Choice, Consolidation, Customisation. Picking the winners in the FX Aggregation race

One might think that an aggregation service is a numbers-based business. The more providers that are on the platform the better, and the cheaper the costs, the better. However it is increasingly being viewed as primarily a relationship-based service by the many providers in the market. Against that backdrop Nicholas Pratt sets out to discover what exactly defines a good relationship, how it manifests itself through the technology employed in a liquidity management service and whether it is really possible to find a middle path that satisfies both liquidity providers (LPs) and liquidity takers.

While many observers may view liquidity aggregation as a commoditised area, others still see a huge issue in fragmentation, especially within the top tier of liquidity. “Fragmentation includes more than just the sheer number of physically different execution venues but different market structures, protocols, liquidity types and other nuances”, says Rosario Ingargiola, president and chief executive of FXone-Seabury Financial Solutions. Even things like simply handling the active market hour differences across venues can be challenging for certain parts of a system, says Ingargiola. General increases in market data updates are also a significant challenge.  “Most LPs still support only FIX based APIs and only a few have a binary protocol API available.  We have recently worked with an LP with 100 market depth levels.   If your FIX market data message processing capabilities are not deliberately and highly optimized, you can’t support a venue like this.  Update...continued

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