| A Liquidity Aggregator acts as a centralized trading | | | | aggregated trading platforms can either outsource |
| portal by accepting and normalizing several data feeds, | | | | developing task or opt for white-labeling solutions. The |
| feeding that data into algorithmic engines and receiving | | | | choice generally depends on the proportion of their |
| orders and routing them into the market. By presenting | | | | high frequency and low frequency customers. |
| available liquidity in a single and consolidated order | | | | However, the biggest challenge they face is that the |
| book, Aggregator act as a 'Virtual Forex Exchange' | | | | existing electronic infrastructure and aggregation |
| for buy-side traders. Traders can get a complete | | | | system available provide limited flexibility and |
| picture of available liquidity in a single trading | | | | customization. |
| environment, which enables them to have maximum | | | | Control in Dealings |
| control over their order flow by easily sorting, analyzing | | | | Some trading firms and market making banks prefer |
| and making profitable decisions. Aggregation solutions | | | | developing their own trading platforms based on their |
| are developed using Complex Event Processing | | | | business strategies and risk appetite. In-house |
| technology, which are real-time in nature. Leading | | | | developed platforms provide them better control over |
| banks have now recognized opportunities in providing | | | | their dealings. However, it is important to analyze the |
| market aggregation services to their customers, | | | | cost and return benefits of building an in-house |
| creating sophisticated order types and implementing | | | | platform. To keep up with the arms race, third party |
| smart-order routing technology. | | | | providers have started investing and building faster |
| Trading institutions and market making banks can build | | | | technologies and products that enable banks to |
| their own trading platform that provides an aggregated | | | | provide different executable pricing streams to |
| view of the market. On getting an aggregated view of | | | | different customers based on their needs and trading |
| the market, algorithms can be created to apply orders | | | | motives. |
| based on their trading strategies. Trading firms can | | | | Speed and Capacity |
| also purchase a third party aggregating and trading | | | | Speed of execution becomes a critical factor due to |
| platform with prebuilt screens, algorithms and | | | | the ever increasing use of algorithmic trading. |
| connectivity (referred to as 'Black-box solutions'). | | | | Increasing ticket volumes challenges banks and liquidity |
| Alternatively, they can also apply systems which also | | | | providers to get their prices out in the market fast |
| come with pre-built features but can be configured to | | | | enough and confirm trades at the rate at which they |
| meet the trading firm's specific trading needs, | | | | are being traded. While several banks continue |
| commonly known as 'White-box solutions'. White box | | | | spending heavily on their websites to keep it updated, |
| solutions are particularly applied by top-tier hedge funds | | | | internet lack capacity, cannot be scaled easily and can |
| and large dealers. | | | | have security issues. Introduction of Black box trading |
| Competitive Advantage | | | | has resulted in an increase in small ticket trading thus |
| The biggest challenge faced by all market participants | | | | increasing trading frequency. As the number of tickets |
| (including sell-side and buy-side traders and market | | | | traded increases, it creates a real capacity constraint |
| makers) in Forex market place today is managing | | | | and cost pressures for banks and brokers. Not having |
| complexity driven by drastically growing trading | | | | enough capacity can further create latency issues. |
| volumes and growing dispersion in liquidity sources. | | | | Developing solutions that takes care of both pre-trade |
| Significant investment is essential for updating old | | | | and post-trade execution issues may not be |
| technologies or risk losing money on trades. A well | | | | cost-effective for banks and trading institutions. |
| developed and maintained liquidity discovery and | | | | Flexible and Customizable |
| aggregation solution can provide a trading firm | | | | Innovations in technologies enable system providers to |
| competitive advantage, especially for market making | | | | unbundle and re-package their core services to |
| banks which have traditionally relied on EBS and | | | | provide optimal set of network and trading services to |
| Reuters for accessing liquidity. Banks are increasingly | | | | their customers. Given the dynamic nature of trading |
| using aggregation tools not only to track the available | | | | relationships and increasing number of available liquidity |
| liquidity in the market but also in their own orders | | | | venues, flexibility is now considered to be the most |
| books. For example, HSBC has internally built its own | | | | important feature in a trading system by all market |
| liquidity discovery solution by applying aggregation and | | | | participants including liquidity providers, market making |
| algorithms. Large hedge funds and banks view | | | | banks, buy-side and sell-side firms. White-label solution |
| algorithms as a competitive advantage and do not rely | | | | providers are now providing new and improved |
