James Sinclair, CEO of MarketFactory, speaks on the topic of Platform Diversity at the Profit & Loss and Trading Cross Connects event on February 10th, 2011 in NYC.
4. Throughput Not As Acute Source: International Securities Exchange Penny Pilot Analysis 9, Dec 2010
5. Symbology Not As Broad Source: BIS 2010 Triennial FX survey; Google Finance equities volumes Sep 2010
6. Less Regulation Nasdaq OMX PSX RegNMS: NYSE Amex ISE NSX NYSE Nasdaq BATS CHX Nasdaq OMX BX EDGX CBSX NYSE ARCA Plus dark pools (<15%)* FX ECNs are not constrained and have incentive to differentiate themselves. * Source: Rosenblatt Securities analysis
7. Little Rebate Trading Unlike US equities, very little rebate trading Perhaps because tick size is large relative to cost of execution (even after EBS upcoming changes)
8. In Addition…. LOW PROFILE For the world’s largest market - we attract little press as the market has self-regulated well One exception
10. Global and Fungible London $725bn per day Asia $375bn per day New York $400bn per day Chicago $100bn per day Source: MarketFactory analysis based on BIS Triennial FX Survey
11. Fungible also in Instrument Construction Unlike securities markets, but like other cash markets, synthetic instruments are identical to their traded counterpartse.g. cross currencies: EUR/JPY EUR/USD USD/JPY EUR/JPY
12. Other Key Notes Credit instrument Natural interest arises from non-FX activities. Ultimately, sustained exchange rate moves are because of: Cross-border capital market activity, FDI, trade Substantially a principal market (and likely to stay that way as the banks facilitate the natural interest) Doesn’t fall in value (you’re just on the wrong side) High growth in retail sector
14. They’re All Different Different : Location(s) Price distribution frequencies Depth of book and indicators of depth Info about the quotes that make up a price level Tick size Info about deals and amounts done in the market Some have Last Look Upgrades are frequent Different platforms for different currencies, purposes Understanding of each platform required Opportunity
16. Interdealer FX Market in 2003 CME EBS Reu DB Citi Prop Shop Prop Shop Prop Shop Prop Shop BoA JPM Prop Shop HS UBS Dres-dner FXall CX Real Money, Corporates Structure akin to US treasuries: Interdealer: Brokertec, eSpeed; Customer: Bloomberg, Tradeweb Still similar + GovEX.
17. Interdealer FX Market in 2011 Prop Shop Prop Shop Prop Shop Not shown: Futures brokers Retail Prop Shop EBS CME DB Reu Citi Barx Prop Shop HS Integral BoA CX FXall JPM UBS FXall Com-merz CX Execution through ECNs, banks and some funds Real Money, Corporates
18. But Note… They are additive. New platforms in FX are not identical. They attract new participants & new strategies are launched. Market share no longer as relevant. Liquidity rarely moves away from an ECN in absolute terms (exceptions: small markets, TIPS, TBAs)
20. Complexities in Equities and FX are Inverted High technology needs vs. high market structure knowledge needs Equities 2 million msgsper second Thousands Real-time broadcast Tick by tick – every tick! Thousands / second Centralized markets Heavy – e.g. Reg NMS Standardized NBBO Established; low difficulty Full depth of book None b/c of CCP Order routing from point of order submission Attribute Throughput Symbols MD Frequency Order Submission Fragmentation Regulation Market Structure Price Discovery TCA Transparency Price Filtering Order Routing OTC FX 2 million msgper day 20 pairs; 66% of FX in 6 pairs Real-time custom snapshots Max 100 orders per second Globally fragmented venues Light – isolated venues All non-standard; all bespoke Venue specific Difficult – lack volume info 1-3 levels of depth common Heavy b/c of bilateral credit Complex decision process Complex Easier Easier Complex
