client they are. These can be managed via TESI. “A money fund manager might have a different stream allocated to them compared to a hedge fund that is much more aggressive in terms of their trading behavior,” said Danesh. “There is a lot of configuration behind the scenes that are managed through this protocol.”

Related articles

  1. The first phase of CFTC's rewrite was originally due to be implemented in May 2022.

  2. The first amendments to the CFTC's swap data reporting rules come into effect on December 5.

  3. CEDX is planning to expand its range of products in 2023, subject to regulatory approvals.

  4. The paper proposes a path forward for standard SLD documentation.

  5. Exchange group’s crypto suite has had consistent volume and open interest growth.