Multi-Dealer FX Platforms “Increasingly Popular” Amongst Buy Side: Survey
Posted by Colin Lambert. Last updated: November 20, 2024
The latest survey from Coalition Greenwich finds that multi-dealer FX platforms (MDPs) are facing a bright future with buy side respondents to a survey indicating they expect to increase their use of this execution channel.
The survey, based upon interviews conducted by Greenwich Coalition, says that 34% of respondents expect to increase their usage of MDPs in the coming year, citing ease of use and workflow integration as their key benefits. “MDPs offer a range of benefits, including ease of use, workflow integration and best execution,” says Stephen Bruel, senior analyst on the market structure and technology team at Coalition Greenwich. “They are an attractive option for buy-side traders who want to optimise their trading and achieve best execution.”
The study also found that single-dealer platforms will “continue to play a role” in the FX trading ecosystem, particularly for complex trades and structures, however, MDPs are likely to remain the preferred choice for routine trades and spot execution.
The study also found that over 40% of respondents cited uncompetitive pricing as the primary reason to reduce their trade flow to a dealer, while more than 20% highlighted the importance of quality of sales and relationship management.
“The buy side is becoming increasingly sophisticated in their approach to FX trading, and dealers must adapt to meet their evolving needs,” says Bruel. “Pricing and quality of coverage are now the key drivers of a dealer’s success, and those who fail to deliver on these fronts risk losing business to their competitors.”
The Full FX View
Aside from credit, no-one should be surprised that pricing and coverage are the key determinants for the buy side when choosing a dealer – this has been the case for most of the last 40 years. Initially, sales coverage was important, but since the scandals that broke in the middle of the last decade, more buy side firms have focused on execution quality.
Coverage is becoming a slightly bigger issue in the industry, as I referred to in the latest Last Look column, so it would be as well for the banks in particular to ensure they provide this crucial service appropriately and, importantly, on occasion imaginatively. The early feedback to the column has been that too many sales people rely upon data, when what the customer is really after are unique, or at least slightly diverging, insights that can be backed up by the data.
The findings in the Greenwich Coalition survey on platforms are interesting, and as always, there is some ambiguity as to what constitutes a multi-dealer platform, but if we take that as being non CLOB/ECN, the predicted shift to the MDPs will make waves.
In April of this year, more spot volume was executed over SDPs than MDPs in the UK (both were eclipsed by CLOBs/ECNs) and the overall volume balance was pretty equal – about $15 billion per day more is executed across FX products, on MDPs.
If the buy side does find itself pushing more to MDPs, it may find itself in conflict with some of its LPs, who have crunched the numbers and found that dealing with certain firms on these venues just isn’t economically viable – across the whole relationship. There are increasing noises from the sell side about the cost of using MDPs, exacerbated by the news, revealed by The Full FX in August and September, that Bloomberg is to charge brokerage on FXGO, which makes one wonder if any will actually take the plunge and at least dilute their relationship with certain clients?
I have argued before that most LPs will bluster and make a noise about it, but few, if any, will actually do anything, but if this survey is correct and MDPs are set to push ahead of SDPs, perhaps even catch them up in spot, then maybe some banks will be painted into a corner?