| on third-party vendors for algorithm development. | | | | aggregation platforms that allow banks to not only |
| Costly and Time-Consuming | | | | provide prices in chosen currencies but also get liquidity |
| According to TABB Group, by the end of this year, | | | | from a partner banks when required. Market |
| 68% of all forex trades will be executed online. | | | | participants prefer solutions that are intuitive and |
| Historically, only the largest corporate customers dealt | | | | stream best prices to their screens in customized |
| electronically, however infrequently trading customers | | | | ways besides allowing them to trade in large order |
| are also looking for trading electronically with their | | | | sizes. New aggregators are also expected to have |
| banks. To satisfy this growing clientele, banks are | | | | the ability to enable traders to trade unique order |
| therefore focusing on building robust and scalable | | | | types, including sweeps, triggers, and time varying |
| trading platform. They use Complex event processing | | | | orders. |
| technology to build a series of rules that enable them | | | | Integral's FX Grid is one such trading platform which |
| to locate the best available price. They can also build | | | | allow market participants to connect to its FX Grid |
| algorithms to reflect their trading habits and | | | | through a single Integral API from which they can |
| preferences instead of applying a standardized third | | | | negotiate, execute and settle trades with |
| party trading platform. However, developing such a | | | | counterparties. Besides providing system integration |
| platform in-house is costly and time-consuming which | | | | and eliminating the need to manage multiple systems |
| can be afforded by only a handful of tier one banks | | | | and services, FX Grid also insulates its participants |
| that have enough resources. By outsourcing | | | | from changes in technology made by other |
| technology to best suppliers, banks can reduce their | | | | participants in the network, such as modifications to |
| time to market and IT costs. | | | | their systems' APIs. It is an end-to-end automated |
| Current market conditions have further aggravated the | | | | system which allows for provisioning of liquidity, thus |
| problem of lack of resources. Both tier 2 and tier 1 | | | | enabling banks to provide flexible and customized |
| banks are therefore entering into partnerships with | | | | liquidity solutions to customers. |
| vendors and other banks for developing white-labeled | | | | Implementation of Aggregation Platform |
| solutions to capture forex business. Some banks | | | | Market making banks today have access to a wide |
| prefer third party providers which provide the same | | | | range of white-label solutions available in the market; |
| tools but without the burden of in-house development | | | | however implementation of these services is equally |
| cost and cost of maintaining and updating algorithms. | | | | important. While some of the older solutions available |
| Ready to use aggregated platforms act as a telecom | | | | are considered to be very good at scanning the |
| grid wherein market participants can easily dial anyone | | | | market, they lack in adaptability and dynamic decision |
| and engage in a conversation without investing in | | | | making ability. Building a technology is only half the |
| infrastructure. Moreover, vendors are increasingly | | | | battle won, the other half lies in proper implementation |
| adopting FIX standards for trading and FIX FAST for | | | | and integration of this technology into strategic decision |
| providing market data, thus improving connectivity to | | | | making. |
| execution venues and overall performance. | | | | Cost of Maintaining and Updating |
| Changing Motives to Trade | | | | Changing dynamics and increasing velocity of forex |
| Foreign exchange is now treated as an asset and the | | | | market demand constant monitoring of aggregating |
| trading volume has increased drastically over the last | | | | solutions and keeping them updated and in tune with |
| few years. New market participants have different | | | | the market developments. Liquidity venues and the |
| approaches and trading motives and demand different | | | | way liquidity is posted are constantly changing. The |
| trading venues and trading styles. Traders may be | | | | importance of successfully choosing, upgrading and |
| active or passive, patient or impatient and may be | | | | maintaining a system cannot be overlooked. Banks |
| informed or uninformed. Besides they may also have | | | | have realized that it does not make any business |
| different risk-return expectations, investment time | | | | sense for them to build aggregation solutions |
| horizons and may react differently to market | | | | themselves and spend heavily in maintaining them. |
| conditions. To satisfy varying needs of their customers | | | | They rather focus on creating value-added services |
| and distribution channels, banks are now in the race to | | | | and use the best available technology to launch these |
| aggregate the fragmented forex market and provide | | | | services quickly into the market. Purchasing white-label |
| their customers a single view of the market. Market | | | | solutions is therefore a more efficient way to offer |
| making banks that lack resource to develop their own | | | | new services to their customers. |