Flexible delivery of FX market data & technical analysis
Paddy Osborn analyses the pros and cons of service distribution and
examines developments that will shape the future delivery of FX
market data and technical analysis.
Banks, funds, corporations and private
investors receive FX Market Data and Technical Analysis services
via a variety of technologies. Paddy Osborn analyses the pros and
cons of service distribution and examines developments that will
shape the future delivery of market data and technical
With the technology at their disposal, banks should not lose sight
of their ultimate goal; enhancing shareholder value. The FX revenue
stream may be split into two broad categories; proprietary
(risk-taking) trading, which involves significant p&l swings,
or servicing a Client Franchise, which is relatively risk free and
provides stable if not always greater - revenues. Most banks
combine these two areas, with the Var element changeable and
usually dependent on the quality of earnings from franchise.
There are three ways in which banks try to differentiate themselves
to attract and retain customer business:
Given the power of modern dealing technology, vanilla FX pricing
has become commoditised and banks struggle to differentiate
themselves on price alone.
The continual movement of FX sales staff between competitor banks
is testament to the value that these institutions place on client
relationships. Strong dealer/client relationships can be
transferred quite quickly between banks, which effectively
facilitates direct client acquisition by competitors.
3. Added Value Services
Provision of added value services remains the key to securing and
retaining new FX business. Since the trading styles - and hence
requirements - of Hedge Funds, Real Money Managers, CTA's,
Corporates and Central Banks are so diverse, the challenge for
banks is to remain relevant to clients in each sector without
losing control of their own expenses.
Fixed comms lines versus Internet
Historically, professional traders have relied on desktop
applications for market data information and analytics, with
real-time data feeds delivered via dedicated comms lines. Most
banks re-distribute these real time feeds internally via LAN or WAN
from their major centres to other branches, avoiding duplication of
hardware and saving costs on external data delivery.
Major data providers e.g. Bloomberg - have built dedicated global
networks to deliver their products and data direct to customers.
Radianz and Savvis Virtual Private Networks (VPNs) resulted from
the demand for high speed, efficient and secure data connections
between banks, brokers, exchanges and buy-side institutions.
The emergence of the Internet as a viable alternative to fixed
comms lines has initiated a revolution in the market data space.
Niche vendors began delivering data via Internet as
...browser based products are now getting
closer to offering comparable levels of functionality to desktop
early as the mid 1990s, reducing their data transmission costs
while increasing their potential audience by removing geographical
boundaries. The major market data providers were slower to adopt
Internet delivery due to their reliance on and investment in
Desktop Applications versus
Today, most dealing rooms are equipped with desktop applications,
installed on each users PC. While desktop solutions offer robust,
sophisticated and established functionality, there are some
negative issues around portability, software packaging (for both
new installations and software upgrades) and the high level of
in-house support required.
However, browser based products are now getting closer to offering
comparable levels of functionality to desktop products. Internet
delivered, browser based GUIs require no software packaging, no
local installation, and negligible local support. Upgrades can be
loaded quickly and most applications allow user access from any PC
with an Internet connection.
The assumption that the cost of web based delivery is less than the
cost of equivalent desktop services is also being re-evaluated,
since users recognise the significant data, infrastructure and
support costs which still apply.
Following the development of web based FX liquidity provision by
companies such as IFX, FXCM and larger corporate players such as
FXall and Currenex, banks have introduced their own on-line FX
trading platforms to complete the current day landscape. Banks are
still increasing their e-ratios, with a significant majority of FX
trades being executed electronically at many institutions.
Banks Becoming Vendors
Amid the battle to provide added value services, banks continue to
focus on their own technology and data. Some banks are themselves
becoming providers of market data and analytics services to the buy
side, moving into areas traditionally dominated by vendors such as
Reuters and Bloomberg. However, banks are not only entering this
space to enhance information provision to their customers, but
increasingly to service their internal dealers as well.
Top tier banks already have on-line FX trading platforms and most
provide liquidity to one or more multi-bank FX portals; the race is
now on to attract more customers by offering more sophisticated
functionality and information. This includes news, advanced
charting, technical and fundamental research, options pricing and
more, all packaged within a flexible, easy-to-use platform. They
want to keep their customers from going elsewhere by providing
every service that their clients require.
Now, banks may build in-house systems themselves or buy technology
from external technology providers. While banks control the
development of their core platforms, they tend to buy in specialist
applications such as charting, options pricing, etc. There are a
number of reasons for this:
cost of in-house development,
availability of internal IT resources and specialised development
cost of on-going support and maintenance, and
the need for speedy time to market.
Most banks therefore choose to integrate specialist third party
applications within their core in-house trading platforms.
From a market data vendors perspective, it is clear that this
aggressive move from the banks may challenge their dominant share
of the desktop market. However, market data providers are evolving
to offer customers more flexible solutions and are working more
closely with banks to help them deliver the information that their
Another sign of how technology is driving markets is the news that
major global banks are launching margin FX trading services to
cater for the retail market. This sector has always been beneath
the radar of global players, but tighter margins and fierce
competition for traditional custom from Funds, CTA's, Corporates
and Central Banks is driving the banks down the value chain in
search for more profitable business.
The reason that they can to do this now is technology.
Sophisticated, scaleable solutions are now available and
affordable, so customers that previously didnt justify the cost of
servicing are now profitable areas for the banks.
Looking ahead, I expect to see further dramatic progress in this
space. On your PC, most applications will be browser based.
Algorithmic trading will be widespread, squeezing arbitrage
opportunities and further tightening FX spreads. Volumes in
emerging markets will increase as banks and investors seek out
better returns. Two-way streaming, tradable FX options pricing will
be available on-line for all tenors, with auto quoting on trades of
$100 million and more. FX Sales Dealer
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