The increase of automation and the growth of high frequency trading inevitably brings with it bottlenecks. The main bottlenecks are occurring at either side of the actual trade - both pre-trade and post-trade. With the increased use of algorithmic trading, banks and liquidity providers cannot get their prices out there fast enough and with ticket volumes spiralling out of control, the back office is struggling to keep up and confirm trades at the rate they are being traded. While netting will enable banks to improve the back office bottleneck, it is the fragmentation of eFX trading venues that will continue to challenge the eFX market.

Fragmented FX market

Unlike equities where banks can co-locate their servers in facilities at the stock exchanges, such a solution to network latency is not available in the fragmented FX market. Matt Meinel, global director of business development, at high performance messaging software provider 29West, says: "In the foreign exchange market banks have to put their servers in the main financial centres where the main network providers have facilities to do this or build data centres and hubs close to the public internet backbones. The closer you are to the highest speed channel, the better."