FX Trading Landscape Rapidly Evolves

Terry Flanagan

DealHub has announced that its price distribution service, FX Distribution Hub, has been selected by Commerzbank as the cornerstone of a new price distribution infrastructure, designed to enhance pricing and flexibility for clients in a fast evolving FX trading landscape.

The first venue to go live on the service will be FX Connect, followed by multiple venues in the months ahead.
FX Distribution Hub allows banks to price into any FX market destination from a single interface to their core pricing platform. The service will provide Commerzbank with latency optimized connectivity to their chosen venues through co-located hosting facilities.

“We want to continually improve our connectivity, expanding the range of ECNs customers can use to access our liquidity,” said Nick Downes, global head of eFX sales at Commerzbank corporates & markets. “DealHub’s FX Distribution Hub gives us all the benefits of co-location and optimized latency, with the ability to add new venues very rapidly. This flexibility means we can react quickly to a fast changing ECN landscape, while keeping our internal resources focused on ensuring our customers receive our best prices, wherever they want to trade.”

FX Distribution Hub was formally launched in November 2012, following live testing with a number of banks during the preceding six months. The service is hosted in Equinix’s LD4 (London) and NY4 (New York) data centers, co-located with many of the FX industry’s leading participants and execution venues, ensuring the lowest possible latency on all pricing. Plans are in place to launch an Asian hub in the coming months. Banks wishing to retain all infrastructure in-house can install a locally deployed and managed version of the Hub.

Beyond retail FX, global FX trading volume has seen tremendous growth over the last decade; at the end of 2012, average daily trade volume in the FX market reached an estimated US$4.68 trillion, according to Aite Group.

Electronic trading has become the main mode of trading in FX and now accounts for more than 60% of all trading done in the global FX market. Aite Group expects to see electronic trading adoption to continue in the FX market, reaching 70% by the end of 2013.

Given the different types of market participants in the FX market, many FX venues have begun creating specific pools of liquidity with specific rules related to participation and often restricting access by particular market participants to ensure perceived fairness in FX trading.

“Growing technical sophistication of dealing banks and their willingness to back new FX venues has reignited competition in a market that has not seen significant innovation in many years. While success is not guaranteed for the new market entrants, their emergence may signal the next phase in electronic FX competition, characterized by increased transparency throughout the trade life cycle, low latency trading, and client-specific liquidity pools,” said Javier Paz, senior analyst in wealth management at Aite Group.

The face of institutional FX trading is changing, following the entry of several electronic FX venues and the fact that mobile trading will leapfrog desktop and Web-based trading through 2017 to become the dominant retail FX and contract-for-difference (CFD) volume channel, according to Aite Group.

Customers can choose to trade electronically via RFQ/RFS in single or multi-bank platforms, ECNs with streaming quotes and central limit order books, or exchange style trading, introduced by LMAX Exchange, for spot FX, that supports pre-trade and post-trade transparency, no last-look and anonymity.

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